JESUS SACRED HEART COLLEGE VS.

CIR

G.R. No. L-6807 May 24, 1954

FACTS:

Jesus Sacred Heart College was an educational organization authorized to operate in Lucena,
Quezon. It offered public elementary, secondary and collegiate courses. It realized net incomes from
tuition and other fees in carrying on its educational activity in the amounts of P5,659.07; P3,743.82;
and P3,572.74 for the years 1947, 1948 and 1949 respectively. The school paid its income tax and
penalties for the net incomes and compromise for late filing of its income tax returns for said years. It
filed a claim for refund of P2,241.86 with CIR but it was denied. In a suit filed by the school against
the CIR, CFI Manila sentenced the CIR to refund to the school the sum of P2,241.86 paid by the
school by way of income tax for the years 1947, 1948 and 1949 on the ground that the school is
exempt from taxation under section 27(e) of the NIRC. Hence, this appeal.

ISSUE:

Whether or not the income of the school was taxable.

HELD:

No. Section 27(e) of the National Internal Revenue Code, as amended by Republic Act No. 82
(section 5), exempts from taxation the "net income" of corporations organized and operated
exclusively for educational purposes provided no part of the net income of which inures to the benefit
of any private stockholder or individual.

In this case, it was conceded that the school belonged to this class. To hold that an
educational Institution is subject to income tax whenever it is so administered as to reasonably assure
that it will not incur in deficit, is to nullify and defeat the aforementioned exemption. Indeed, the effect,
in general, of the interpretation advocate by CIR would be to deny the exemption whenever there is
net income, contrary to the tenor of said section 27(e) which positively exempts from taxation those
corporations or associations which, otherwise, would be subject thereto, because of the existence of
said net income. Needless to say, every responsible organization must be so run to, at least insure its
existence, by operating within the limits of its own resources, especially its regular income. In other
words, it should always strive, whenever possible, to have a surplus.

The amount of fees charged by a school, college or university depends, ultimately, upon the
policy of a given administration, at a particular time. It is not conclusive of the purpose of the
institution. Otherwise, such purpose would vary with the particular in charge of the administration of
the organization. At any rate, the main evidence of the purpose of a corporation should be its articles
of incorporation and by-laws, for such purpose is required by statute to be stated in the articles of
incorporation and the by-laws outline the administrative organization of the corporation which, in turn,
is supposed to insure or facilitate the accomplishment of said purpose. And the purposes for which
the school was formed were the instruction and education of young girls. Moreover, article 21 of its
by-laws stated that the school was a non-profit corporation. All income would be devoted to the
maintenance, improvement and expenses of the College. And no part of its net income should inure
to the benefit of private individuals

Under section 27(e) of our National Internal Revenue Code, as amended, an institution
operated exclusively for educational purposes need not have, in addition thereto, a charitable or
philanthropic character, to be exempt from taxation, provided only that no part of its net income inures
to the benefit of any private stockholder or individual.

It should be noted that in dealing with institutions organized and operated exclusively for
education purposes, the profit motive was disregarded, on condition that the net income does not
inure to the benefit of any private stockholder or individual

Lastly, the history of the legal provision under consideration does not bear out the theory of
CIR. It was clear that Congress had no intention of taxing matriculation, laboratory, library, athletic
and graduation fees and other fees of similar nature, essential to, or necessarily connected with, the
educational purposes of an institution of learning. The legislative department positively intended such
fees to be exempt from taxation. Hence, viewed from any angle, the contention of CIR cannot be
sustained.

The decision appealed from was affirmed.

JESUS SACRED HEART COLLEGE, plaintiff and appellee, vs. COLLECTOR OF INTERNAL REVENUE, defendant and appellant.

1.TAXATION; INCOME TAX; INCOME EXEMPT FROM TAXATION.— Section 27(e) of the National Internal Revenue Code,
as amended by Republic Act No. 82 (section 5), exempts from taxation the "net income" of corporation "organized and
operated exclusively for * * * educational purposes" provided only that 110 part of the net income thereof "inures to
the benefit of any private stockholder or individual."

