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VOL. 808, NOVEMBER 9, 2016 157

Commissioner of Internal Revenue vs. De La Salle
University, Inc.

sively for educational purposes, it shall be exempted from

  income tax, VAT, and LBT. On the other hand, when it also shows
  that it uses its assets in the form of real property for educational
  purposes, it shall be exempted from RPT.
 
Same; Same; Income and revenues of non-stock, nonprofit
 
educational institution not used actually, directly and exclusively
 
for educational purposes are not exempt from duties and taxes.—
 
Parenthetically, income and revenues of non-stock, nonprofit
educational institution not used actually, directly and exclusively
G.R. No. 196596. November 9, 2016.* for educational purposes are not exempt from duties and taxes. To
  avail of the exemption, the taxpayer must factually prove that it
COMMISSIONER OF INTERNAL REVENUE, petitioner, used actually, directly and exclusively for educational purposes
vs. DE LA SALLE UNIVERSITY, INC., respondent. the revenues or income sought to be exempted.
Same; Same; While a non-stock, nonprofit educational
institution is classified as a tax-exempt entity under Section 30
G.R. No. 198841. November 9, 2016.* (Exemptions from Tax on Corporations) of the National Internal
  Revenue Code (NIRC), a proprietary educational institution is
DE LA SALLE UNIVERSITY INC., petitioner, vs. covered by Section 27 (Rates of Income Tax on Domestic
COMMISSIONER OF INTERNAL REVENUE, respondent. Corporations).—While a non-stock, nonprofit educational
institution is classified as a tax-exempt entity under Section 30
(Exemptions from Tax on Corporations) of the Tax Code, a
G.R. No. 198941. November 9, 2016.*
proprietary educational institution is covered by Section 27
 
(Rates of Income Tax on Domestic Corporations).
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. DE LA SALLE UNIVERSITY, INC., respondent. Same; A proprietary educational institution is entitled only to
the reduced rate of ten percent (10%) corporate income tax. The
Taxation; Tax Exemptions; When a non-stock, nonprofit reduced rate is applicable only if: (1) the proprietary educational
educational institution proves that it uses its revenues actually, institution is nonprofit and (2) its gross income from unrelated
directly, and exclusively for educational purposes, it shall be trade, business or activity does not exceed fifty percent (50%) of its
exempted from income tax, value-added tax (VAT), and local total gross income.—By the Tax Code’s clear terms, a proprietary
business tax. On the other hand, when it also shows that it uses its educational institution is entitled only to the reduced rate of 10%
assets in the form of real property for educational purposes, it shall corporate income tax. The reduced rate is applicable only if: (1)
be exempted from real property tax.—Thus, when a non-stock, the proprietary educational institution is nonprofit and (2) its
nonprofit educational institution proves that it uses its revenues gross income from unrelated trade, business or activity does not
actually, directly, and exclu- exceed 50% of its total gross income.
Same; The last paragraph of Section 30 of the National
_______________ Internal Revenue Code (NIRC) is declared without force and effect
for being contrary to the Constitution insofar as it subjects to tax
*  SECOND DIVISION. the income and revenues of non-stock, nonprofit educational
institutions
 
   
157  

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158 SUPREME COURT REPORTS ANNOTATED 159
Commissioner of Internal Revenue vs. De La Salle
University, Inc. VOL. 808, NOVEMBER 9, 2016 159
Commissioner of Internal Revenue vs. De La Salle
used actually, directly and exclusively for educational University, Inc.
purpose.—Thus, we declare the last paragraph of Section 30 of
the Tax Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues Taxation; Equality and uniformity of taxation means that all
of non-stock, nonprofit educational institutions used actually, taxable articles or kinds of property of the same class shall be
directly and exclusively for educational purpose. We make this taxed at the same rate.—Equality and uniformity of taxation
declaration in the exercise of and consistent with our duty to means that all taxable articles or kinds of property of the same
uphold the primacy of the Constitution. class shall be taxed at the same rate. A tax is uniform when it
operates with the same force and effect in every place where the
Same; The requirement to specify the taxable period covered by subject of it is found.
the Letter of Authority (LOA) is simply to inform the taxpayer of
the extent of the audit and the scope of the revenue officer’s  
authority.—Read in this light, the requirement to specify the LEONEN, J., Dissenting Opinion:
taxable period covered by the LOA is simply to inform the  
taxpayer of the extent of the audit and the scope of the revenue
officer’s authority. Without this rule, a revenue officer can unduly Taxation; View that to uphold the validity of a letter of
burden the taxpayer by demanding random accounting records authority covering a base year plus unverified prior years, would
from random unverified years, which may include documents from in essence encourage the unscrupulous practice of issuing letters of
as far back as ten years in cases of fraud audit. authority even without prior compliance with the procedure that
Civil Procedure; If a party desires the court to reject the the Commissioner of Internal Revenue (CIR) prescribed.—If we
evidence offered, it must so state in the form of a timely objection were to uphold the validity of a letter of authority covering a base
and it cannot raise the objection to the evidence for the first time year plus unverified prior years, we would in essence encourage
on appeal.—The Court has held that if a party desires the court to the unscrupulous practice of issuing letters of authority even
reject the evidence offered, it must so state in the form of a timely without prior compliance with the procedure that the
objection and it cannot raise the objection to the evidence for the Commissioner herself prescribed. This would not help in
first time on appeal. Because of a party’s failure to timely object, curtailing inefficiencies and abuses among revenue officers in the
the evidence offered becomes part of the evidence in the case. As a discharge of their tasks.
consequence, all the parties are considered bound by any outcome
arising from the offer of evidence properly presented.
PETITIONS for review on certiorari of the decisions and
resolutions of the Court of Tax Appeals En Banc.
Same; Jurisdiction; Court of Tax Appeals; The Court will not The facts are stated in the opinion of the Court.
lightly set aside the conclusions reached by the Court of Tax    Office of the Solicitor General for petitioner.
Appeals (CTA) which, by the very nature of its function of being     Joaquin G. Bernas and Zambrano & Gruba Law
dedicated exclusively to the resolution of tax problems, has Offices for DLSU.
developed an expertise on the subject, unless there has been an
abuse or improvident exercise of authority.—It is doctrinal that  
the Court will not lightly set aside the conclusions reached by the BRION, J.:
CTA which, by the very nature of its function of being dedicated  
exclusively to the resolution of tax problems, has developed an Before the Court are consolidated petitions for review on
expertise on the subject, unless there has been an abuse or certiorari:1
improvident exercise of authority. We thus accord the findings of
fact by the CTA with the highest respect. _______________

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1  The petitions are filed under Rule 45 of the Rules of Court in relation 2  Id., at pp. 34-70 (G.R. No. 196596).
to Rule 16 of the Revised CTA Rules (A.M. No. 05-11-07). On November 3  Id., at pp. 14-53 (G.R. No. 198841).
28, 2011, the Court resolved to consolidate the petitions to avoid 4  Id., at pp. 9-43.
conflicting decisions. Rollo, p. 78 (G.R. No. 198941). 5  Id., at p. 85. The date of the issuance of the LOA is not on record.
6   Id., at p. 4 (G.R. No. 196596). The PAN was issued by the BIR’s
 
Special Large Taxpayers Task Force on educational institutions.
 
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Commissioner of Internal Revenue vs. De La Salle

University, Inc. VOL. 808, NOVEMBER 9, 2016 161
Commissioner of Internal Revenue vs. De La Salle
1. G.R. No. 196596 filed by the Commissioner of University, Inc.
Internal Revenue (Commissioner) to assail the
December 10, 2010 decision and March 29, 2011 Subsequently on August 18, 2004, the BIR through a
resolution of the Court of Tax Appeals (CTA) in En Formal Letter of Demand assessed DLSU the following
Banc Case No. 622;2 deficiency taxes: (1) income tax on rental earnings from
2. G.R. No. 198841 filed by De La Salle University, Inc. restaurants/canteens and bookstores operating within the
(DLSU) to assail the June 8, 2011 decision and campus; (2) value-added tax (VAT) on business income; and
October 4, 2011 resolution in CTA En Banc Case No. (3) documentary stamp tax (DST) on loans and lease
671;3 and contracts. The BIR demanded the payment of
3. G.R. No. 198941 filed by the Commissioner to assail P17,303,001.12, inclusive of surcharge, interest and
the June 8, 2011 decision and October 4, 2011 penalty for taxable years 2001, 2002 and 2003.7
resolution in CTA En Banc Case No. 671.4 DLSU protested the assessment. The Commissioner
  failed to act on the protest; thus, DLSU filed on August 3,
G.R. Nos. 196596, 198841 and 198941 all originated 2005 a petition for review with the CTA Division.8
from CTA Special First Division (CTA Division) Case No. DLSU, a non-stock, nonprofit educational institution,
7303. G.R. No. 196596 stemmed from CTA En Banc Case principally anchored its petition on Article XIV, Section
No. 622 filed by the Commissioner to challenge CTA Case 4(3) of the Constitution, which reads:
No. 7303. G.R. Nos. 198841 and 198941 both stemmed from
CTA En Banc Case No. 671 filed by DLSU to also (3) All revenues and assets of non-stock, nonprofit educational
challenge CTA Case No. 7303. institutions used actually, directly, and exclusively for
  educational purposes shall be exempt from taxes and duties.
The Factual Antecedents x x x
 
Sometime in 2004, the Bureau of Internal Revenue  
(BIR) issued to DLSU Letter of Authority (LOA) No. 2794 On January 5, 2010, the CTA Division partially granted
authorizing its revenue officers to examine the latter’s DLSU’s petition for review. The dispositive portion of the
books of accounts and other accounting records for all decision reads:
internal revenue taxes for the period Fiscal Year Ending WHEREFORE, the Petition for Review is PARTIALLY
2003 and Unverified Prior Years.5 GRANTED. The DST assessment on the loan transactions of
On May 19, 2004, BIR issued a Preliminary Assessment [DLSU] in the amount of P1,681,774.00 is hereby CANCELLED.
Notice to DLSU.6 However, [DLSU] is ORDERED TO PAY deficiency income tax,
VAT and DST on its lease contracts, plus 25% surcharge for the
_______________ fiscal years 2001, 2002 and 2003 in the total amount of
P18,421,363.53. . . x x x
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_______________ 14  Id., at p. 302. DLSU quoted the June 9, 2010 resolution of the CTA
Division, viz.:
7  Id., at pp. 151-154.
“For resolution is [DLSU’s] ‘Supplemental Formal Offer of Evidence
8  Id., at pp. 38, 268.
in Relation to the [CTA Division’s] Resolution Dated 06 April 2010’
filed on April 23, 2010, sans any Comment/Opposition from the
 
  [Commissioner] despite notice.” [emphasis and underscoring
ours]
162
 
 
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163
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
VOL. 808, NOVEMBER 9, 2016 163
In addition, [DLSU] is hereby held liable to pay 20% Commissioner of Internal Revenue vs. De La Salle
delinquency interest on the total amount due computed from University, Inc.
September 30, 2004 until full payment thereof pursuant to
Section 249(C)(3) of the [National Internal Revenue Code].
On July 29, 2010, the CTA Division, in view of the
Further, the compromise penalties imposed by [the
supplemental evidence submitted, reduced the amount of
Commissioner] were excluded, there being no compromise
DLSU’s tax deficiencies. The dispositive portion of the
agreement between the parties.
amended decision reads:
SO ORDERED.9
WHEREFORE, [DLSU]’s Motion for Partial Reconsideration
 
is hereby PARTIALLY GRANTED. [DLSU] is hereby
Both the Commissioner and DLSU moved for the
ORDERED TO PAY for deficiency income tax, VAT and DST
reconsideration of the January 5, 2010 decision.10 On April
plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the
6, 2010, the CTA Division denied the Commissioner’s
total adjusted amount of P5,506,456.71. . . x x x
motion for reconsideration while it held in abeyance the
In addition, [DLSU] is hereby held liable to pay 20% per
resolution on DLSU’s motion for reconsideration.11
annum deficiency interest on the . . . basic deficiency taxes . . .
On May 13, 2010, the Commissioner appealed to the
until full payment thereof pursuant to Section 249(B) of the
CTA En Banc (CTA En Banc Case No. 622) arguing that
[National Internal Revenue Code]. . . x x x
DLSU’s use of its revenues and assets for noneducational or
Further, [DLSU] is hereby held liable to pay 20% per annum
commercial purposes removed these items from the
delinquency interest on the deficiency taxes, surcharge and
exemption coverage under the Constitution.12
deficiency interest which have accrued . . . from September 30,
On May 18, 2010, DLSU formally offered to the CTA
2004 until fully paid.15
Division supplemental pieces of documentary evidence to
prove that its rental income was used actually, directly and  
exclusively for educational purposes.13 The Commissioner Consequently, the Commissioner supplemented its
did not promptly object to the formal offer of supplemental petition with the CTA En Banc and argued that the CTA
evidence despite notice.14 Division erred in admitting DLSU’s additional evidence.16
Dissatisfied with the partial reduction of its tax
_______________ liabilities, DLSU filed a separate petition for review with
the CTA En Banc (CTA En Banc Case No. 671) on the
9   Id., at pp. 97-128. following grounds: (1) the entire assessment should have
10  Id., at pp. 39, 268-269. been cancelled because it was based on an invalid LOA; (2)
11  Id., at pp. 129-137. assuming the LOA was valid, the CTA Division should still
12  Id., at pp. 185-194. have cancelled the entire assessment because DLSU
13  Id., at pp. 155-159, filed on May 18, 2010. submitted evidence similar to those submitted by Ateneo

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De Manila University (Ateneo) in a separate case where the _______________

CTA cancelled Ateneo’s tax assess-
17  Ateneo de Manila University v. Commissioner of Internal Revenue,
CTA Case Nos. 7246 and 7293.
_______________
18  Rollo, p. 73 (G.R. No. 198841).
15  Id., at pp. 149-150. 19   Id., at pp. 77-96 (G.R. No. 196596), decision dated December 10,
16  Id., at p. 40. 2010.
20  Id., at pp. 82-88.
  21  Id., at p. 86.
  22  Id., at pp. 86-87.

