University of the Philippines College of Law

3D

Topic Exemption from Tax on Corp; Educational Institutions

Case No. March 11, 2010/CTA Case No. 7246 and 7293
Case Name Ateneo de Manila University v CIR
Ponente CASANOVA

DOCTRINE

SC gave only 2 requirements that the educational institution must prove, that: (1) it falls under the classification non-stock,
non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually directly and
exclusively for educational purposes

FACTS

Ateneo is is a non-stock, non-profit educational institution duly organized and existing under and by virtue of the laws of the
Republic of the Philippines. Ateneo received from CIR tax assessment regarding alleged deficiency income tax for 2001 and
2003 (P2M and P6M respectively). Ateneo protested such assessment and sought cancellation of the same. Failing to act on
the protest within prescribed period under Section 228 of Tax Code, Ateneo filed petition for Review before CTA.

CIR argues that a) petitioner's four (4) cafeterias are not operated by petitioner, but by different concessionaires; b) DOF Circular
and BIR Ruling provide that revenues derived from assets used in the operation of canteens, dormitories, hospitals, and
bookstores are exempt from taxation, provided they are owned and operated by the educational institution as ancillary activities
and the same are located within the school premises; and c) .petitioner's Income Tax Return and Financial Statements do not
show the details of expenses from its cafeteria operations.

Petitioner submits that: all revenues and assets of non-stock, non-profit educational institutions, which are actually, directly, and
exclusively used for educational purposes shall be exempt from taxes and duties as provided in Section 4(3) of Article XIV of
the 1987 Constitution; that the concession fees are actually, directly, and exclusively used for educational purposes; assuming
that Ateneo’s revenues from concession fees are taxable, CIR failed to consider expense items which are directly attributable to
Ateneo’s receipt of concession fees; that CIR should have considered Ateneo’s expenses that are attributable to Ateneo’s
cafeteria operations.

Issue Ratio
CTA stated that the bases for deficiency Income Tax and VAT are Section 2.2. of DOF Circular 137-87,
w/n petitioner BIR Ruling 173-88, and Revenue Regulations 7-95.
Ateneo may be
held liable to pay DOF Circular 137-87, Sec 2:
deficiency income
tax and VAT - no 2.2 Revenues derived from and assets used in the operations of cafeterias/canteens,
dormitories, bookstores are exempt from taxation provided they are owned and operated by the
educational institution as ancillary activities and the same are located within the school premises

BIR Ruling 173-88, pertinent part reads:

" Non-stock, non-profit educational institutions are exempt from tax on all revenues derived in
pursuance of its purpose as an educational institution and used actually, directly, and exclusively
for educational purposes. The exemption herein contemplated refers to internal revenue taxes
and customs duties…They shall, however, be subject to internal revenue taxes on income from
trade, business or other activity the conduct of which is not related to the exercise or performance
by such educational institution of its educational purpose…Moreover, revenues derived from
and assets used in the operations of cafeterias/canteens, dormitories, and bookstores are
exempt from taxation provided they are owned and operated by the educational institution as
ancillary activities and the same are located within the school premises. (Department Order No.
137-87 supra). Accordingly, the tax exemption does not include canteen owned by but operated
by a concessionaire.

Well-known Constitutionalist Fr. Joaquin G. Bernas, S.J., explained Section 4, Article XIV of
the Constitution as follows:
 University of the Philippines College of Law
3D

3. Tax breaks for private schools.

State financ ial assistance to private schools is a rare phenomenon in the Philippines. To the
contrary, private schools are even taxed. Section 4(3) relieves non-stock, non-profit
educational institutions of financial burden by exempting them from 'taxes and

duties' for all assets and revenues 'used actually, directly, and exclusively for educational
purposes.' The relief includes exemption from import duties on educational materials such as
books and equipment. The relief given to schools by this provision is expected to be passed on
to students in the form of lower tuition fees. This constitutional relief, however, is given only to
'non-stock, non-profit' educational institutions.

CTA cited CIR v CA in which SC gave only requirements that the educational institution must prove,
that: (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income
it seeks to be exempted from taxation is used actually directly and exclusively for educational purposes.
In the present case, the 1st requisite is complied with when the parties already stipulated that petitioner
is a non-stock, non-profit educational institution.

As regards the second requisite, petitioner's witness, Mr. Jose P. Salvador, Jr., testified that the canteen
in Grade School is used as a medium for teaching Preparatory Level and Grade School students.
Petitioner's witness, Ms. Leonora P. Wijancho affirmed that income from cafeteria concession fees is
commingled with the other funds that make up "other educational income," and such income is made
available for school operations such as salaries and employee benefits.

Further, the Court-commissioned independent CPA (ICPA), Katherine 0. Constantino of Constantino

Guadalquiver & Co., found the following:

"The School considers cafeteria operations as part of school operations. As such, it does not
maintain a separate fund account for Cafeteria operations. All revenue and expenses (including
capital expenditures) relating to the Cafeteria operations are considered part of the General Fund
account. The usage of the General Fund is shown in the audited financial statements…”

CTA recognized that Ateneo submitted a Breakdown of Accounts Receivable showing ending balances
for concession fees. To show that the concession fees were actually, directly, and exclusively used for
educational purposes, petitioner submitted Summaries of Contribution and Expenditure for the fiscal
years 2001, 2002, and 2003 and its Audited Financial Statements for the same period. These documents
established the fact that petitioner's expenses or disbursements from the general fund. From the
foregoing, this Court holds that petitioner has proven that concession fees it received were actually,
directly, and exclusively used for educational purposes.

RULING
WHEREFORE, premises considered, the consolidated Petitions for Review
are hereby GRANTED. The Final Assessment Notice dated July 13, 2004 for the alleged deficiency income tax for the fiscal
year ending March 31, 2001 in the amount of P 2 , 3 3 4 , 2 1 1 . 2 2, and t h e Final Assessment Notice dated September 7,
2004 for alleged deficiency VAT for fiscal year ending March 31, 2001, and deficiency income tax and VAT for the fiscal years
ending March 31, 2002 and March 31, 2003 in the amount of Six Million Five Hundred Twenty Nine Thousand Eight Hundred
Thirty One Pesos and Thirteen Centavos (P6,529,831.13) are hereby CANCELLED.