2.ID.; ID.; EFFECT OF TAXING EDUCATIONAL INSTITUTIONS.—The effect, in general, of subjecting educational institutions
to income tax whenever they are so administered as to reasonably assure that they will not incur any deficit, would be
to deny the exemption whenever there is a "net income" contrary to the tenor of section 27 (e), which positively
exempts from taxation those corporations or associations which, otherwise, would be subject thereto, because of the
existence of said net income.

3.PRIVATE CORPORATIONS; PURPOSE OF; FEES CHARGED NOT CONCLUSIVE OF THE PURPOSE OF THE INSTITUTION.—
The amount of fees charged by a school, college or university which depends, ultimately, upon the policy of a given
administration, at a particular time, is not conclusive of the purpose of the institution; otherwise, such purpose would
vary with the particular person in charge of the administration of the organization.

4.ID.; ID.; MAIN EVIDENCE OF PURPOSE—ARTICLES OF INCORPORATION AND BY-LAWS.—The main evidence of the
purpose of a corporation should be its articles of incorporation and bylaws, for such purpose is required by statute to be
stated in the articles of incorporation and the by-laws outline the administrative organization of the corporation, which,
in turn is supposed to insure or facilitate the accomplishment of said purpose.

5.ID.; EDUCATIONAL INSTITUTIONS NOT ORGANIZED FOR PROFIT.—Where in addition to establishing an educational
institution, the articles of incorporation and by-laws of the plaintiff-corporation provides that only religious members of
the corporation denominated "Hijas de la Caridad de San Vicente de Paul en Filipinas" are qualified for admission as its
members and there is not even the slightest intimation that it does not adhere to the said provision, it is apparent that
said corporation is neither organized nor operated for profit.

APPEAL from a judgment of the Court of First Instance of Manila. Sanchez, J.

The facts are stated in the opinion of the Court.

La NW & Feria and Manglapus & Gopengco for appellee.

First Assistant Solicitor General Ruperto Kapunan, Jr. and Solicitor Jose P. Alejandro for appellant.
La O and Feria and Manglapus and Gopengco for appellee.
First Assistant Solicitor General Ruperto Kapunan, Jr. and Solicitor Jose P. Alejandro for appellant.

CONCEPCION, J.:

This is an appeal taken by defendant, Collector of Internal Revenue, from a decision of the Court of First
Instance of Manila sentencing him to refund to plaintiff, Jesus Sacred Heart College, the sum of P2,241.86,
assessed by the former, and paid by the latter, by way of income tax for the years 1947, 1948 and 1949. The
parties have stipulated:

1. That the Jesus Sacred Heart College is an educational organization authorized to operate and existing in
Lucena, Quezon, and offering to the public elementary, secondary and collegiate courses;chanrobles virtual
law library

2. That according to its income tax returns, plaintiff realized net incomes from tuition and other fees in carrying
on its educational activity in the amounts of P5,659.07; P3,743.82; and P3,572.74 for the years 1947, 1948
and 1949 respectively;chanrobles virtual law library

3. That the amount of P2,241.86, computed below, was paid by the plaintiff to the defendant on August 13,
1951 as its income tax and penalties for the net incomes stated in paragraph 2 hereof, and compromise for late
filing of its income tax returns for said years.

1947 tax due as per return P679.09

25% surcharge 169.77

5% surcharge 42.44

1% monthly interest form 1/10/51 60.27

Compromise for late filing of 20.00

Total P971.57

1948 tax due as per return P449.26

25% surcharge 112.32

5% surcharge 28.08

1% monthly interest from 1/10/51 39.87

Total P649.53

1949 tax due as per return P428.73

25% surcharge 107.18

5% surcharge 26.08

1% monthly interest from 1/10/51 38.05

Total P620.76

4. That a claim for refund of said amount of P2,241.86 was duly filed on August 16, 1951 by the plaintiff with
the defendant but the claim was denied on August 24, 1951;chanrobles virtual law library