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164 SUPREME COURT REPORTS ANNOTATED 165
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
VOL. 808, NOVEMBER 9, 2016 165
17
ment; and (3) the CTA Division erred in finding that a Commissioner of Internal Revenue vs. De La Salle
portion of DLSU’s rental income was not proved to have University, Inc.
been used actually, directly and exclusively for educational
purposes.18 DST on loan and mortgage
  transactions
The CTA En Banc’s Rulings  
  Contrary to the Commissioner’s contention, DLSU
CTA En Banc Case No. 622 proved its remittance of the DST due on its loan and
  mortgage documents.23 The CTA En Banc found that
The CTA En Banc dismissed the Commissioner’s DLSU’s DST payments had been remitted to the BIR,
petition for review and sustained the findings of the CTA evidenced by the stamp on the documents made by a DST
Division.19 imprinting machine, which is allowed under Section 200(D)
  of the National Internal Revenue Code (Tax Code)24 and
Tax on rental income Section 2 of Revenue Regulations (RR) No. 15-2001.25
   
Relying on the findings of the court-commissioned Admissibility of DLSU’s
Independent Certified Public Accountant (Independent supplemental evidence
CPA), the CTA En Banc found that DLSU was able to  
prove that a portion of the assessed rental income was used The CTA En Banc held that the supplemental pieces of
actually, directly and exclusively for educational purposes; documentary evidence were admissible even if DLSU
hence, exempt from tax.20 The CTA En Banc was satisfied formally offered them only when it moved for
with DLSU’s supporting evidence confirming that part of reconsideration of the CTA Division’s original decision.
its rental income had indeed been used to pay the loan it Notably, the law creating the CTA provides that
obtained to build the university’s Physical Education — proceedings before it shall not be governed strictly by the
Sports Complex.21 technical rules of evidence.26
Parenthetically, DLSU’s unsubstantiated claim for
exemption, i.e., the part of its income that was not shown _______________
by supporting documents to have been actually, directly
and exclusively used for educational purposes, must be 23  Id., at pp. 88-90.
subjected to income tax and VAT.22 24  Section 200(D) of the Tax Code provides:

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(D) Exception.—In lieu of the foregoing provisions of this Section, the In the present case, the LOA issued to DLSU is for
tax may be paid either through purchase and actual affixture; or by Fiscal Year Ending 2003 and Unverified Prior Years.
imprinting the stamps through a documentary stamp metering Hence, the assessments for deficiency income tax, VAT and
machine, on the taxable document, in the manner as may be DST for taxable years 2001 and 2002 are void, but the
prescribed by rules and regulations to be promulgated by the Secretary of assessment for taxable year 2003 is valid.32
Finance, upon recommendation of the Commissioner. [emphasis ours]
25  Section 2.2 of RR No. 15-2001 provides that: “In lieu of constructive _______________
stamping, Section 200(D) of the [Tax Code], however, allows the payment
of DST. . . or by imprinting of stamps through a documentary stamp 27  Id., at pp. 72-76.
metering machine (. . . or on line electronic DST imprinting 28  Id., at pp. 88-90 (G.R. No. 198841).
machine).” [emphasis ours] 29  Id., at pp. 75-79.
26  Rollo, pp. 91-94 (G.R. No. 196596). 30   Id., at p. 80, citing Commissioner of Internal Revenue v. Sony
Philippines, Inc., 649 Phil. 519; 635 SCRA 234 (2010).
  31  Id., at p. 80.
  32  Id., at p. 81.

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166 SUPREME COURT REPORTS ANNOTATED
167
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
VOL. 808, NOVEMBER 9, 2016 167
The Commissioner moved but failed to obtain a Commissioner of Internal Revenue vs. De La Salle
reconsideration of the CTA En Banc’s December 10, 2010 University, Inc.
decision.27 Thus, she came to this court for relief through a
petition for review on certiorari (G.R. No. 196596). On the applicability
  of the Ateneo case
CTA En Banc Case No. 671  
  The CTA En Banc held that the Ateneo case is not a
The CTA En Banc partially granted DLSU’s petition for valid precedent because it involved different parties,
review and further reduced its tax liabilities to factual settings, bases of assessments, sets of evidence, and
P2,554,825.47 inclusive of surcharge.28 defenses.33
   
On the validity of the On the CTA Division’s
Letter of Authority appreciation of the
  evidence
The issue of the LOA’s validity was raised during trial;29  
hence, the issue was deemed properly submitted for The CTA En Banc affirmed the CTA Division’s
decision and reviewable on appeal. appreciation of DLSU’s evidence. It held that while DLSU
Citing jurisprudence, the CTA En Banc held that a LOA successfully proved that a portion of its rental income was
should cover only one taxable period and that the practice transmitted and used to pay the loan obtained to fund the
of issuing a LOA covering audit of unverified prior years is construction of the Sports Complex, the rental income from
prohibited.30 The prohibition is consistent with Revenue other sources were not shown to have been actually,
Memorandum Order (RMO) No. 43-90, which provides that directly and exclusively used for educational purposes.34
if the audit includes more than one taxable period, the Not pleased with the CTA En Banc’s ruling, both DLSU
other periods or years shall be specifically indicated in the (G.R. No. 198841) and the Commissioner (G.R. No. 198941)
LOA.31 came to this Court for relief.
 
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The Consolidated Petitions real properties is not exempt from taxation even if the
  income would be used for educational purposes.41
G.R. No. 196596 Second, the Commissioner insists that DLSU did not
  prove the fact of DST payment42 and that it is not qualified
The Commissioner submits the following arguments: to use the Online Electronic DST Imprinting Machine,
First, DLSU’s rental income is taxable regardless of how which is available only to certain classes of taxpayers
such income is derived, used or disposed of.35 DLSU’s under RR No. 9-2000.43
operations of canteens and bookstores within its campus
even _______________

36  Id., at p. 48.
_______________
37  Id., at p. 50.
33  Id., at p. 82. 38  358 Phil. 562; 298 SCRA 83 (1998).
34  These pertain to rental income from Alerey Inc., Zaide Food Corp., 39  Rollo, p. 46 (G.R. No. 196596).
Capri International and MTO Bookstore. Id., at p. 85. 40  Id., at pp. 51-55.
35  Id., at pp. 43-55 (G.R. No. 196596). 41  Id., at p. 50.
42  Id., at pp. 55-56.
 
43   The Commissioner cites Section 4 of RR No. 9-2000 which states
 
that the “on-line electronic DST imprinting machine,” unless
168
 
 
168 SUPREME COURT REPORTS ANNOTATED
169
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
VOL. 808, NOVEMBER 9, 2016 169
though exclusively serving the university community do Commissioner of Internal Revenue vs. De La Salle
not negate income tax liability.36 University, Inc.
The Commissioner contends that Article XIV, Section
4(3) of the Constitution must be harmonized with Section Finally, the Commissioner objects to the admission of
30(H) of the Tax Code, which states among others, that the DLSU’s supplemental offer of evidence. The belated
income of whatever kind and character of [a non-stock and submission of supplemental evidence reopened the case for
nonprofit educational institution] from any of [its] trial, and worse, DLSU offered the supplemental evidence
properties, real or personal, or from any of [its] activities only after it received the unfavorable CTA Division’s
conducted for profit regardless of the disposition made of original decision.44 In any case, DLSU’s submission of
such income, shall be subject to tax imposed by this Code.37 supplemental documentary evidence was unnecessary since
The Commissioner argues that the CTA En Banc its rental income was taxable regardless of its disposition.45
misread and misapplied the case of Commissioner of  
Internal Revenue v. YMCA38 to support its conclusion G.R. No. 198841
that revenues however generated are covered by the  
constitutional exemption, provided that, the revenues will DLSU argues as that:
be used for educational purposes or will be held in reserve First, RMO No. 43-90 prohibits the practice of issuing a
for such purposes.39 LOA with any indication of unverified prior years. A LOA
On the contrary, the Commissioner posits that a tax- issued contrary to RMO No. 43-90 is void, thus, an
exempt organization like DLSU is exempt only from assessment issued based on such defective LOA must also
property tax but not from income tax on the rentals earned be void.46
from property.40 Thus, DLSU’s income from the leases of its DLSU points out that the LOA issued to it covered the
Fiscal Year Ending 2003 and Unverified Prior Years. On
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the basis of this defective LOA, the Commissioner assessed The issues and arguments raised by the Commissioner
DLSU for deficiency income tax, VAT and DST for taxable in G.R. No. 198941 petition are exactly the same as those
years 2001, 2002 and 2003.47 DLSU objects to the CTA En she raised in her: (1) petition docketed as G.R. No. 196596;
Banc’s conclusion that the LOA is valid for taxable year and (2) comment on DLSU’s petition docketed as G.R. No.
2003. According to DLSU, when RMO No. 43-90 provides 198841.51
that:  
Counter-Arguments
_______________  
DLSU’s Comment on
expressly exempted by the Commissioner, will be used in the payment and G.R. No. 196596
remittance of the DST by the following class of taxpayers: a) bank, quasi-  
bank or nonbank financial intermediary, finance company, insurance, First, DLSU questions the defective verification
surety, fidelity, or annuity company; b) the Philippine Stock Exchange (in attached to the petition.52
the case of shares of stock and other securities traded in the local stock
exchange); c) shipping and airline companies; d) pre-need company (on
_______________
sale of pre-need plans); and e) other industries as may be required by the
Commissioner. 48  Id., at pp. 25-26.
44  Rollo, pp. 57-65 (G.R. No. 196596). 49  Id., at pp. 41-48.
45  Id., at pp. 65-66. 50  Id., at pp. 34-48.
46  Id., at pp. 14-16 (G.R. No. 198841). 51  Id., at pp. 9-43 (G.R. No. 198941).
47  Id., at pp. 24, 30. 52   Id., at pp. 272-276 (G.R. No. 196596). DLSU claims that the
Commissioner failed to state that the allegations in the petition are
 
   
 
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171
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Commissioner of Internal Revenue vs. De La Salle
The practice of issuing [LOAs] covering audit of ‘unverified University, Inc.
prior years’ is hereby prohibited.
Second, DLSU stresses that Article XIV, Section 4(3) of
it refers to the LOA which has the format “Base Year + the Constitution is clear that all assets and revenues of
Unverified Prior Years.” Since the LOA issued to DLSU non-stock, nonprofit educational institutions used actually,
follows this format, then any assessment arising from it directly and exclusively for educational purposes are
must be entirely voided.48 exempt from taxes and duties.53
Second, DLSU invokes the principle of uniformity in On this point, DLSU explains that: (1) the tax
taxation, which mandates that for similarly situated exemption of non-stock, nonprofit educational institutions
parties, the same set of evidence should be appreciated and is novel to the 1987 Constitution and that Section 30(H)
weighed in the same manner.49 The CTA En Banc erred of the 1997 Tax Code cannot amend the 1987
when it did not similarly appreciate DLSU’s evidence as it Constitution;54 (2) Section 30 of the 1997 Tax Code is
did to the pieces of evidence submitted by Ateneo, also a almost an exact replica of Section 26 of the 1977 Tax Code
non-stock, nonprofit educational institution.50 — with the addition of non-stock, nonprofit educational
  institutions to the list of tax-exempt entities; and (3) that
G.R. No. 198941 the 1977 Tax Code was promulgated when the 1973
  Constitution was still in place.
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DLSU elaborates that the tax exemption granted to a exemption to be granted under Article XIV, Section 4(3) of
private educational institution under the 1973 Constitution the Constitution, the taxpayer must prove that: (1) it falls
was only for real property tax. Back then, the special tax under the classification non-stock, nonprofit educational
treatment on income of private educational institutions institution; and (2) the income it seeks to be exempted from
only emanates from statute, i.e., the 1977 Tax Code. Only taxation is used actually, directly and exclusively for
under the 1987 Constitution that exemption from tax of all educational purposes.58 Unlike YMCA, which is not an
the assets and revenues of non-stock, nonprofit educational educational institution, DLSU is undisputedly a non-stock,
institutions used actually, directly and exclusively for nonprofit educational institution. It had also submitted
educational purposes, was expressly and categorically evidence to prove that it actually, directly and exclusively
enshrined.55 used its income for educational purposes.59
DLSU thus invokes the doctrine of constitutional DLSU also cites the deliberations of the 1986
supremacy, which renders any subsequent law that is Constitutional Commission where they recognized that the
contrary to the Constitution void and without any force and tax exemption was granted “to incentivize private
effect.56 Section 30(H) of the 1997 Tax Code insofar as it educational institutions to share with the State the
subjects to tax the in- responsibility of educating the youth.”60
Third, DLSU highlights that both the CTA En Banc and
_______________ Division found that the bank that handled DLSU’s loan
and mortgage transactions had remitted to the BIR the
true and correct of her personal knowledge or based on authentic record. DST through an imprinting machine, a method allowed
The CIR also allegedly failed to state that she caused the preparation of under RR No. 15-2001.61 In any case, DLSU argues that it
the petition and that she has read and understood all the allegations. cannot be
DLSU notes that a pleading required to be verified but lacks proper
verification is treated as an unsigned pleading.
_______________
53  Id., at pp. 276-279.
54  Id., at pp. 279-285. 57  Id., at p. 287.
55  Id., at p. 282. 58  Id., at p. 290.
56  Id., at pp. 286-289. 59  Id., at p. 291.
60  Id., at p. 283.
  61  Id., at pp. 296-301.
 
 
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Commissioner of Internal Revenue vs. De La Salle
University, Inc. VOL. 808, NOVEMBER 9, 2016 173
Commissioner of Internal Revenue vs. De La Salle
come of whatever kind and character of a non-stock and University, Inc.
nonprofit educational institution from any of its properties,
real or personal, or from any of its activities conducted for held liable for DST owing to the exemption granted under
profit regardless of the disposition made of such income, the Constitution.62
should be declared without force and effect in view of the Finally, DLSU underscores that the Commissioner,
constitutionally granted tax exemption on “all revenues despite notice, did not oppose the formal offer of
and assets of non-stock, nonprofit educational institutions supplemental evidence. Because of the Commissioner’s
used actually, directly, and exclusively for educational failure to timely object, she became bound by the results of
purposes.”57 the submission of such supplemental evidence.63
DLSU further submits that it complies with the  
requirements enunciated in the YMCA case, that for an
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The CIR’s Comment educational purposes are exempt from duties and
on G.R. No. 198841 taxes;
  II. Whether the entire assessment should be voided
The Commissioner submits that DLSU is estopped from because of the defective LOA;
questioning the LOA’s validity because it failed to raise III. Whether the CTA correctly admitted DLSU’s
this issue in both the administrative and judicial supplemental pieces of evidence; and
proceedings.64 That it was asked on cross-examination IV. Whether the CTA’s appreciation of the sufficiency of
during the trial does not make it an issue that the CTA DLSU’s evidence may be disturbed by the Court.
could resolve.65 The Commissioner also maintains that  
DLSU’s rental income is not tax-exempt because an Our Ruling
educational institution is only exempt from property tax  
but not from tax on the income earned from the property.66 As we explain in full below, we rule that:
  I. The income, revenues and assets of non-stock,
DLSU’s Comment on nonprofit educational institutions proved to have been
G.R. No. 198941 used actually, directly and exclusively for educational
  purposes are exempt from duties and taxes.
DLSU puts forward the same counter-arguments II. The LOA issued to DLSU is not entirely void. The
discussed above.67 In addition, DLSU prays that the Court assessment for taxable year 2003 is valid.
award attorney’s fees in its favor because it was III. The CTA correctly admitted DLSU’s formal offer of
constrained to unnecessarily retain the services of counsel supplemental evidence; and
in this separate petition.68 IV. The CTA’s appreciation of evidence is conclusive
unless the CTA is shown to have manifestly
_______________ overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would
62  Id., at pp. 297-298. justify a different conclusion.
63  Id., at pp. 301-302.  
64  Id., at pp. 192-197 (G.R. No. 198841).  
65  Id., at pp. 192-193.
175
66  Id., at pp. 197-207.
67  Id., at pp. 82-93 (G.R. No. 198941).
68  Id., at pp. 89-90. VOL. 808, NOVEMBER 9, 2016 175
Commissioner of Internal Revenue vs. De La Salle
 
University, Inc.
 

