CIR v.
Santos the tax rates of other countries should be used as a yardstick in determining what may
Facts:
Guild of Phil. Jewelers, Inc. questions the constitutionality of certain provisions of the
NIRC and Tariff and Customs Code of the Philippines. It is their contention that the
present Tariff and tax structure increases manufacturing costs and render local jewelry
manufacturers uncompetitive against other countries, in support of their position, they
submitted what they purported to be an exhaustive study of the tax rates on jewelry
prevailing in other Asian countries, in comparison to tax rates levied in the country.
Judge Santos of RTC Pasig, ruled that the laws in question are confiscatory and
oppressive and declared them INOPERATIVE and WITHOUT FORCE AND EFFECT
insofar as petitioners are concerned.
Petitioner CIR assailed decision rendered by respondent judge contending that the
latter has no authority to pass judgment upon the taxation policy of the Government.
Petitioners also impugn the decision by asserting that there was no showing that the
tax laws on jewelry are confiscatory.
Issue:
I. Whether RTC has authority to pass judgment upon taxation policy of the
government.
II. WON the state has the power to select the subjects of taxation.
Ruling:
I. The policy of the court is to avoid ruling on constitutional questions and to
presume that the acts of the political departments are valid in the absence of a clear
and unmistakable showing to the contrary.
This is not to say that RTC has no power whatsoever to declare a law
unconstitutional. But this authority does not extend to deciding questions which pertain
to legislative policy.
RTC have the power to declare the law unconstitutional but this authority does
not extend to deciding questions which pertain to legislative policy. RTC can only look
into the validity of a provision, that is whether or not it has been passed according to
the provisions laid down by law, and thus cannot inquire as to the reasons for its
existence.
II. YES. The respondents presented an exhaustive study on the tax rates on
jewelry levied by different Asian countries. This is meant to convince us that compared
to other countries; the tax rates imposed on said industry in the Philippines is
oppressive and confiscatory. This Court, however, cannot subscribe to the theory that
be the proper subjects of taxation in our own country. It should be pointed out that in
imposing the aforementioned taxes and duties, the State, acting through the legislative
and executive branches, is exercising its sovereign prerogative. It is inherent in the
power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that "inequalities which result from a singling out or one particular class
for taxation, or exemption, infringe no constitutional limitation." 25
Tan v Del Rosario
Facts:
1. Two consolidated cases assail the validity of RA 7496 or the Simplified Net
Income Taxation Scheme ("SNIT"), which amended certain provisions of the
NIRC, as well as the Rules and Regulations promulgated by public
respondents pursuant to said law.
2. Petitioners posit that RA 7496 is unconstitutional as it allegedly violates the
following provisions of the Constitution:
3.
4. -Article VI, Section 26(1) — Every bill passed by the Congress shall embrace
only one subject which shall be expressed in the title thereof.
a. Article VI, Section 28(1) — The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of
taxation.
b. Article III, Section 1 — No person shall be deprived of . . . property
without due process of law, nor shall any person be denied the equal
protection of the laws.
5. Petitioners contended that public respondents exceeded their rule-making
authority in applying SNIT to general professional partnerships. Petitioner
contends that the title of HB 34314, progenitor of RA 7496, is deficient for
being merely entitled, "Simplified Net Income Taxation Scheme for the Self-
Employed and Professionals Engaged in the Practice of their
Profession" (Petition in G.R. No. 109289) when the full text of the title actually
reads,
6. 'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-
Employed and Professionals Engaged In The Practice of Their Profession,
Amending Sections 21 and 29 of the National Internal Revenue Code,' as
amended. Petitioners also contend it violated due process.
7. The Solicitor General espouses the position taken by public respondents.
8. The Court has given due course to both petitions.
ISSUE: Whether or not the tax law is unconstitutional for violating due process
1
1. NO. The due process clause may correctly be invoked only when there is a clear
contravention of inherent or constitutional limitations in the exercise of the tax power.
No such transgression is so evident in herein case.
Uniformity of taxation, like the concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities. Uniformity does not violate classification as long as: (1) the
standards that are used therefor are substantial and not arbitrary, (2) the categorization
is germane to achieve the legislative purpose, (3) the law applies, all things being equal,
to both present and future conditions, and (4) the classification applies equally well to
all those belonging to the same class.