5. The assessment notices for the deficiency income tax for the years 1947, 1948 and 1949 were forwarded by
the defendant to the plaintiff on or about December 15, 1950, the letter enclosing the said notices was dated
December 12, 1950, and the notices were dated December 6, 1950: "6. That the only question to be resolved
in this case is whether the net income from tuition and other fees collected and received by the plaintiff as an
educational institution from its students in carrying on its educational activity under the conditions specified in
paragraphs 1, 2, and 3 hereof is subject to income tax under the provisions of section 24 of the National
Internal Revenue Code, notwithstanding the provisions of section 27(e) thereof, as amended by Republic Act
No. 82, quoted hereunder:chanrobles virtual law library

"Sec. 27. Exemption from tax on corporation. - The following organizations shall not be taxed under this Title in
respect to income received by them as such -

x x x           x x x           x x xchanrobles virtual law library

(e) Corporation or association organized and operated exclusively for religious, charitable, scientific, athletic,
cultural, or educational purposes, or for the rehabilitation of veterans no part of the net income of which inures
to the benefit of any private stockholder or individual: Provided, however, That the income of whatever kind
and character from any of its properties, real or personal, or from any activity conducted for profit regardless of
the disposition made of such income, shall be liable to the tax imposed under this Code." (Record) on Appeal,
pp. 6-9.)

Plaintiff appellee maintains, and the lower court held, that it is exempt from taxation under the first part of said
paragraph (e), whereas defendant-appellant asserts that the income in question was derived form an "activity
conducted for profit," and that, accordingly, it is taxable under the proviso of the same paragraph. In support of
this contention, defendant says in his brief:

An interpretation which would place income from educational activities within the term income from any
conducted for profit would not render the provision exempting educational institutions from the taxation
nugatory. "As there are not a few schools which are not conducted for profit, the exemption would not be
rendered useless with respect thereto. Only those schools conducted for profit would be subject to tax and it
stands to reason that being profit-making institutions, they should really be taxed. If non-sectarian schools and
colleges which realize profits are not exempted from levy, there would be no plausible reason for exempting
from tax sectarian schools and colleges which are run for profit. And the argument that, because the profits
realized by Catholic Schools and Colleges are invested in the expansion and improvement of said schools and
not distributed among the stockholders, they should be free from income tax falls to the ground in view of the
last clause in the proviso: "regardless of the disposition made of such income". (Excerpt from Op. No.
78).chanroblesvirtualawlibrary chanrobles virtual law library

The fact that the Congress of the Philippines found it necessary to add the phrase "any activity conducted for
profit" unmistakably points to the intention to tax income from activities conducted for profit which possibly
might not be embraced by the proviso in the old law which taxes only income from properties, real or
personal.chanroblesvirtualawlibrary chanrobles virtual law library

It is clear from the foregoing that if the educational activity is conducted for profit, it is subject to tax. A study of
pertinent cases(Institute of Holy Angels vs. Bonder, 74 A, 251; Borough vs. State, 115 A. 344) in the United
States shows that the underlying criterion upon which the courts appear to rely most heavily is whether the
institution in question gives to the public at large substantially more than it received "as a public work or service
to the state, without expectation of remuneration." A subsidiary consideration is whether tuition charges are
fixed so as to evince a purpose to make a profit over and above the cost of tuition. Institute of Holy
Angels, vs. Bender, N. J. Sup. Ct., 1909, 79 N. J. L. 34, 74 A. 251; Mayor of Princeton, etc. vs. State Board, N.
J. Sup. Ct. 1921, 96 N. J. L. 334, 115 A. 342. Another point of view was that of inquiring as to whether the
objects of the school were fundamentally charitable or philantrophic. Dwights School of Englewood vs. State
Board, etc. N. J. Sup. Ct. 1935, 114 N. J. L. 594, 177 A. 875, 876 and cases cited (Excerpt from Op. No.
78).chanroblesvirtualawlibrary chanrobles virtual law library

In the following illustrative cases are applied the above criterion:

