Delos Santos vs. Commissioner of Internal Revenue

A case challenging the validity of a revenue memorandum circular becomes moot and academic when the circular has been previously declared invalid by the Supreme Court in a final judgment.

Fritz Bryn Anthony M. Delos Santos, a resident of a condominium unit in Makati, paid association dues to Classica Tower Condominium Association, Inc. On October 31, 2012, the Commissioner of Internal Revenue issued Revenue Memorandum Circular No. 65-2012, which clarified that association dues, membership fees, and similar charges collected by condominium corporations are subject to income tax, value-added tax (VAT), and withholding tax. The Circular abandoned the previous interpretation that such dues were merely held in trust. On January 4, 2016, the condominium association billed Delos Santos for VAT on his association dues pursuant to the Circular. After paying under protest, he filed a direct Petition for Certiorari before the Supreme Court, arguing the Circular was unconstitutional and issued without legal basis.

• Parties and Subject Matter: Petitioner Fritz Bryn Anthony M. Delos Santos was a unit owner paying association dues to Classica Tower Condominium Association, Inc. Respondent was the Commissioner of Internal Revenue.
• Issuance of the Circular: On October 31, 2012, the Commissioner issued Revenue Memorandum Circular No. 65-2012, which declared that association dues and similar charges collected by condominium corporations constitute income payments for beneficial services, and are therefore subject to income tax, VAT, and withholding tax.
• Impact on Petitioner: On January 4, 2016, petitioner's condominium association billed him for VAT on his association dues pursuant to the Circular. He paid the amount on January 21, 2016.
• Petitioner's Challenge: Petitioner filed a direct Petition for Certiorari, alleging the Circular violated substantive due process, had no legal basis, and modified the National Internal Revenue Code. He argued association dues are not payments for services but contributions held in trust for maintenance.
• Respondent's Defense: The Commissioner argued the Circular was a valid exercise of quasi-legislative power, merely clarifying tax rules, and that petitioner used the wrong remedy.
• Supervening Event: During the pendency of the case, the Supreme Court's First Division promulgated Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp. (G.R. Nos. 215801 & 218924, January 15, 2020), which declared the very same Circular invalid.

• Due Process and Lack of Legal Basis: Petitioner argued the Circular was issued without legal or judicial basis, violating substantive due process, and constituted a breach of the President's duty to faithfully execute laws.
• Nature of Association Dues: Petitioner maintained that association dues are not payments for services but contributions held in a fiduciary capacity by the condominium corporation to defray maintenance costs. The corporation does not earn income from these dues.
• Invalid Subordinate Legislation: Petitioner contended the Circular modified Sections 105 and 108 of the National Internal Revenue Code, as VAT is a tax on consumption, and unit owners do not consume services from the dues. The Circular should be strictly construed against the taxing authority.
• Mootness Exception: Petitioner asserted that even if the TRAIN Law's subsequent exemption of association dues from VAT mooted the case, the Court should still rule to address the effects of the erroneously collected tax and prevent future similar issuances.

• Procedural InfirmitY: Respondent countered that a Petition for Certiorari was improper because the Circular was issued under the Commissioner's quasi-legislative power. The proper remedy was a petition for declaratory relief before the Regional Trial Court, or an appeal to the Secretary of Finance.
• Validity of the Circular: Respondent argued that condominium management is a beneficial service, and payments for such services are included in the corporation's gross income. The Circular was a valid clarification and correction of previous BIR rulings.

• Procedural Propriety: Whether a Petition for Certiorari under Rule 65 is the proper remedy to assail the validity of a revenue memorandum circular.
• Validity of the Circular: Whether Revenue Memorandum Circular No. 65-2012 is valid in subjecting condominium association dues to VAT, income tax, and withholding tax.
• Mootness: Whether the supervening promulgation of a decision invalidating the same circular renders the petition moot and academic.

• Procedural Propriety: The Court did not squarely rule on this issue, as it dismissed the petition on the ground of mootness. However, it implicitly accepted the petition's filing by proceeding to resolve the case on substantive grounds before the supervening event.
• Validity of the Circular: The Court did not independently rule on the circular's validity in this case. Instead, it relied entirely on its prior ruling in Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp., where the circular was declared invalid. The Commissioner gravely abused discretion by issuing a circular that did not merely interpret but changed long-standing rules, and which improperly subjected association dues to taxes not applicable under the law.
• Mootness: The petition was dismissed for being moot and academic. The prior Supreme Court decision declaring the circular invalid constituted a supervening event that removed the actual controversy. None of the recognized exceptions to the mootness doctrine (e.g., grave constitutional violation, paramount public interest, capable of repetition yet evading review) were found applicable.

• Mootness Doctrine — A case becomes moot and academic when it ceases to present a justiciable controversy due to a supervening event, rendering any judicial declaration without practical use or value. Courts generally decline jurisdiction over such cases, except under specific exceptions (grave constitutional violation, exceptional situation with paramount public interest, need for controlling principles, or cases capable of repetition yet evading review). The Court applied this doctrine to dismiss the petition after the circular's invalidity was settled in a prior case.

• "This Court cannot render judgment after the issue has already been resolved by or through external developments, and no relief prayed for can be granted or denied." — This passage articulates the core rationale for the mootness doctrine, emphasizing the lack of a live controversy for courts to resolve.

• Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp., G.R. Nos. 215801 & 218924, January 15, 2020 — Controlling precedent. The Court relied on this case, which directly invalidated Revenue Memorandum Circular No. 65-2012, as the basis for finding the present petition moot.
• Yamane v. BA Lepanto Condominium Corporation, 510 Phil. 750 (2005) — Cited in the First E-Bank decision (and referenced here) to support the ruling that a condominium corporation is not engaged in trade or business, and association dues are for maintenance, not profit.
• David v. Macapagal-Arroyo, 522 Phil. 705 (2006) — Cited to enumerate the exceptions to the mootness doctrine.
• Funa v. Agra, 704 Phil. 205 (2013) and Kilusang Mayo Uno v. Aquino, G.R. No. 210500, April 2, 2019 — Cited for the definition and general principle of the mootness doctrine.

• Sections 105 and 108, National Internal Revenue Code of 1997 — These provisions impose VAT on the sale or exchange of services and the importation of goods. The petitioner argued, and the prior ruling in First E-Bank agreed, that the collection of association dues by a condominium corporation does not constitute a "sale or exchange of services" as defined therein, making the Circular's imposition of VAT unauthorized.
• Section 32, National Internal Revenue Code of 1997 — This provision defines gross income. The Court in First E-Bank noted that association dues are not included in the enumeration of income sources, further undermining the Circular's basis for imposing income tax.
• Section 34(Y), Tax Reform for Acceleration and Inclusion (TRAIN) Law — Cited by petitioner in his Reply, this provision expressly exempts association dues, membership fees, and other charges collected by homeowners associations and condominium corporations from VAT. The petitioner argued this automatically revoked the Circular.

• Justice Alfredo Benjamin S. Caguioa (Ponente in the cited First E-Bank case)
• Justice Henri Jean Paul B. Inting
• Justice Rodil V. Zalameda
• Justice Maria Filomena D. Singh

• N/A. The decision was unanimous.