THIRD DIVISION
G.R. No. 202792, February 27, 2019
LA SALLIAN EDUCATIONAL INNOVATORS FOUNDATION (DE LA SALLE UNIVERSITY-COLLEGE OF ST. BENILDE) INC., PETITIONER, v. COMMISIONER OF INTERNAL REVENUE, RESPONDENT.
D E C I S I O N
A. REYES, JR., J.:
Before this Court is a Petition for Review on Certiorari1 taken under Rule 16 of the Revised Rules of the Court of Tax Appeals, in relation to Rule 45 of the Rules of Court seeking to nullify the Decision2 dated April 19, 2012 and Resolution3 promulgated on July 17, 2012 of the Court of Tax Appeals (CTA) En Banc.
The other Assessment Notice is for a deficiency value-added tax (VAT) in the amount of P2,752,228.54, inclusive of interest, computed as follows:
Gross Income Per Return on Educational P 618,449,079.00Less: Expenses Per Return on Educational 459,848,867.00Net Income Per Return P 158,600,212.00Add: Adjustments Per Investigation Interest Expense - Disallowed (Sec. 34 (B) NIRC) P 21,827,506.66Provision For Retirement - Not Deductible (Sec. 34 NIRC) 27,059,453.34Provision For Doubtful Accounts - Not Deductible (Sec. 34 NIRC) 4,252,393.73Not Subject to Withholding Tax - Sec. 34 NIRC Rental 123,147.00Income Not Subjected to Income Tax - Depository Accounts (Sec. 32 NIRC) 575,702,650.00Unlocated/Unsupported Invoices & Vouchers (Sec. 34 NIRC) 2,150,270.66 631,170,895.82Adjusted Taxable Income P 789,771,107.82Tax Due P 78,977,110.78Less: Tax due per return -Deficiency Income Tax (subject to increments) P 78,977,110.78Add: 25% surcharge (Sec. 248) 20% interest from __ to 06-20-05 (Sec. 249) P 43,437,410.92Compromise Penalty (Sec. 254) ______________TOTAL AMOUNT DUE & COLLECTIBLE P 122,414,521.70
On the same date, a separate demand letter was also sent by respondent to petitioner for a compromise penalty in deficiency VAT in the amount of P25,000.00.8
Taxable Income Subject to VAT ICC Revenue P 24,830,069.00Auxiliary Service Income 637,280.35Concessionaire 606,726.00Mimeo/Xerox 425,489.60Book store-School Supplies 559,140.96Parking Fund 2,729,330.75Boarding House 2,513,338.02Locker Rental 309,172.00 32,610,546.68VAT Output Tax Due - Sec. 106/08 NIRC P 3,261,054.67Less: Creditable Input Tax Carried Over from Previous Quarter P770,351.28Current Input Tax 943,242.91Total Less: Excess/To be Applied to Succeeding Year - Sec. 110 NIRC P 121,991.53Unsupported - Sec. 110 NIRC 393,240.74Pro-rated between Hotel & School - Sec. 110, NIRC 309,956.13 825,188.40 888,405.79VAT Due P 2,372,648.88Less: Payment 652,506.04Deficiency VAT P 1,720,142.84Add: 25% surcharge (Sec. 248) 20% interest from __ to 06-20-05 (Sec. 249) 1,032,085.70Compromise Penalty (Sec. 254) _____________________________TOTAL AMOUNT DUE & COLLECTIBLE P 2,752,228.547
a. The foundation may be a non-stock entity but it is definitely a profit-oriented organization wherein majority of its revenue-operating activities are generating huge amount of profit amounting to P643 million that earned from expensive tuition fees collected from its students, mostly belong to a [sic] upper class family.On the other hand, petitioner Foundation consistently argued that it enjoys a tax-exempt status from all taxes as a non-stock, non-profit educational institution as expressly provided under Paragraph 4, Section 4, Article XIV of the 1987 Constitution, which reads:
b. The foundation's Cash in Bank in the amount of P775 million comprise of investing activities and has significant movement in relation to its charitable purposes, which mean that the foundation are [sic] not giving sufficient donations which is the main reasons [sic] for its qualification[s] [sic] for exemption. During the school year the foundations [sic] has a total cash receipts of approximately 1.222 Billion out of which only 77 Million goes to the revolving fund.
c. Based on the Cash Flow of the foundation activities the taxpayer has used 583 Million for operating activities, 54 Million interest/settlement of loan and 203 Million for investing activities or 70% of foundation's earnings goes to the administrative purposes and improvement of the school to increase number of its enrollees and increase further its profit and not to further its charitable purposes.