(1) "(1) In a case where a school claimed exemption from taxation on the ground that it was not realizing profits
over and above the cost of operation the court held that said school was nevertheless conducted for profit, it
being shown that the fees charged were very considerable. `The fact that it may not from time to time result in
profitable operation is beside the question. It has a commercial aspect. The amount of the fees charged
indicates that it is commercial." (Bancroft Schort vs. State Board of Taxes and Assessment, 160 A .
390).chanroblesvirtualawlibrary chanrobles virtual law library

(2) "(2) The fact that a private school was organized under a statute providing for the organization of non-profit
organizations and that it had no income but tuition fees was held not to be indicative of whether the school is,
in fact, a corporation or not for profit. The fact of whether it made a profit or showed a deficit is immaterial.
(Miami Beach vs. Tomlinson, 196 So. 608.).chanroblesvirtualawlibrary chanrobles virtual law library

(3) "(3) And a private academy charging tuition was held no tax exempt from taxation as fundamentally
philantrophic or charitable in purpose, notwithstanding a declaration and provisions thereof in its by-laws.
(Carteret Academy vs. State, 133 A. 886).

One idea stands out from the array of authorities examined. Actual realization of profits is immaterial; what is
important is the presence of the purpose to make a profit over and above the cost of instruction
(Rider vs. Trenton, 19 A. 24; Institute of Holy Angels vs. Bender, 74 A. 251; Princeton vs. State, 115 A. 342).
(Appellant's brief, pp. 11-14.)

At the outset, we note that appellant has not even tried to demonstrate either "that the fees charged are very
considerable" or that "the amount of the fees charged indicates that it is commercial." Neither has he shown
"the presence of the purpose to make a profit over and above the cost of instruction." At any rate, this standard
can not be applied in the interpretation of the legal provision under consideration, for the following reasons,
namely:chanrobles virtual law library

1. Section 27(e) of the National Internal Revenue Code, as amended by Republic Act No. 82 (section 5),
exempts from taxation the "net income" of corporations "organized and operated exclusively for ... educational
purposes ... no part of the net income of which inures to the benefit of any private stockholder or individual,"
and it is conceded that plaintiff corporation belongs to this class. To hold that an educational Institution is
subject to income tax whenever it is so administered as to reasonably assure that it will not incur in deficit, is to
nullify and defeat the aforementioned exemption. Indeed, the effect, in general, of the interpretation advocate
by appellant would be to deny the exemption whenever there is net income, contrary to the tenor of said
section 27(e) which positively exempts from taxation those corporations or associations which, otherwise,
would be subject thereto, because of the existence of said net income.chanroblesvirtualawlibrary chanrobles
virtual law library

Needless to say, every responsible organization must be so run to, at least insure its existence, by operating
within the limits of its own resources, especially its regular income. In other words, it should always strive,
whenever possible, to have a surplus. Upon the other hand, appellant's pretense would limit the benefits of the
exemption, under said section 27(e), to institutions which do not hope, or propose, to have such surplus. Under
this view, the exemption would apply only to schools which are on the verge of bankruptcy, for - unlike the
United States, where a substantial number of institutions of learning are dependent upon voluntary
contributions and still enjoy economic stability, such as Harvard, the trust fund of which has been steadily
increasing with the years - there are, and there have always been, very few educational enterprises in the
Philippines which are supported by donations, and these organizations usually have a very precarious
existence. The final result of the appellant's contention, if adopted, would be discourage the establishment of
colleges in the Philippines, which is precisely the opposite of the objective consistently sought by our
laws.chanroblesvirtualawlibrary chanrobles virtual law library

Again, the amount of fees charged by a school, college or university depends, ultimately, upon the policy of a
given administration, at a particular time. It is not conclusive of the purpose of the institution. Otherwise, such
purpose would vary with the particular in charge of the administration of the
organization.chanroblesvirtualawlibrary chanrobles virtual law library

At any rate, the main evidence of the purpose of a corporation should be its articles of incorporation and by-
laws, for such purpose is required by statute to be stated in the articles of incorporation (Sec. 6, Act No. 1459),
and the by-laws outline the administrative organization of the corporation (Sec. 20 and 21 of Act No. 1459, as
amended), which, in turn, is supposed to insure or facilitate the accomplishment of said purpose. In the case of
plaintiff herein, its amended articles of incorporation provide:

That the purposes for which said corporation is formed are the instruction and education of young girls.
(Record of Exhibits, p. 26.)