What is apparent from the amendatory law is the legislative intent to increasingly shift
the income tax system towards the schedular approach in the income taxation of
individual taxpayers and to maintain, by and large, the present global treatment on
taxable corporations. The Court does not view this classification to be arbitrary and
inappropriate.
ISSUE 2: Whether or not public respondents exceeded their authority in
promulgating the RR
No. There is no evident intention of the law, either before or after the amendatory
legislation, to place in an unequal footing or in significant variance the income tax
treatment of professionals who practice their respective professions individually and of
those who do it through a general professional partnership.
G.R. No. 109289 October 3, 1994 TAN V. DEL ROSARIO
FACTS: The case involves two consolidated cases assailing the constitutionality of RA
7496 (SNITS) amending certain provisions of the NIRC and, the validity of Section 6,
Revenue Regulations No. 2-93.
• Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation. 

• In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496
violates: 

o Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only
one
subject which shall be expressed in the title thereof.
 o Article VI, Section 28(1) —
The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation.
 o Article III, Section 1
— No person shall be deprived of . . . property without due process
of law, nor shall any person be denied the equal protection of the laws.
o Petitioner contends that the title is a misnomer or, deficient for being merely entitled,
"Simplified Net Income Taxation Scheme for the Self-Employed and Professionals
Engaged in the Practice of their Profession" when its full title is: Act Adopting the
Simplified Net Income Taxation Scheme For The Self-Employed and Professionals
Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code, as Amended.
o Petitioner also contends that SNITS should be considered as having now adopted a
gross income, instead of as having still retained the net income taxation scheme. The
allowance for deductible items, may have significantly been reduced by the
questioned law in comparison with that which has prevailed prior to the
amendment; however, allowable deductions from gross income is neither discordant
with, nor opposed to, the net income tax concept.
o Petitioner contends that the law would now attempt to tax single proprietorships and
professionals differently from the manner it imposes the tax on corporations and
partnerships.
ISSUE: WON the law was unconstitutional for violating due process.
HELD: NO.
There is violation of due process only when there is the inherent or constitutional
limitations in the exercise of the power to tax is transgressed.
Uniformity of taxation, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities.
 Uniformity does not
forfend classification as long as:
 (1) the standards that are used therefor are
substantial and not arbitrary,
(2) the categorization is germane to achieve the legislative purpose,
 (3) the law
2
applies, all things being equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging to the same class.
What may instead be perceived to be apparent from the amendatory law is the
legislative intent to increasingly shift the income tax system towards the schedular
approach in the income taxation of individual taxpayers and to maintain, by and
large, the present global treatment on taxable corporations. We certainly do not
view this classification to be arbitrary and inappropriate.
the taxpayer.
It is the legislature who has the discretion to determine the nature (kind), object
(purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court
cannot freely delve into those matters which, by constitutional fiat, rightly rest on
legislative judgment. Of course, where a tax measure becomes so unconscionable and
unjust as to amount to confiscation of property, courts will not hesitate to strike it down,
for, despite all its plenitude, the power to tax cannot override constitutional
proscriptions.
• In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-
93, argue that public respondents have exceeded their rule-making authority in
applying SNIT to general professional partnerships.
ISSUE: Whether or not public respondents have exceeded their authority in
promulgating Section 6, Revenue Regulations No. 2-93, to carry out RA 7496.
HELD: NO
There is no distinction in income tax liability between a person who practices his
profession alone or individually and one who does it through partnership (registered or
not) with others in the exercise of a common profession.
General professional partnership, unlike an ordinary partnership (which is treated as a
corporation for income tax purposes and so subject to the corporate income tax), is not
itself an income taxpayer. The income tax is imposed not on the professional
partnership, which is tax exempt, but on the partners themselves in their individual
capacity computed on their distributive shares of partnership profits.
The law, in levying the tax, adopts the most comprehensive tax situs of nationality
and residence of the taxpayer (that renders citizens, regardless of residence, and
resident aliens subject to income tax liability on their income from all sources) and of
the generally accepted and internationally recognized income taxable base (that can
subject non-resident aliens and foreign corporations to income tax on their income from
Philippine sources).
In the process, the Code classifies taxpayers into four main groups, namely: (1)
Individuals,
 (2) Corporations,
 (3) Estates under Judicial Settlement and
(4) Irrevocable Trusts (irrevocable both as to corpus and as to income).
