CIR vs.THE CLUB FILIPINO, INC.
DE CEBU It is conceded that the Club derived profit from the operation of its bar and
FACTS: The Club owns and operates a club house, a bowling alley, a golf
course (on a lot leased from the government), and a bar-restaurant where it
sells wines and liquors, soft drinks, meals and short orders to its members
and their guests. The bar-restaurant was a necessary incident to the
operation of the club and its golf-course. The club is operated mainly with
funds derived from membership fees and dues. Whatever profits it had,
were used to defray its overhead expenses and to improve its golf-course. In
1951. as a result of a capital surplus, arising from the re-valuation of its real
properties, the value or price of which increased, the Club declared stock
dividends; but no actual cash dividends were distributed to the
stockholders. In 1952, a BIR agent discovered that the Club has never paid
percentage tax on the gross receipts of its bar and restaurant. CIR assessed
against and demanded from the Club taxes allegedly due.
ISSUE: WON Club Filipino is liable for the taxes (WON it is a stock
corporation)
HELD: No (it is non-stock)
The Club was organized to develop and cultivate sports of all class and
denomination for the healthful recreation and entertainment of its
stockholders and members. There was in fact, no cash dividend distribution
to its stockholders and whatever was derived on retail from its bar and
restaurants used were to defray its overhead expenses and to improve its
golf course.
For a stock corporation to exist, 2 requisites must be complied with:
(1) A capital stock divided into shares
(2) An authority to distribute to the holders of such shares, dividends or
allotments of the surplus profits on the basis of shares held.
In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be
found an authority for the distribution of its dividends or surplus
profits. Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law.
The fact that the capital stock of the respondent Club is divided into shares,
does not detract from the finding of the trial court that it is not engaged in
the business of operator of bar and restaurant. What is determinative of
whether or not the Club is engaged in such business is its object or purpose,
as stated in its articles and by-laws. It is a familiar rule that the actual
purpose is not controlled by the corporate form or by the commercial
aspect of the business prosecuted, but may be shown by extrinsic evidence,
including the by-laws and the method of operation.
restaurant, but such fact does not necessarily convert it into a profit-making
enterprise. The bar and restaurant are necessary adjuncts of the Club to
foster its purposes and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating sports for the
healthful recreation and entertainment of the stockholders and members.
That a Club makes some profit, does not make it a profit-making Club. As
has been remarked a club should always strive, whenever possible, to have
surplus
REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE
RECLAMATION AUTHORITY (PRA), vs.CITY OF PARANAQUE
G.R. No. 191109 July 18, 2012
This is a petition for review on certiorari assailing the Order of the Regional
Trial Court, Branch 195,Paranaque City (RTC), which ruled that petitioner
Philippine Reclamation Authority (PRA) is a government-owned and
controlled corporation (GOCC), a taxable entity, and, therefore, not exempt
from payment of real property taxes.
The Public Estates Authority (PEA) is a government corporation created by
virtue of P.D. No. 1084 toprovide a coordinated, economical and efficient
reclamation of lands, and the administration andoperation of lands
belonging to, managed and/or operated by, the government with the object
of maximizing their utilization and hastening their development consistent
with public interest.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O.
No. 380 transforming PEA into PRA, which shall perform all the powers and
functions of the PEA relating to reclamation activities.
By virtue of its mandate, PRA reclaimed several portions of the foreshore
and offshore areas of Manila Bay,including those located in Parañaque City.
Parañaque City Treasurer issued Warrants of Levy on PRA’s reclaimed
properties based on the assessment for delinquent real property for
tax years 2001 and 2002.
PRA claimed that it is not a GOCC under the Administrative Code, nor is it a
GOCC under Section 16, Article XII of the 1987Constitution because it is not
required to meet the test of economic viability.

It is a government instrumentality vested with corporate powers and
performing an essential public service. It insists that it may not be classified
as a non-stock corporation because it has no members and it is not
organized for charitable, religious, educational, professional, cultural,
recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers as provided in
Section 88 of the Corporation Code.
Thus, PRA insists that, as an incorporated instrumentality of the National
Government, it is exempt from payment of real property tax except when
the beneficial use of the real property is granted to a taxable person. PRA
claims that based on Section 133(o) of the LGC, local governments cannot
tax the national government which delegate to local governments the
power to tax.
Issue:
Whether or not Philippine Reclamation Authority (PRA) is an incorporated
instrumentality of the national government and is, therefore, exempt from
payment of real property tax under sections 234(a) and 133(o) of Republic
Act 7160?
