G.R. No. 195909 September 26, 2012
FACTS
St. Luke's is a hospital organized as a
non-stock and non-profit corporation. The BIR assessed St. Luke's deficiency
taxes amounting toP76,063,116.06 for 1998, comprised of deficiency
income tax, value-added tax, withholding tax on compensation and expanded
withholding tax. The BIR reduced the amount to P63,935,351.57 during trial in
the First Division of the CTA. St. Luke's filed an administrative protest with
the BIR against the deficiency tax assessments. The BIR argued that Section
27(B) of the NIRC, which imposes a 10% preferential tax rate on the income of
proprietary non-profit hospitals, should be applicable to St. Luke's. The
former claimed that St. Luke's was actually operating for profit in 1998
because only 13% of its revenues came from charitable purposes. Moreover, the
hospital's board of trustees, officers and employees directly benefit from its
profits and assets. St. Luke's maintained that it is a non-stock and non-profit
institution for charitable and social welfare purposes under Section 30(E) and
(G) of the NIRC. It argued that the making of profit per se does not destroy
its income tax exemption.
ISSUE
Whether St. Luke's is
liable for deficiency income tax in 1998 under Section 27(B) of the NIRC, which
imposes a preferential tax rate of 10% on the income of proprietary non-profit
hospitals.
RULING
Yes. There is no
dispute that St. Luke's is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Luke's from paying
taxes. This only refers to the organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution is not ipso facto tax
exempt. To be exempt from real property taxes, Section 28(3), Article VI of the
Constitution requires that a charitable institution use the property
"actually, directly and exclusively" for charitable purposes. To be
exempt from income taxes, Section 30(E) of the NIRC requires that a charitable
institution must be "organized and operated exclusively" for
charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of
the NIRC requires that the institution be "operated exclusively" for social
welfare.
St. Luke's fails to meet the
requirements under Section 30(E) and (G) of the NIRC to be completely tax
exempt from all its income. However, it remains a proprietary non-profit
hospital under Section 27(B) of the NIRC as long as it does not distribute any
of its profits to its members and such profits are reinvested pursuant to its
corporate purposes. St. Luke's, as a proprietary non-profit hospital, is
entitled to the preferential tax rate of 10% on its net income from its
for-profit activities. St. Luke's is therefore liable for deficiency income tax
in 1998 under Section 27(B) of the NIRC.
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