FACTS:
The
petitioner Lung Center of the Philippines is a non-stock and non-profit entity
by virtue of Presidential Decree No. 1823. It is the registered owner of a
parcel of land. Erected in the middle of the aforesaid lot is a hospital known
as the Lung Center of the Philippines. A big space at the ground floor is being
leased to private parties, for canteen and small store spaces, and to medical
or professional practitioners who use the same as their private clinics for
their patients whom they charge for their professional services. Almost
one-half of the entire area on the left side of the building is vacant and
idle, while a big portion on the right side is being leased for commercial
purposes to a private enterprise known as the Elliptical Orchids and Garden
Center.
The
petitioner accepts paying and non-paying patients. It also renders medical
services to out-patients, both paying and non-paying. Aside from its income
from paying patients, the petitioner receives annual subsidies from the
government.
Both
the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of ₱4,554,860 by the City Assessor of Quezon City.
Accordingly, Tax Declarations were issued for the land and the hospital
building, respectively.
The
petitioner filed a Claim for Exemption from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The
petitioner’s request was denied, and a petition was, thereafter, filed before
the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for
the reversal of the resolution of the City Assessor. The petitioner alleged
that under Section 28, paragraph 3 of the 1987 Constitution, the property is
exempt from real property taxes. It averred that a minimum of 60% of its
hospital beds are exclusively used for charity patients and that the major
thrust of its hospital operation is to serve charity patients. The petitioner
contends that it is a charitable institution and, as such, is exempt from real
property taxes. The QC-LBAA rendered judgment dismissing the petition and
holding the petitioner liable for real property taxes.
The
QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA, for brevity) which ruled that the
petitioner was not a charitable institution and that its real properties were
not actually, directly and exclusively used for charitable purposes; hence, it
was not entitled to real property tax exemption under the constitution and the
law. The petitioner sought relief from the Court of Appeals, which rendered
judgment affirming the decision of the CBAA.
ISSUES:
a)
whether the petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section
234(b) of Republic Act No. 7160; and
b)
whether the real properties of the petitioner are exempt from real property
taxes.
RATIO:
a) Under
P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the Office of
the President of the Philippines with the Ministry of Health and the Ministry
of Human Settlements. It was organized for the welfare and benefit of the
Filipino people principally to help combat the high incidence of lung and
pulmonary diseases in the Philippines.
As a
general principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no
money inures to the private benefit of the persons managing or operating the
institution.
b)
Even as we find that the petitioner is a charitable institution, we hold, anent
the second issue, that those portions of its real property that are leased to
private entities are not exempt from real property taxes as these are not
actually, directly and exclusively used for charitable purposes.
Section 28(3), Article VI of the 1987 Philippine
Constitution provides, thus:
(3) Charitable institutions, churches and parsonages
or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from taxation.
The
tax exemption under this constitutional provision covers property taxes only.33
As Chief Justice Hilario G. Davide, Jr., then a member of the 1986
Constitutional Commission, explained: ". . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes."
Consequently,
the constitutional provision is implemented by Section 234(b) of Republic Act
No. 7160 (otherwise known as the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. – The
following are exempted from payment of the real property tax:
...
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-profit or religious cemeteries and
all lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes.
We
note that under the 1935 Constitution, "... all lands, buildings, and
improvements used ‘exclusively’ for … charitable … purposes shall be exempt
from taxation."36 However, under the 1973 and the present Constitutions,
for "lands, buildings, and improvements" of the charitable
institution to be considered exempt, the same should not only be
"exclusively" used for charitable purposes; it is required that such
property be used "actually" and "directly" for such
purposes.
Under
the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled
to the exemption, the petitioner is burdened to prove, by clear and unequivocal
proof, that (a) it is a charitable institution; and (b) its real properties are
ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of
others; debarred from participation or enjoyment; and "exclusively"
is defined, "in a manner to exclude; as enjoying a privilege
exclusively."40 If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is subject
to taxation.41 The words "dominant use" or "principal use"
cannot be substituted for the words "used exclusively" without doing
violence to the Constitutions and the law.42 Solely is synonymous with
exclusively.
What
is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property
itself to the purposes for which the charitable institution is organized. It is
not the use of the income from the real property that is determinative of
whether the property is used for tax-exempt purposes.44
The
petitioner failed to discharge its burden to prove that the entirety of its
real property is actually, directly and exclusively used for charitable
purposes. While portions of the hospital are used for the treatment of patients
and the dispensation of medical services to them, whether paying or non-paying,
other portions thereof are being leased to private individuals for their
clinics and a canteen. Further, a portion of the land is being leased to a
private individual for her business enterprise under the business name
"Elliptical Orchids and Garden Center." Indeed, the petitioner’s
evidence shows that it collected ₱1,136,483.45 as rentals in 1991 and
₱1,679,999.28 for 1992 from the said lessees.
Accordingly,
we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from
such taxes.45 On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes.
DISPOSITIVE
PORTION:
IN
LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent
Quezon City Assessor is hereby DIRECTED to determine, after due hearing, the
precise portions of the land and the area thereof which are leased to private
persons, and to compute the real property taxes due thereon as provided for by
law.
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