CIR vs.THE CLUB FILIPINO, INC.

DE CEBU It is conceded that the Club derived profit from the operation of its bar and
restaurant, but such fact does not necessarily convert it into a profit-making
FACTS: The Club owns and operates a club house, a bowling alley, a golf enterprise. The bar and restaurant are necessary adjuncts of the Club to
course (on a lot leased from the government), and a bar-restaurant where it foster its purposes and the profits derived therefrom are necessarily
sells wines and liquors, soft drinks, meals and short orders to its members incidental to the primary object of developing and cultivating sports for the
and their guests. The bar-restaurant was a necessary incident to the healthful recreation and entertainment of the stockholders and members.
operation of the club and its golf-course. The club is operated mainly with That a Club makes some profit, does not make it a profit-making Club. As
funds derived from membership fees and dues. Whatever profits it had, has been remarked a club should always strive, whenever possible, to have
were used to defray its overhead expenses and to improve its golf-course. In surplus
1951. as a result of a capital surplus, arising from the re-valuation of its real
properties, the value or price of which increased, the Club declared stock
dividends; but no actual cash dividends were distributed to the REPUBLIC OF THE PHILIPPINES, represented by the PHILIPPINE
stockholders. In 1952, a BIR agent discovered that the Club has never paid RECLAMATION AUTHORITY (PRA), vs.CITY OF PARANAQUE
percentage tax on the gross receipts of its bar and restaurant. CIR assessed G.R. No. 191109 July 18, 2012
against and demanded from the Club taxes allegedly due.
ISSUE: WON Club Filipino is liable for the taxes (WON it is a stock This is a petition for review on certiorari assailing the Order of the Regional
corporation) Trial Court, Branch 195,Paranaque City (RTC), which ruled that petitioner
HELD: No (it is non-stock) Philippine Reclamation Authority (PRA) is a government-owned and
The Club was organized to develop and cultivate sports of all class and controlled corporation (GOCC), a taxable entity, and, therefore, not exempt
denomination for the healthful recreation and entertainment of its from payment of real property taxes.
stockholders and members. There was in fact, no cash dividend distribution
to its stockholders and whatever was derived on retail from its bar and The Public Estates Authority (PEA) is a government corporation created by
restaurants used were to defray its overhead expenses and to improve its virtue of P.D. No. 1084 toprovide a coordinated, economical and efficient
golf course. reclamation of lands, and the administration andoperation of lands
For a stock corporation to exist, 2 requisites must be complied with: belonging to, managed and/or operated by, the government with the object
(1) A capital stock divided into shares of maximizing their utilization and hastening their development consistent
(2) An authority to distribute to the holders of such shares, dividends or with public interest.
allotments of the surplus profits on the basis of shares held. On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O.
In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be No. 380 transforming PEA into PRA, which shall perform all the powers and
found an authority for the distribution of its dividends or surplus functions of the PEA relating to reclamation activities.
profits. Strictly speaking, it cannot, therefore, be considered a stock
corporation, within the contemplation of the corporation law. By virtue of its mandate, PRA reclaimed several portions of the foreshore
The fact that the capital stock of the respondent Club is divided into shares, and offshore areas of Manila Bay,including those located in Parañaque City.
does not detract from the finding of the trial court that it is not engaged in Parañaque City Treasurer issued Warrants of Levy on PRA’s reclaimed
the business of operator of bar and restaurant. What is determinative of properties based on the assessment for delinquent real property for
whether or not the Club is engaged in such business is its object or purpose, tax years 2001 and 2002.
as stated in its articles and by-laws. It is a familiar rule that the actual
purpose is not controlled by the corporate form or by the commercial PRA claimed that it is not a GOCC under the Administrative Code, nor is it a
aspect of the business prosecuted, but may be shown by extrinsic evidence, GOCC under Section 16, Article XII of the 1987Constitution because it is not
including the by-laws and the method of operation. required to meet the test of economic viability.
 failed the second one - economic viability. Undoubtedly, the purpose behind
It is a government instrumentality vested with corporate powers and the creation of PRA was not for economic or commercial activities.
performing an essential public service. It insists that it may not be classified
as a non-stock corporation because it has no members and it is not Clearly, respondent has no valid or legal basis in taxing the subject
organized for charitable, religious, educational, professional, cultural, reclaimed lands managed by PRA. On the other hand, Section 234(a) of the
recreational, fraternal, literary, scientific, social, civil service, or similar LGC, in relation to its Section 133(o), exempts PRA from paying realty taxes
purposes, like trade, industry, agriculture and like chambers as provided in and protects it from the taxing powers of local government units.
