Conghrgacion De la Mission De San Vicente De Paul vs. Go CTA Cage Ho, et al.

DECISION

* 4 From the deeision of respondent dated Septem- ber 4, 1963, denying petitioner's request for reconsideration of respondent's assessment which held petitioner lisble for 1956 and 1957 deficiency in- come tax and interests amounting to ?22,516.70, plus 91,020.00 ané ®150,00 as real estate dealer's fixed tax and compromise penalty for failure to heep books of seccounts for the seid years, this appeal was taken, Petitioner, a corporation sole organized in sccordsinee with the lews of the Philippines, is operated for religious, charitable ond edves- tional purposes (Exh. F, pp. 63=71, CTA rees). It ‘filed on time its corporate income tax returns for 1956 and 1957, reporting therein losses and deductions exceeding its net taxabdle income from

DECISION ~

CTA CASE WO, 1668 2 rents, interests, and dividends from various gourees (Nxhibits B and A, pp. t=%, BIR rec.) Consequently, petitioner declared no taxable income for said yeers. After verification of the said returns by Revenue Examiner Antonio L. Agui- ler, respondent sent to petitioner on January 29, 1962, a letter-assessuent for 1956 and 1957 éefieieney income tex amounting to 22,516.70 ‘plus ©1,920.00 as real estate dealer's fixed tex for said years, computed as follows: |

aS Pa AI)

Net aoe ee return « « +.0 © «© © (45 5227.97) Unallowa deductions:

Maintenance and

Allowance of Com, Prtest eo se @ @ @& oP, Olt "233 Capital loss on sale of securi- ties &® e Net income boas ee ia Tax due thereon . « « oeeree Aad: mc. interest from 20059 to 4-29-62 ee e@ 6 TOTAL AMOUNT pie AWD COLLECTIBIE tie Net loss per return... 2 « « (FP 9,070.42) Unallewable deductions:

Maintenance and

Allowance of

Comm. Priest . . « 48,225.93 Stocks ascertained to be Morne oe conteisee leaneead = pa o- "2 Net income per investigation . oes Tax due thereon . « « « oe ow eo PINs ev Adds | awe interest from 20- 59 to 1-29-62 ewe wuabet 3025

TOTAL AMOUNT DUE AND COLLACTIBIE 120813025

r 263 For real estate dealer's fixed , tax for 1956 —" ovevel *s So c00 or compromise pena owen ‘eo - (Gzh. Cy pps 26~27y BIA ree.) F The breakdown of petitioner's income according to sources are as follows:

Dividends «7,916.00 7.15940 San Miguel Brewery 2 395942635 474136098 Consclidated "ines , ) versal insurance Coe Se a ee Petitioner protested the said 4ncome tax assessments and requested théir caneellation and _ Feconsideration in « letter cated March 1, 1962 (Exhibits D and D-1, pp. 42-48, BIR ree.) claiming that, wnder Seetion 27(e) and (k) of the Tax Code, it is exempt from the payment of the incone tax assessed against it. In a letter dated September %, 1953, which was reeeived by petitioner on Sentember 20, 1963, respondent denied petitioner's request for reconsideration (Exhibit 5, pp. 5/- $9, BIR PeGs; Pps Fy 10 and 46, tesene). On Setober 21,1963, this appeal was filed in court.

Based on the SIR records and pleadings of the parties, the issues submitted to the Court for resolution are as follows:

(a) Whether or not this Court has jurisdiction to take cognizance cf the case;

DECISION «

CTA CASE WO, 1468 “

(b) whether or not petitioner is subject te incene tax on its income from rents, ae ané dividends on real and personel properties;

(e) Whether or not petitioner is liable for real estate deal- er‘s fixed tax; and (@) Whether cr not petitioner is = aye for the compromise pen- a Aig pd for cypong Ae to p boo ks Of aecounts ss by Section 334 of the Tirst issue - Respondent ¢lains that the appeel was filed beyond the 30-day periog preseribed by Section 11 of | Republic Aet So. 1125 and, therefore, this Court has no jurisdiction to take ecognisance of the case.

