Commissioner of Internal Revenue vs. Federation of Golf Clubs of the Philippines, Inc.

Membership fees, assessment dues, and fees of similar nature collected by clubs organized and operated exclusively for pleasure, recreation, and other non-profit purposes, when treated as collections from members for maintenance, preservation, and upkeep of general operations and facilities, do not constitute taxable income or gross receipts subject to VAT. Accordingly, RMC No. 35-2012 was invalid to the extent it included such fees within income tax and VAT coverage, the Bureau having exceeded its rule-making authority.

The Commissioner of Internal Revenue exercises exclusive and original jurisdiction to interpret the National Internal Revenue Code, subject to review by the Secretary of Finance, and issues revenue memorandum circulars to secure uniform interpretation. Federation of Golf Clubs of the Philippines, Inc. is an association of member golf clubs organized and operated exclusively for pleasure, recreation, and other non-profit purposes. The governing provisions are Section 30 of the 1997 NIRC on corporate income tax exemptions, which omitted the express recreational-club exemption found in the 1977 NIRC, and Section 105 of the 1997 NIRC on persons liable for VAT in the course of trade or business, including nonstock, nonprofit organizations.

RMC No. 35-2012, issued August 3, 2012 to clarify taxability of clubs organized and operated exclusively for pleasure, recreation, and other non-profit purposes, subjected their income from whatever source, including membership fees, assessment dues, rental income, and service fees, to income tax, and their gross receipts, including the same items, to value-added tax. The circular reasoned that the 1977 NIRC provision granting income tax exemption to recreational clubs was omitted from the list of exempt corporations under Section 30 of the 1997 NIRC, and that Section 105 expressly makes even nonstock, nonprofit organizations liable for VAT on sale of goods or services.

Federation of Golf Clubs of the Philippines, Inc. alleged adverse consequences to it and its member golf clubs, as membership fees, dues, and assessments previously had not been subjected to income tax and VAT. On October 22, 2012, it filed a motion for review and clarification of RMC No. 35-2012, praying for review of the interpretation to exempt organizations under Section 30 of the 1997 NIRC and to exempt monthly dues, membership dues, and special and necessary assessments from income tax and VAT. The motion remained unacted upon. Despite the filing of its petition for declaratory relief, FEDGOLF alleged payment of taxes under the assailed RMC under protest.

According to the CIR, the RTC lacked jurisdiction because jurisdiction over CIR decisions or matters arising under the NIRC lies with the Court of Tax Appeals, and recreational clubs are not among the tax-exempt organizations under Section 30. FEDGOLF, for its part, insisted the RTC properly took cognizance as an action for declaratory relief incapable of pecuniary estimation, and that membership dues and assessments were contributions to capital, not income. The RTC sustained jurisdiction, declared the RMC invalid as an excess of authority encroaching on legislative prerogative and as a legislative rule issued without due process, and further held petitioner exempt from income tax under Section 30(E) and from VAT under Section 105 because dues are capital contributions to defray administrative and maintenance costs, not payment for goods or services.

• Exhaustion of Administrative Remedies: Petitioner argued that FEDGOLF failed to exhaust administrative remedies by filing before the RTC instead of seeking review by the Secretary of the Department of Finance under Section 4 of the NIRC over the CIR's interpretative act.
• Declaratory Relief and Jurisdiction: Petitioner maintained that the RTC erroneously took cognizance of the petition for declaratory relief, considering FEDGOLF's failure to show that no breach or violation of RMC No. 35-2012 had been committed, and that jurisdiction lay with the Court of Tax Appeals over matters arising under the NIRC.
• Validity of RMC and Taxability: Petitioner argued that RMC No. 35-2012 was a valid exercise of delegated rule-making power to establish uniform interpretation amid inconsistent BIR rulings, that recreational clubs were deliberately omitted from Section 30 exemptions under the doctrine of casus omissus pro omisso habendus est, and that their income of whatever source and gross receipts, including membership fees and dues, are thus subject to income tax and VAT under Sections 30 and 105.