174 The parties failed to convince the Court that the CTA
overlooked or failed to consider relevant facts. We
174 SUPREME COURT REPORTS ANNOTATED thus sustain the CTA En Banc’s findings that:
a. DLSU proved that a portion of its rental income
Commissioner of Internal Revenue vs. De La Salle was used actually, directly and exclusively for
University, Inc. educational purposes; and
b. DLSU proved the payment of the DST through
Issues its bank’s online imprinting machine.
   
Although the parties raised a number of issues, the I. The revenues and assets of
Court shall decide only the pivotal issues, which we non-stock, nonprofit educa-
summarize as follows: tional institutions proved to
I. Whether DLSU’s income and revenues proved to have have been used actually, di-
been used actually, directly and exclusively for rectly, and exclusively for edu-
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cational purposes are exempt institutions is conditioned only on the actual, direct and
from duties and taxes. exclusive use of their revenues and assets for educational
  purposes. While tax exemptions may also be granted to
DLSU rests it case on Article XIV, Section 4(3) of the proprietary educational institutions, these exemptions may
1987 Constitution, which reads: be subject to limitations imposed by Congress.
As we explain below, the marked distinction between a
(3) All revenues and assets of non-stock, nonprofit non-stock, nonprofit and a proprietary educational
educational institutions used actually, directly, and institution is crucial in determining the nature and extent
exclusively for educational purposes shall be exempt of the tax exemption granted to non-stock, nonprofit
from taxes and duties. Upon the dissolution or cessation of educational institutions.
the corporate existence of such institutions, their assets shall The Commissioner opposes DLSU’s claim for tax
be disposed of in the manner provided by law. exemption on the basis of Section 30(H) of the Tax Code.
  The relevant text reads:
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such
_______________
exemptions subject to the limitations provided by law
including restrictions on dividends and provisions for 69  In Commissioner of Internal Revenue v. St. Luke’s Medical Center,
reinvestment. [underscoring and emphasis supplied] Inc., 695 Phil. 867, 885; 682 SCRA 66, 81 (2012), the Court quoted
Section 27(B) of the Tax Code and defined proprietary educational
 
institution as “any private school maintained and administered by private
Before fully discussing the merits of the case, we observe
individuals or groups” with a government permit.
that:
70  Rollo, p. 37 (G.R. No. 196596).
 
   
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176 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. De La Salle VOL. 808, NOVEMBER 9, 2016 177
University, Inc.
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
First, the constitutional provision refers to two kinds of
educational institutions: (1) non-stock, nonprofit The following organizations shall not be taxed under this
educational institutions and (2) proprietary educational Title [Tax on Income] in respect to income received by them as
institutions.69 such:
Second, DLSU falls under the first category. Even the  
Commissioner admits the status of DLSU as a non-stock, x x x x
nonprofit educational institution.70  
Third, while DLSU’s claim for tax exemption arises from (H) A non-stock and nonprofit educational institution
and is based on the Constitution, the Constitution, in the  
same provision, also imposes certain conditions to avail of x x x x
the exemption. We discuss below the import of the  
constitutional text vis-à-vis the Commissioner’s counter- Notwithstanding the provisions in the preceding paragraphs, the
arguments. income of whatever kind and character of the foregoing
Fourth, there is a marked distinction between the organizations from any of their properties, real or personal, or
treatment of non-stock, nonprofit educational institutions from any of their activities conducted for profit regardless
and proprietary educational institutions. The tax of the disposition made of such income shall be subject to
exemption granted to non-stock, nonprofit educational

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tax imposed under this Code. [underscoring and emphasis nonprofit corporation,” was subject to income tax under the
supplied] Tax Code and the Constitution.72
The Court denied YMCA’s claim for exemption on the
  ground that as a charitable institution falling under
The Commissioner posits that the 1997 Tax Code Article VI, Section 28(3) of the Constitution,73 the YMCA
qualified the tax exemption granted to non-stock, nonprofit is not tax-exempt per se; “what is exempted is not the
educational institutions such that the revenues and income institution itself.  .  . those exempted from real estate taxes
they derived from their assets, or from any of their are lands, buildings and improvements actually, directly
activities conducted for profit, are taxable even if these and exclusively used for religious, charitable or educational
revenues and income are used for educational purposes. purposes.”74
Did the 1997 Tax Code qualify the tax exemption The Court held that the exemption claimed by the
constitutionally-granted to non-stock, nonprofit educational YMCA is expressly disallowed by the last paragraph of
institutions? then Section 27 (now Section 30) of the Tax Code, which
We answer in the negative. mandates that the income of exempt organizations from
While the present petition appears to be a case of first any of their properties, real or personal, are subject to the
impression,71 the Court in the YMCA case had in fact same tax imposed by the Tax Code, regardless of how that
already income is used. The Court ruled that the last paragraph of
Section 27 unequivocally subjects to tax the rent income of
_______________ the YMCA from its property.75
In short, the YMCA is exempt only from property tax
71   Previous cases construing the nature of the exemption of tax-
but not from income tax.
exempt entities under Section 30 (then Section 27) of the Tax Code vis-à-
vis the exemption granted under the Constitution pertain to nonprofit
_______________
foundations, churches, charitable hospitals or social welfare institutions.
Some cases involved educational institutions but they tackled local or real 72  Commissioner of Internal Revenue v. YMCA, supra note 38.
property taxation. See: Commissioner of Internal Revenue v. YMCA, supra 73  Article VI, Section 28(3) of the Constitution, provides: “Charitable
note 38; Commissioner of Internal Revenue v. St. Luke’s Medical Center, institutions, churches and parsonages or convents appurtenant thereto,
Inc., supra note 69; Angeles University Foundation v. City of Angeles, 689 mosques, nonprofit cemeteries, and all lands, buildings, and
Phil. 623; 675 SCRA 359 (2012); and Abra Valley College, Inc. v. Aquino, improvements, actually, directly, and exclusively used for religious,
infra note 90. charitable, or educational purposes shall be exempt from taxation.”
74   Commissioner of Internal Revenue v. YMCA, supra note 38 at pp.
  579-580; p. 96.
  75  Id., at pp. 575-578; p. 93.
178
 
 
178 SUPREME COURT REPORTS ANNOTATED
179
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
VOL. 808, NOVEMBER 9, 2016 179
analyzed and explained the meaning of Article XIV, Section Commissioner of Internal Revenue vs. De La Salle
4(3) of the Constitution. The Court in that case made University, Inc.
doctrinal pronouncements that are relevant to the present
case. As a last ditch effort to avoid paying the taxes on its
The issue in YMCA was whether the income derived rental income, the YMCA invoked the tax privilege granted
from rentals of real property owned by the YMCA, under Article XIV, Section 4(3) of the Constitution.
established as a “welfare, educational and charitable The Court denied YMCA’s claim that it falls under
Article XIV, Section 4(3) of the Constitution holding that
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the term educational institution, when used in laws We find that unlike Article VI, Section 28(3) of the
granting tax exemptions, refers to the school system Constitution (pertaining to charitable institutions,
(synonymous with formal education); it includes a college churches, parsonages or convents, mosques, and nonprofit
or an educational establishment; it refers to the cemeteries), which exempts from tax only the assets, i.e.,
hierarchically structured and chronologically graded “all lands, buildings, and improvements, actually,
learnings organized and provided by the formal school directly, and exclusively used for religious, charitable, or
system.76 educational purposes. . .” Article XIV, Section 4(3)
The Court then significantly laid down the requisites for categorically states that “[a]ll revenues and assets . . .
availing the tax exemption under Article XIV, Section 4(3), used actually, directly, and exclusively for educational
namely: (1) the taxpayer falls under the classification non- purposes shall be exempt from taxes and duties.”
stock, nonprofit educational institution; and (2) the The addition and express use of the word revenues in
income it seeks to be exempted from taxation is used Article XIV, Section 4(3) of the Constitution is not without
actually, directly and exclusively for educational significance.
purposes.77 We find that the text demonstrates the policy of the
We now adopt YMCA as precedent and hold that: 1987 Constitution, discernible from the records of the 1986
1. The last paragraph of Section 30 of the Tax Code is Constitutional Commission79 to provide broader tax
without force and effect with respect to non-stock, privilege to non-stock, nonprofit educational institutions as
nonprofit educational institutions, provided, that the recognition of their role in assisting the State provide a
non-stock, nonprofit educational institutions prove public good. The tax exemption was seen as beneficial to
that its assets and revenues are used actually, students who may otherwise be charged unreasonable
directly and exclusively for educational purposes. tuition fees if not for the tax
2. The tax-exemption constitutionally-granted to non-
stock, nonprofit educational institutions, is not _______________
subject to limitations imposed by law.
  78   For purposes of construing Article XIV, Section 4(3) of the
The tax exemption granted by the Constitution, we treat income and revenues as synonyms. Black’s Law
Constitution to non-stock, non- Dictionary (Fifth Edition, 1979) defines revenues as “return or yield; profit
profit educational institutions is as that which returns or comes back from investment; the annual or
periodical rents, profits, interest or issues of any species of property or

_______________ personal . . .” (p. 1185) and income as “the return in money from one’s
business, labor, or capital invested; gains, profits, salary, wages, etc. . .” (p.
76  Id., at pp. 581-582; pp. 97-98. 687).
77  Id., at pp. 580-581; pp. 99-100. 79   See Record of the Constitutional Commission No. 69, Volume IV,
August 29, 1986.
 
   
 
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180 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. De La Salle VOL. 808, NOVEMBER 9, 2016 181
University, Inc. Commissioner of Internal Revenue vs. De La Salle
University, Inc.
conditioned only on the actual, di-
rect and exclusive use of their as- exemption extended to all revenues and assets of non-
sets, revenues and income78 for stock, nonprofit educational institutions.80
educational purposes. Further, a plain reading of the Constitution would show
  that Article XIV, Section 4(3) does not require that the
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revenues and income must have also been sourced from return of an investment. Revenue is a component of the tax
educational activities or activities related to the purposes of base in income tax,83 VAT,84 and local business tax (LBT).85
an educational institution. The phrase all revenues is Assets, on the other hand, are the tangible and
unqualified by any reference to the source of revenues. intangible properties owned by a person or entity.86 It may
Thus, so long as the revenues and income are used refer to real estate, cash deposit in a bank, investment in
actually, directly and exclusively for educational purposes, the stocks of a corporation, inventory of goods, or any
then said revenues and income shall be exempt from taxes property from which the person or entity may derive
and duties.81 income or use to generate the same. In Philippine taxation,
We find it helpful to discuss at this point the taxation of the fair market value of real property is a component of the
revenues versus the taxation of assets. tax base in real property tax (RPT).87 Also, the landed cost
of imported goods is a component of the tax base in VAT on
_______________ importation88 and tariff duties.89
Thus, when a non-stock, nonprofit educational
80  See IV Records, pp.  401, 402, as cited by DLSU, Rollo, p. 283 (G.R. institution proves that it uses its revenues actually,
No. 196596). The following comments of the Constitutional Commission directly, and exclu-
members are illuminating:
MR. GASCON: . . . There are many schools which are genuinely _______________
nonprofit and non-stock but which may have been taxed at the expense of
students. In the long run, these schools oftentimes have to increase tuition 82  Black’s Law Dictionary, Fifth edition, 1979, defines “Revenues” as
fees, which is detrimental to the interest of the students. So when we “Return or yield, as of land; profit as that which returns or comes back
encourage non-stock, nonprofit institutions be assuring them of tax from an investment; the annual or periodical rents, profits, interest or
exemption, we also assure the students of lower tuition fees. That is the issues of any species of property, real or personal; income of individual,
intent. corporation, government, etc.” (citing Willoughby v. Willoughby, 66 R.I.
x x x x 430, 19 A.2d 857, 860)
COMM. NOLLEDO: . . . So I think, what is important here is the 83  Section 32, TAX CODE.
philosophy behind the duty on the part of the State to educate the Filipino 84  Sections 106 and 108, TAX CODE.
people that duty is being shouldered by private institutions. In order to 85  Section 143 cf. Section 131(n), Local Government Code.
provide incentive to private institutions to share with the State the 86   Black’s Law Dictionary, Fifth edition, 1979, defines “Assets” as
responsibility of educating the youth, I think we should grant tax “Property of all kinds, real and personal, tangible and intangible,
exemption. including, inter alia, for certain purposes, patents and causes of action
81   As the Constitution is not primarily a lawyer’s document, its which belong to any person including a corporation and the estate of a
language should be understood in the sense that it may have in common. decedent. The entire property of a person, association, corporation, or
Its words should be given their ordinary meaning except where technical estate that is applicable or subject to the payment of his or his debts.”
terms are employed. See: People v. Derilo, 338 Phil. 350, 383; 271 SCRA 87  Section 208 cf. Sections 233 and 235, LOCAL GOVERNMENT CODE.
633, 668 (1997). 88  Section 107, TAX CODE.
89   Section 104, PD No. 1464, otherwise known as the TARIFF AND
  CUSTOMS CODE OF THE PHILIPPINES.

