GR 202792; (February, 2019) (Digest)
G.R. No. 202792 February 27, 2019
LA SALLIAN EDUCATIONAL INNOVATORS FOUNDATION (DE LA SALLE UNIVERSITY-COLLEGE OF ST. BENILDE) INC., Petitioner vs. COMMISSIONER OF INTERNAL REVENUE, Respondent
FACTS
Petitioner La Sallian Educational Innovators Foundation, Inc. (De La Salle University-College of St. Benilde) is a non-stock, non-profit educational institution. The Commissioner of Internal Revenue (CIR) issued deficiency income tax and value-added tax (VAT) assessments against it for fiscal year 2002, arguing it had lost its tax-exempt status. The CIR claimed the institution was profit-oriented, citing its substantial revenues from tuition, large cash holdings, and that a significant portion of its earnings were used for administrative and school improvement purposes rather than direct charitable activities. Petitioner protested, asserting its constitutional tax exemption under Article XIV, Section 4(3) of the 1987 Constitution .
The Court of Tax Appeals (CTA) Division partially granted the petition, canceling the deficiency income tax assessment but upholding the VAT assessment. Both parties appealed to the CTA En Banc. The CTA En Banc modified the decision, reinstating the deficiency income tax assessment. It ruled that while petitioner was an educational institution, its income was subject to tax because the funds were not actually, directly, and exclusively used for educational purposes, as required by the Constitution and relevant jurisprudence.
ISSUE
Whether the income of petitioner, a non-stock, non-profit educational institution, is exempt from income tax under Article XIV, Section 4(3) of the 1987 Constitution .
RULING
The Supreme Court ruled in favor of the petitioner and granted the petition. The Court canceled the deficiency income tax assessment. The legal logic is anchored on a proper interpretation of the constitutional tax exemption for non-stock, non-profit educational institutions. The Court clarified that the exemption under Article XIV, Section 4(3) of the 1987 Constitution is absolute and covers all revenues of such institutions, provided the institution itself meets the non-stock, non-profit criteria. The phrase “used actually, directly, and exclusively for educational purposes” qualifies the exemption of assets and revenues from real property taxes under the same constitutional provision, not the general income tax exemption.
The Court distinguished this from the statutory exemption under Section 30 of the National Internal Revenue Code (NIRC), which has a different condition that income from activities conducted for profit is taxable. The constitutional provision is superior and self-executing. Therefore, once an entity is established as a non-stock, non-profit educational institution, its income is ipso facto tax-exempt. The CIR’s assessment, which focused on the alleged non-educational use of the income, erroneously applied the “use test” relevant to property tax exemption to the income tax exemption. Consequently, the deficiency income tax assessment had no legal basis. The VAT assessment was not addressed in this digest as the Supreme Court’s decision focused on the income tax issue.