Partnerships are, either "taxable partnerships" or "exempt partnerships." Ordinarily,
partnerships, no matter how created or organized, are subject to income tax which, for
purposes of the above categorization, are by law assimilated to be within the context of
corporations. Except for few variances, such as in the application of the "constructive
receipt rule" in the derivation of income, the income tax approach is alike to both
juridical persons.
Obviously, SNIT is not intended to cover corporations and partnerships which are
independently subject to the payment of income tax, but only those self-employed and
professionals engaged in the practice of their profession.
Pepsi-Cola Bottling Co. v. City of Butuan
Concepcion G.R. No. L-22814, August 28, 1968
RATIO DECIDENDI The uniformity required under the Constitution is not absolute
uniformity. It only requires that people belonging to the same class be taxed uniformly.
For classification to be valid, the following must concur: (1) it is based upon substantial
distinctions; (2) these are germane to the purpose of the legislation or ordinance; (3)
the classification applies to present conditions and future ones substantially identical to
those of the present; and (4) the classification applies equally to those belonging to the
same class.
FACTS:
Pepsi-Cola Bottling Co. of the Philippines (Pepsi-Cola) has a storage facility
in the City of Butuan for its soft drinks manufactured in Cebu. Products from this facility
3
are sold to consumers in the said city. The City of Butuan (Butuan) enacted Ordinance
No. 110, which imposed a tax on dealers engaged in selling soft drinks or carbonated
drinks. Ordinance No. 110 was later amended by Ordinance No. 122. Consequently,
the tax was now imposed on any agent and/or consignee of any person, association,
partnership, company, or corporation engaged in selling x x x soft drinks or carbonated
drinks. According to the Court, this obviously pertains to a situation wherein an outside
dealer taps a local agent and/or consignee to sell his products in said agent’s and/or
consignee’s locality. Since Pepsi-Cola has a storage facility in the city receiving soft
drinks from Cebu, and since said facility sells the same carbonated beverages to the
people of the city, it was assessed the tax imposed by Ordinance 110, as amended by
Ordinance 122 (Ordinance 110, as amended). Pepsi-Cola paid under protest. Pepsi-
Cola brought the matter of recovering the amounts paid before the lower court. It
dismissed the complaint, hence this appeal.
ISSUE:
W/N the tax imposed by Ordinance 110, as amended, violates the uniformity
requirement.
HELD:
YES, Ordinance 110, as amended, unfairly singles out agents and/or consignees of
outside dealers.
The Constitution (what is being referred to here is the 1935 Constitution) provides: “The
rule of taxation shall be uniform and equitable. x x x” (See also par. 1, Sec. 28, Art. VI,
1987 Constitution) Ordinance 110, as amended, defines what it means by “agent” or
“consignee,” to wit: “any person, association, partnership, company, or corporation who
acts in the place of another x x x or one entrusted with the business of another or to
whom is consigned or shipped x x x cases of hard liquor[s] or soft drinks every month
for resale, either retail or wholesale.”
For classification to be valid, the following must concur: (1) it is based upon substantial
distinctions; (2) these are germane to the purpose of the legislation or ordinance; (3)
the classification applies to present conditions and future ones substantially identical to
those of the present; and (4) the classification applies equally to those belonging to the
same class. The ordinance exempts local dealers not acting for or in behalf of outside
merchants from paying the tax it imposes. It only applies to local dealers acting for or
in behalf of outside merchants. Butuan did not offer any explanation as to why a
distinction between the two was made. If the purpose of the tax measure was merely
to create a new revenue source by levying tax upon the sale of soft drinks, there is no
reason for favoring one over the other.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall
be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and
sentencing the City of Butuan to refund to plaintiff herein the amounts collected from
and paid under protest by the latter, with interest thereon at the legal rate from the date
of the promulgation of this decision, in addition to the costs, and defendants herein are,
accordingly, restrained and prohibited permanently from enforcing said Ordinance, as
amended. It is so ordered.
ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?
HELD: Yes. The tax levied is discriminatory. Even if the burden in question were
regarded as a tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required by the Constitution and
the law therefor, since only sales by "agents or consignees" of outside dealers would
be subject to the tax. Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even if the same exceeded
those made by said agents or consignees of producers or merchants established
outside the City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority to
classify the objects of taxation. The classification made in the exercise of this authority,
to be valid, must, however, be reasonable and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real differences; (2)
these are germane to the purpose of the legislation or ordinance; (3) the classification
applies, not only to present conditions, but, also, to future conditions substantially
identical to those of the present; and (4) the classification applies equally to all those
who belong to the same class.