 
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Commissioner of Internal Revenue vs. De La Salle
Revenues consist of the amounts earned by a person or University, Inc.
entity from the conduct of business operations.82 It may
refer to the sale of goods, rendition of services, or the
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sively for educational purposes, it shall be exempted from University, Inc.

income tax, VAT, and LBT. On the other hand, when it also
shows that it uses its assets in the form of real property for the use of the asset from which the revenues were earned,
educational purposes, it shall be exempted from RPT. but on the actual, direct and exclusive use of the revenues
To be clear, proving the actual use of the taxable item for educational purposes.
will result in an exemption, but the specific tax from which Parenthetically, income and revenues of non-stock,
the entity shall be exempted from shall depend on whether nonprofit educational institution not used actually, directly
the item is an item of revenue or asset. and exclusively for educational purposes are not exempt
To illustrate, if a university leases a portion of its school from duties and taxes. To avail of the exemption, the
building to a bookstore or cafeteria, the leased portion is taxpayer must factually prove that it used actually,
not actually, directly and exclusively used for educational directly and exclusively for educational purposes the
purposes, even if the bookstore or canteen caters only to revenues or income sought to be exempted.
university students, faculty and staff. The crucial point of inquiry then is on the use of the
The leased portion of the building may be subject to real assets or on the use of the revenues. These are two things
property tax, as held in Abra Valley College, Inc. v. that must be viewed and treated separately. But so long as
Aquino.90 We ruled in that case that the test of exemption the assets or revenues are used actually, directly and
from taxation is the use of the property for purposes exclusively for educational purposes, they are exempt from
mentioned in the Constitution. We also held that the duties and taxes.
exemption extends to facilities which are incidental to and  
reasonably necessary for the accomplishment of the main The tax exemption granted by the
purposes. Constitution to non-stock, non-
In concrete terms, the lease of a portion of a school profit educational institutions,
building for commercial purposes, removes such asset from unlike the exemption that may be
the property tax exemption granted under the availed of by proprietary educa-
Constitution.91 There is no exemption because the asset is tional institutions, is not subject
not used actually, directly and exclusively for educational to limitations imposed by law.
purposes. The commercial use of the property is also not  
incidental to and reasonably necessary for the That the Constitution treats non-stock, nonprofit
accomplishment of the main purpose of a university, which educational institutions differently from proprietary
is to educate its students. educational institutions cannot be doubted. As discussed,
However, if the university actually, directly and the privilege granted to the former is conditioned only on
exclusively uses for educational purposes the revenues the actual, direct and exclusive use of their revenues and
earned from the lease of its school building, such revenues assets for educational purposes. In clear contrast, the tax
shall be exempt from taxes and duties. The tax exemption privilege granted to the latter may be subject to limitations
no longer hinges on imposed by law.
We spell out below the difference in treatment if only to
_______________ highlight the privileged status of non-stock, nonprofit
educational institutions compared with their proprietary
90  245 Phil. 83; 162 SCRA 106 (1988).
counterparts.
91  Id., at pp. 91-92; pp. 115-116.
 
   
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University, Inc.
Commissioner of Internal Revenue vs. De La Salle

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While a non-stock, nonprofit educational institution is Commissioner of Internal Revenue vs. De La Salle
classified as a tax-exempt entity under Section 30 University, Inc.
(Exemptions from Tax on Corporations) of the Tax Code, a
proprietary educational institution is covered by Section 27 make this declaration in the exercise of and consistent with
(Rates of Income Tax on Domestic Corporations). our duty93 to uphold the primacy of the Constitution.94
To be specific, Section 30 provides that exempt Finally, we stress that our holding here pertains only to
organizations like non-stock, nonprofit educational non-stock, nonprofit educational institutions and does not
institutions shall not be taxed on income received by them cover the other exempt organizations under Section 30 of
as such. the Tax Code.
Section 27(B), on the other hand, states that For all these reasons, we hold that the income and
“[p]roprietary educational institutions . . . which are revenues of DLSU proven to have been used actually,
nonprofit shall pay a tax of ten percent (10%) on their directly and exclusively for educational purposes are
taxable income . . . Provided, that if the gross income from exempt from duties and taxes.
unrelated trade, business or other activity exceeds fifty  
percent (50%) of the total gross income derived by such II. The LOA issued to DLSU
educational institutions . . . [the regular corporate income is not entirely void. The
tax of 30%] shall be imposed on the entire taxable income. . assessment for taxable
.”92 year 2003 is valid.
By the Tax Code’s clear terms, a proprietary educational  
institution is entitled only to the reduced rate of 10% DLSU objects to the CTA En Banc’s conclusion that the
corporate income tax. The reduced rate is applicable only if: LOA is valid for taxable year 2003 and insists that the
(1) the proprietary educational institution is nonprofit and entire LOA should be voided for being contrary to RMO No.
(2) its gross income from unrelated trade, business or 43-90, which provides that if tax audit includes more than
activity does not exceed 50% of its total gross income. one taxable period, the other periods or years shall be
Consistent with Article XIV, Section 4(3) of the specifically indicated in the LOA.
Constitution, these limitations do not apply to non-stock, A LOA is the authority given to the appropriate revenue
nonprofit educational institutions. officer to examine the books of account and other
Thus, we declare the last paragraph of Section 30 of the accounting records of the taxpayer in order to determine
Tax Code without force and effect for being contrary to the the taxpayer’s correct internal revenue liabilities95 and for
Constitution insofar as it subjects to tax the income and the purpose of col-
revenues of non-stock, nonprofit educational institutions
used actually, directly and exclusively for educational _______________
purpose. We
93  CONSTITUTION, Article VIII, Section 5(2).
_______________ 94   In Kida v. Senate of the Philippines, 675 Phil. 316, 365-366; 659
SCRA 270, 309 (2011), we held that the primacy of the Constitution as the
92   Section 27(B) further provides that the term unrelated trade, supreme law of the land dictates that where the Constitution has itself
business or other activity means any trade, business or activity, the made a determination or given its mandate, then the matters so
conduct of which is not substantially related to the exercise or determined or mandated should be respected until the Constitution itself
performance by such educational institution . . . of its primary purpose of is changed by amendment or repeal through the applicable constitutional
functions. process.
95  REVENUE AUDIT MEMORANDUM ORDER NO. 2-95.
 
   
 
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Commissioner of Internal Revenue vs. De La Salle 188 SUPREME COURT REPORTS ANNOTATED
University, Inc. Commissioner of Internal Revenue vs. De La Salle
University, Inc.
lecting the correct amount of tax,96 in accordance with
Section 5 of the Tax Code, which gives the CIR the power to Read in this light, the requirement to specify the taxable
obtain information, to summon/examine, and take period covered by the LOA is simply to inform the taxpayer
testimony of persons. The LOA commences the audit of the extent of the audit and the scope of the revenue
process97 and informs the taxpayer that it is under audit officer’s authority. Without this rule, a revenue officer can
for possible deficiency tax assessment. unduly burden the taxpayer by demanding random
Given the purposes of a LOA, is there basis to accounting records from random unverified years, which
completely nullify the LOA issued to DLSU, and may include documents from as far back as ten years in
consequently, disregard the BIR and the CTA’s findings of cases of fraud audit.99
tax deficiency for taxable year 2003? In the present case, the LOA issued to DLSU is for
We answer in the negative. Fiscal Year Ending 2003 and Unverified Prior Years. The
The relevant provision is Section C of RMO No. 43-90, LOA does not strictly comply with RMO No. 43-90 because
the pertinent portion of which reads: it includes unverified prior years. This does not mean,
however, that the entire LOA is void.
3. A Letter of Authority [LOA] should cover a taxable period not
As the CTA correctly held, the assessment for taxable
exceeding one taxable year. The practice of issuing [LOAs]
year 2003 is valid because this taxable period is specified in
covering audit of unverified prior years is hereby prohibited. If
the LOA. DLSU was fully apprised that it was being
the audit of a taxpayer shall include more than one taxable
audited for taxable year 2003. Corollarily, the assessments
period, the other periods or years shall be specifically indicated
for taxable years 2001 and 2002 are void for having been
in the [LOA].98
unspecified on separate LOAs as required under RMO No.
  43-90.
What this provision clearly prohibits is the practice of Lastly, the Commissioner’s claim that DLSU failed to
issuing LOAs covering audit of unverified prior years. RMO raise the issue of the LOA’s validity at the CTA Division,
43-90 does not say that a LOA which contains unverified and thus, should not have been entertained on appeal, is
prior years is void. It merely prescribes that if the audit not accurate.
includes more than one taxable period, the other periods or On the contrary, the CTA En Banc found that the issue
years must be specified. The provision read as a whole of the LOA’s validity came up during the trial.100 DLSU
requires that if a taxpayer is audited for more than one then raised the issue in its memorandum and motion for
taxable year, the BIR must specify each taxable year or partial reconsideration with the CTA Division. DLSU
taxable period on separate LOAs. raised it again on appeal to the CTA En Banc. Thus, the
CTA En Banc could, as it did, pass upon the validity of the
LOA.101 Besides, the Commissioner had the opportunity to
_______________
argue for the validity of the LOA at the CTA En Banc but
96  Rollo, p. 79 (G.R. No. 198841). See Section 13 of the TAX CODE. she chose not to file her comment and memorandum
97   See the Taxpayers Bill of Rights at despite notice.102
<http://www.bir.gov.ph/index.P/taxpayer-bill-of-rights.html> (last accessed
on June 1, 2016). _______________
98  Cited in Commissioner of Internal Revenue v. Sony Philippines, Inc.,
99   Section 222, TAX CODE.
supra note 30 at p. 531; p. 244.
100  Rollo, p. 78 (G.R. No. 198841).
  101  Id., at pp. 75-79.
  102  Id., at pp. 73-74.

188  
 

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University, Inc.
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
III. The CTA correctly admit-
ted the supplemental evi-
dence formally offered by considered bound by any outcome arising from the offer of
DLSU. evidence properly presented.106
  As disclosed by DLSU, the Commissioner did not oppose
The Commissioner objects to the CTA Division’s the supplemental formal offer of evidence despite notice.107
admission of DLSU’s supplemental pieces of documentary The Commissioner objected to the admission of the
evidence. supplemental evidence only when the case was on appeal to
To recall, DLSU formally offered its supplemental the CTA En Banc. By the time the Commissioner raised
evidence upon filing its motion for reconsideration with the her objection, it was too late; the formal offer, admission
CTA Division.103 The CTA Division admitted the and evaluation of the supplemental evidence were all fait
supplemental evidence, which proved that a portion of accompli.
DLSU’s rental income was used actually, directly and We clarify that while the Commissioner’s failure to
exclusively for educational purposes. Consequently, the promptly object had no bearing on the materiality or
CTA Division reduced DLSU’s tax liabilities. sufficiency of the supplemental evidence admitted, she was
We uphold the CTA Division’s admission of the bound by the outcome of the CTA Division’s assessment of
supplemental evidence on distinct but mutually reinforcing the evidence.108
grounds, to wit: (1) the Commissioner failed to timely object Second, the CTA is not governed strictly by the technical
to the formal offer of supplemental evidence; and (2) the rules of evidence. The CTA Division’s admission of the
CTA is not governed strictly by the technical rules of formal offer of supplemental evidence, without prompt
evidence. objection from the Commissioner, was thus justified.
First, the failure to object to the offered evidence renders Notably, this Court had in the past admitted and
it admissible, and the court cannot, on its own, disregard considered evidence attached to the taxpayers’ motion for
such evidence.104 reconsideration.
The Court has held that if a party desires the court to In the case of BPI-Family Savings Bank v. Court of
reject the evidence offered, it must so state in the form of a Appeals,109 the tax refund claimant attached to its motion
timely objection and it cannot raise the objection to the for reconsideration with the CTA its Final Adjustment
evidence for the first time on appeal.105 Because of a party’s Return. The Commissioner, as in the present case, did not
failure to timely object, the evidence offered becomes part oppose the taxpayer’s motion for reconsideration and the
of the evidence in the case. As a consequence, all the admission of the Final Adjustment Return.110 We thus
parties are admitted and gave weight to the Final Adjustment Return
although it was only submitted upon motion for
reconsideration.
_______________

103  Id., at pp. 155-159 (G.R. No. 196596). _______________

104  Asian Construction and Development Corp. v. COMFAC Corp., 535
106  Id., at p. 518; p. 524.
Phil. 513, 517-518; 504 SCRA 519, 524 (2006), citing Tison v. Court of
107   Rollo, p. 302 (G.R. No. 196596), CTA Division Resolution dated
Appeals, G.R. No. 121027, July 31, 1997, 276 SCRA 582, 596-597.
June 9, 2010, quoted by DLSU.
105  Id., citing Arwood Industries, Inc. v. D.M. Consunji, Inc., G.R. No.
108  Rollo, pp. 155-159 (G.R. No. 196596).
142277, December 11, 2002, 394 SCRA 11, 18.
109  386 Phil. 719; 330 SCRA 507 (2000).
  110  Id., at p. 726; p. 515.
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  114  579 Phil. 442; 557 SCRA 165 (2008).

  115  Section 76 in relation to Section 229 of the TAX CODE.

191  
 
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Commissioner of Internal Revenue vs. De La Salle
University, Inc. 192 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. De La Salle
We held that while it is true that strict procedural rules University, Inc.
generally frown upon the submission of documents after
the trial, the law creating the CTA specifically provides
that proceedings before it shall not be governed strictly by failed to promptly object, but more so because the strict
the technical rules of evidence111 and that the paramount application of the technical rules of evidence may defeat
consideration remains the ascertainment of truth. We ruled the intent of the Constitution.
that procedural rules should not bar courts from  
considering undisputed facts to arrive at a just IV. The CTA’s appreciation of
determination of a controversy.112 evidence is generally bind-
We applied the same reasoning in the subsequent cases ing on the Court unless
of Filinvest Development Corporation v. Commissioner of compelling reasons justify
Internal Revenue113 and Commissioner of Internal Revenue otherwise.
v. PERF Realty Corporation,114 where the taxpayers also  
submitted the supplemental supporting document only It is doctrinal that the Court will not lightly set aside
upon filing their motions for reconsideration. the conclusions reached by the CTA which, by the very
Although the cited cases involved claims for tax refunds, nature of its function of being dedicated exclusively to the
we also dispense with the strict application of the technical resolution of tax problems, has developed an expertise on
rules of evidence in the present tax assessment case. If the subject, unless there has been an abuse or improvident
anything, the liberal application of the rules assumes exercise of authority.116 We thus accord the findings of fact
greater force and significance in the case of a taxpayer who by the CTA with the highest respect. These findings of facts
claims a constitutionally granted tax exemption. While the can only be disturbed on appeal if they are not supported
taxpayers in the cited cases claimed refund of excess tax by substantial evidence or there is a showing of gross error
payments based on the Tax Code,115 DLSU is claiming tax or abuse on the part of the CTA. In the absence of any clear
exemption based on the Constitution. If liberality is and convincing proof to the contrary, this Court must
afforded to taxpayers who paid more than they should have presume that the CTA rendered a decision which is valid in
under a statute, then with more reason that we should every respect.117
allow a taxpayer to prove its exemption from tax based on We sustain the factual findings of the CTA.
the Constitution. The parties failed to raise credible basis for us to disturb
Hence, we sustain the CTA’s admission of DLSU’s the CTA’s findings that DLSU had used actually, directly
supplemental offer of evidence not only because the and exclusively for educational purposes a portion of its
Commissioner assessed income and that it had remitted the DST
payments though an online imprinting machine.
_______________
_______________
111  See Section 8, Republic Act No. 1125, published in Official Gazette,
116   Commissioner of Internal Revenue v. Asian Transmission
S. No. 175/50 OG No. 8, 3458 (August, 1954).
Corporation, 655 Phil. 186, 196; 640 SCRA 189, 200 (2011).
112  BPI-Family Savings Bank, Inc. v. Court of Appeals, supra note 109
117  Commissioner of Internal Revenue v. Toledo Power, Inc., G.R. No.
at p. 726; p. 515.
113  556 Phil. 439; 529 SCRA 605 (2007). 183880, January 20, 2014, 714 SCRA 276, 292, citing Barcelon, Roxas

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Securities, Inc. v. Commissioner of Internal Revenue, 529 Phil. 785; 498 120  Id., at p. 143. Capital Fund-Capital Projects Account.
SCRA 126, 136 (2006).
 