Section 88 of the Corporation Code.
Thus, PRA insists that, as an incorporated instrumentality of the National Section 234(a) of the Local Government Code states that real property
Government, it is exempt from payment of real property tax except when owned by the Republic of the Philippines (the Republic) is exempt from real
the beneficial use of the real property is granted to a taxable person. PRA property tax unless the beneficial use thereof has been granted to a taxable
claims that based on Section 133(o) of the LGC, local governments cannot person.
tax the national government which delegate to local governments the
power to tax. Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
Issue: instrumentalities.
Whether or not Philippine Reclamation Authority (PRA) is an incorporated In this case, there is no proof that PRA granted the beneficial use of the
instrumentality of the national government and is, therefore, exempt from subject reclaimed lands to a taxable entity. There is no showing on record
payment of real property tax under sections 234(a) and 133(o) of Republic either that PRA leased the subject reclaimed properties to a private taxable
Act 7160? entity.
WHEREFORE, the petition is GRANTED. The Order of the Regional Trial
Held: Yes it is a Government Instrumentality. Court, Branch 195, Parañaque City, is REVERSED and SET ASIDE.

In the case at bench, PRA is not a GOCC because it is neither a stock nor a
non-stock corporation. It cannot be considered as a stock corporation Manila International Airport Authority vs CA
because although it has a capital stock divided into no par value shares as GR No. 155650, July 20, 2006, 495 SCRA 591
provided in Section 74 of P.D. No. 1084, it is not authorized to distribute
dividends, surplus allotments or profits to stockholders. PRA is a Facts:
government instrumentality vested with corporate powers and performing Manila International Airport Authority (MIAA) is the operator of the
an essential public service pursuant to Section 2(10) of the Introductory Ninoy International Airport located at Paranaque City. The Officers of
Provisions of the Administrative Code. Being an incorporated government Paranaque City sent notices to MIAA due to real estate tax delinquency.
instrumentality, it is exempt from payment of real property tax. MIAA then settled some of the amount. When MIAA failed to settle the
Many government instrumentalities are vested with corporate powers but entire amount, the officers of Paranaque city threatened to levy and subject
they do not become stock or non-stock corporations, which is a necessary to auction the land and buildings of MIAA, which they did. MIAA sought for
condition before an agency or instrumentality is deemed a GOCC. The a Temporary Restraining Order from the CA but failed to do so within the 60
fundamental provision above authorizes Congress to create GOCCs through days reglementary period, so the petition was dismissed. MIAA then sought
special charters on two conditions: 1) the GOCC must be established for the for the TRO with the Supreme Court a day before the public auction, MIAA
common good; and 2) the GOCC must meet the test of economic viability. In was granted with the TRO but unfortunately the TRO was received by the
this case, PRA may have passed the first condition of common good but Paranaque City officers 3 hours after the public auction.
MIAA claims that although the charter provides that the title of the land and outside the commerce of man. To subject them to levy and public auction is
building are with MIAA still the ownership is with the Republic of the contrary to public policy. Unless the President issues a proclamation
Philippines. MIAA also contends that it is an instrumentality of the withdrawing the airport land and buildings from public use, these properties
government and as such exempted from real estate tax. That the land and remain to be of public dominion and are inalienable. As long as the land and
buildings of MIAA are of public dominion therefore cannot be subjected to buildings are for public use the ownership is with the Republic of the
levy and auction sale. On the other hand, the officers of Paranaque City Philippines.
claim that MIAA is a government owned and controlled corporation
therefore not exempted to real estate tax. Comm.Of Internal Revenue vs. St. Luke’s Medical Center, Inc.
(G.R. No. 195909-195960; Sept. 26, 2012)
Issues:
Whether or not MIAA is an instrumentality of the government and not a Facts: St. Luke’s (respondent) is a hospital organized as a non-stock and
government owned and controlled corporation and as such exempted from non-profit organization. Sometime in 2002, BIR assessed St. Luke’s
tax. deficiency taxes amounting to P76M for 1998 which was subsequently
Whether or not the land and buildings of MIAA are part of the public reduced to P63M during trial in the CTA. St. Luke’s protested and filed an
dominion and thus cannot be the subject of levy and auction sale. administrative protest with BIR but was not acted by the latter within the
180 period thus reaching to the CTA.
