Commissioner of Internal Revenue vs. CA G.R. No. 124043, October 14, 1998

Facts: Private respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. YMCA earned an income from leasing out a portion of its premises to small shop owners and from parking fees collected from non-members. The Commissioner of Internal Revenue (CIR) issued an assessment for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA protested the assessment.


Issue: Whether or not the income of private respondent YMCA from rentals of small shops and parking fees is exempt from taxation


Held: YMCA argues that Art. VI, Sec. 28(3) of the Constitution exempts charitable institutions from the payment not only of property taxes but also of income tax from any source. The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of the Constitution reveal their intent. Justice Hilario Davide Jr., a former constitutional commissioner, stressed during the Concom debate that what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. Fr. Joaquin Bernas, an eminent authority on the Constitution and also a member of the Concom, adhered to the same view that the exemption created by said provision pertained only to property taxes. In his treatise on taxation, Justice Jose Vitug concurs, stating that the tax exemption covers property taxes only. Indeed, the income tax exemption claimed by YMCA finds no basis in Art. VI, Sec. 28(3) of the Constitution.

YMCA also invokes Art. XIV, Sec. 4(3) of the Constitution claiming that YMCA is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income. The Court reiterates that YMCA is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. Laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that: 1. it 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. However, the Court notes that not a scintilla of evidence was submitted by YMCA to prove that it met the said requisites.
YMCA is not an educational institution within the purview of Art. XIV, Sec. 4(3) of the Constitution. The term “educational institution,” when used in laws granting tax exemptions, refers to a school, seminary, college or educational establishment. Therefore, YMCA cannot be deemed one of the educational institutions covered by the said constitutional provision. Moreover, the Court notes that YMCA did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively used for educational purposes.