   
 
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VOL. 808, NOVEMBER 9, 2016 193 Commissioner of Internal Revenue vs. De La Salle
Commissioner of Internal Revenue vs. De La Salle University, Inc.
University, Inc.
CTA “cannot ascertain whether rental income from the
a. DLSU used actually, directly, [other] concessionaires was indeed used for educational
and exclusively for educa- purposes.”121
tional purposes a portion of To stress, the CTA’s factual findings were based on and
its assessed income. supported by the report of the Independent CPA who
  reviewed, audited and examined the voluminous
To see how the CTA arrived at its factual findings, we documents submitted by DLSU.
review the process undertaken, from which it deduced that Under the CTA Revised Rules, an Independent CPA’s
DLSU successfully proved that it used actually, directly functions include: (a) examination and verification of
and exclusively for educational purposes a portion of its receipts, invoices, vouchers and other long accounts; (b)
rental income. reproduction of, and comparison of such reproduction with,
The CTA reduced DLSU’s deficiency income tax and and certification that the same are faithful copies of
VAT liabilities in view of the submission of the original documents, and pre-marking of documentary
supplemental evidence, which consisted of statement of exhibits consisting of voluminous documents; (c)
receipts, statement of disbursement and fund balance and preparation of schedules or summaries containing a
statement of fund changes.118 chronological listing of the numbers, dates and amounts
These documents showed that DLSU borrowed P93.86 covered by receipts or invoices or other relevant documents
Million,119 which was used to build the university’s Sports and the amount(s) of taxes paid; (d) making findings as
Complex. Based on these pieces of evidence, the CTA found to compliance with substantiation requirements
that DLSU’s rental income from its concessionaires were under pertinent tax laws, regulations and
indeed transmitted and used for the payment of this loan. jurisprudence; (e) submission of a formal report with
The CTA held that the degree of preponderance of evidence certification of authenticity and veracity of findings and
was sufficiently met to prove actual, direct and exclusive conclusions in the performance of the audit; (f) testifying on
use for educational purposes. such formal report; and (g) performing such other functions
The CTA also found that DLSU’s rental income from as the CTA may direct.122
other concessionaires, which were allegedly deposited to a Based on the Independent CPA’s report and on its own
fund (CF-CPA Account),120 intended for the university’s appreciation of the evidence, the CTA held that only the
capital projects, was not proved to have been used portion of the rental income pertaining to the substantiated
actually, directly and exclusively for educational disbursements (i.e., proved by receipts, vouchers, etc.) from
purposes. The CTA observed that “[DLSU] . . . failed to the CF-CPA Account was considered as used actually,
fully account for and substantiate all the disbursements directly and exclusively for educational purposes.
from the [fund].” Thus, the Consequently, the unaccounted and unsubstantiated
disbursements must be subjected to income tax and
_______________ VAT.123

118  Rollo, pp. 143-144 (G.R. No. 196596).

_______________
119  Id., at p. 144, the amount is rounded-off from P93,860,675.40.

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121  Id., at p. 144. 127   Id., at p. 87. According to the CTA, the income earned from the
122  Rule 3, Section 2 of the Revised Rules of the CTA, A.M. No. 05-11- lease of premises to MTO-Sports Complex and La Casita amounted to
07-CTA, November 22, 2005. P2,090,880.00 and P1,916,844.00, respectively (Total of P4,007,724.00).
123  Rollo, pp. 86, 145 (G.R. No. 196596). These amounts were specifically identified as part of the proceeds used by
DLSU to pay an outstanding loan obligation that was previously obtained
  for the purpose of constructing the Sports Complex.
  128  Id.

195
 
 
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196
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
196 SUPREME COURT REPORTS ANNOTATED
The CTA then further reduced DLSU’s tax liabilities by Commissioner of Internal Revenue vs. De La Salle
cancelling the assessments for taxable years 2001 and 2002 University, Inc.
due to the defective LOA.124
The Court finds that the above fact-finding process   DLSU also submitted documents to the Independent
undertaken by the CTA shows that it based its ruling on CPA to prove that the P6,602,655.00 transferred to the CF-
the evidence on record, which we reiterate, were examined CPA Account was used actually, directly and exclusively for
and verified by the Independent CPA. Thus, we see no educational purposes. According to the Independent CPA’
persuasive reason to deviate from these factual findings. findings, DLSU was able to substantiate disbursements
However, while we generally respect the factual findings from the CF-CPA Account amounting to P6,259,078.30.
of the CTA, it does not mean that we are bound by its Contradicting the findings of the Independent CPA, the
conclusions. In the present case, we do not agree with the CTA concluded that out of the P10,610,379.00 rental
method used by the CTA to arrive at DLSU’s income, P4,841,066.65 was unsubstantiated, and thus,
unsubstantiated rental income (i.e., income not proved to subject to income tax and VAT.129
have been actually, directly and exclusively used for The CTA then concluded that the ratio of substantiated
educational purposes). disbursements to the total disbursements from the CF-CPA
To recall, the CTA found that DLSU earned a rental Account for taxable year 2003 is only 26.68%.130 The CTA
income of P10,610,379.00 in taxable year 2003.125 DLSU held as follows:
earned this income from leasing a portion of its premises
to: 1) MTO-Sports Complex, 2) La Casita, 3) Alarey, Inc., 4) However, as regards petitioner’s rental income from Alarey, Inc.,
Zaide Food Corp., 5) Capri International, and 6) MTO Zaide Food Corp., Capri International and MTO Bookstore, which
Bookstore.126 were transmitted to the CF-CPA Account, petitioner again failed
To prove that its rental income was used for educational to fully account for and substantiate all the disbursements from
purposes, DLSU identified the transactions where the the CF-CPA Account; thus failing to prove that the rental income
rental income was expended, viz.: 1) P4,007,724.00127 used derived therein were actually, directly and exclusively used for
to pay the loan obtained by DLSU to build the Sports educational purposes. Likewise, the findings of the Court-
Complex; and 2) P6,602,655.00 transferred to the CF-CPA Commissioned Independent CPA show that the disbursements
Account.128 from the CF-CPA Account for fiscal year 2003 amounts to
P6,259,078.30 only. Hence, this portion of the rental income,
being the substantiated disbursements of the CF-CPA Account,
_______________
was considered by the Special First Division as used actually,
124  Id., at p. 81 (G.R. No. 198841). directly and exclusively for educational purposes. Since for fiscal
125  Id., at p. 101, page 9 of CTA Division Amended Decision. year 2003, the total disbursements per voucher is P6,259,078.3
126  Id., at p. 98. (Exhibit “LL-25-C”), and the total disbursements per subsidiary
ledger amounts to P23,463,543.02 (Exhibit “LL-29-C”), the ratio of

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substantiated disbursements for fiscal year 2003 is 26.68% Rental income allegedly added and used
(P6,259,078.30/P23,463,543.02). in the CF-CPA Account                                  6,602,655.00
Less: Substantiated portion of CF-CPA

_______________ disbursements                                                1,761,588.35

Tax base for deficiency income tax and
129  Id. VAT                                                                4,841,066.65
130  Id., at p. 86. 133  The substantiated portion of CF-CPA disbursements amounting to
P1,761,308.37 was computed as follows:
 
   
 
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University, Inc. Commissioner of Internal Revenue vs. De La Salle
University, Inc.
 
rental income claimed to have been added to the CF-
Thus, the substantiated portion of CF-CPA Disbursements for
CPA Account (P6,602,655.00) by 26.68% or the ratio
fiscal year 2003, arrived at by multiplying the ratio of 26.68%
of substantiated disbursements to total disbursements
with the total rent income added to and used in the CF-CPA
(P23,463,543.02).
Account in the amount of P6,602,655.00 is P1,761,588.35.131
4. The 26.68% ratio134 was the result of dividing the
(emphasis supplied)
substantiated disbursements from the CF-CPA
  Account as found by the Independent CPA
For better understanding, we summarize the CTA’s (P6,259,078.30) by the total disbursements
computation as follows: (P23,463,543.02) from the same account.
1. The CTA subtracted the rent income used in the  
construction of the Sports Complex (P4,007,724.00) We find that this system of calculation is incorrect and
from the rental income (P10,610,379.00) earned from does not truly give effect to the constitutional grant of tax
the above mentioned concessionaries. The difference exemption to non-stock, nonprofit educational institutions.
(P6,602,655.00) was the portion claimed to have been The CTA’s reasoning is flawed because it required DLSU to
deposited to the CF-CPA Account. substantiate an amount that is greater than the rental
2. The CTA then subtracted the supposed substantiated income deposited in the CF-CPA Account in 2003.
portion of CF-CPA disbursements (P1,761,308.37) To reiterate, to be exempt from tax, DLSU has the
from the P6,602,655.00 to arrive at the supposed burden of proving that the proceeds of its rental income
unsubstantiated portion of the rental income (which amounted to a total of P10.61 million)135 were used
(P4,841,066.65).132 for educational purposes. This amount was divided into two
3. The substantiated portion of CF-CPA disbursements parts: (a) the P4.01
(P1,761,308.37)133 was derived by multiplying the
_______________

_______________ Rental income allegedly added and used in

the CF-CPA Account                                      6,602,655.00
131  Id., at pp. 85-86.
Multiply by: Ratio of substantiated dis-
132
bursements (See infra note 134)                             26.68%
Rental income                                               10,610,379.00
Substantiated portion of CF-CPA dis-
Less: Rent income used in construction
bursements                                                    1,761,588.35
of Sports Complex                                          4,007,724.00
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134  The ratio of 26.68% was computed as follows: CF-CPA should be prorated so that only the portion that
Substantiated disbursements of the CF- P6.26 million bears
CPA Account, per Independent CPA             6,259,078.30
Divide by: Total disbursements made out _______________
of the CF-CPA Account                                23,463,543.02
Ratio                                                                        26.68% 136   For brevity, the exact amount of P6,602,655.00 shall hereinafter
135  For brevity, the exact amount of P10,610,379.00 shall hereinafter be expressed as P6.60 million.
be expressed as P10.61 million. 137  For brevity, the exact amount of P23,463,543.02 shall hereinafter
be expressed as P23.46 million.
 
   
 
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200 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. De La Salle
University, Inc. Commissioner of Internal Revenue vs. De La Salle
University, Inc.
million, which was used to pay the loan obtained for the
construction of the Sports Complex; and (b) the P6.60 to the total CF-CPA disbursements should be credited to
million,136 which was transferred to the CF-CPA account. DLSU for tax exemption.
For year 2003, the total disbursement from the CF-CPA This approach, in our view, is flawed given the
account amounted to P23.46 million.137 These figures, read constitutional requirement that revenues actually and
in light of the constitutional exemption, raises the question: directly used for educational purposes should be tax-
does DLSU claim that the whole total CF-CPA exempt. As already mentioned above, DLSU is not claiming
disbursement of P23.46 million is tax-exempt so that that the whole P23.46 million CF-CPA disbursement had
it is required to prove that all these disbursements been used for educational purposes; it only claims that
had been made for educational purposes? P6.60 million transferred to CF-CPA had been used for
We answer in the negative. educational purposes. This was what DLSU needed to
The records show that DLSU never claimed that the prove to have actually and directly used for educational
total CF-CPA disbursements of P23.46 million had been for purposes.
educational purposes and should thus be tax-exempt; That this fund had been first deposited into a separate
DLSU only claimed P10.61 million for tax-exemption and fund (the CF-CPA established to fund capital projects)
should thus be required to prove that this amount had been lends peculiarity to the facts of this case, but does not
used as claimed. detract from the fact that the deposited funds were DLSU
Of this amount, P4.01 had been proven to have been revenue funds that had been confirmed and proven to have
used for educational purposes, as confirmed by the been actually and directly used for educational purposes
Independent CPA. The amount in issue is therefore the via the CF-CPA. That the CF-CPA might have had other
balance of P6.60 million which was transferred to the CF- sources of funding is irrelevant because the assessment in
CPA which in turn made disbursements of P23.46 million the present case pertains only to the rental income which
for various general purposes, among them the P6.60 DLSU indisputably earned as revenue in 2003. That the
million transferred by DLSU. proven CF-CPA funds used for educational purposes should
Significantly, the Independent CPA confirmed that the not be prorated as part of its total CF-CPA disbursements
CF-CPA made disbursements for educational purposes in for purposes of crediting to DLSU is also logical because no
year 2003 in the amount P6.26 million. Based on these claim whatsoever had been made that the totality of the
given figures, the CTA concluded that the expenses for CF-CPA disbursements had been for educational purposes.
educational purposes that had been coursed through the No prorating is necessary; to state the obvious, exemption