• Jurisdiction for Declaratory Relief: Respondent insisted that the allegations clearly established a case for declaratory relief, with all requisites present, and being incapable of pecuniary estimation, RTC cognizance was proper.
• Exemption from Income Tax and VAT: Respondent maintained that membership dues and assessments are contributions to capital for upkeep and operations, not income, and are exempt as received by organizations under Section 30 of the 1997 NIRC; likewise, such dues cannot be subjected to VAT under Section 105 because they are not payment for purchase of goods and services.
• Adverse Effect and Protest Payment: Respondent argued that implementation of the RMC adversely affected it and its members after prior non-taxation, that its motion for review and clarification remained unacted upon, and that taxes had been paid only under protest.

• Exhaustion of Administrative Remedies: Whether FEDGOLF's failure to seek review by the Secretary of Finance under Section 4 of the NIRC bars recourse to the courts.
• Declaratory Relief and Jurisdiction: Whether the RTC properly took cognizance of the petition for declaratory relief assailing RMC No. 35-2012 despite alleged breach and CTA jurisdiction.
• Income Tax Liability: Whether membership fees, assessment dues, and fees of similar nature collected by recreational clubs constitute income subject to income tax under RMC No. 35-2012.
• VAT Liability: Whether such membership fees, assessment dues, and similar charges form part of gross receipts subject to VAT under Section 105 of the 1997 NIRC.

• Exhaustion of Administrative Remedies: Excused. A purely legal issue allows relaxation of exhaustion, the interpretative rule being subject to judicial review notwithstanding Section 4 review by the Secretary of Finance.
• Declaratory Relief and Jurisdiction: Yes. The petition, though styled as declaratory relief, may be treated as prohibition where the act has far-reaching implications and allegedly usurps legislative authority.
• Income Tax Liability: No. Such fees, as collections inherent to membership intended for maintenance and upkeep, are capital, not income of whatever source subject to income tax.
• VAT Liability: No. Collection of such fees involves no sale, barter or exchange of goods or properties or sale of service, hence not part of gross receipts subject to VAT.

• Exhaustion of Administrative Remedies: Relaxation was warranted because only a question of law — the correct interpretation of income and gross receipts as applied to membership fees — was presented. While issuance of RMC No. 35-2012 as an interpretative rule is subject to review by the Secretary of Finance under Section 4 of the NIRC, the precedent in Association of Non-Profit Clubs, Inc. vs. Bureau of Internal Revenue permits direct resort to courts for purely legal issues.
• Declaratory Relief and Jurisdiction: Cognizance was sustained under Bureau of Internal Revenue vs. First E-Bank Tower Condominium Corporation, Department of Transportation vs. Philippine Petroleum Sea Transport Association, and Diaz vs. Secretary of Finance. Although declaratory relief is generally improper against government issuances, treatment as prohibition is allowed when implications are far-reaching and usurpation of legislative authority is alleged, both present here as validity affects all recreational clubs and the BIR's sweeping inclusion exceeded rule-making authority.
• Income Tax Liability: The interpretation in RMC No. 35-2012 erroneously eradicated the distinction between income — money coming within a specified time as payment for services, interest or profit from investment — and capital — fund or wealth. Membership fees and the like, intended for upkeep of facilities and operations rather than revenue generation, form part of capital from which no income tax may be collected, the State being barred from taxing capital as unconstitutional confiscation of property. Deletion of recreational clubs from Section 30 did not convert capital contributions into income.
• VAT Liability: Section 105 taxes only sale, barter or exchange of goods or properties, or sale of service in the course of trade or business. In collecting fees from members, recreational clubs sell no service and members procure no service, so no taxable sale or service exists. Inclusion of such gross receipts within VAT coverage therefore exceeded rule-making authority, invalid only to that extent rather than in the circular's entirety.

