FIRST DIVISION
G.R. No. 226449, July 28, 2020
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, V. FEDERATION OF GOLF CLUBS OF THE PHILIPPINES, INC., (FEDGOLF), RESPONDENT.
D E C I S I O N
REYES, J. JR., J.:
Assailed in this Petition for Review on Certiorari1 are the Decision2 dated April 29, 2016 and Resolution3 dated August 10, 2016 of the Regional Trial Court (RTC) of Makati City, Branch 66, which declared invalid Revenue Memorandum Circular (RMC) No. 35-2012 (Clarifying the Taxability of Clubs Organized and Operated Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes) issued by the Commissioner of the Bureau of Internal Revenue (CIR).
WHEREFORE, premises considered, the instant Petition for Declaratory Relief is hereby GRANTED. Accordingly, RMC No. 35-2012 is hereby declared NULL and VOID.In the Resolution15 dated August 10, 2016, the RTC denied CIR's motion for reconsideration.
SO ORDERED.14cralawlawlibrary
a. Income taxThe CIR, in issuing RMC No. 35-2012, maintained the taxability of the recreational clubs' income because unlike the 1977 NIRC which expressly included recreational clubs, 18 the 1997 NIRC deleted these organizations in the lists of clubs exempted from income taxation: ChanRoblesVirtualawlibrary
Clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes are subject to income tax under the National Internal Revenue Code of 1997, as amended. 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 National Internal Revenue Code of 1977 which granted income tax exemption to such recreational clubs was omitted in the current list of tax exempt corporations under National Internal Revenue Code of 1997, 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.
b. Value-added tax
Section 105 of the National Internal Revenue Code of 1997, as amended, provides:
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.
x x x x
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. (Emphasis ommitted)
The above provision is clear — even a non-stock, non-profit organization or government entity is liable to pay VAT on the sale of goods or services.
x x x x
Clearly, the gross receipts of recreational clubs including but not limited to membership fees, assessment dues, rental income, and service fees are subject to VAT.17 (Emphases 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:With the deletion of recreational clubs from the exemption, the CIR interpreted that their income of whatever source, including, but not limited to membership fees, assessment dues, rental income and service fees are subject to tax.
(A) Labor, agricultural or horticultural organization not organized principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit;
(C) A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or mutual aid association or a nonstock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person;
(F) Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder, or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
(H) A nonstock and nonprofit educational institution; (I) Government educational institution;
(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and
(K) Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them;
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 regardless of the disposition made of such income, shall be subject to tax imposed under this Code.
In fine, for as Ions as these membership fees, assessment dues, and the like are treated as collections by recreational clubs from their members as inherent consequence of their membership, and are, by nature, intended for the maintenance, preservation, and upkeep of the clubs' general operations and facilities, then these fees cannot be classified as "the income of recreational clubs from whatever source" that are "subject to income tax". Instead, they only form part of capital from which no income tax may be collected or imposed. (Citation omitted).As to VAT, the Court interpreted that RMC No. 35-2012 erroneously included the gross receipts of recreational clubs on membership fees, assessment dues, and the like as subject to VAT because Section 105 of the 1997 N1RC specified the taxability of only those which deal with the "sale, barter or exchange of good or properties, or sale of service." In collecting such fees from their members, recreational clubs are not selling any kind of service, in the same way that the members are not procuring service from them. Thus, "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".
WHEREFORE, the petition is GRANTED. The Decision dated July 1, 2016 and Order dated November 7, 2016 of the Regional Trial Court of Makati City, Branch 134 in Special Civil Case No. 14-985, are hereby SET ASIDE. The Court DECLARES that membership fees, assessment dues, and fees of similar nature collected by clubs which are organized and operated exclusively for pleasure, recreation, and other nonprofit purposes do not constitute as: (a) "the income of recreational clubs of whatever source" that are "subject to income tax'" and (b) part of the "gross receipts of recreational clubs" that are "subject to [Value Added Tax]." Accordingly, Revenue Memorandum Circular No. 35-2012 should be interpreted in accordance with this Decision.Preliminarily, we recognize our ruling in Bureau of Internal Revenue v. First E-Bank Tower Condominium Corporation,24 citing Department of Transportation v. Philippine Petroleum Sea Transport Association25 and Diaz v. Secretary of Finance26 which declared that although a petition for declaratory relief was improper when assailing government issuances, yet when the issues have "far-reaching implications and raises questions that need to be resolved for the public good; or if the assailed act or acts of executive officials are alleged to have usurped legislative authority", then a petition for declaratory relief may be treated as a petition for prohibition.
SO ORDERED.
Endnotes:
1Rollo, pp. 10-41.
2 Penned by Judge Joselito C. Villarosa; id. at 48-54.
3 Id. at 55.
4 Id. at 48.
5 Id. at 149-175.
6 Id. at 152.
7 Id. at 152.
8 Id. at 153.
9 Id.
10 Id. at 199-210.
11 Id. at 211-223.
12 Supra note 2.
13SEC. 30. Exemptions from Tax on Corporation- The following organizations shall not be taxed under this Title in respect to income received by them as such:
x x x x
E) Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific person;
x x x x
14 Id. at 54.
15 Supra note 3.
16 G.R. No. 228539, June 26, 2019.
17 RMC No. 35-2012 issued on August 3, 2012.
18 SEC. 16. Exemptions from tax on corporations.-
x x x x
(e) Corporation or association organized and operated exclusively for religious, charitable, scientific, athletic or cultural purposes, or for the rehabilitation of veterans, no part of the net income of which inures to the benefit of any private stockholder or individual;
x x x x
19 SEC. 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.
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 course of trade or business.
20 SEC. 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, x x x x
21 Supra note 16, citing Comwi v. Court of Tax Appeals, G.R. No. 48532, August 31, 1992, 213 SCRA 83.
22Association of Non-Profit Clubs, Inc. (ANPC) v. Bureau of Internal Revene, supra note 16, citing Madrigal v. Rafferty, 38 Phil. 414 (1918).
23 Supra note 16
24 G.R. No. 215801, January 15, 2020.
25 G.R. No. 230107, July 24, 2018.
26 669 Phil. 371 (2011).
27 See Tala Realty Services Corp., Inc. v. Banco Filipino Savings & Mortgage Bank, 488 Phil. 19, 28-30 (2016).
28 ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines.
29 See Lazatin v. Desierto, 606 Phil. 271, 282-283 (2009).chanRoblesvirtualLawlibrary