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is based on actual and direct use and this DLSU has 202
indisputably proven.
Based on these considerations, DLSU should therefore
202 SUPREME COURT REPORTS ANNOTATED
be liable only for the difference between what it claimed
and what it has proven. In more concrete terms, DLSU only Commissioner of Internal Revenue vs. De La Salle
had to prove that its rental income for taxable year 2003 University, Inc.
(P10,610,379.00) was used for educational purposes. Hence,
while the total disbursements from the CF-CPA Account erate these commercial establishments to avail of the
amounted to P23,463,543.02, DLSU only had to exemption.140
substantiate its P10.6 million rental income, part of which Given the lack of complete identity of the issues
was the involved, the CTA held that it had to evaluate the separate
  sets of evidence differently. The CTA likewise stressed that
  DLSU and Ateneo gave distinct defenses and that its
wisdom “cannot be equated on its decision on two different
201
cases with two different issues.”141
DLSU disagrees with the CTA and argues that the
VOL. 808, NOVEMBER 9, 2016 201 entire assessment must be cancelled because it submitted
similar, if not stronger sets of evidence, as Ateneo. We
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
reject DLSU’s argument for being non sequitur. Its reliance
on the concept of uniformity of taxation is also incorrect.
First, even granting that Ateneo and DLSU submitted
P6,602,655.00 transferred to the CF-CPA account. Of this similar evidence, the sufficiency and materiality of the
latter amount, P6.259 million was substantiated to have evidence supporting their respective claims for tax
been used for educational purposes. exemption would necessarily differ because their attendant
To summarize, we thus revise the tax base for deficiency issues and facts differ.
income tax and VAT for taxable year 2003 as follows: To state the obvious, the amount of income received by
On DLSU’s argument that the CTA should have DLSU and by Ateneo during the taxable years they were
appreciated its evidence in the same way as it did with the assessed varied. The amount of tax assessment also
evidence submitted by Ateneo in another separate case, the varied. The amount of income proven to have been used for
CTA explained that the issue in the Ateneo case was not educational purposes also varied because the amount
the same as the issue in the present case. substantiated varied.142 Thus, the amount of tax
The issue in the Ateneo case was whether or not Ateneo assessment cancelled by the CTA varied.
could be held liable to pay income taxes and VAT under On the one hand, the BIR assessed DLSU a total tax
certain BIR and Department of Finance issuances139 that deficiency of P17,303,001.12 for taxable years 2001, 2002
required the educational institution to own and operate the and 2003. On the other hand, the BIR assessed Ateneo a
canteens, or other commercial enterprises within its total deficiency tax of P8,864,042.35 for the same period.
campus, as condition for tax exemption. The CTA held that Notably, DLSU was assessed deficiency DST, while Ateneo
the Constitution does not require the educational was not.143
institution to own or op-
_______________
_______________
140  Id., at p. 83.
138  Rollo, p. 86 (198841).
141  Id.
139  Id., at pp. 82-83. Ateneo was assessed deficiency income tax and
142   See Ateneo case (CTA Case Nos. 7246 & 7293, March 11, 2010).
VAT under Section 2.2 of DOF Circular 137-87 and BIR Ruling No. 173-
Id., at pp. 140-154.
88.
143  Id., at p. 145.
 
 
 
 
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203  
204
VOL. 808, NOVEMBER 9, 2016 203
Commissioner of Internal Revenue vs. De La Salle 204 SUPREME COURT REPORTS ANNOTATED
University, Inc.
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
Thus, although both Ateneo and DLSU claimed that
they used their rental income actually, directly and
exclusively for educational purposes by submitting similar Equality and uniformity of taxation means that all
evidence, e.g., the testimony of their employees on the use taxable articles or kinds of property of the same class shall
of university revenues, the report of the Independent CPA, be taxed at the same rate.147 A tax is uniform when it
their income summaries, financial statements, vouchers, operates with the same force and effect in every place
etc., the fact remains that DLSU failed to prove that a where the subject of it is found.148 The concept requires
portion of its income and revenues had indeed been used for that all subjects of taxation similarly situated should be
educational purposes. treated alike and placed in equal footing.149
The CTA significantly found that some documents that In our view, the CTA placed Ateneo and DLSU in equal
could have fully supported DLSU’s claim were not produced footing. The CTA treated them alike because their income
in court. Indeed, the Independent CPA testified that some proved to have been used actually, directly and exclusively
disbursements had not been proven to have been used for educational purposes were exempted from taxes. The
actually, directly and exclusively for educational CTA equally applied the requirements in the YMCA case to
purposes.144 test if they indeed used their revenues for educational
The final nail on the question of evidence is DLSU’s own purposes.
admission that the original of these documents had not in DLSU can only assert that the CTA violated the rule on
fact been produced before the CTA although it claimed that uniformity if it can show that, despite proving that it used
there was no bad faith on its part.145 To our mind, this actually, directly and exclusively for educational purposes
admission is a good indicator of how the Ateneo and the its income and revenues, the CTA still affirmed the
DLSU cases varied, resulting in DLSU’s failure to imposition of taxes. That the DLSU secured a different
substantiate a portion of its claimed exemption. result happened because it failed to fully prove that it used
Further, DLSU’s invocation of Section 5, Rule 130 of the actually, directly and exclusively for educational purposes
Revised Rules on Evidence, that the contents of the missing its revenues and income.
supporting documents were proven by its recital in some On this point, we remind DLSU that the rule on
other authentic documents on record,146 can no longer be uniformity of taxation does not mean that subjects of
entertained at this late stage of the proceeding. The CTA taxation similarly situated are treated in literally the same
did not rule on this particular claim. The CTA also made no way in all and every occasion. The fact that the Ateneo and
finding on DLSU’s assertion of lack of bad faith. Besides, it DLSU are both non-stock, nonprofit educational
is not our duty to go over these documents to test the institutions, does not mean that the CTA or this Court
truthfulness of their contents, this Court not being a trier would similarly decide every case for (or against) both
of facts. universities. Success in tax litigation, like in any other
Second, DLSU misunderstands the concept of uniformity litigation, depends to a large extent on the suffi-
of taxation.
_______________

_______________ 147   Churchill v. Concepcion, 34 Phil. 969, 976 (1916); Eastern

144  Id., at pp. 85-90. Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949); Abakada Guro Party

145  Id., at p. 47. List v. Ermita, 506 Phil. 1, 130-131; 469 SCRA 14, 34-35 (2005).

146  Id. 148   British American Tobacco v. Camacho, 603 Phil. 38, 48-49; 585
SCRA 36, 44 (2009).
 
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149   Commissioner of Internal Revenue v. Court of Appeals, 329 Phil. _______________

987, 1010; 261 SCRA 236, 249 (1996).
150  Section 173, TAX CODE.
  151  Sections 179 and 195, TAX CODE.
 
 
205  
206
VOL. 808, NOVEMBER 9, 2016 205
Commissioner of Internal Revenue vs. De La Salle 206 SUPREME COURT REPORTS ANNOTATED
University, Inc.
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
ciency of evidence. DLSU’s evidence was wanting, thus, the
CTA was correct in not fully cancelling its tax liabilities.
  not be further assessed for deficiency DST on the said
b. DLSU proved its pay- documents.
ment of the DST. Finally, it is true that educational institutions are not
  included in the class of taxpayers who can pay and remit
The CTA affirmed DLSU’s claim that the DST due on its DST through the On-Line Electronic DST Imprinting
mortgage and loan transactions were paid and remitted Machine under RR No. 9-2000. As correctly held by the
through its bank’s On-Line Electronic DST Imprinting CTA, this is irrelevant because it was not DLSU who used
Machine. The Commissioner argues that DLSU is not the On-Line Electronic DST Imprinting Machine but the
allowed to use this method of payment because an bank that handled its mortgage and loan transactions. RR
educational institution is excluded from the class of No. 9-2000 expressly includes banks in the class of
taxpayers who can use the On-Line Electronic DST taxpayers that can use the On-Line Electronic DST
Imprinting Machine. Imprinting Machine.
We sustain the findings of the CTA. The Commissioner’s Thus, the Court sustains the finding of the CTA that
argument lacks basis in both the Tax Code and the DLSU proved the payment of the assessed DST deficiency,
relevant revenue regulations. except for the unpaid balance of P13,265.48.152
DST on documents, loan agreements, and papers shall WHEREFORE, premises considered, we DENY the
be levied, collected and paid for by the person making, petition of the Commissioner of Internal Revenue in G.R.
signing, issuing, accepting, or transferring the same.150 The No. 196596 and AFFIRM the December 10, 2010 decision
Tax Code provides that whenever one party to the and March 29, 2011 resolution of the Court of Tax Appeals
document enjoys exemption from DST, the other party not En Banc in CTA En Banc Case No. 622, except for the total
exempt from DST shall be directly liable for the tax. Thus, amount of deficiency tax liabilities of De La Salle
it is clear that DST shall be payable by any party to the University, Inc., which had been reduced.
document, such that the payment and compliance by one We also DENY both the petition of De La Salle
shall mean the full settlement of the DST due on the University, Inc. in G.R. No. 198841 and the petition of the
document. Commissioner of Internal Revenue in G.R. No. 198941 and
In the present case, DLSU entered into mortgage and thus AFFIRM the June 8, 2011 decision and October 4,
loan agreements with banks. These agreements are subject 2011 resolution of the Court of Tax Appeals En Banc in
to DST.151 For the purpose of showing that the DST on the CTA En Banc Case No. 671, with the MODIFICATION
loan agreement has been paid, DLSU presented its that the base for the deficiency income tax and VAT for
agreements bearing the imprint showing that DST on the taxable year 2003 is P343,576.70.
document has been paid by the bank, its counterparty. The SO ORDERED.
imprint should be sufficient proof that DST has been paid.
Carpio (Chairperson) and Del Castillo, JJ., concur.
Thus, DLSU can-

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_______________ scrutinize a taxpayer’s books of accounts and other

accounting records in
152  Rollo, p. 89 (G.R. No. 198841).
 
   
  208

207
208 SUPREME COURT REPORTS ANNOTATED
VOL. 808, NOVEMBER 9, 2016 207 Commissioner of Internal Revenue vs. De La Salle
Commissioner of Internal Revenue vs. De La Salle University, Inc.
University, Inc.
order to determine the taxpayer’s correct internal revenue
Mendoza, J., On Official Leave. tax liabilities.1
Leonen, J., See Dissenting Opinion. In this regard, Revenue Audit Memorandum Order No.
1-00 provides that a letter of authority authorizes or
  empowers a designated revenue officer to examine, verify,
DISSENTING OPINION and scrutinize a taxpayer’s books and records, in relation to
  internal revenue tax liabilities for a particular period.2
LEONEN, J.: Revenue Memorandum Order No. 43-90, on policy
  guidelines for the audit/investigation and issuance of
I agree with the ponencia that Article IV, Section 4(3) of letters of authority to audit, provides:
the 1987 Constitution grants tax exemption on all assets
C. Other policies for issuance of L/As.
and all revenues earned by a non-stock, nonprofit
1. All audits/investigations, whether field audit or office
educational institution, which are actually, directly, and
audit, should be conducted under a Letter of
exclusively used for educational purposes. All revenues,
Authority.
whether or not sourced from educational activities, are
2. The duplicate of each internal revenue tax which is
covered by the exemption. The taxpayer needs only to prove
specifically indicated in the L/A shall be attached
that the revenue is actually, directly, and exclusively used
thereto, unless a return is not required under the Tax
for educational purposes to be exempt from income tax.
Code to be filed therefor or when the taxpayer has not
I disagree, however, on two (2) points:
filed a return or the Assessment Branch has certified
First, Letter of Authority No. 2794, which covered the
that no
“Fiscal Year Ending 2003 and Unverified Prior Years,” is
void in its entirety for being in contravention of Revenue
Memorandum Order No. 43-90. Any assessment based on _______________
such defective letter of authority must likewise be void.
1  TAX CODE, Sec. 13 provides:
Second, the Court of Tax Appeals erred in finding that
Section 13. Authority of a Revenue Officer.—Subject to the rules and
only a portion of the rental income derived by De La Salle
regulations to be prescribed by the Secretary of Finance, upon
University, Inc. (DLSU) from its concessionaires was used
recommendation of the Commissioner, a Revenue Officer assigned to
for educational purposes.
perform assessment functions in any district may, pursuant to a Letter of
 
Authority issued by the Revenue Regional Director, examine taxpayers
I
within the jurisdiction of the district in order to collect the correct amount
 
of tax, or to recommend the assessment of any deficiency tax due in the
An audit process to which a particular taxpayer may be
same manner that the said acts could have been performed by the
subjected begins when a letter of authority is issued by the
Revenue Regional Director himself.
Commissioner of Internal Revenue or by the Revenue
2  Revenue Audit Memorandum Order No. 1-00 (2000), VIII(C)(2.2)
Regional Director. The letter of authority is an official
provides:
document that empowers a revenue officer to examine and

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2.2 A Letter of Authority authorizes or empowers a designated shall be prepared in accordance with the procedures
Revenue Officer to examine, verify and scrutinize a taxpayer’s books and in the preceding paragraph, by their respective
records in relation to his internal revenue tax liabilities for a particular Assistant Com-
period.
 
