SECOND DIVISION
G.R. No. 228539, June 26, 2019
ASSOCIATION OF NON-PROFIT CLUBS, INC. (ANPC), HEREIN REPRESENTED BY ITS AUTHORIZED REPRESENTATIVE, MS. FELICIDAD M. DEL ROSARIO, PETITIONER, v. BUREAU OF INTERNAL REVENUE (BIR), HEREIN REPRESENTED BY HON. COMMISSIONER KIM S. JACINTO-HENARES, RESPONDENT.
D E C I S I O N
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated July 1, 2016 and the Order3 dated November 7, 2016 of the Regional Trial Court of Makati City, Branch 134 (RTC), in Special Civil Case No. 14- 985, which denied petitioner Association of Non-Profit Clubs, Inc. (ANPC)'s petition4 for declaratory relief, thereby upholding in full the validity of Revenue Memorandum Circular (RMC) No. 35-2012.5
According to the doctrine of casus omissus pro omisso habendus est, a person, object, or thing omitted from an enumeration must be held to have been omitted intentionally. The provision in the (1977 Tax Code] which granted income tax exemption to such recreational clubs was omitted in the current list of tax exempt corporations under [the 1997 NIRC], as amended. Hence, the income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, rental income, and service fees are subject to income tax.10 (Emphasis and underscoring supplied)Likewise, on the VAT component, RMC No. 35-2012 provides that "the gross receipts of recreational clubs including but not limited to membership fees, assessment dues, rental income, and service fees are subject to VAT."11 As basis, the BIR relied on Section 105,12 Chapter I, Title IV of the 1997 NIRC, which states that even a nonstock, nonprofit private organization or government entity is liable to pay VAT on the sale of goods or services.13
[W]hile it is true that this Court, the Court of Appeals, and the Regional Trial Courts have concurrent original jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas corpus, such concurrence does not accord litigants unrestrained freedom of choice of the court to which application therefor may be directed. There is a hierarchy of courts determinative of the venue of appeals which should also serve as a general determinant of the proper forum for the application for the extraordinary writs. A becoming regard for this judicial hierarchy by the petitioner and her lawyers ought to have led them to file the petition with the proper Regional Trial Court.35 (Emphasis and underscoring supplied)Clearly, the correctness of the BIR's interpretation of the 1997 NIRC under the assailed RMC is a pure question of law,36 because the same does not involve an examination of the probative value of the evidence presented by the litigants or any of them.37 Thus, being the only remedy to appeal the RTC's ruling upholding the Circular's validity on a purely legal question, direct resort to this Court, through a Rule 45 petition, was correctly availed by ANPC.
Section 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.Thus, as dictated by the rule on exhaustion of administrative remedies,40 the validity of RMC No. 35-2012 should have been first subjected to the review of the Secretary of Finance before ANPC sought judicial recourse with the RTC.
x x x x (Emphases supplied)
The provision in the [1977 Tax Code] which granted income tax exemption to such recreational clubs was omitted in the current list of tax exempt corporations under the [1997 NIRC], as amended. Hence, the income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, rental income, and service fees [is] subject to income tax.46 (Emphases and underscoring supplied)The distinction between "capital" and "income" is well-settled in our jurisprudence. As held in the early case of Madrigal v. Rafferty,47 "capital" has been delineated as a "fund" or "wealth," as opposed to "income" being "the flow of services rendered by capital" or the "service of wealth":
Income as contrasted with capital or property is to be the test. The essential difference between capital and income is that capital is a fund; income is a flow. A fund of property existing at an instant of time is called capital. A flow of services rendered by that capital by the payment of money from it or any other benefit rendered by a fund of capital in relation to such fund through a period of time is called income. Capital is wealth, while income is the service of wealth. (See Fisher, "The Nature of Capital and Income.") The Supreme Court of Georgi;expresses the thought in the following figurative language: "The fact is that property is a tree, income is the fruit; labor is a tree, income the fruit; capital is a tree, income the fruit." (Waring vs. City of Savannah [1878], 60 Ga., 93.) A tax on income is not a tax on property. "Income," as here used, can be defined as "profits or gains." (London County Council vs. Attorney General [1901], A. C., 26; 70 L. J. K. B. N. S., 77; 83 L. T. N. S., 605; 49 Week. Rep., 686; 4 Tax Cas., 265. See further Foster's Income Tax, second edition [1915], Chapter IV; Black on Income Taxes, second edition [1915], Chapter VIII; Gibbons vs. Mahon [1890], 136 U.S., 549; and Towne vs. Eisner, decided by the United States Supreme Court, January 7, 1918.)48 (Emphases and underscoring supplied)In Conwi v. Court of Tax Appeals,49 the Court elucidated that "income may be defined as an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. Unless otherwise specified, it means cash or its equivalent. Income can also be thought of as a flow of the fruits of one's labor."50
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so that the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the tax) to its constituency who are to pay it. Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any other statute, tax legislation carries a presumption of constitutionality.In Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary,57 the Court held that "[a]s a matter of power[,] a court, when confronted with an interpretative rule, [such as RMC No. 35-2012,] is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule."58 Thus, by sweepingly including in RMC No. 35-2012 all membership fees and assessment dues in its classification of "income of recreational clubs from whatever source'' that are "subject to income tax,"59 the BIR exceeded its rule-making authority. Case law holds that:
The constitutional safeguard of due process is embodied in the fiat "[no] person shall be deprived of life, liberty or property without due process of law." In Sison, Jr. v. Ancheta [215 Phil. 582 (1984)], we held that the due process clause may properly be invoked to invalidate, in appropriate cases, a revenue measure when it amounts to a confiscation of property. But in the same case, we also explained that we will not strike down a revenue measure as unconstitutional (for being violative of the due process clause) on the mere allegation of arbitrariness by the taxpayer. There must be a factual foundation to such an unconstitutional taint. This merely adheres to the authoritative doctrine that, where the due process clause is invoked, considering that it is not a fixed rule but rather a broad standard, there is a need for proof of such persuasive character.
xxxx
Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it.is income, not capital, which is subject to income tax. x x x.56 (Emphases supplied)
[T]he rule-making power of administrative agencies cannot be extended to amend or expand statutory requirements or to embrace matters not originally encompassed by the law. Administrative regulations should always be in accord with the provisions of the statute they seek to carry into effect, and any resulting inconsistency shall be resolved in favor of the basic law.60Accordingly, the Court hereby declares the said interpretation to be invalid, and in consequence, sets aside the ruling of the RTC.
