University of the Philippines College of Law

Taxation Law 1 H; [JBVG]

LUNG CENTER OF THE PHILIPPINES, petitioner v. QUEZON CITY and CONSTANTINO P. ROSAS,
Case Name
IN HIS CAPACITY AS CITY ASSESSOR OF QUEZON CITY, respondents
Topic Constitutional Limitations
Case No. | Date G.R. No. 144104 | June 29, 2004
Ponente Callejo, Sr., J.
Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, which seeks exemption
from real property taxes when the City Assessor issued Tax Declarations for the land and the hospital
building. Petitioner claimed that it is a charitable institution, hence, is exempted from real property tax under
Sec 28(3) Art VI of the Constitution. The request was denied, and a petition hereafter filed before the Local
Board of Assessment Appeals of Quezon City (QC-LBAA) for reversal of the resolution of the City
Assessor. QC-LBAA dismissed the petition and the decision was likewise affirmed on appeal by the Central
Board of Assessment Appeals of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.

On whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and 1987
Constitution and Section 234(b) of RA 7160, the Court held that the petitioner is a charitable institution
within the context of the 1973 and 1987 Constitution. Under PD 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 with the Ministry of Health and the Ministry of Human Settlements. The purpose for which it was
Case Summary created was to render medical services to the public in general including those who are poor and also the
rich and become a subject of charity. Under PD 1823, petitioner is entitled to receive donations, even if the
gift or donation is in the form of subsidies granted by the government.

On whether or not petitioner is exempted from real property taxes, the court granted such partially. exempted.
Those properties leased to private entities are not exempt from real property tax as they are not actually,
directly and exclusively used for charitable purposes. Under the 1973 and 1987 constitutions and RA 7160,
in order to be entitled to the exemption, the petitioner is burdened to prove by clear proof that (a) it is a
charitable institution, and (b) that its real properties are actually, directly and exclusively used for charitable
purposes. 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. Petitioner failed to discharge its burden to prove that the entirety of real property
is actually, directly, and exclusively used for charitable purposes.

Decision Partially Granted

RELEVANT FACTS

● Lung Center of the Philippines was established as a non-stock and non-profit entity by virtue of PD 1823 on January 16,
1981.
● It is the registered owner of land (121,463 sq. m) allotted for:
o Hospital (Lung Center of the Philippines)
o Big space on the ground floor is leased to private parties (canteen and small store spaces) and medical and
professional practitioners as private clinics
o A big portion on the right side, is being leased for commercial purposes to a private enterprise known as
ELLIPTICAL ORCHIDS AND GARDEN CENTER.
● Aside from income from paying patients, petitioner receives annual subsidies from the government.
● On June 1993, QC City Assessor assessed both land and hospital building of petitioner for real property taxes in the
amount of Php 4M.
● Petitioner filed a Claim for Exemption, on the grounds that it is a charitable institution, therefore exempt from real
property taxes under Section 28 (3) Art VI.
● City assessor denied the request.
 University of the Philippines College of Law
Taxation Law 1 H; [JBVG]
● A petition was filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA). QC-LBAA dismissed.
● QC-LBAA’s decision affirmed on appeal by the Central Board of Assessment of Appeals of Quezon City (CBAA):
o Petitioner not a charitable institution and that its real properties were not actually, directly, and exclusively used
for charitable purposes.
● Court of Appeals affirmed judgment of CBAA.
● Hence, this petition for review on certiorari of the CA Decision.
● Petitioner avers that:
o It is a charitable institution within the context of the Constitution and its character as such is not altered by the
fact that it admits paying patients and leases portions of lands.
▪ That 60% or 170 out of its 282 beds are allocated to charity patients and that from 1995-99, 100% of
its out-patients were charity patients.
o The term “exclusively” in the Constitution does not mean “solely.” Thus even if a portion of its real estate is
learned out to private individuals it can still be charitable.
o Even if PD 1823 does not exempt it from real estate taxes, it is not precluded from seeking tax exemption under
the Constitution.
o Also cited Herrera v. QC-BAA
● Respondent claims they are not a charitable institution; and are not exempt under PD 1823 and the Constitution.
o Petitioner failed to prove that the property is actually, directly and exclusively used for charitable purposes
o Respondent also brought up graft charges against Petitioner claiming that they charged less (Php 20,000 a
month) than the price determined by the Commission on Audit (Php 357,000 a month) for a property 7,633.13
sq meters.
o Also that petitioner supposedly uses subsidies from the government for charity while the rest of the income is
used to pay for paying-customers.
o They failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are
reserved for indigent patients
● Before a patient is admitted as charity patient, one must undergo a series of interviews and
must submit all the requirements

