CIR v. St. Luke’s Medical Center (G.R. No. 203514, February 13, 2017)

 CASE DIGEST:

CIR v. St. Luke’s Medical Center

 G.R. No. 203514, February 13, 2017

 

Income of whatever kind and character' of a charitable institution 'from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax. ADE Rules is the test of exemption.

 

Facts: St. Luke's Medical Center, Inc (SLMC)is a non-stock and non-profit charitable institution earning revenues from services to paying patients. SLMC received a tax payment Assessment from the BIR.  Based on the assessment the respondent SLMC has a deficiency income tax.

 

SMLC protested. SLMC claimed that as a nonstock, non-profit charitable and social welfare organization under Section 30 (E) and (G) of the 1997 NIRC, as amended, it is exempt from paying income tax. However, SLMC received CIR’s final decision on the disputed Assessment increasing the deficiency income for the taxable years of 2005 and 2006.

 

Issue: Whether or not SLMC is liable for income tax under Section 27 (B) of the 1997 NIRC insofar as its revenues from paying patients are concerned.

 

Ruling: 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. St. Luke’s is a corporation that is not operated exclusively for charitable or social welfare purposes in so far as its revenues from paying patients are concerned.

 

A charitable institution is not ipso facto tax exempt. To be exempt from real property taxes, 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.

The said provision qualifies the words ‘organized and operated exclusively’ which would mean that if a tax exempt charitable institution conducts any activity for profit such activity is not tax exempt even as it's not-for-profit activities remain tax exempt. It likewise qualifies the requirement that the civic organization must be operated exclusively for the promotion of social welfare.

 

But in case an exempt institution under Section 30 (E) or (G) of the Tax Code earns income from its for-profit activities, it will not lose its tax exemption. However, its income from for profit activities will be subject to income tax at the preferential 10% rate pursuant to Section 27 (B) thereof.

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