   
 
210
209

210 SUPREME COURT REPORTS ANNOTATED

VOL. 808, NOVEMBER 9, 2016 209
Commissioner of Internal Revenue vs. De La Salle
Commissioner of Internal Revenue vs. De La Salle University, Inc.
University, Inc.
missioners and signed by the Deputy Commissioner
return is on file therein or the same cannot be located. concerned or the Commissioner. The L/As for
3. A Letter of Authority should cover a taxable period not investigation of taxpayer by the intelligence and
exceeding one taxable year. The practice of issuing Investigation Office and any other special audit teams
L/As covering audit of “unverified prior years” is formed by the Commissioner shall be signed by the
hereby prohibited. If the audit of a taxpayer shall Commissioner of Internal Revenue.
include more than one taxable period, the other 4. For the proper monitoring and coordination of the
periods or years shall be specifically indicated in the issuance of Letter of Authority, the only BIR officials
L/A. authorized to issue and sign Letters of Authority are
  the Regional Directors, the Deputy Commissioners
.... and the Commissioner. For the exigencies of the
  service, other officials may be authorized to issue and
4. Any reassignment/transfer of cases to another RO(s), sign Letters of Authority but only upon prior
and revalidation of L/As which have already expired, authorization by the Commissioner himself.
shall require the issuance of a new L/A, with the (Emphasis supplied)
corresponding notation thereto, including the
previous L/A number and date of issue of said L/As.  
  Thus, under Revenue Memorandum Order No. 43-90,
.... both the taxable period and the kind of tax must be
  specifically stated.
D. Preparation and issuance of L/As. A much earlier Revenue Memorandum Order was even
1. All L/As for cases selected and listed pursuant to RMO more explicit:
No. 36-90 to be audited in the revenue regions shall
The Letter of Authority must be carefully prepared and
be prepared and signed by the Regional Director (RD).
erasures shall be avoided as much as possible, particularly in the
2. The Regional Director shall prepare and sign the L/As
name and address of the taxpayer and the assessment number. A
for returns recommended by the RDO for assignment
new one should be made if material erasures appear on any
to the ROs, indicating therein the name and address
Letter of Authority. The period covered by the authority must be
of the taxpayer, the name of the RO(s) to whom the
stated definitely. The use of such phrases as “last five years,” “1962
L/A is assigned, the taxable period and kind of tax;
and up,” “1962 and previous years” and all others of similar
after which he shall forward the same to the RDO or
import shall not be allowed. In the preparation of the Letter of
Chief, Assessment Branch, who in turn shall indicate
Authority the Revenue District Officer must not put the date, the
the date of issue of the L/A prior to its issuance.
same shall be supplied by the Director
3. The L/As for investigation of taxpayers by National
Office audit offices (including the audit division in the  
Sector Operations Service and Excise Tax Service)  
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211  
 
VOL. 808, NOVEMBER 9, 2016 211 212
Commissioner of Internal Revenue vs. De La Salle
University, Inc. 212 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. De La Salle
immediately before the release thereof by his Office.3 (Emphasis
University, Inc.
supplied)

  and guaranteed by the Constitution, the provisions of

The revenue officer so authorized must not go beyond Revenue Memorandum Order No. 43-90 must be strictly
the authority given; otherwise, the assessment or followed.
examination is a nullity.4 Corollarily, the extent to which Letter of Authority No. 2794 effectively allowed the
the authority must be exercised by the revenue officer must revenue officers to examine, verify, and scrutinize DLSU’s
be clearly specified. books of account and other accounting records without limit
Here, Letter of Authority No. 2794,5 which was the basis as to the covered period. This already constituted an undue
of the Bureau of Internal Revenue to examine DLSU’s intrusion into the affairs of DLSU to its prejudice. DLSU
books of account, stated that the examination covers the was at the mercy of the revenue officers with no adequate
period Fiscal Year Ending 2003 and Unverified Prior protection or defense.
Years. As early as 1933, this Court in Sy Jong Chuy v. Reyes7
It is my view that the entire Letter of Authority No. held that the extraordinary inquisitorial power conferred
2794 should be struck down as void for being broad, by law upon collectors of internal revenue must be strictly
indefinite, and uncertain, and for being in direct construed. The power should be limited to books and
contravention to the policy clearly and explicitly declared papers relevant to the subject of investigation, which
in Revenue Memorandum Order No. 43-90 that: (a) a letter should be mentioned with reasonable certainty. Although
of authority should cover one (1) taxable period; and (b) if it the case particularly referred to the use of “subpoena duces
covers more than one taxable period, it must specify all the tecum” by internal revenue officers, its discussion is
periods or years covered. apropos:
The prescribed procedures under Revenue Memorandum
The foregoing discussion will disclose that there are two factors
Order No. 43-90, including the requirement of definitely
involved in the correct solution of the question before us. The first
specifying the taxable year under investigation, were
fact which must be made to appear by clear and unequivocal
meant to achieve a proper enforcement of tax laws and to
proof, as a condition precedent to the right of a court, and, by
minimize, if not eradicate, taxpayers’ concerns on arbitrary
analogy, an internal revenue officer, to require a person to deliver
assessment, undue harassment from Bureau of Internal
up for examination by the court or an internal revenue officer his
Revenue personnel, and unreasonable delay in the
private books and papers, is their relevancy; and the second fact
investigation and processing of tax cases.6 Inasmuch as tax
which must be established in the same manner is the specification
investigations entail an intrusion into a taxpayer’s private
of documents and an indication of them with as much precision as
affairs, which are protected
is fair and feasible[.]
Speaking to the fact of relevancy, there is absolutely no
_______________
showing of the nature of any official investigation which is being
3  Revenue Memorandum Order No. 2-67 (1967), Amendment to Field conducted by the Bureau of Internal Revenue, and this is a
Circular No. V-157 as amended by RMC No. 22-64 and RMC No. 30-65. prerequisite to the use of the power granted by Section 436 of the
4  Commissioner of Internal Revenue v. Sony Philippines, Inc., 649 Phil. Administrative Code. Moreover, when the production under a
519, 530; 635 SCRA 234, 243 (2010) [Per J. Mendoza, Second Division].
subpoena duces tecum
5  Per Decision, the date of the issuance is not on record.
6  See Revenue Memorandum Circular No. 04-81, Guidelines in the _______________
Proper Enforcement of Tax Laws (July 8, 1980).
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7  59 Phil. 244 (1933) [Per J. Malcolm, En Banc].  

 
 
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213
214 SUPREME COURT REPORTS ANNOTATED

VOL. 808, NOVEMBER 9, 2016 213 Commissioner of Internal Revenue vs. De La Salle
University, Inc.
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
This Court held that the subpoena duces tecum issued by
a special deputy of the Collector of Internal Revenue, which
is contested on the ground of irrelevancy, it is for the movant or
commanded a Chinese merchant to appear at the Internal
the internal revenue officer to show facts sufficient to enable the
Revenue Office and produce for investigation all
court to determine whether the desired documents are material to
commercial books or papers showing his transactions for
the issues. And here, all that we have to justify relevancy is the
four (4) years (from 1925 to 1928) was “unreasonably broad
typewritten part of a mimeographed form reading: “it being
in scope.” This Court further held that the subpoena was
necessary to use them (referring to the books) in an investigation
not properly issued because the Collector failed to show the
now pending under the Income Tax and Internal Revenue Laws.”
relevance of the Chinese books and to specify the particular
This is insufficient.
books desired, and its sweeping scope clashed with the
But it is in the second respect that the subpoena is most fatally
constitutional prohibition against unreasonable search and
defective. It will be recalled that it required the production of “all
seizure. Thus:
the commercial books or any other papers on which are recorded
your transactions showing income and expenses for the years Generally speaking, there are two readily understandable
1925, 1926, 1927, 1928 inclusive,” that these books numbered points of view of the question at issue. The first is the viewpoint of
fifty-three in all, and that they are needed in the business of the the tax collecting officials. Taxation is a necessity as all must
corporation. In the parlance of equity, the subpoena before us agree. It is for the officials who have to enforce the revenue laws
savored of a fishing bill, and such bills are to be condemned. That to see to it that there is no evasion of those laws and that there is
this is so is shown by the phraseology of the subpoena which is a an equal distribution of the tax burden. To accomplish their duty
general command to produce all of the books of account for four it will often be incumbent upon the internal revenue officers, for
years. This, it seems to us, made the subpoena unreasonably the efficient administration of the service, to inspect the books of
broad in scope. The internal revenue officer had it within his merchants and even require the production of those books in the
power to examine any or all of the books of the corporation in the offices of the inspecting officials. The right of a citizen to his
offices of the corporation and then having ascertained what property becomes subservient to the public welfare. All [these] we
particular books were necessary for an official investigation had it are the first to concede. In proper cases, the officers of the Bureau
likewise within his power to issue a subpoena duces tecum of Internal Revenue should receive the support of the courts when
sufficiently explicit to be understood and sufficiently reasonable these officers attempt to perform in a conscientious and lawful
not to interfere with the ordinary course of business. But this manner the duties imposed upon them by law. The trouble is that
method was not followed. Obviously, if the special deputy could in the particular subpoena under scrutiny neither shows its
1930 call for the production of the books of the corporation for relevancy nor specifies with the particularity required by law the
1925, 1926, 1927, and 1928, the officer could have called for the books which are to be produced.
production of the books for the year just previous, or 1929, and for The second viewpoint is not that of the government on which is
the books of the current year, and if this could be done, the imposed the duty to collect taxes, but is the viewpoint of the
intrusion into private affairs with disastrous paralyzation of merchant. A citizen goes into business, and in so doing provides
business can easily be visualized.8 (Citations omitted) himself with the necessary books of account. He cannot have
government officials on a mere whim or a mere suspension taking
_______________ his books from his offices to the offices of the government for
inspection.
8  Id., at pp. 257-259.

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215 216

VOL. 808, NOVEMBER 9, 2016 215 216 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. De La Salle Commissioner of Internal Revenue vs. De La Salle
University, Inc. University, Inc.

To permit that would be to place a weapon in the hands of a its own rules as the taxpayer’s constitutional right against
miscellaneous number of government employees some of whom the unreasonable examination of its books and papers.
might use it improperly and others of whom might use it In Viduya v. Berdiago:10
improperly. With an understanding of the obligations of the
government to protect the citizen, the constitution and the organic It is not for this Court to do less than it can to implement and
law have done so by throwing around him a wall which makes his enforce the mandates of the customs and revenue laws. The evils
home and his private papers his castle. It should be our constant associated with tax evasion must be stamped out — without any
purpose to keep a subpoena duces tecum from being of such a disregard, it is to be affirmed, of any constitutional right.11
broad and sweeping character as to clash with the constitutional (Emphasis supplied)
prohibition against unreasonable searches and seizures.
 
Answering the question at issue, we do so without vacillation
The inevitability and indispensability of taxation is
by holding that the subpoena duces tecum was not properly issued
conceded. Under the law, the Bureau of Internal Revenue
in accordance with law because the showing of relevancy was not
has access to all relevant or material records and data of
sufficient to justify enforcing the production of the Chinese books;
the taxpayer for the purpose of collecting the correct
because the subpoena duces tecum failed to specify the particular
amount of tax.12 However, this authority must be exercised
books desired, and because a ruling should be avoided which in
reasonably and under the prescribed procedure.13 The
any manner appears to sanction an unreasonable search and
Commissioner and revenue officers must strictly comply
seizure. In the absence of a showing of materiality, and in the
with the requirements of the law and its own rules,14 with
absence of all particularity in specifying what is wanted by a
due regard to taxpayers’ constitutional rights. Otherwise,
subpoena duces tecum, the refusal of a merchant to obey a
taxpayers are placed in jeopardy of being deprived of their
subpoena, commanding him to produce his commercial books, will
property without due process of law.
be sustained. The courts function to protect the individual citizen
There is nothing in the law — nor do I see any great
of whatever class or nationality against an unjust inquisition of
difficulty — that could have prevented the Commissioner
his books and papers.9
from cancelling Letter of Authority No. 2794 and replacing
  it with a valid Letter of Authority. Thus, with the nullity of
If we were to uphold the validity of a letter of authority Letter of
covering a base year plus unverified prior years, we would
in essence encourage the unscrupulous practice of issuing _______________
letters of authority even without prior compliance with the
10  165 Phil. 533; 73 SCRA 553 (1976) [Per J. Fernando, Second
procedure that the Commissioner herself prescribed. This
Division].
would not help in curtailing inefficiencies and abuses
11  Id., at p. 542; p. 562.
among revenue officers in the discharge of their tasks.
There is nothing more devious than the scenario where 12  TAX CODE, Sec. 5; Commissioner of Internal Revenue v. Hantex

government ignores as much Trading Co., Inc., 494 Phil. 306; 454 SCRA 301 (2005) [Per J. Callejo, Sr.,
Second Division].
13  Commissioner of Internal Revenue v. United Salvage and Towage
_______________
(Phils.), Inc., 738 Phil. 335, 353; 729 SCRA 113, 136 (2014) [Per J. Peralta,
9  Id., at pp. 259-260. Third Division].

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14  Commissioner of Internal Revenue v. Metro Star Superama, Inc., 15  Rollo, pp. 143-144 (G.R. No. 196596), CTA En Banc Decision dated
652 Phil. 172, 184; 637 SCRA 633, 646 (2010) [Per J. Mendoza, Second July 29, 2010.
Division]. 16  Id., at p. 144.

   
   

217 218

VOL. 808, NOVEMBER 9, 2016 217 218 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. De La Salle Commissioner of Internal Revenue vs. De La Salle
University, Inc. University, Inc.

Authority No. 2794, the assessment against DLSU should These facts were supported by the findings of the Court-
be set aside. commissioned independent CPA (ICPA), Atty. Raymund S.
  Gallardo of Punongbayan & Araullo:
II
  From the journal vouchers/official receipts, we have traced that
DLSU is not liable for deficiency income tax and value- the income received from Alarey, Capri, MTO-Bookstore and
added tax. Zaide were temporarily booked under the Revenue account with
The following facts were established: the following codes: 001000506, 001000507, 001000513 and
(1) DLSU derived its income from its lease 001000514. At the end of the year, said temporary account were
contracts for canteen and bookstore services closed to PPF account (Exhibits LL-3-A, LL-3-B and LL-3-C).
with the following concessionaires: On the other hand, we have traced that the rental income
i. Alarey, Inc. received from MTO-PE Sports and La Casita [was] temporarily
ii. Capri International, Inc. booked under the Revenue Account Code 001000515 and
iii. Zaide Food Corporation 001000516 upon receipt in the fiscal year May 31, 2001. At the
iv. La Casita Roja end of fiscal year 2001, the said temporary accounts were closed
v. MTO International Product Mobilizer, Inc. to the DF-PE Sports. However, starting fiscal year 2002, the
(2) The rental income from the concessionaires was rental income from the said lessees was directly recorded under
added to the Depository Fund-PE Sports the DF-PE Sports account (Exhibits LL-4-A, LL-4-B, and LL-4-
Complex Fund and to the Physical Plant Fund C).17 (Emphasis in the original)
(PPF), and, this income was spent on the
 
Current Fund-Capital Projects Account (CF-
With regard to the disbursements from the CF-CPA
CPA).
Fund, the ICPA examined DLSU’s disbursement vouchers
(3) DLSU’s rental income from MTO-PE Sports
as well as subsidiary and general ledgers. It made the
Complex and La Casita, which was transmitted
following findings:
and used for the payment of the loan from
Philippine Trust Company for the construction Nature of 2001 2002 2003
of the PE Sports Complex, was actually, directly, Expenditure
and exclusively used for educational purposes.15        
(4) DLSU’s rental income from Alarey, Inc., Zaide Building P9,612,347.74 13,445,828.40 16,763,378.06
Food Corporation, Capri International, and Improvement
Furniture, 2,329,566.54 1,931,392.20 4,714,171.44
MTO-Book-store were transmitted to the CF- Fixtures &
CPA Account.16 Equipment
Air conditioner 2,216,797.20 1,748,813.16 1,758,278.00
_______________ Computer - - 227,715.52
Equipment
       
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Nature of 2001 2002 2003 assessment of deficiency income tax “for petitioner’s failure
Expenditure to fully account for and substantiate all the disbursements
        from the CF-CPA.”20 According to the Court of Tax
Total per P14,158,711.48P17,126,033.76P23,463,543.02 Appeals, “it cannot ascertain whether rent income from
subsidiary
ledger
MTO-Bookstore, Alarey, Zaide and Capri were indeed used
for educational purposes.”21
DLSU moved for reconsideration. Subsequently, it
_______________
formally offered to the Court of Tax Appeals First Division,
17  Id., at p. 119, CTA Decision dated January 5, 2010. among oth-

  _______________
 
18  Id., at p. 122.
219
19  Id., at p. 46 (G.R. No. 198841).
20  Id., at p. 132.
VOL. 808, NOVEMBER 9, 2016 219 21  Id.

Commissioner of Internal Revenue vs. De La Salle  

University, Inc.
 