Enrique Garcia vs Executive Secretary
211 SCRA 219 G.R. No. 101273 July 3, 1992
Facts: In November 1990, President Corazon Aquino issued Executive Order No. 438
which imposed, in addition to any other duties, taxes and charges imposed by law on
all articles imported into the Philippines, an additional duty of 5% ad valorem tax. This
additional duty was imposed across the board on all imported articles, including crude
oil and other oil products imported into the Philippines. In 1991, EO 443 increased the
additional duty to 9%. In the same year, EO 475 was passed reinstating the previous
5% duty except that crude oil and other oil products continued to be taxed at 9%. Later,
EO 478 was issued levied a special duty of P0.95/liter or P151.05/barrel of imported
crude oil and P1/L of imported oil products.
Enrique Garcia, a representative from Bataan, avers that EO 475 and 478 are
unconstitutional for they violate Section 24 of Article VI of the Constitution which
provides:
All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with
amendments.
He contends that since the Constitution vests the authority to enact revenue bills in
Congress, the President may not assume such power by issuing Executive Orders Nos.
475 and 478 which are in the nature of revenue-generating measures. Further, Garcia
argues that the Eos contravene Section 401 of TCC which authorizes to increase,
reduce or remove tariff duties or to impose additional duties only when necessary to
protect local industries or products but not for the purpose of raising additional revenue
for the government.
Issue: WON the President can validly increase tariff rates thereby rendering EO 475
and 478 are constitutional.
Held: Yes
4
 Under Section 24, Article VI of the Constitution, the enactment of
appropriation, revenue and tariff bills, like all other bills is, of course, within the province
of the Legislative rather than the Executive Department. It does not follow, however,
that therefore Executive Orders Nos. 475 and 478, assuming they may be
characterized as revenue measures, are prohibited to be exercised by the President,
that they must be enacted instead by the Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:
(2) The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the Government.
There is thus explicit constitutional permission to Congress to authorize the President
“subject to such limitations and restrictions as [Congress] may impose” to fix “within
specific limits” “tariff rates . . . and other duties or imposts . . . .” In this case, it is the
Tariff and Customs Code which authorized the President ot issue the said EOs.
Guingona, Jr. vs. Carague
G.R. No. 94571. April 22, 1991
FACTS:
The 1990 budget consists of P98.4 Billion in automatic appropriation (with P86.8
Billion for debt service) and P155.3 Billion appropriated under RA 6831, otherwise
known as the General Approriations Act, or a total of P233.5 Billion, while the
appropriations for the DECS amount to P27,017,813,000.00.
The said automatic appropriation for debt service is authorized by PD No. 18, entitled
“ Amending Certain Provisions of Republic Act Numbered Four Thousand Eight
Hundred Sixty, as Amended (Re: Foreign Borrowing Act), “by PD No. 1177, entitled
“Revising the Budget Process in Order to Institutionalize the Budgetary Innovations of
the New Society,” and by PD No.1967, entitled “An Act Strengthening the Guarantee
and Payment Positions of the Republic of the Philippines on its Contingent Liabilities
Arising out of Relent and Guaranteed Loans by Appropriating Funds For The
Purpose.”
The petitioners were questioning the constitutionality of the automatic appropriation
for debt service, it being higher than the budget for education, therefore it is against
Section 5(5), Article XIV of the Constitution which mandates to “assign the highest
budgetary priority to education.”
ISSUE:
Whether or not the automatic appropriation for debt service is unconstitutional; it
being higher than the budget for education.
HELD:
No. While it is true that under Section 5(5), Article XIV of the Constitution Congress is
mandated to “assign the highest budgetary priority to education,” it does not thereby
follow that the hands of Congress are so hamstrung as to deprive it the power to
respond to the imperatives of the national interest and for the attainment of other state
policies or objectives.
Congress is certainly not without any power, guided only by its good judgment, to
provide an appropriation, that can reasonably service our enormous debt…It is not
only a matter of honor and to protect the credit standing of the country. More
especially, the very survival of our economy is at stake. Thus, if in the process
Congress appropriated an amount for debt service bigger than the share allocated to
education, the Court finds and so holds that said appropriation cannot be thereby
assailed as unconstitutional
ISSUES:
1. Whether or not greater budget allocation for debt servicing as opposed to education
violates Section 5, Art. XIV of the 1987 Constitution.