Held: Yes it is a Government Instrumentality.
In the case at bench, PRA is not a GOCC because it is neither a stock nor a
non-stock corporation. It cannot be considered as a stock corporation
because although it has a capital stock divided into no par value shares as
provided in Section 74 of P.D. No. 1084, it is not authorized to distribute
dividends, surplus allotments or profits to stockholders. PRA is a
government instrumentality vested with corporate powers and performing
an essential public service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Being an incorporated government
instrumentality, it is exempt from payment of real property tax.
Many government instrumentalities are vested with corporate powers but
they do not become stock or non-stock corporations, which is a necessary
condition before an agency or instrumentality is deemed a GOCC. The
fundamental provision above authorizes Congress to create GOCCs through
special charters on two conditions: 1) the GOCC must be established for the
common good; and 2) the GOCC must meet the test of economic viability. In
this case, PRA may have passed the first condition of common good but
failed the second one - economic viability. Undoubtedly, the purpose behind
the creation of PRA was not for economic or commercial activities.
Clearly, respondent has no valid or legal basis in taxing the subject
reclaimed lands managed by PRA. On the other hand, Section 234(a) of the
LGC, in relation to its Section 133(o), exempts PRA from paying realty taxes
and protects it from the taxing powers of local government units.
Section 234(a) of the Local Government Code states that real property
owned by the Republic of the Philippines (the Republic) is exempt from real
property tax unless the beneficial use thereof has been granted to a taxable
person.
Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities.
In this case, there is no proof that PRA granted the beneficial use of the
subject reclaimed lands to a taxable entity. There is no showing on record
either that PRA leased the subject reclaimed properties to a private taxable
entity.
WHEREFORE, the petition is GRANTED. The Order of the Regional Trial
Court, Branch 195, Parañaque City, is REVERSED and SET ASIDE.
Manila International Airport Authority vs CA
GR No. 155650, July 20, 2006, 495 SCRA 591
Facts:
Manila International Airport Authority (MIAA) is the operator of the
Ninoy International Airport located at Paranaque City. The Officers of
Paranaque City sent notices to MIAA due to real estate tax delinquency.
MIAA then settled some of the amount. When MIAA failed to settle the
entire amount, the officers of Paranaque city threatened to levy and subject
to auction the land and buildings of MIAA, which they did. MIAA sought for
a Temporary Restraining Order from the CA but failed to do so within the 60
days reglementary period, so the petition was dismissed. MIAA then sought
for the TRO with the Supreme Court a day before the public auction, MIAA
was granted with the TRO but unfortunately the TRO was received by the
Paranaque City officers 3 hours after the public auction.
MIAA claims that although the charter provides that the title of the land and
building are with MIAA still the ownership is with the Republic of the
Philippines. MIAA also contends that it is an instrumentality of the
government and as such exempted from real estate tax. That the land and
buildings of MIAA are of public dominion therefore cannot be subjected to
levy and auction sale. On the other hand, the officers of Paranaque City
claim that MIAA is a government owned and controlled corporation
therefore not exempted to real estate tax.
Issues:
Whether or not MIAA is an instrumentality of the government and not a
government owned and controlled corporation and as such exempted from
tax.
Whether or not the land and buildings of MIAA are part of the public
dominion and thus cannot be the subject of levy and auction sale.
Ruling:
Under the Local government code, government owned and
controlled corporations are not exempted from real estate tax. MIAA is not
a government owned and controlled corporation, for to become one MIAA
should either be a stock or non stock corporation. MIAA is not a stock
corporation for its capital is not divided into shares. It is not a non stock
corporation since it has no members. MIAA is an instrumentality of the
government vested with corporate powers and government functions.
Under the civil code, property may either be under public dominion
or private ownership. Those under public dominion are owned by the State
and are utilized for public use, public service and for the development of
national wealth. The ports included in the public dominion pertain either to
seaports or airports. When properties under public dominion cease to be for
public use and service, they form part of the patrimonial property of the
State.
The court held that the land and buildings of MIAA are part of the
public dominion. Since the airport is devoted for public use, for the
domestic and international travel and transportation. Even if MIAA charge
fees, this is for support of its operation and for regulation and does not
change the character of the land and buildings of MIAA as part of the public
dominion. As part of the public dominion the land and buildings of MIAA are
outside the commerce of man. To subject them to levy and public auction is
contrary to public policy. Unless the President issues a proclamation
withdrawing the airport land and buildings from public use, these properties
remain to be of public dominion and are inalienable. As long as the land and
buildings are for public use the ownership is with the Republic of the
Philippines.