Moreover, article 21 of its by-laws states:

This corporation is a non-profit corporation. All income shall be devoted to the maintenance, improvement and
expenses of the College. No part of its net income shall inure to the benefit of private individuals. (Record of
Exhibits, p. 35.)

Considering, furthermore, that pursuant to article 8 of said by-laws, only religious members of the corporation
denominated "Hijas de la Caridad de San Vicente de Paulen Filipinas" are qualified for admission as members
of the plaintiff corporation and that there is not even the slightest intimation that it does not adhere to the
provisions of its articles of incorporation and by-laws, it is apparent that said plaintiff is neither organized nor
operated "for profit."chanrobles virtual law library

2. The cases cited by appellant are not in point. None of those cases involved income tax. Except the case of
Miami Beach College Corp. vs Tomlinson, 196 So. 608 (seepage 21 appellee's brief), which referred to a
license tax, all of the other cases dealt with assessment taxes on lands and buildings. The latter cases,
however, are particularly inapplicable to the Philippines, in view of the constitutional mandate to the effect that
"all lands, building and improvements used exclusively for religious, charitable or educational purposes shall
be exempt from taxation. (Art. VI, sec. 22, par. 3, of the Constitution.)chanrobles virtual law library

More important still, the law applied in the case relied upon by appellant exempted from taxation only such
educational institutions as were established for charitable or philantrophic purposes. Consequently, the
amount of fees charged or the intent to collect more than the cost of operation or instruction was material to the
determination of such purpose. Upon the other hand, under section 27(e) of our National Internal Revenue
Code, as amended, an institution operated exclusively for educational purposes need not have, in addition
thereto, a charitable or philantrophic character, to be exempt from taxation, provided only that no part of its net
income "inures to the benefit of any private stockholder or individual."chanrobles virtual law library

Lastly, the history of the legal provision under consideration does not bear out the theory of appellant herein.
Section II, subdivision G (a), of the Act of Congress of the United States of 1913, contained the following
exemption from taxation:

. . . That nothing in this section shall apply to labor, agricultural or horticultural organizations, or to mutual
savings banks not having a capital stock represented by shares, or to fraternal beneficiary societies, orders, or
associations operating under the lodge system or for the exclusive benefit of the members of a fraternity itself
operating under the lodge system, and providing for the payment of life, sick, accident, and other benefits to
the members of such societies, orders, or associations and dependents of such members, nor to domestic
building and loan associations, nor to cemetery companies, organized and operated exclusively for the mutual
benefit of their members, nor to any corporation or association organized and operated exclusively for
religious, charitable, scientific, or education purposes, no part of the net income of which inures to the benefit
of any private stockholder or individual, nor to business leagues, nor to chambers of commerce or boards of
trade, not organized for profit or no part of the net income of which inures to the benefit of the private
stockholder or individual; nor to any civil league or organization not organized for profit, but operated
exclusively for the promotion of social welfare. (9 Public Laws, p. 516; emphasis supplied.)

Later on (March 7, 1919), Act No. 2833 of the Philippine Legislature, in reproducing the exemption in favor of
corporations or associations organized and operated exclusively for religious, charitable, scientific or
educational purposes (section 11 [a], Sixth paragraph) added thereto a proviso reading:

. . . Provided, however, That the income of whatever kind and character from any of its properties, real or
personal, except income expressly exempted by this Law, shall be liable to the tax imposed under this chapter.
(14 Public Laws, p. 232.)