Section 105. Persons Liable.- Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.As ANPC aptly pointed out, membership fees, assessment dues, and the like are not subject to VAT because in collecting such fees, the club is not selling its service to the members. Conversely, the members are not buying services from the club when dues are paid; hence, there is no economic or commercial activity to speak of as these dues are devoted for the operations/maintenance of the facilities of the organization.64As such, there could be no "sale, barter or exchange of goods or properties, or sale of a service" to speak of, which would then be subject to VAT under the 1997 NIRC.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business. (Emphases supplied)
Endnotes:
1Rollo, pp. 11-78.
2 Id. at 82-89. Penned by Pairing Judge Elpidio R. Calis.
3 Id. at 90. Penned by Acting Presiding Judge Manuel L. See.
4 Dated September 15,2014. Id. at 95-114.
5 Entitled "CLARIFYING THE TAXABILITY OF CLUBS ORGANIZED AND OPERATED EXCLUSIVELY FOR PLEASURE, RECREATION, AND OTHER NON-PROFIT PURPOSES" (August 3, 2012). Id. at 92-94.
6 Id.
7 Id. at 92.
8 Republic Act No. 8424, entitled "AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES," otherwise known as the "TAX REFORM ACT OF 1997" (January 1, 1998).
9 Rollo, pp. 92-93; emphasis and underscoring supplied.
10 Id. at 93.
11 Id. at 94; emphasis and underscoring supplied.
12 Section 105. Persons Liable. -Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
xxxx
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
x x x x (Emphasis supplied)
13 See Commissioner of Internal Revenue v. Court of Appeals, 385 Phil. 875 (2000), as cited in RMC No. 35-2012. See also rollo, p. 93.
14Rollo, p. 144.
15See id. at 83 and 144.
16 By way of a letter dated November 12,2012 addressed to Commissioner of lnternal Revenue Kim S. Jacinto-Henares. Id. at 143-154.
17 Id. at 152.
18 Id. at 99-100.
19 Id. at 95-114.
20 See id. at 100 and 113.
21 See id. at 100-112.
22 See id. at 83-84.
23 Id. at 82-89.
24 See id. at 89.
25 See id. at 87.
26 See id. at 85.
27 See id. at 86-87.
28 The motion for reconsideration was not attached in the rollo.
29Rollo, p. 90.
30 Dated January 12, 2018. Id. at 165-175.
31 See id. at 172-173.
32 Section 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. -The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. (Emphases supplied)
33 See rollo, pp. 168-172.
34 G.R. No. 111416-17, September 26, 1994, 237 SCRA 167.
35 Id. at 170.
36 See Calamba Steel Center, Inc. v. Commissioner of Internal Revenue, 497 Phil. 23, 33 (2005).
37 See Republic of the Philippines v. Malabanan, 646 Phil. 631, 637-638 (2010).
38BPI Leasing Corporation v. Court of Appeals, 461 Phil. 451, 459 (2003).
39Rollo, p. 92.
40 It is well-settled that "before a party is allowed to seek the intervention of the courts, it is a pre condition that he avail himself of all administrative processes afforded him. Hence, if a remedy within the administrative machinery can be resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his jurisdiction, then such remedy must be exhausted first before the court's power of judicial review can be sought." (Samar II Electric Cooperative, Inc. v. Seludo, Jr., 686 Phil. 786, 796 [2012].)
41 See Banco De Oro v. Republic of the Philippines, 750 Phil. 349, 381-382 (2015).
42 Section 27. Exemptions from tax on corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such -
x x x x
(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member[.]
43 Entitled "A DECREE TO CONSOLIDATE AND CODIFY ALL THE INTERNAL REVENUE LAWS OF THE PHILIPPINES" (June 3, 1977).
44Rollo, p. 86.
45 Section 32 (A), Chapter VI, Title II of the 1997 NIRC.
46Rollo, p. 93.
47 38 Phil. 414 (1918).
48 Id. at 418-419.
49 G.R. No. 48532, August 31, 1992, 213 SCRA 83 (1992).
50 Id. at 87-88; emphases supplied.
51Rollo, p. 68.
52 See id. at 40-42.
53Chamber of Real Estate and Builders' Associations, Inc. v. Romulo, 628 Phil. 508, 531 (2010).
54Rollo, p. 93.
55 Supra note 53.
56 Id. at 530-531, other citations omitted.
57 G.R. No. 108524, November 10, 1994, 238 SCRA 63.
58 Id. at 70.
59Rollo, p. 93.
60CS Garment, Inc. v. Commissioner of Internal Revenue, 729 Phil. 253, 275 (2014).
61Rollo, p. 94.
62 See Commissioner of Internal Revenue v. Sony Philippines, Inc., 649 Phil. 519, 533 (2010).
63 See Commissioner of Internal Revenue v. Court of Appeals, supra note 13.
64Rollo, pp. 71-72.