2. Whether or not PDs 81, 1177, and 1967 are still operative despite having been issued
during the Marcos era.
3. Whether or not automatic appropriation is violative of Section 29(1), Art. VI of the
1987 Constitution.
HELD:
1. No, the constitutional provision that the highest appropriation should go to education
does not mean that the hands of Congress are so humstrung as to deprive it the power
to respond to the imperatives of the national interest and the attainment of other state
policies/objectives. One of these policies is to ensure that the President can take
advantage of favorable economic conditions, such as situations where interest rates
are low.
2. Yes, said PDs are still operative. These were not automatically revoked upon the
ouster of Marcos. The Court held that these laws remain operative until they are
amended, repealed, or revoked, and so long as they are not inconsistent with the
Constitution. In addition, the Court dismissed petitioners' argument that the aforecited
PDs fall within the ambit of Section 24, Art. VI pertaining to "all appropriation, revenue
or tariff bills," mainly because the PDs in question are considered enacted laws and not
bills.
3. No, the Court held there was no undue delegation of legislative power because the
assailed PDs are complete -- they set out a policy and are complete in their terms, such
that the President doesn't have any choice but to implement them.
No. There is no provision in our Constitution that provides or prescribes any particular
form of words or religious recitals in which an authorization or appropriation by
Congress shall be made, except that it be “made by law,” such as precisely the
authorization or appropriation under the questioned presidential decrees. In other
words, in terms of time horizons, an appropriation may be made impliedly (as by past
but subsisting legislations) as well as expressly for the current fiscal year (as by
enactment of laws by the present Congress), just as said appropriation may be made
in general as well as in specific terms. The Congressional authorization may be
embodied in annual laws, such as a general appropriations act or in special provisions
5
of laws of general or special application which appropriate public funds for specific
public purposes, such as the questioned decrees. An appropriation measure is
sufficient if the legislative intention clearly and certainly appears from the language
employed (In re Continuing Appropriations, 32 P. 272), whether in the past or in the
present.
OSMEÑA vs. ORBOS
220 SCRA 703
GR No. 99886, March 31, 1993
" To avoid the taint of unlawful delegation of the power to tax, there must be a standard
which implies that the legislature determines matter of principle and lays down
fundamental policy."
FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956,
as amended by EO 137, empowering the Energy Regulatory Board (ERB) to approve
the increase of fuel prices or impose additional amounts on petroleum products which
proceeds shall accrue to the Oil Price Stabilization Fund (OPSF) established for the
reimbursement to ailing oil companies in the event of sudden price increases. The
petitioner avers that the collection on oil products establishments is an undue and
invalid delegation of legislative power to tax. Further, the petitioner points out that since
a 'special fund' consists of monies collected through the taxing power of a State, such
amounts belong to the State, although the use thereof is limited to the special
purpose/objective for which it was created. It thus appears that the challenge posed by
the petitioner is premised primarily on the view that the powers granted to the ERB
under P.D. 1956, as amended, partake of the nature of the taxation power of the State.
ISSUE: Is there an undue delegation of the legislative power of taxation?
Facts:
1. The petitioner Lung Center is a non-stock and non-profit entity.
2. It is the registered owner of a parcel of land. Erected in the middle lot is a hospital
known as the Lung Center of the Philippines. A big space at the ground floor is
being leased to private parties, for canteen and small store spaces, and to medical
or professional practitioners who use the same as their private clinics for their
patients whom they charge for their professional services.
3. Almost one-half of the entire area on the left side of the building along Quezon
Avenue is vacant and idle, while a big portion on the right side, at the corner, is
being leased for commercial purposes to a private enterprise known as the
Elliptical Orchids and Garden Center.
4. The petitioner accepts paying and non-paying patients. It also renders medical
services to out-patients, both paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual subsidies from the government.