• Income vs. Capital distinction — Income is an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment, while capital is fund or wealth. Applied here, membership fees, assessment dues, and similar charges intended for maintenance, preservation, and upkeep of clubs' operations are capital, not income, and only a recreational club's income is subject to taxation because taxation of capital constitutes unconstitutional confiscation of property.
• VAT requires sale or service — Under Section 105 of the 1997 NIRC, VAT attaches to sale, barter or exchange of goods or properties, or sale of service in the course of trade or business. Applied here, collections by recreational clubs from members as a consequence of membership, without sale of goods or rendition of service, are not part of gross receipts subject to VAT.
• Stare decisis et non quieta movere — To adhere to precedents and not unsettle things established; judicial decisions form part of the legal system and bar relitigation of the same issue by similarly situated parties absent strong and compelling reasons. Applied here, Association of Non-Profit Clubs, Inc. vs. Bureau of Internal Revenue had resolved RMC No. 35-2012's validity as to the same fees, and Republic Act No. 10963 did not change the definition of income or VAT coverage, so the prior rationale remained controlling.
• Declaratory relief treated as prohibition; exhaustion exception — Although a petition for declaratory relief is generally improper to assail government issuances and interpretative rules are subject to Secretary of Finance review under Section 4, review is allowed for purely legal issues, and the petition may be treated as prohibition when far-reaching public implications exist or executive usurpation of legislative authority is alleged. Applied here to sustain judicial cognizance over the challenge to RMC No. 35-2012.

• "the State cannot impose tax on capital as it constitutes an unconstitutional confiscation of property." — States the constitutional limit underpinning the income-tax ruling that upkeep fees, as capital, cannot be taxed as income.
• "In fine, for as Ions as these membership fees, assessment dues, and the like are treated as collections by recreational clubs from their members as inherent consequence of their membership, and are, by nature, intended for the maintenance, preservation, and upkeep of the clubs' general operations and facilities, then these fees cannot be classified as "the income of recreational clubs from whatever source" that are "subject to income tax". Instead, they only form part of capital from which no income tax may be collected or imposed." — Formulates the controlling test for excluding membership collections from income tax, adopted by stare decisis.
• "there could be no sale, barter or exchange of goods or properties, or sale of a service to speak of, which would then be subject to VAT under the 1997 NIRC" — Articulates the VAT ratio that member dues involve no taxable sale or service.
• "to adhere to precedents and not to unsettle things which are established" — Defines stare decisis as applied to deny relitigation of RMC No. 35-2012's validity already decided in ANPC.

• Association of Non-Profit Clubs, Inc. (ANPC) vs. Bureau of Internal Revenue, G.R. No. 228539, June 26, 2019 — Controlling precedent followed; precisely resolved that membership fees and similar charges are neither income nor gross receipts, rendering RMC No. 35-2012 invalid to that extent and allowing relaxation of exhaustion for purely legal issues.
• Bureau of Internal Revenue vs. First E-Bank Tower Condominium Corporation, G.R. No. 215801, January 15, 2020 — Cited with Department of Transportation vs. Philippine Petroleum Sea Transport Association and Diaz vs. Secretary of Finance for the rule that declaratory relief assailing government issuances may be treated as prohibition when far-reaching implications or usurpation of legislative authority is alleged.
• Comwi vs. Court of Tax Appeals, G.R. No. 48532, August 31, 1992, 213 SCRA 83 — Cited in ANPC for the definition of income as money coming within a specified time as payment for services, interest or profit from investment.
• Madrigal vs. Rafferty, 38 Phil. 414 (1918) — Cited in ANPC for the definition of capital as fund or wealth, supporting the capital-contribution characterization.

• Section 30, 1997 National Internal Revenue Code — Enumerates organizations not taxed on income received as such, including nonstock corporations organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes; applied to reject total exemption for recreational clubs omitted from the list yet to hold that omission does not convert capital dues into taxable income.
• Section 105, 1997 National Internal Revenue Code — Imposes VAT on persons who in the course of trade or business sell, barter, exchange, lease goods or properties, render services, or import goods, including nonstock, nonprofit organizations; applied to hold that membership collections without sale or service are not gross receipts subject to VAT.
• Section 4, 1997 National Internal Revenue Code — Vests exclusive and original jurisdiction in the Commissioner to interpret tax laws, subject to review by the Secretary of Finance; applied to frame the exhaustion issue, excused here as a purely legal question.
• Section 16(e), 1977 National Internal Revenue Code — Previously exempted corporations organized and operated exclusively for religious, charitable, scientific, athletic or cultural purposes; contrasted with the 1997 list to explain the CIR's casus omissus rationale for RMC No. 35-2012.
• Republic Act No. 10963 (TRAIN Law) — Amendments to the 1997 NIRC noted as not changing the definition of income or VAT coverage, leaving the ANPC rationale applicable.

Peralta, C.J., Caguioa, Lazaro-Javier, and Lopez, JJ., concur.