The evidence, however, shows that respondent's appealable decision, dated September 4, 1963, was received by petitioner on September 20, 1963. Accordingly, the j-day statutory period of ap- peal started to run from September 21, 1963. plying the rule. of exclude the on fhe iast day method of computation (Art. 139 Civil - Cede of the Philippines), the 30-day period within which to file the appeal fell on “eteber 20, 1963. However, since “etober 20, 1963 was a Sunday, un- der Section 31 of the Nevised Administrative ‘Code, petitioner could file in court its appeal or petition for review on the next succeeding —

DRCISION «

CTA CASE HO, 1468 5 business day, thet is, October 21, 1963. Con- sequently, petitioner's appeal was seasonably made and, therefore, this Court has jurisdietion to take cogni zanee of es casts ) ) g J r > Petitioner contends that the income from rents, interests and dividends of its reel ané personal properties is exempt from income tax under the provisions of “ection 27(e) and (k) of the Tax Code, fnfra. Its argument is predicated on the propesition thet the destination of seid income wes in furtherance of its religious, charitable, and educational objectives considering — thet the said income wes turned over to the St. Vineent Seminary, an organization operated by it to cerry out the funetion of educating, training and preparing Filipino youths for Catholic priest- hood. It also argues thet the income in question, perticularly the rents of a portion of its property to the Adamson University, end the dividends from investments were earned not es a result of busi- ness venture, but serely to augment its inadequate | funda te be spent for its educational pursuits, Finally, petitioner invokes the ruling in the case of Bishop of ‘ueva Segovia v. Collector of Internal Revenue, 50 hil. 618, wherein our Supreme Court held that the ultimate test of the 266

DECISION

CTA CASE WO, 1468 6 tax exemption wes the destination of the incene, regardless cf ite being derived from the productive use of its real ané personal preyerties. — Respondent maintains, however, that an orgeniz, tion, like the petitioner, whieh is eperated fer religious, charitable and educational purposes are not exempt from income tax on inecue Gerived from the productive use of their real and personal properties; ané profitable business ven- tures not essential to, or necessarily connected with their religious, charitable, and edueational purposes, relying upon the provisions of Section 27(e) and (k) of the Tex Code, which read as follows: :

SES. 276 2a ons shall not be taxed this Title in resrect.to income received by them as such x x x }

(e) Corporation or association ganized and operated exclusively by or eee ene scien- tific tle, cul edueational pe = Bor or “ry Oy the rehabilitation of veterans no part of the net income of which inures te the benefit of any private stoek~ ~ pwn or Sateeseusis "1 rd

DECISION -

CTA CASE HO, 1468 x x & x ss pee.» YS ye at a or exe. ve purpose of holding title to property, col- leeting income there and ever the entire amount less expenses, to an organization iter: ene yf is ox t from the tex posed by thi e bities (aderiiaing . supplied ‘there is no dispute that the ineose in ques-— tion consists of rents, interests, and dividends of petitioner's real song] preperties. Having originated from the tive use of petitioner's properties which are not essentiel ( tO, or necessarily connected with its religious, eharitable, and educational pursuits, the said incone is subject ee incens tex even if it was =| turned over te and spent by St. Vincent Seminary, @ corporation cpereted for religious and chariteble purposes. The final and ultimate destination of petitioner's income from the rentel of its real property; dividends from investments in mining, insurance, and commercial corporetions;s and interests from loans or deposits did not render it exempt from income tax under Section 27(e) and

(x) ef the Tax Code because the income from any activity conducted for profit is subject to in- cone tax under the anendatory lew \(Sec. 5, Repe Act. lo. 82).

*

DECISION

CTA CASE BO, 1468 gd (_ Moreover, exenuption from taxation, which is 4n derogation of the sovereign power of the State to tax, is not favored and cannot be presumed. The tax-exenption granted by Seetion 27(e) and

(k) of the Tax Code must be strictly construed against the taxpayer, Our highest tribunal ef justiee has uniformly and consistently ruled that laws granting tax-exemption should be construed atriotissia( duria erainst the taxpayer and in faver of the taxing authority \Com, of Internal Revenue v. Guerrero, et #l., 9.8. So. 1-209%2, Senteuber 22, 1967; Phil. Acetylene Co. Ine. v. Com. of Internal Revenue, G.k. No. 119707, August 17, 19673 Abad v. Court of Tax Appesle, I ot al., GR, Hos, L-2089% and 1-20993, October 19, 1966; RSSO Standard Eastern Ine, v. Acts. Comm. ef Customs, GR. So. 1-21641, October 28, 1966; Comm. of Internal Revenue v. Visayan Plec- trie Cos, et aly G8, Noe 122611, May 27, 1968). (tue history of Section 27(e) of the Tax Code, defore its anendment by Section 5, Kepublie — Aet No, 82, ané the decisions of cur Suprese Court interpreting the same vere enbodied in Gpinion To. 45, Series ef 1956, of the Non, Secretary of Justice. The seid official alee expounded on the meaning, scope, and effect of the amendatory provisions contained in Section 5, Republic Act Ho. 82, in the following languaces i