Pursuant to section 30 of the NIRC, "Notwithstanding the provisions in the preceding Paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit [r]egardless of the disposition made by such income, shall be subject to tax imposed under this Code."
d. The taxpayer's Ruling for exemption from the BIR was obtained in 1988, hence, all Ruling issued before the implementations or RA No. 8424 or CTRP was repealed, thereby, requiring the taxpayer to apply for new Revenue Ruling for exemption taking consideration of its income earning activities.
ARTICLE XIVMoreover, petitioner Foundation denied the respondent's allegations that it engaged in disproportionate profit-earning activities contrary to its educational purpose. Contrary to the allegations, it explained that the sum of P643,279,148.00 is not profit, but merely the gross receipts from school-year 2002.14
EDUCATION, SCIENCE AND TECHNOLOGY, ARTS, CULTURE AND SPORTS
EDUCATION
x x x x
Section 4. x x x.
x x x x
(3) All revenues and assets of non-stock, non-profit educational institution used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. x x x.
WHEREFORE, the Petition for Review is hereby GRANTED. The Assessment Notice No. 33-FY 05-31-02 for fiscal year ending May 31, 2002, with demand letter, against petitioner for deficiency income tax in the amount of ONE HUNDRED TWENTY-TWO MILLION FOUR HUNDRED FOURTEEN THOUSAND FIVE HUNDRED TWENTY-ONE PESOS & 70/100 (P122,414,521.70) is hereby CANCELLED.The CTA Division also ruled that there's nothing in the Foundation's books that will show that it operated for profit or that any of its income inured to the benefit of its members or trustees.23 The CTA Division found that (1) petitioner Foundation maintained its tax-exempt status under Section 4, Article XIV of the 1987 Constitution, and (2) the Final Assessment Notices issued by respondent against petitioner Foundation are not valid for failing to state their legal and factual basis hence, all other issues raised are moot and academic.24
SO ORDERED.22
WHEREFORE, the Petition for Review dated December 21, 2010, filed by the Commissioner of Internal Revenue, is hereby GRANTED. The Decision dated July 16, 2010 and the Resolution dated November 18, 2010 are REVERSED and SET ASIDE. Consequently, the Petition for Review dated April 17, 2006 filed before the Court in Division is DISMISSED, on jurisdictional grounds.The CTA En Banc ruled that the CTA Division should not have given due course to petitioner Foundation's petition for review.33 Payment of docket fees and other legal fees within the thirty (30)-day reglementary period to appeal is mandatory and jurisdictional. The late payment of docket fees prevented the CTA Division from acquiring jurisdiction.34 Petitioner Foundation's appeal was allegedly not perfected because the payment of the docket fees was made only on April 26, 2006 or nine (9) days after April 17, 2006, the last day for filing the appeal.35 As a result, the assailed assessment has allegedly become final and executory.36
SO ORDERED.32
I. WHETHER THE PETITIONER FOUNDATION HAS LOST ITS TAX-EXEMPT STATUS UNDER THE 1987 CONSTITUTION II. WHETHER THE CTA EN BANG COMMITTED A REVERSIBLE ERROR WHEN IT REVERSED AND SET ASIDE THE DECISION OF THE CTA DIVISION DATED JULY 16, 2010 AND RESOLUTION DATED NOVEMBER 18, 2010
Section 4.(1) The State recognizes the complementary roles of public and private institutions in the educational system and shall exercise reasonable supervision and regulation of all educational institutions.This constitutional exemption is reiterated in Section 30 (H) of the 1997 Tax Code, as amended, which provides as follows:x x x x
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. (Emphasis and underscoring supplied)
Sec. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title in respect to income received by them as such:Clearly, non-stock, non-profit educational institutions are not required to pay taxes on all their revenues and assets if they are used actually, directly and exclusively for educational purposes.x x x x
(H) A non[-]stock and non[-]profit educational institution[.]
SECOND: That the purposes and objectives for which such corporation is incorporated are:Moreover, petitioner Foundation has no capital divided into shares.47 No part of its income can be distributed as dividends to its members, trustees and officers.48 The members of the Board of Trustees do not receive any compensation for the performance of their duties, including attendance in meetings.49
That the primary purpose for which said corporation is formed is to establish a school that will offer elementary, secondary, collegiate and post graduate courses of study, as well as technical, vocational and special courses under one campus with emphasis on its being innovative in its approach to undergraduate education through self-learning devices, kits, individually guided teaching, credit by equivalence, credited internships, and practicism, as the Board of Trustees may determine, the primary intention being to form the whole man through integration of a liberal Christian education with professional competence for participation in Philippine development.
AND IN THE FURTHERANCE OF THE FOREGOING, the institution shall:x x x x
8. Any profits derived from activities and undertakings described in paragraph 2, 3, 5 and 6 immediately preceding shall not inure to any of the members, trustees or officers but shall be used exclusively for the maintenance of the Corporation.