Building 3,539,356.37 6,534,658.19 5,660,433.30 220

Improvement
Furniture, 1,654,196.14 767,864.00 71,785.00 220 SUPREME COURT REPORTS ANNOTATED
Fixtures &
Equipment Commissioner of Internal Revenue vs. De La Salle
University, Inc.
Air conditioner 2,111,552.20 1,444,594.21 340,300.00
Computer - - 186,560.00
Equipment ers,22 the following supplemental pieces of documentary
        evidence:
Total per P7,305,104.71P8,747,116.40 P6,259,078.30 1) Summary Schedule to Support Misplaced Vouchers
disbursement for the Period of 3 Years from School Year June 1,
vouchers 2001 to May 31, 2003 (Exh. XX);23 and
Difference P6,853,606.77P8,378,917.36P17,204,464.7218 2) Schedule of Disbursement Vouchers Examined
(Unlocated Documents) for the Fiscal Years Ended
Based on the subsidiary ledger (Exhibits “LL-29-A, LL-29-B May 31, 2001 (Exh. YY),24 May 31, 2002 (Exh. ZZ25)
and LL-29-C”), total expenses under the CF-CPA amounted to and May 31, 2003 (Exh. AAA). 26
P14,158,711.48 in 2001, P17,126,033.76 in 2002 and  
P23,463,543.02 in 2003. Of the said amounts, P6,853,606.77, These pieces of evidence were admitted by the Court of
8,378,917.36, P17,204,464.72 in 2001, 2002 and 2003 respectively, Tax Appeals in its Resolution dated June 9, 2010.27
were not validated since the disbursement vouchers were not DLSU’s controller, Francisco C. De La Cruz, Jr.
available. It was represented by the management that such testified:
amounts were strictly spent for renovation. However, due to the
Q9: Please tell us the relevance of Exhibit “XX.”
migration of accounts to the new accounting software to be used
A9: Exhibit “XX” provides an overview of what accounts do those
by the University sometime in 2011, some supporting documents
inadvertently misplaced documents pertain to. As will be shown by the
which were used in the migration were inadvertently misplaced.19
other exhibits, the details of these accounts are all entered, recorded
  and existing in the accounting software of Petitioner.
Hence, in its Decision dated January 5, 2010, the Court Q10: Please tell us the relevance of Exhibits “YY,” “ZZ” and “AAA.”
of Tax Appeals First Division upheld the Commissioner’s

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A10: These are the details of the accounts pertaining to the inadvertently
misplaced documents. Before the documents were inadvertently
misplaced, these have been entered in the accounting software of Pe-

_______________

22  Id., at pp. 140, 142-144 (G.R. No. 196596). The other documents
offered were: Statement of Receipts, Disbursement & Fund Balance for b. For Fiscal Year Ended May 31, 2002 (Exhibit ZZ)
the Period June 1, 1999 to May 31, 2000 (Exhibit “VV”); and Statement of
Fund Changes as of May 31, 2000 (Exhibit “WW”).
23  Id., at p. 166.
24  Id., at pp. 167-169.
25  Id., at pp. 170-172.
26  Id., at pp. 174-179.
27  Id., at p. 140. _______________

  28  Id., at p. 183, Judicial Affidavit of witness Francisco C. De La Cruz,

  Jr. dated 15 April 2010.
29  Id., at p. 169.
221
 
VOL. 808, NOVEMBER 9, 2016 221  

Commissioner of Internal Revenue vs. De La Salle 222

University, Inc.
222 SUPREME COURT REPORTS ANNOTATED
titioner. Details were downloaded from Petitioner’s accounting
software. Commissioner of Internal Revenue vs. De La Salle
University, Inc.
 
These details include the Charge Account, the Classification of
Expense per Chart Account of the University, the Cost Center per
Chart of Account of the University, the Supplier Name, the
Disbursement Voucher Number, the Disbursement Voucher Date,
the Check Number, the Check Date, the Cost, and the Description c. For Fiscal Year Ended May 31, 2003 (Exhibit AAA)
per Disbursement Voucher.
 
The specifics which accompany the entries were all taken from the
documents before these were inadvertently misplaced.
 
Exhibit “YY” pertains to the details of the accounts for Fiscal Year However, the Court of Tax Appeals First Division was
2001, Exhibit “ZZ” for Fiscal Year 2002, and Exhibit “AAA” for unconvinced. It simply stated that DLSU failed to
28
Fiscal Year 2003. sufficiently account for the unsubstantiated disbursements.
Although it considered the other additional documentary
  evidence (Exhibits “VV” and “WW”) formally offered by
Samples of the information provided in these pieces of DLSU, Exhibits “XX,” “YY,” “ZZ,” and “AAA” were brushed
evidence are as follows: aside without citing any reason or discussing the probative
a. For Fiscal Year Ended May 31, 2001 (Exhibit YY) value or weight of these additional pieces of evidence.32
Thus:
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With regard the unsubstantiated disbursements from the CF- On appeal, the Court of Tax Appeals En Banc simply
CPA, Petitioner alleged that the supporting documents were ruled that “petitioner again failed to fully account for and
inadvertently misplaced due to migration of accounts to its new substantiate all the disbursements from the CF-CPA
accounting software used sometime in 2001. In lieu thereof, Account.”35 The Court of Tax Appeals En Banc heavily
petitioner submitted downloaded copies of the Schedule of relied on the findings of the ICPA that “the [substantiated]
Disbursement Vouchers from its accounting software. disbursements from the CF-CPA Account for fiscal year
The Court is not convinced. 2003 amounts to P6,259,078.30.”36 However, these findings
According to ICPA’s findings, the petitioner was able to show of the ICPA were made when Exhibits “XX,” “YY,” “ZZ,”
only the disbursements from the CF-CPA amounting to and “AAA” had not yet been submitted. The additional
P7,305,104.71, P8,747,116.40 and P6,259,078.30 for the fiscal exhibits were offered by DLSU to address the findings of
years 2001, 2002 and 2003, respectively.33 the ICPA with regard to the unsubstantiated
disbursements. Unfortunately, nowhere in the Decision of
_______________ the Court of Tax Appeals En Banc was there a discussion
on the probative value or weight of these additional
30 Id., at p. 172. exhibits.
31 Id., at p. 179
32 Id., at p. 145 _______________
33  Id.
34  Id.
  35  Id., at p. 86 (G.R. No. 198841).
  36  Id.

223
 
 
VOL. 808, NOVEMBER 9, 2016 223
224
Commissioner of Internal Revenue vs. De La Salle
University, Inc.
224 SUPREME COURT REPORTS ANNOTATED

The Court of Tax Appeals First Division concluded that Commissioner of Internal Revenue vs. De La Salle
only the portion of the rental income pertaining to the University, Inc.
substantiated disbursements of the CF-CPA would be
considered as actually, directly, and exclusively used for As a rule, factual findings of the Court of Tax Appeals
educational purposes.34 This portion was computed by are entitled to the highest respect and will not be disturbed
multiplying the ratio of substantiated disbursements to the on appeal. Some exceptions that have been recognized by
total disbursements per subsidiary ledgers to the total this Court are: (1) when a party shows that the findings are
rental income, thus: not supported by substantial evidence or there is a showing
of gross error or abuse on the part of the tax court;37 (2)
Using the amounts determined for the Fiscal Year 2003: when the judgment is premised on a misapprehension of
facts;38 or (3) when the tax court failed to notice certain
P6,259,078.30    
------------------ =26.68% x P6,602,655.00 = P1,761,588.35 relevant facts that, if considered, would justify a different
P23,463,543.02     conclusion.39 The third exception applies here.
The Court of Tax Appeals should have considered the
Hence, for 2003, the portion of the rental income that additional pieces of evidence, which have been duly
was not sufficiently proven to have been used for admitted and formed part of the case records. This is a
educational purposes amounted to P4,841,066.65. This requirement of due process.40 The right to be heard, which
amount was used as base for computing the deficiency includes the right to present evidence, is meaningless if the
income tax and value-added tax. Court of Tax Appeals can simply ignore the evidence.
In Edwards v. McCoy:41
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[T]he object of a hearing is as much to have evidence considered produced in court, the offeror, upon proof of its execution or
as it is to present it. The right to adduce evidence, without the existence and the cause of its unavailability without bad faith on
corresponding duty to consider it, is vain. Such right is his part, may prove its contents by a copy, or by a recital of its
conspicuously futile if the person or contents in some authentic document, or by the testimony of
witnesses in the order stated.
_______________
 
37  Commissioner of Internal Revenue v. Mitsubishi Metal Corp., 260 For secondary evidence to be admissible, there must be
Phil. 224, 235; 181 SCRA 214, 220 (1990) [Per J. Regalado, Second satisfactory proof of: (a) the execution and existence of the
Division]; Commissioner of Internal Revenue v. Metro Star Superama, Inc., original; (b) the loss and destruction of the original or its
supra note 14 at p. 185; p. 640. non-production in court; and (c) the unavailability of the
38  Miguel J. Ossorio Pension Foundation, Inc. v. Court of Appeals, 635
original not being due to bad faith on the part of the
offeror. The admission by the Court of Tax Appeals First
Phil. 573, 585; 621 SCRA 606, 621 (2010) [Per J. Carpio, Second Division].
Division — which the En Banc affirmed — of these pieces
39  BPI-Family Savings Bank, Inc. v. Court of Appeals, 386 Phil. 719,
of evidence presupposes that all three prerequisites have
727; 330 SCRA 507, 514 (2000) [Per J. Panganiban, Third Division].
been established by DLSU, that is, that DLSU had
40  See Ginete v. Court of Appeals, 357 Phil. 36, 56; 296 SCRA 38, 55
sufficiently explained its nonpro-
(1998) [Per J. Romero, Third Division]
41  22 Phil. 598 (1912) [Per J. Moreland, First Division].
_______________
 
42  Id., at pp. 600-601.
 
43  69 Phil. 635 (1940) [Per J. Laurel, En Banc].
225 44  Id., at p. 642.

 
VOL. 808, NOVEMBER 9, 2016 225  
Commissioner of Internal Revenue vs. De La Salle
226
University, Inc.

persons to whom the evidence is presented can thrust it aside 226 SUPREME COURT REPORTS ANNOTATED
without notice or consideration.42 Commissioner of Internal Revenue vs. De La Salle
University, Inc.
 
In Ang Tibay v. Court of Industrial Relations,43 this
duction of the disbursement vouchers, and the cause of
Court similarly ruled that “not only must the party be
given an opportunity to present his case and to adduce unavailability is without bad faith on its part.
There can be no just determination of the present action
evidence tending to establish the rights which he asserts
if we ignore Exhibits “XX,” “YY,” “ZZ,” and “AAA,” which
but the tribunal must consider the evidence presented.”44
were submitted before the Court of Tax Appeals and which
The Rules of Court allows the presentation of secondary
supposedly contained the same information embodied in
evidence:
the unlocated disbursement vouchers. Exhibits “YY,” “ZZ,”
  and “AAA” were the downloaded copies of the Schedule of
RULE 130 Disbursement Vouchers from DLSU’s accounting software.
Rules of Admissibility The Commissioner did not dispute the veracity or
  correctness of the detailed entries in these documents.45
.... Her objection to the additional pieces of evidence was based
  on the ground that “DLSU was indirectly reopening the
Section 5. When original document is unavailable.—When trial of the case” and the additional exhibits were “not
the original document has been lost or destroyed, or cannot be newly discovered evidence.”46 An examination of these

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exhibits shows that the disbursements from the CF-CPA accounts of the [Petitioner] are maintained in accordance
Account were used for educational purposes. with the principle of fund accounting. This is the procedure
These additional pieces of evidence, taken together with by which resources for various purposes are classified for
the findings of the ICPA, corroborate the findings of the accounting and financial reporting purposes into funds that
Court of Tax Appeals in its January 5, 2010 Decision that are in accordance with specified activities and objectives.
DLSU uses “fund accounting” to ensure that the utilization Separate accounts are maintained for each fund; however,
of an income (i.e., rental income) is restricted to a specified in the accompanying financial statements, funds that have
purpose (educational purpose): similar characteristics have been combined into fund
groups. Accordingly, all financial transactions have been
Petitioner’s Controller, Mr. Francisco De La Cruz, stated the recorded and reported by fund group.47
following in his judicial affidavit:

Q: You mentioned that one of your functions as Controller is to ensure that _______________
[petitioner]’s utilization of income from all sources is consistent with
47  Rollo, pp. 127-128 (198841).
existing policies. What are some of [petitioner]’s policies regarding
utilization of its income from all sources?
 
A: Of particular importance are the following:
 
228
_______________

45  Rollo, p. 91 (G.R. No. 196596).

228 SUPREME COURT REPORTS ANNOTATED
46  Id.
Commissioner of Internal Revenue vs. De La Salle
  University, Inc.
 
227 ACCORDINGLY, I vote to GRANT the Petition of De
La Salle University, Inc. and to SET ASIDE the deficiency
assessments issued against it.
VOL. 808, NOVEMBER 9, 2016 227
Commissioner of Internal Revenue vs. De La Salle Petition in G.R. No. 196596 denied, judgment and
University, Inc. resolution affirmed; Both petitions in G.R. No. 198841 and
G.R. No. 198941 denied, judgment and resolution therein
affirmed with modification.
1. [Petitioner] has a long-standing policy to obtain funding for all
disbursements for educational purposes primarily from rental
Note.—The power of the Court of Tax Appeals includes
income earned from its lease contracts, present and future;
that of determining whether or not there has been grave
2. In funding all disbursements for educational purposes, [petitioner]
abuse of discretion amounting to lack or excess of
first exhausts its rental income earned from its lease contracts
jurisdiction on the part of the RTC in issuing an
before it utilizes income from other sources; and
interlocutory order in cases falling within the exclusive
3. [Petitioner] extends regular financial assistance by way of grants,
appellate jurisdiction of the tax court. (The City of Manila
donations, dole-outs, loans and the like to St. Yon for the latter’s
vs. Grecia-Cuerdo, 715 SCRA 182 [2014])
pursuit of its purely educational purposes stated in its AOI.
 
The evaluation of petitioner’s audited financial statements for ——o0o——
the years 2001, 2002, and 2003 shows that it uses fund
 
accounting. The Notes to Financial Statements disclose:

2.6 Fund Accounting

 
To ensure observance of limitations and restrictions placed
on the use of resources available to the [Petitioner], the
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