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exempt organizations (such as the YMCA) from any of their properties, real or
personal, be subject to the tax imposed by the same Code. While the income
received by the organizations enumerated in now Section 26 of the NIRC is, as a
rule, exempted from the payment of tax in respect to income received by them as
such, however, the exemption does not apply to income derived from any of their
properties, real or personal or from any of their activities conducted for profit,
regardless of the disposition made of such income. And that the rental income
derived by a tax exempt organization from the lease of its properties, real or
personal is not exempt from income taxation, even if such income is exclusively
used for the accomplishment of its objectives, emphasizing that taxes are the
lifeblood of the nation and the Court has always applied the doctrine of strict
interpretation in construing tax exemptions.
YMCA invoked the provisions of the Constitution particularly Article VI, Section 28 of
par.3 of the 1987 Constitution exempts charitable institutions from the payment
not only of property taxes but also of income tax from any source, which YMCA
identifies itself as. However, the SC ruled that what the law intended to exempt
were those that pertain to property taxes and not income taxes.
YMCA further invoked Article 14, Section 4, par.3 of their 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 thus is exempt
from taxes on its properties and income; the SC likewise ruled that YMCA is exempt
from the payment of property tax but not on income tax derived from its property.
For YMCA to be granted the exemption it claims from the cited provision, it must
prove that (a) it falls under the classification of non-stock, non-profit educational
institution and (b) the income that it seeks to be exempted is used actually, directly,
and exclusively for educational purposes, which the YMCA was not able to prove
thus the SC ruled that private respondent cannot be deemed an
educational institution covered by the cited provision. Educational
institutions are classified as schools which is synonymous with formal education
which refers to the hierarchically structured and chronologically graded learnings
organized and provided by the formal school system and for which certification is
required in order for the learner to progress through the grades or move to the
higher levels. Further, YMCA was not able to provide the proportionate income
used exclusively for educational purposes and thus SC ruled that YMCA
could not invoke said provision.
Thus, the SC REINSTATED the CA decision insofar as it ruled that the income derived
by petitioner from rentals of its real property is subject to income tax.