To hold that an educational Institution is subject to income tax whenever it is so administered as to reasonably assure that it will not incur in deficit, is to nullify and defeat the aforementioned exemption. Indeed, the effect, in general, of the interpretation advocated by appellant would be to deny the exemption whenever there is net income, contrary to the tenor of said section 27(e) which positively exempts from taxation those corporations or associations which, otherwise, would be subject thereto, because of the existence of said net income.Considering the clear explanation of the nature of the money involved, it is evident that all of petitioner Foundation's income is actually, directly and exclusively used or earmarked for promoting its educational purpose.62 To reiterate, respondent never argued that the income of petitioner Foundation was used in any manner other than for promoting its purpose as a non-stock, non-profit educational institution, hi fact, there is not even a single argument or evidence presented to cast a doubt in the proper usage of petitioner Foundation's income.
Needless to say, every responsible organization must be so run as to, at least insure its existence by operating within the limits of its own resources, especially its regular income. In other words, it should always strive, whenever possible, to have a surplus.61 (Emphasis and underscoring supplied)
The reduction in the number of pending cases is laudable, but if it would be attained by precipitate, if not preposterous, application of technicalities, justice would not be served. The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. "It is a more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not miscarriage of justice." x x xOtherwise stated, procedural rules are important tools designed to facilitate the dispensation of justice, but legal technicalities may be excused when strict adherence thereto will impede the achievement of justice it seeks to serve.
What should guide judicial action is the principle that a party-litigant should be given the fullest opportunity to establish the merits of his complaint or defense rather than for him to lose life, liberty, honor, or property on technicalities. The rules of procedure should be viewed as mere tools designed to facilitate the attainment of justice. Their strict and rigid application, which would result in technicalities that tend to frustrate rather than promote substantial justice, must always be eschewed. At this juncture, the Court reminds all members of the bench and bar of the admonition in the often-cited case of Alonso v. Villamar70 (Emphasis and underscoring supplied; citation omitted)
In all, what emerges from all of the above is that the rules of procedure in the matter of paying the docket fees must be followed. However, there are exceptions to the stringent requirement as to call for a relaxation of the application of the rules, such as: (1) most persuasive and weighty reasons; (2) to relieve a litigant from an injustice not commensurate with his failure to comply with the prescribed procedure; (3) good faith of the defaulting party by immediately paying within a reasonable time from the time of the default; (4) the existence of special or compelling circumstances; (5) the merits of the case; (6) a cause not entirely attributable to the fault or negligence of the party favored by the suspension of the rules; (7) a lack of any showing that the review sought is merely frivolous and dilatory; (8) the other party will not be unjustly prejudiced thereby; (9) fraud, accident, mistake or excusable negligence without appellant's fault; (10) peculiar legal and equitable circumstances attendant to each case; (11) in the name of substantial justice and fair play; (12) importance of the issues involved; and (13) exercise of sound discretion by the judge guided by all the attendant circumstances. Concomitant to a liberal interpretation of the rules of procedure should be an effort on the part of the party invoking liberality to adequately explain his failure to abide by the rules. Anyone seeking exemption from the application of the Rule has the burden of proving that exceptionally meritorious instances exist which warrant such departure.73 (Emphasis and underscoring supplied)In other words, while procedural rules are important in the administration of justice, they may be excused for the most persuasive and meritorious reasons in order to relieve a litigant of an injustice that is not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.74
We have not been oblivious to or unmindful of the extraordinary situations that merit liberal application of the Rules, allowing us, depending on the circumstances, to set aside technical infirmities and give due course to the appeal. In cases where we dispense with the technicalities, we do not mean to undermine the force and effectivity of the periods set by law. I those rare cases where we did not stringently apply the procedural rules, there always existed a clear need to prevent the commission of a grave injustice. Our judicial system and the courts have always tried to maintain a healthy balance between the strict enforcement o procedural laws and the guarantee that every litigant be given the full opportunity for the just and proper disposition of his cause. x x x.Finally, it is crucial to be reminded that the constitutionally mandated tax privilege granted to non-stock non-profit educational institutions plays an important role in promoting quality and affordable education in the country. In the consolidated cases of Commissioner of Internal Revenue v. De La Salle University Inc.,77 this Court discussed the important role of this tax privilege for educating the students, to wit:
x x x x
In Sebastian v. Morales, we ruled that rules of procedure must b faithfully followed except only when, for persuasive reasons, they may be relaxed to relieve a litigant of an injustice not commensurate with his failure to comply with the prescribed procedure, thus:
x x x x
The Court has allowed some meritorious cases to proceed despite inherent procedural defects and lapses. This is in keeping with the principle that rules of procedure are mere tools designed to facilitate the attainment of justice and that strict and rigid application of rules which would result in technicalities that tend to frustrate rather than promote substantial justice must always be avoided. It is a far better and more prudent cause o action for the court to excuse a technical lapse and afford the parties a review of the case to attain the ends of justice, rather than dispose of the case on technicality and cause grave injustice to the parties, giving false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice. (Emphasis supplied; citation, omitted).