Comm.Of Internal Revenue vs. St. Luke’s Medical Center, Inc.
(G.R. No. 195909-195960; Sept. 26, 2012)
Facts: St. Luke’s (respondent) is a hospital organized as a non-stock and
non-profit organization. Sometime in 2002, BIR assessed St. Luke’s
deficiency taxes amounting to P76M for 1998 which was subsequently
reduced to P63M during trial in the CTA. St. Luke’s protested and filed an
administrative protest with BIR but was not acted by the latter within the
180 period thus reaching to the CTA.
According to BIR, Section 27B of the NIRC imposing a 10% preferential tax
rate applies to St. Luke’s. Its reason is that it amends the exemption on non-
profit hospitals and which prevails over the exemption on income tax
granted under Section 30 (E and G) for non-stock, nonprofit charitable
institution and civic organizations promoting social welfare. It further
claimed that St. Luke’s was actually operating for profit because only 13%
came from charitable purposes and that it had a total revenue of P1.73B
from patient services in 1998.
Meanwhile, St. Luke’s contended that its operating income only totaled
P334 M (less the operating expenses) and out of that P218M (65%) made up
its free services and further claimed that its income does not inure to the
benefit of anyone. Furthermore, it argued that it falls under the exception
provided under Sec. 30 (E) and (G) of NIRC and making of profit per se does
not destroy its tax exemption.
CTA En Banc ruled in favor of St. Luke’s exemption under Sec. 30 and
reiterated its earlier fiding in another case identifying St. Luke’s as a
charitable institution. CTA adopted the test in Hospital de San Juan de Dios,
Inc. v. Pasay City, which states that "a charitable institution does not lose its
charitable character and its consequent exemption from taxation merely
because recipients of its benefits who are able to pay are required to do so,
where funds derived in this manner are devoted to the charitable purposes
of the institution . . . ." (The generation of income from paying patients does
not per se destroy the charitable nature of St. Luke's.)
Issue: WON St. Luke’s is liable for deficiency income tax under Sec. 27 (B) of
the NIRC which imposes a 10% preferential rate.
Held: Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B) of the
NIRC.
Under Sec. 30 (E) of the NIRC provides that a charitable institution must be:
(1) non-stock corporation or association; (2)ORGANIZED EXCLUSIVELY for
charitable purposes; (3) OPERATED EXCLUSIVELY for charitable purposes;
(4) No part of its net income or asset shall inure to the benefit of any
member , officer or any person. Under the last paragraph of Sec. 30 of the
NIRC if a tax exempt charitable institution conducts "any" activity for profit,
such activity is NOT TAX EXEMPT even as its not-for-profit activities remain
tax exempt. It simply means that even if a charitable institution organized
and operated exclusively for charitable purposes is nevertheless allowed to
engage in “activities conducted for profit” without losing its tax exempt
status for its no-for-profit activities. However, as a consequence "income of
whatever kind and character" of a charitable institution "from any of its
activities conducted for profit, regardless of the disposition made of such
income, shall be subject to tax." (Sec. 30, last par.). Therefore, services
rendered to paying patients are activities conducted for profit and thus
taxable under Sec. 27 (B) of the NIRC.
St. Luke's fails to meet the requirements under Section 30 (E) and (G) of
the NIRC to be completely tax exempt from all its income. However, it
remains a proprietary non-profit hospital under Section 27 (B) of the NIRC
as long as it does not distribute any of its profits to its members and such
profits are reinvested pursuant to its corporate purposes. St. Luke's, as a
proprietary non-profit hospital, is entitled to the preferential tax rate of
10% on its net income from its for-profit activities.
Notes:
1. TEST OF CHARITY - as a gift, to be applied consistently with existing
laws, for the benefit of
an indefinite number of persons, either by bringing their minds and hearts
under the influence of education or religion, by assisting them to establish
themselves in life or [by] otherwise lessening the burden of government."
(In other words, charitable institutions provide for free goods and services
to the public which would otherwise fall on the shoulders of government.)
2. Solely is synonymous with EXCLUSIVELY. (Lung center of the Phil.)
3. Proprietary- means private.
4. Non-profit- no net income accrues to the benefit of any person and
with all its income devoted to the institutions purpose and all its
activities CONDUCTED NOT FOR PROFIT.