DRCTSION -

CTA CASE NG, 1466 9 “We heve examined the history of this legel provision which was origin- 2 found in section 2, paragraph ea) of the Act of Congress of the United States of 1913. The proviso wes firat engrafted into the statute by Act No, 2833 (approved on "arch 7, 1919)5 it then read: ‘Provided however, that income of whatever kind and cheenetee eee SS proper- ties, real or personel, exeept incore expressly e ted by thas lew, shell be lfable to the tax imposed under this chapter. Despite its sweeping import Suprene Court, in the gese of oe of ‘neva Segovie Vv.

olleetor of internal nue (50 Phil, 618), held that ' proviso in question has not resylted in taking the income of the plaintiff, covsist- ing of ‘rents on lend, dividends .. « interests on loans . « « et@.* « « + out of the operation of the tion contained in the law.' Seitera a the ruling leid down in Sarcrade en Predicedores v. Trinidad (42 hil, 397, 263 ".8. 578) that destination of the wes the ultimate test reversed the judgment of the lower court sustaining the assesement of income taxes on said incone of the plaintiff, it appearing that the cane was used for earrying on the plein- tiff's religious charitable and educe- ttonal work.

"Such was the lew, as construed judicially end os applied by aduinis« trative officers, when the proviso was again emended in 1946 by Nepublic Act No. 82. first relevant anend-

DRCIGION ~

CTA CASE BO. 1468 40 lanatory note of the amendetory bill, the prevailing sentiment wee that an exempt enguadaation ‘whieh derives income from rentals or investmuents of its properties should be made to pay the incowe tax in the same manner ae other corporations or individuals.’ - “Another significant change in the proviso is the mignon der . the ‘ * . ‘scope ; ose was the —— of eonten- ion in the ease of Jesus Sacred Heart College v. Collector of Internal =. GR. Wo. 16897, prome, May 1954}. The defendant assessed and collected income taxes on ntifr's income from tuition and o fees, In rendering judgment in favor of the plaintiff, whose claim for refund was found meritorious by the Court of First a = of “anila, the Supreme Court ; fn regara to this pare! thet ‘Congress no cabeabhen of yy natrievla- tion, laboratory, library, athletie and graduation fees and other fees of sind sature, essential to necessarily connected with the educa- Sonsehen es of an insti tution of unterscoring mine). a @/ “Considering the history of a provision in questien, ?

DECISION .

CTA CASE HO. 1468 11 . a : #B< : - tea @ Bele % vr “> » ’ . € _a¢ ' *ewele ad s Sividends, or interests == ( p) table business curavite, whic i : ‘ties oF busi : y - co heat e colt oles peel tah!

lucet lous] purnoses, oe!

Case may be. « « ” aphasia and underscoring supplied.)

We are in eccord with the views expressed by the Hon, Seeretary of Justice as to the meaning, scope and effect of Section 27(e) of the Tax Code, as amended by ‘Section 5 of Republic ict Yo. 52. ee we are constrained te consider that the patio atcedenas given by the Supreme Court on Septen- ber 7, 1927, in the case of Bishop of "veva Sego- via vw. Coll. of Int. Nevenue, 50 Mhil. 610, was discarded and set aside by wr law-making body when, on October 29, 1946, it enacted effective on said date Republic ct No. £2, amending Seetion 27 of the Tax Code so as to become paragraph (e) thereof. Aside from the sweeping import of the law itself “that income of whatever rind ené char- eeter from its properties, real and personal, = X 2X shall be linble to the tax (ineowe) In posed under this chapter", our law-aaking body likevise enacted lews declering and taxing a per- son who is enraged in business as a “real estate dealer" by leasing or renting property for the * an DECISION.

CTA CASH Wo, 1468 12 aggregate amounts of F3,000.00 and #%44000,00 or more a year (Section 194437, National Internal Revenue Code, as amended by Sections 6 ant th of Republic Act Nos, S88 and 1612, effective on Sep- teaber 22, 1950 and tug. 2, 1956, respectively). Thus, it will be seen that cur law-meking body resffirmeé and laid down the policy that any «. activity conducted for profit is subject te tax-— ation. qatar / bs to the dividends of petitioner on its investments in mining, insurence and industrial and comsereial corporations sueh ag Consolidated Mines, “niversal Insurance, and Sen Miguel, Brewery, seid extraneous income or dividends were derived by petitioner from an activity conducted for profit since it ig not essential to, or necessarily connected with, petitioner's religious or charitable purposes, unlike the ease of Jesus Yecred Heart College v, Collector of Internal Nevenue, G, 2. NO». 16857, May 2h, 195% 95 ME], 33, involving an income tax assesanent on petitioner's income from tuition, library, laboratory, athletie, and graduation fees, and other fees of simtler nature connected with its educational purposes.