5. Both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of P4,554,860 by the City Assessor of Quezon City.
6. The petitioner filed a Claim for Exemption from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The petitioner’s
request was denied,
Issues
1. Whether the petitioner is a charitable institution
2. Whether the real properties of the petitioner are exempt from real property taxes

HELD: None. It seems clear that while the funds collected may be referred to as taxes, Ruling
they are exacted in the exercise of the police power of the State. Moreover, that the
OPSF as a special fund is plain from the special treatment given it by E.O. 137. It is
segregated from the general fund; and while it is placed in what the law refers to as a First issue: petitioner is a charitable institution within the context of the 1973 and 1987
"trust liability account," the fund nonetheless remains subject to the scrutiny and review Constitutions.
of the COA. The Court is satisfied that these measures comply with the constitutional
description of a "special fund." With regard to the alleged undue delegation of
legislative power, the Court finds that the provision conferring the authority upon the To determine whether an enterprise is a charitable institution/entity or not, the elements
ERB to impose additional amounts on petroleum products provides a sufficient which should be considered include the
standard by which the authority must be exercised. In addition to the general policy of
the law to protect the local consumer by stabilizing and subsidizing domestic pump 1. Statute creating the enterprise,
rates, P.D. 1956 expressly authorizes the ERB to impose additional amounts to 2. Its corporate purposes,
augment the resources of the Fund. 3. Its constitution and by-laws,
4. The methods of administration,
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY AND CONSTANTINO P. 5. The nature of the actual work performed,
ROSAS, IN HIS CAPACITY AS CITY ASSESSOR OF QUEZON CITY 6. The character of the services rendered,
7. The indefiniteness of the beneficiaries, and
G.R. No. 144104, June 29, 2004 8. The use and occupation of the properties.

In the legal sense, a charity may be fully defined as a gift, to be applied consistently
with existing laws, for the benefit of an indefinite number of persons, either by bringing

6
their minds and hearts under the influence of education or religion, by assisting them
to establish themselves in life or otherwise lessening the burden of government.
The word “charitable” is not restricted to relief of the poor or sick. The test of a charity
and a charitable organization are in law the same. The test whether an enterprise is
charitable or not is whether it exists to carry out a purpose reorganized in law as
charitable or whether it is maintained for gain, profit, or private advantage.
Under P.D. No. 1823, the petitioner was organized for the welfare and benefit of the
Filipino people principally to help combat the high incidence of lung and pulmonary
diseases in the Philippines.
Hence, the medical services of the petitioner are to be rendered to the public in general
in any and all walks of life including those who are poor and the needy without
discrimination. After all, any person, the rich as well as the poor, may fall sick or be
injured or wounded and become a subject of charity.
As a general principle, a charitable institution does not lose its character as such and
its exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.
In this case, the petitioner adduced substantial evidence that it spent its income,
including the subsidies from the government for its patients and for the operation of the
hospital. It even incurred a net loss in 1991 and 1992 from its operations.
Second Issue: those portions of its real property that are leased to private entities are
not exempt from real property taxes as these are not actually, directly and exclusively
used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The effect of an exemption is
equivalent to an appropriation. Hence, a claim for exemption from tax payments must
be clearly shown and based on language in the law too plain to be mistaken.
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax exemptions and privileges: The Lung
Center of the Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality thereof with
respect to equipment purchases made by, or for the Lung Center.
It is plain as day that under the decree, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed thereon.
If the intentions were otherwise, the same should have been among the enumeration
of tax exempt privileges under Section 2.
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus: Charitable
institutions, churches and parsonages or convents appurtenant thereto, mosques, non-
profit cemeteries, and all lands, buildings, and improvements, actually, directly and
exclusively used for religious, charitable or educational purposes shall be exempt from
taxation.
The tax exemption under this constitutional provision covers property taxes only. 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.”
In light of the changes in the Constitution, the petitioner cannot rely on our ruling in
Herrera v. Quezon City Board of Assessment Appeals which was promulgated on
September 30, 1961 before the 1973 and 1987 Constitutions took effect.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled
to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof,
that (a) it is a charitable institution; and (b) its real properties are ACTUALLY,
DIRECTLY and EXCLUSIVELY used for charitable purposes.
“Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude;
as enjoying a privilege exclusively.” If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is subject to taxation.
The words “dominant use” or “principal use” cannot be substituted for the words
“used exclusively” without doing violence to the Constitutions and the law. Solely is
synonymous with exclusively.
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to the
purposes for which the charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property is used for tax-
exempt purposes.
Accordingly, the portions of the land leased to private entities as well as those parts of
the hospital leased to private individuals are not exempt from such taxes. On the other
hand, the portions of the land occupied by the hospital and portions of the hospital used
for its patients, whether paying or non-paying, are exempt from real property taxes.