RATIO DECIDENDI
Issue Ratio
1. WoN Lung  Charity - a gift, to be applied consistently with existing laws, for the benefit of an
Center is a indefinite number of persons, either by bringing their minds and hearts under the
charitable influence of education or religion, by assisting them to establish themselves in life or
institution otherwise lessening the burden of government.
within context  TEST: whether it exists to carry out a purpose reorganized in law as charitable or whether
of PD 1823, the it is maintained for gain, profit, or private advantage.
1973 and 1987  Under PD 1823, petitioner is a non-profit and non-stock corporation, organized for the
Constitution, welfare and benefit of the Filipino people to help combat the high incidence of lung and
and Sec 234 (6) pulmonary disease.
of RA 7160 o Organized for the welfare and benefit of the Filipino people principally to help
(YES) combat the high incidence of lung and pulmonary diseases in the PH
o Based on its Articles of Incorporation, the medical services of the petitioner are
to be rendered to the public in general in any and all walks of life including those
who are needy and poor without discrimination.
 A charitable institution does not lose its character as such and its exemption from taxes
simply because it derives income from paying patients, or receives subsidies from the
government, so long as the money is devoted is used for the charitable purpose and no
money is kept for private benefit. (as explained in Congregational Sunday School, etc. v
Board of Review and Lutheran Hospital Association of South Dakota v. Baker)
 Under PD 1823, the petitioner is entitled to received donations. It also does not lose its
character as charitable institution just because the donation is in the form of government
subsidies. (as held in Yorgason v. County Board of Equalization of Salt Lake County)
 Petitioner adduced substantial evidence that it spent its income, including the subsidies
from the government for 1991 and 1992, for its patients and for the operation of the
hospital.
 Therefore, it is a charitable institution.
 University of the Philippines College of Law
Taxation Law 1 H; [JBVG]
2. WoN real properties  Those properties leased to private entities are not exempt from real property tax as they
of the Lung Center are not actually, directly and exclusively used for charitable purposes.
are exempt from real ● Laws exempting from tax are construed strictissimi juris or liberally in favor of the taxing
property tax. power. Taxation is the rule while exemption is the exception. Hence the claim for
(PARTLY) exemption may only be granted upon clear showing of language in the law.
o PD 1823, sec 2 (Tax Exemptions and Privileges) only exempts petitioner from
income and gift taxes, and from taxes, charges, and fees with respect to
equipment purchases.
o The petitioner does not enjoy any property tax exemption privileges for its real
properties as well as building constructed thereon.
● Petitioner relies on Sec 28 (3), Art VI of 1987 Constitution, implemented by Section
234(b) of RA 7160 (Local Government Code of 1991).
o Former Chief Justice Hilario Davide, Jr. (member of 1986 Constitutional
Commission) explained that what is exempted from real estate taxes is not the
institution itself, but the lands, buildings, and improvements actually, directly,
and exclusively used for religious, charitable, or educational purposes.
● Under the 1973 and 1987 constitutions and RA 7160, in order to be entitled to the
exemption, the petitioner is burdened to prove by clear proof that (a) it is a charitable
institution, and (b) that its real properties are actually, directly and exclusively used for
charitable purposes.
● Exclusive - possessed and enjoyed to the exclusion of others; debarred from participation
or enjoyment;
● Exclusively - possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment;
● The words "dominant use" or "principal use" cannot be substituted for the words "used
exclusively" without doing violence to the Constitutions and the law
● Solely is synonymous with exclusively.
● 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.
● Petitioner failed to discharge its burden to prove that the entirety of real property is
actually, directly, and exclusively used for charitable purposes. While portions of hospital
are used for treating patients, other portions are being leased to private individuals.

RULING

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.

SEPARATE OPINION/S

NOTES

To determine whether or not an enterprise is charitable, the elements which should be considered include:
o Statute creating enterprise
o Corporate purpose
o Constitution and by-laws
o Methods of administration
o Nature of the actual work performed
o Character of the services rendered
o Indefiniteness of the beneficiaries
o Use and occupation of the properties