Ruling: According to BIR, Section 27B of the NIRC imposing a 10% preferential tax
Under the Local government code, government owned and rate applies to St. Luke’s. Its reason is that it amends the exemption on non-
controlled corporations are not exempted from real estate tax. MIAA is not profit hospitals and which prevails over the exemption on income tax
a government owned and controlled corporation, for to become one MIAA granted under Section 30 (E and G) for non-stock, nonprofit charitable
should either be a stock or non stock corporation. MIAA is not a stock institution and civic organizations promoting social welfare. It further
corporation for its capital is not divided into shares. It is not a non stock claimed that St. Luke’s was actually operating for profit because only 13%
corporation since it has no members. MIAA is an instrumentality of the came from charitable purposes and that it had a total revenue of P1.73B
government vested with corporate powers and government functions. from patient services in 1998.
Meanwhile, St. Luke’s contended that its operating income only totaled
Under the civil code, property may either be under public dominion P334 M (less the operating expenses) and out of that P218M (65%) made up
or private ownership. Those under public dominion are owned by the State its free services and further claimed that its income does not inure to the
and are utilized for public use, public service and for the development of benefit of anyone. Furthermore, it argued that it falls under the exception
national wealth. The ports included in the public dominion pertain either to provided under Sec. 30 (E) and (G) of NIRC and making of profit per se does
seaports or airports. When properties under public dominion cease to be for not destroy its tax exemption.
public use and service, they form part of the patrimonial property of the CTA En Banc ruled in favor of St. Luke’s exemption under Sec. 30 and
State. reiterated its earlier fiding in another case identifying St. Luke’s as a
charitable institution. CTA adopted the test in Hospital de San Juan de Dios,
Inc. v. Pasay City, which states that "a charitable institution does not lose its
The court held that the land and buildings of MIAA are part of the charitable character and its consequent exemption from taxation merely
public dominion. Since the airport is devoted for public use, for the because recipients of its benefits who are able to pay are required to do so,
domestic and international travel and transportation. Even if MIAA charge where funds derived in this manner are devoted to the charitable purposes
fees, this is for support of its operation and for regulation and does not of the institution . . . ." (The generation of income from paying patients does
change the character of the land and buildings of MIAA as part of the public not per se destroy the charitable nature of St. Luke's.)
dominion. As part of the public dominion the land and buildings of MIAA are
Issue: WON St. Luke’s is liable for deficiency income tax under Sec. 27 (B) of 4. Non-profit- no net income accrues to the benefit of any person and
the NIRC which imposes a 10% preferential rate. with all its income devoted to the institutions purpose and all its
activities CONDUCTED NOT FOR PROFIT.
Held: Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B) of the
NIRC. Republic v. Sunlife Assurance Company of Canada
Under Sec. 30 (E) of the NIRC provides that a charitable institution must be: G.R. No. 158085, 14 October 2005, 473 SCRA 129
(1) non-stock corporation or association; (2)ORGANIZED EXCLUSIVELY for
charitable purposes; (3) OPERATED EXCLUSIVELY for charitable purposes; FACTS:
(4) No part of its net income or asset shall inure to the benefit of any Respondent is a mutual life insurance company organized and existing
member , officer or any person. Under the last paragraph of Sec. 30 of the under the laws of Canada. It is registered and authorized by the SEC and the
NIRC if a tax exempt charitable institution conducts "any" activity for profit, Insurance Commission to engage in business in the Philippines as mutual life
such activity is NOT TAX EXEMPT even as its not-for-profit activities remain insurance company. Sun Life filed with the CIR its insurance premium tax
tax exempt. It simply means that even if a charitable institution organized return for the third quarter of 1997 in the amount of 31,485, 834. 51 and
and operated exclusively for charitable purposes is nevertheless allowed to paid its DST for the amount of 30,000,000.00.