Republic v. Sunlife Assurance Company of Canada
G.R. No. 158085, 14 October 2005, 473 SCRA 129
FACTS:
Respondent is a mutual life insurance company organized and existing
under the laws of Canada. It is registered and authorized by the SEC and the
Insurance Commission to engage in business in the Philippines as mutual life
insurance company. Sun Life filed with the CIR its insurance premium tax
return for the third quarter of 1997 in the amount of 31,485, 834. 51 and
paid its DST for the amount of 30,000,000.00.
On December 20, 1997, CA, as affirmed by the Supreme Court, rendered in
Insular Life Assurance Co. Ltd. vs CIR a decision that mutual life insurance
companies are purely cooperative companies and are exempt from the
payment of premium tax and DST. Sun Life surmised that being a mutual life
insurance it is exempt from the payment of premium tax and DST and hence
filed an administrative case against the CIR for tax credit for its erroneously
paid premium tax and DST. CIR raised as special and affirmative defences
that petitioner’s claim for refund is subject to administrative routinary
investigation by the CIR, Petitioner must prove that it falls under the
exception provided for under Section 121 (now 123) of the Tax Code to be
exempted from premium tax and be entitled to the refund sought and It is
incumbent upon petitioner to show that it has complied with the provisions
of Section 204[,] in relation to Section 229, both in the 1997 Tax Code.
ISSUE:
Whether or not respondent is a cooperative and whether or not it needs to
be registered under CDA
RULING:
For the first issue, the court ruled that respondent is a cooperative. The tax
code defines cooperative as an association conducted by the members
thereof with the money collected from among themselves and solely for
their own protection and not for profit. Respondent is without doubt a
cooperative because of the following reasons:
First, it is managed by its members. Both CA and CTA found that the
management and affairs of respondent were conducted by its policyholders.
A stock insurance company doing business in the Philippines may alter its
organization and transform itself into a mutual insurance company.
Respondent has been mutualized or converted from a stock life insurance marketing and credit extension.
company to a nonstock mutual life insurance corporation pursuant to The insurance against losses of the members of a cooperative referred to in
Section 266 of the Insurance Code of 1978. Article 6(7) of the Cooperative Code is not the same as the life insurance
Second, it operated with money collected from its members. Since provided by respondent to member-policyholders. The former is a function
respondent is composed entirely of members who are also it policyholders, of a service cooperative, the latter is not. Cooperative insurance under the
all premiums obviously comes only from them. The member-policyholders Code is limited in scope and local in character. It is not the same as mutual
constitute both insurer and insured who contribute, by a system of life insurance.
premiums or assessments, to the creation of a fund from which all losses Consequently, the court held that respondent is exempt from insurance
and liabilities are paid. The premiums pooled into this fund are earmarked premium tax and DST.
for the payment of their indemnity and benefit claims.
Third, it is licensed for the mutual protection of its members, not for the
profit of anyone. A mutual life insurance company is conducted for the
benefit of its member-policyholders, who pay into its capital by way of
premiums. To that extent, they are responsible for the payment of all its
losses. The cash paid in for premiums and the premium notes constitute
their assets x x x. In the event that the company itself fails before the terms
of the policies expire, the member-policyholders do not acquire the status
of creditors. Rather, they simply become debtors for whatever premiums
that they have originally agreed to pay the company, if they have not yet
paid those amounts in full, for [m]utual companies x x x depend solely upon
x x x premiums. Only when the premiums will have accumulated to a sum
larger than that required to pay for company losses will the member-
policyholders be entitled to a pro rata division thereof as profits.
For the second issue, the court ruled that under the Tax Code although
respondent is a cooperative, registration with the Cooperative Development
Authority (CDA) is not necessary in order for it to be exempt from the
payment of both percentage taxes on insurance premiums, under Section
121; and documentary stamp taxes on policies of insurance or annuities it
grants, under Section 199.
First, the Tax Code does not require registration with the CDA. No tax
provision requires a mutual life insurance company to register with that
agency in order to enjoy exemption from both percentage and documentary
stamp taxes.
Second, the provisions of the Cooperative Code of the Philippines do not
apply. only cooperatives to be formed or organized under the Cooperative
Code needed registration with the CDA. Respondent already existed before
the passage of the new law on cooperatives. It was not even required to
organize under the Cooperative Code, not only because it performed a
different set of functions, but also because it did not operate to serve the
same objectives under the new law — particularly on productivity,