We find that the text demonstrates the policy of the 1987 Constitution, discernible from the records of the 1986 Constitutional Commission to provide broader tax privilege to non-stock, non-profit educational institutions as recognition of their role in assisting the State provide a public good. The tax exemption was seen as beneficial to students who may otherwise be charged unreasonable tuition fees if not for the tax exemption extended to all revenues and assets of non-stock, non-profit educational institutions. (Emphasis and underscoring supplied; citations omitted).Evidently, petitioner Foundation, being a non-stock, non-profit educational institution, is not liable to the payment of VAT deficiency assessment, and the CTA En Banc erred in finding otherwise and in reversing the CTA Division.
| (SGD) DIOSDADO M. PERALTA |
Associate Justice | |
Chairperson, Second Division |
(SGD) ANTONIO T. CARPIO78 | |
Acting Chief Justice |
| Very truly yours, |
(SGD) WILFREDO V. LAPITAN | |
Division Clerk of Court |
Endnotes:
* Designated additional Member as per Special Order No. 2624, dated November 29, 2018.
1Rollo, pp. 11-64.
2 Penned by Associate Justice Esperanza R. Fabon-Victorino; id. at 69-111.
3 Penned by Associate Justice Esperanza R. Fabon-Victorino; id. at 138-142.
4 Id. at 397-398.
5 Id. at 398.
6 Id. at 398-399.
7 Id. at 399.
8 Id.
9 Id. at 400.
10 Id. at 83-84.
11 Id. at 84.
12 Id. at 388.
13 Id. at 177-178.
14 Id. at 182-183.
15 Id. at 183.
16 Id.
17 Id. at 410.
18 Id.
19 Id. at 400.
20 Id. at 407.
21 Id. at 397-419.
22 Id. at 418.
23 Id at 412.
24 Id. at 418.
25 Id. at 420-431.
26 Id. at 432-436.
27 Id. at 438-442.
28 Id. at 440.
29 Id. at 443-473.
30 Id. at 474-490.
31 Id. at 69-111.
32 Id. at 110.
33 Id. at 84.
34 Id.
35 Id.
36 Id. at 109.
37 Id. at 85.
38 Id. at 112-137.
39 Id. at 138-142.
40 Id. at 11-64.
41 Id. at 19.
42 1987 Constitution, Article XIV, Section 4(3).
43 Id. at 425.
44Commission of Internal Revenue v. De La Salle University Inc., 799 Phil. 141, 167 (2016); and Revenue Memorandum Order No. 20-2013.
45Rollo, p. 409.
46 Id. at 36-37.
47 Id. at 410.
48 Id.
49 Id. at 47, 80.
50 Id. at 47-48.
51 Id. at 47-48.
52 Id. at 410.
53 Id. at 410.
54 Id.
55 Id.
56 Id. at 410.
57 Id. at 48.
58 Id.
59Commissioner of Internal Revenue v. St. Lukes Medical Center, 805 Phil. 607, 619 (2017); Commissioner of Internal Revenue v. St. Lukes Medical Center, 695 Phil. 867, 885 (2012); and Hospital De San Juan De Dios, Inc. v. Pasay City, et al., 123 Phil. 38, 42 (1966).
60 95 Phil. 16 (1954).
61 Id. at 21.
62 Id. at 89.
63CIR v. De La Salle University, 799 Phil. 141, 169 (2016).
64 Id.
65Rollo, pp. 100-101.
66 Id. at 108.
67 Id. at 108-109.
68Marlon Curammeng v Pablo v. People of the Philippines, 799 Phil. 575, 581 (2016).
69 729 Phil. 639 (2014).
70 Id. at 651-652.
71Tanenglian v. Lorenzo, et al., 573 Phil. 472, 484 (2008).
72 371 Phil. 393 (1999).
73KLT Fruits, Inc. v. WSR Fruits, Inc., 563 Phil. 1038, 1052-1053 (2007); and Villena v. Rupisan, 549 Phil. 146, 167 (2007).
74Sps. Bergona, et al. v. Court of Appeals, 680 Phil. 334, 343 (2012).
75 Supra note 71.
76 Id. at 485-489.
77 Supra note 44, at 168-169.
78 Designated Acting Chief Justice per Special Order No. 2637 dated February 26, 2019.