engage in “activities conducted for profit” without losing its tax exempt On December 20, 1997, CA, as affirmed by the Supreme Court, rendered in
status for its no-for-profit activities. However, as a consequence "income of Insular Life Assurance Co. Ltd. vs CIR a decision that mutual life insurance
whatever kind and character" of a charitable institution "from any of its companies are purely cooperative companies and are exempt from the
activities conducted for profit, regardless of the disposition made of such payment of premium tax and DST. Sun Life surmised that being a mutual life
income, shall be subject to tax." (Sec. 30, last par.). Therefore, services insurance it is exempt from the payment of premium tax and DST and hence
rendered to paying patients are activities conducted for profit and thus filed an administrative case against the CIR for tax credit for its erroneously
taxable under Sec. 27 (B) of the NIRC. paid premium tax and DST. CIR raised as special and affirmative defences
St. Luke's fails to meet the requirements under Section 30 (E) and (G) of that petitioner’s claim for refund is subject to administrative routinary
the NIRC to be completely tax exempt from all its income. However, it investigation by the CIR, Petitioner must prove that it falls under the
remains a proprietary non-profit hospital under Section 27 (B) of the NIRC exception provided for under Section 121 (now 123) of the Tax Code to be
as long as it does not distribute any of its profits to its members and such exempted from premium tax and be entitled to the refund sought and It is
profits are reinvested pursuant to its corporate purposes. St. Luke's, as a incumbent upon petitioner to show that it has complied with the provisions
proprietary non-profit hospital, is entitled to the preferential tax rate of of Section 204[,] in relation to Section 229, both in the 1997 Tax Code.
10% on its net income from its for-profit activities. ISSUE:
Whether or not respondent is a cooperative and whether or not it needs to
Notes: be registered under CDA
1. TEST OF CHARITY - as a gift, to be applied consistently with existing RULING:
laws, for the benefit of For the first issue, the court ruled that respondent is a cooperative. The tax
an indefinite number of persons, either by bringing their minds and hearts code defines cooperative as an association conducted by the members
under the influence of education or religion, by assisting them to establish thereof with the money collected from among themselves and solely for
themselves in life or [by] otherwise lessening the burden of government." their own protection and not for profit. Respondent is without doubt a
(In other words, charitable institutions provide for free goods and services cooperative because of the following reasons:
to the public which would otherwise fall on the shoulders of government.) First, it is managed by its members. Both CA and CTA found that the
2. Solely is synonymous with EXCLUSIVELY. (Lung center of the Phil.) management and affairs of respondent were conducted by its policyholders.
3. Proprietary- means private. A stock insurance company doing business in the Philippines may alter its
organization and transform itself into a mutual insurance company.
Respondent has been mutualized or converted from a stock life insurance marketing and credit extension.
company to a nonstock mutual life insurance corporation pursuant to The insurance against losses of the members of a cooperative referred to in
Section 266 of the Insurance Code of 1978. Article 6(7) of the Cooperative Code is not the same as the life insurance
Second, it operated with money collected from its members. Since provided by respondent to member-policyholders. The former is a function
respondent is composed entirely of members who are also it policyholders, of a service cooperative, the latter is not. Cooperative insurance under the
all premiums obviously comes only from them. The member-policyholders Code is limited in scope and local in character. It is not the same as mutual
constitute both insurer and insured who contribute, by a system of life insurance.
premiums or assessments, to the creation of a fund from which all losses Consequently, the court held that respondent is exempt from insurance
and liabilities are paid. The premiums pooled into this fund are earmarked premium tax and DST.
for the payment of their indemnity and benefit claims.
Third, it is licensed for the mutual protection of its members, not for the
profit of anyone. A mutual life insurance company is conducted for the
benefit of its member-policyholders, who pay into its capital by way of
premiums. To that extent, they are responsible for the payment of all its
losses. The cash paid in for premiums and the premium notes constitute
their assets x x x. In the event that the company itself fails before the terms
of the policies expire, the member-policyholders do not acquire the status
of creditors. Rather, they simply become debtors for whatever premiums
that they have originally agreed to pay the company, if they have not yet
paid those amounts in full, for [m]utual companies x x x depend solely upon
x x x premiums. Only when the premiums will have accumulated to a sum
larger than that required to pay for company losses will the member-
policyholders be entitled to a pro rata division thereof as profits.
For the second issue, the court ruled that under the Tax Code although
respondent is a cooperative, registration with the Cooperative Development
Authority (CDA) is not necessary in order for it to be exempt from the
payment of both percentage taxes on insurance premiums, under Section
121; and documentary stamp taxes on policies of insurance or annuities it
grants, under Section 199.
First, the Tax Code does not require registration with the CDA. No tax
provision requires a mutual life insurance company to register with that
agency in order to enjoy exemption from both percentage and documentary
stamp taxes.
Second, the provisions of the Cooperative Code of the Philippines do not
apply. only cooperatives to be formed or organized under the Cooperative
Code needed registration with the CDA. Respondent already existed before
the passage of the new law on cooperatives. It was not even required to
organize under the Cooperative Code, not only because it performed a
different set of functions, but also because it did not operate to serve the
same objectives under the new law — particularly on productivity,