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6 views5 pagesCir v. Dlsu
The Supreme Court ruled that the income of non-stock, non-profit educational institutions, such as De La Salle University (DLSU), is exempt from taxes if it is used actually, directly, and exclusively for educational purposes. The Court determined that the tax exemption granted by the Constitution is not subject to limitations imposed by law, contrasting it with proprietary educational institutions. Consequently, the income and revenues of DLSU that meet these criteria are exempt from duties and taxes.
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0% found this document useful (0 votes)
6 views5 pagesCir v. Dlsu
The Supreme Court ruled that the income of non-stock, non-profit educational institutions, such as De La Salle University (DLSU), is exempt from taxes if it is used actually, directly, and exclusively for educational purposes. The Court determined that the tax exemption granted by the Constitution is not subject to limitations imposed by law, contrasting it with proprietary educational institutions. Consequently, the income and revenues of DLSU that meet these criteria are exempt from duties and taxes.
Uploaded by
Janiza G. MariquitCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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/ 5
COMMISSIONER OF INTERNAL REVENUE, Petitioner
vs. DE LA SALLE UNIVERSITY, INC., Respondent (G.R.
No. 196596)
The tax exemption granted by the Constitution to non-stock, non-profit educational
institutions is not subject to limitations imposed by law.
Facts:
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to
DLSU Letter of Authority (LOA) No. 2794 authorizing its revenue
officers to examine the latter’s books of accounts and other
accounting records for all internal revenue taxes for the
period Fiscal Year Ending 2003 and Unverified Prior Years.
On May 19, 2004, BIR issued a Preliminary Assessment Notice to
DLSU.
Subsequently on August 18, 2004, the BIR through a Formal Letter
of Demand assessed DLSU the following deficiency taxes:
(1) income tax on rental earnings from restaurants/canteens and
bookstores operating within the campus; (2) value-added tax
(VAI) on business income; and (3) documentary stamp tax (DSI) on
loans and lease contracts.
DLSU protested the assessment. The Commissioner failed to act on
the protest; thus, DLSU filed on August 3, 2005 a petition for review
with the CTA Division.
DLSU, a non-stock, non-profit educational institution, principally
anchored its petition on Article XIV, Section 4 (3) of the
Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. xxx.
On January 5, 2010, the CTA Division partially granted DLSU’s
petition for review.
Both the Commissioner and DLSU moved for the reconsideration of
the January 5, 2010 decision. On April 6, 2010, the CTA Division
denied the Commissioner’s motion for reconsideration while it held
in abeyance the resolution on DLSU’s motion for reconsideration.
On May 13, 2010, the Commissioner appealed to the CTA En
Banc (CTA En Banc Case No. 622) arguing that DLSU’s use of its
revenues and assets for non-educational or commercial purposes
removed these items from the exemption coverage under the
Constitution.
On May 18, 2010, DLSU formally offered to the CTA Division
supplemental pieces of documentary evidence to prove that its
rental income was used actually, directly and exclusively for
educational purposes.
On July 29, 2010, the CTA Division, in view of the supplemental
evidence submitted, reduced the amount of DLSU’s tax deficiencies.
Consequently, the Commissioner supplemented its petition with the
CTA En Banc and argued that the CTA Division erred in admitting
DLSU’s additional evidence.
The CTA En Banc dismissed the Commissioner’s petition for review
and sustained the findings of the CTA Division.
Relying on the findings of the court-commissioned Independent
Certified Public Accountant (Independent CPA), the CTA En
Banc found that DLSU was able to prove that a portion of the
assessed rental income was used actually, directly and exclusively
for educational purposes; hence, exempt from tax. The CTA En
Banc was satisfied with DLSU’s supporting evidence confirming that
part of its rental income had indeed been used to pay the loan it
obtained to build the university’s Physical Education – Sports
Complex.
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 subjected to income tax and VAT.
The Commissioner moved but failed to obtain a reconsideration of
the CTA En Banc’s December 10, 2010 decision. Thus, she came to
the Supreme Court for relief through a petition for review
on certiorari.
Arguments of the CIR
The Commissioner submits that DLSU’s rental income is taxable
regardless of how such income is derived, used or disposed of.
DLSU’s operations of canteens and bookstores within its campus
even though exclusively serving the university community do not
negate income tax liability.
The Commissioner posits that the 1997 Tax Code qualified the tax
exemption granted to non-stock, non-profit educational institutions
such that the revenues and income they derived from their assets,
or from any of their activities conducted for profit, are taxable even
if these revenues and income are used for educational purposes.
Issue:
Whether the income of DLSU from the leases of its real
properties is subject to tax regardless of its disposition.
Ruling:
No.
The revenues and assets of non-stock, non-profit educational institutions proved
to have been used actually, directly, and exclusively for educational purposes
are exempt from duties and taxes.
While the present petition appears to be a case of first impression,
the Court in the YMCA case had in fact already analyzed and
explained the meaning of Article XIV, Section 4 (3) of the
Constitution. The Court in that case made doctrinal pronouncements
that are relevant to the present case.
The Court then significantly laid down the requisites for availing the
tax exemption under Article XIV, Section 4 (3), namely: (1) the
taxpayer falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly and
exclusively for educational purposes.
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without force
and effect with respect to non-stock, non-profit educational
institutions, provided, that the non-stock, non-profit educational
institutions prove that its assets and revenues are used actually,
directly and exclusively for educational purposes.
2. The tax-exemption constitutionally-granted to non-stock, non-
profit educational institutions, is not subject to limitations imposed
by law.
The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and exclusive
use of their assets, revenues and income for educational purposes.
X x x x x a plain reading of the Constitution would show that Article
XIV, Section 4 (3) does not require that the revenues and income
must have also been sourced from educational activities or activities
related to the purposes of an educational institution. The phrase all
revenues is unqualified by any reference to the source of revenues.
Thus, so long as the revenues and income are used actually, directly
and exclusively for educational purposes, then said revenues and
income shall be exempt from taxes and duties.
The tax exemption granted by the Constitution to non-stock, non-profit
educational institutions, unlike the exemption that may be availed of by
proprietary educational institutions, is not subject to limitations imposed by law.
That the Constitution treats non-stock, non-profit educational
institutions differently from proprietary educational institutions
cannot be doubted. As discussed, the privilege granted to the
former is conditioned only on the actual, direct and exclusive use of
their revenues and assets for educational purposes. In clear
contrast, the tax privilege granted to the latter may be subject to
limitations imposed by law.
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 of non-stock,
non-profit educational institutions used actually, directly and
exclusively for educational purpose. We make this declaration in the
exercise of and consistent with our duty to uphold the primacy of
the Constitution.
For all these reasons, we hold that the income and revenues of
DLSU proven to have been used actually, directly and
exclusively for educational purposes are exempt from duties
and taxes.