( Petitioner further clains exemption from income tex under Seetion 27(k) of the Tex Code ° . DRCIGLION « CTA CASE MO. 1466 %3 on its income from an activity econdueted for profit because said income were turned over te St, Vin- | eent ceminary, an exempt religious ant chariteble corporation. Under said section, however, the exemption from income tax refers to « “gorporation , ;

nome.of bolding title to sroverty" and does act _ apply to corporation er assccietion organised eteluaively for relisious, edueational, and shari- table purposes like the petitioner herein. Ac- cordingly, we hold thet petitioner 19 subjeet to ineome tax on ite income from rents, dividends, end interests and thet it cannot aveil of the tax- exemption provision ef Section 27(e) and (k) of the Tax Code under the facts and circumstances of this case, .

Respondent assessed petitioner the enount of *1,020,00 as real estete dealer's fixed tax as lessor in 1956 and 1957 of a portion of its property to Adamson University, in resisting ite liability for the said business tax, petitioner slaims thet it was not engaged in business as a “real estate dealer” in 1956 and 1957 because the lease in question was an isolated transaction, The contention of petitioner is devoid of merit,

DECISION «

CTA CASE NO. 1468 1% The mere fact that petitioner leased a portion of its real property te Adamson University for 739,000.00 and PS1,50099 in 1956 and 1957, req speetively, which is sore than P4,000.00 a year, constitutes engaging in business as « “real es- tate dealer" within the purview of Section 194(s) of the ‘ational internal \evenue Code, as amended by Section 1%, Republic Act Mo. 1612, which provides as follows:

oF a® an owner ( The Mebilaty for the real estate dealer's fixed tex is not prediested on the habituality of the lease transaction, Under Section 19%(3) of the Tax Code, as amended by Seprblic Act “os.

588 and 1612, a person may be a full or part- time dealer in real estate, In other words, habituality or continuity of the lease transact~- fon 4s not an indispensable elem@nt in the imposi- tion of the real estate dealer's fixed tax. The

DECISION «

CTA CASE 80, 1468 | 1s ' Dasis of the fixed tex is the aggregete amount of rental reesived by the petitioner during the year without considering the frequency and con- tinnfity of the lease transeetion, )As the rectal paid by the Adamson University to petitioner in 1956 and 1957 amounted to #39,000.00 and #51,500.00, there is no question that petitioner is subject to the real estate dealer's fixed tax of P500.00 per year imposed ty Section 182(s) of the Tex Code, or a total of 91,005.00 for 1956 and 1957, instead of #1,020.00 as erroneously stated in the 2%, 1962. Moreover, the suid fixed tex liability has been admitted by petitioner in its letter to - respondent dated May 11, 1962 (pp. +l-44, BIR rete).

[ Some itens of deduction from veibineate gross income, which were Gisellowed by respondent, are deemed admitted inasmueh as petitioner did not dispute the same. In fact, the non-deduetibi- lity of §15,925.°0 which was charged off as a loss in 1957 has been expressly admitted by peti~ tioner )(ps 44, BIR ree.).

Zourth issue - With respect to the compromise penalty of #150,00 for the alleged feilure of petitioner to keep books of accounts as required by Section 334

DECISION -

CTA CASH NO, 1465 16 of the Tax Code, suffice it to say that respondent does not have any power to impose a compromise penalty without the consent of petitioner (Coll. Ve UBT, et ale, Ge. Nos, 1n9127% and 1m 49280, Ov. 28, 1958, Coll. v. Bautista, et ales GH. Moy 1012250 and 112259, Mey 27, 1959; Philippine International Fair, Inc. v. Coll. of Int. Revene, GsHe Nos. 112928 & L-12932, March 31, 1962).

The imposition, therefore, of the compromise pen- alty is illegal.

WHEREFORE, the decision of respondent appealed from is hereby wodified. Petitioner is ordered to pay respondent on bas duly authorized collection agent the sum of 722,816.70 as deficiency income tax and interest for 1956 and 1997, and #1,000,00 at real estate dealer's fixed tax for the sane yeers, If the seid deficiency income tax and in- terest emounting to ®22,816.70 is not peid in full within thirty (30) days from the date this deci- sion becomes final and executory, petitioner shall also pay the delinquency penalties imposed by ‘Sec- tion St(e) of the Tax Code. ‘ith costs against petitioner.

80 ORDERED, ‘Quegon City, October 14, ts Sage remus fo sg. acai | RAMON Ly avANCRIA | gn

Associate Judge

Presiding Judge UMALI took no part.

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