CASE DIGEST
CIR v. De La Salle University
G.R. Nos. 196596, 198841, 198941,
November 9, 2016
Principle: Incomes and revenues of non-stock, non-profit educational institutions are tax exempt if it is actually, directly, and exclusively used for educational purposes.
Test of exemption: the utilization of assets and income Tax exemption is source-blind; and applies as long as ADE rule is satisfied.
Facts: BIR issued a Formal Letter of Demand to assess DLSU on its deficiency on its payment of taxes which covers the following to wit: (1) income tax on rental earnings from restaurants/canteens and bookstores operating within the campus; (2) value-added tax (VAT) on business income; and (3) documentary stamp tax (DST) on loans and lease contracts.
The assessment was
protested by DLSU. DLSU’s contention is anchored under its exemption from taxes
as provided for under Constitution “All revenues and assets of non-stock,
non-profit educational institutions used actually, directly, and exclusively
for educational purposes shall be exempt from taxes and duties”
CIR argument:
(1) DLSU’s use of its revenues
and assets for non-educational or commercial purposes removed these said items
from the exemption coverage under the Constitution;
(2) DLSU’s rental income
is taxable regardless of how much income is derived, use or disposed of. DLSU's
operations of canteens and bookstores within its campus even though exclusively
serving the university community do not negate income tax liability;
(3) Commissioner also argues
that a tax-exempt organization such as DLSU is only exempt from property tax
and not from income tax which is earned from leasing the property. Hence, DLSU’s
income from the rentals earned is not tax exempt even if the proceeds are used for
educational purposes.
Issue: Whether
or DLSU's income and revenues proved to have been used actually, directly and
exclusively for educational purposes are exempt from duties and taxes.
Ruling: Yes. DLSU’s
income and revenues are proven to have been used actually, directly and
exclusively for educational purposes and are tax exempt. TWO requisites: (1) The
school must be non-stock and non-profit; and (2) The income is actually,
directly and exclusively used for educational purposes. There are no other
conditions and limitations.
Test of exemption: the utilization of assets and income
Tax exemption is source-blind; and applies as long as ADE rule is satisfied. The tax exemption no longer hinges on the
source from which the revenues were earned, but on the actual, direct and
exclusive use of the revenues for educational purposes.
The commercial use of the
property is also not incidental to and reasonably necessary for the
accomplishment of the main purpose of a university, which is to educate its
students. Such income was spent by DLSU for building of a sports complex. The crucial point of inquiry
then is on the use of the assets or on the use of the revenues. So long as the
assets or revenues are used actually, directly and exclusively for educational
purposes, they are exempt from duties and taxes.
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