It should be noted that in dealing with institutions organized and operated exclusively for education purposes,
the profit motive was disregarded, on condition that the net income does not inure to the benefit of any private
stockholder or individual, whereas, chambers of commerce or boards of trade, as well as civic leagues, were
exempted only if "not organized for profit."chanrobles virtual law library

Subsequently (June 15, 1939), Commonwealth Act No. 466 amended the clause "no part of the net income of
which inures to the benefit of any private stockholder or individual," so as to read: "no part of the net income of
which is distributed to any private stockholder or individual."chanrobles virtual law library

As thus amended, section 27(f) of said Act provided:

SEC. 27. Exemptions from tax on corporations. - The following organizations shall not be taxed under this Title
in respect to income received by them as such -

x x x           x x x           x x xchanrobles virtual law library

(f) Corporation or association organized and operated exclusively for religious, charitable, scientific, athletic,
cultural, or educational purposes, no part of the net income of which is distributed to any private stockholder or
individual: Provided, however, That the income of whatever kind and character from any of its properties, real
or personal, except income expressly exempted by this title, shall be liable to the tax imposed under this Code.

On October 29, 1946, this provision was amended by Republic Act No. 82 (section 5), so as to become
paragraph (e) of said section 27 of the National Internal Revenue Code, which we quote:

(e) Corporation or association organized and operated exclusively for religious, charitable, scientific, athletic,
cultural, or educational purposes, or for the rehabilitation of veterans no part of the net income of which inures
to the benefit of any private stockholder or individual: Provided, however, That the income of whatever kind
and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of
the disposition made of such income, shall be liable to the tax imposed under this Code.

It will be noted that four (4) changes were introduced by this act of Congress of the Philippines
namely:chanrobles virtual law library

(1) It increased the exempt class, by including therein corporations or associations organized and operated
exclusively "for the rehabilitation of veterans";chanrobles virtual law library

(2) It reverted to the phraseologoy of the original act of Congress of 1913, by providing that the corporations or
associations therein enumerated shall be exempt if no part of the net income thereof "inures to the benefit of"-
instead of "is distributed to" - any private stockholder or individual;chanrobles virtual law library
(3) It clarified the meaning of the proviso, by declaring that the income therein mentioned shall be taxable
"regardless of the disposition made of such income"; andchanrobles virtual law library

(4) It inserted in the proviso an additional limitation to the exemption established in the first part of paragraph
(e), by excluding from said exemption the income of the aforementioned corporations or associations derived
"from any activity conducted for profit."chanrobles virtual law library

This fourth amendment was not, however, a part of the bill (H. No. 729) introduced in the House of
Representatives. Referring to the first three amendments, the explanatory note of said bill said:

Amendment of provisions granting exemption in favor of religious, charitable, scientific, athletic, cultural, or
educational organizations or institutions. - The present law (section 27 [f], National Internal Revenue Code)
exempts the organizations if no part of their net income "is distributed to any private stockholder or individual."
This provision has been authoritatively construed as exempting such organization or association from the
payment of the income tax for any year in which no dividends are distributed to stockholders. The present law
as so construed, therefore, makes it possible for a corporation to avoid the payment of income tax by simply
desisting from declaring a dividend during any given year, notwithstanding the fact that it may have earned a
very substantial amount of income in that year. Furthermore, if the corporation desires to distribute dividends, it
could effect the distribution during a taxable year in which it expects to suffer a loss, or derive only a small
income, thus making it possible for such corporation to entirely avoid the payment of the income tax availing of
the loophole in the law to suit its advantage. Under the proposed amendment, the above-mentioned
corporations and associations will pay income tax on their profits in any year although no dividends are
declared for such year.chanroblesvirtualawlibrary chanrobles virtual law library

It is also proposed to clarify the provisions of this paragraph by inserting the words "regardless of the
disposition made of such income" in order to make it clear that the income of whatever kind and character of
said organizations from any of their properties, real or personal, will be subject to income tax. It is obvious that
an organization which derives income from rentals or investments of its properties should be made to pay the
income tax in the same manner as to other corporations or individuals. The government affords protection to
the owner of property and it is proper that the said owner should be made to contribute to the cost of
government by paying a tax on the income from such property.chanroblesvirtualawlibrary chanrobles virtual
law library

It is proposed to include among the exempt organizations any association organized for the rehabilitation of
war veterans. The formation of such associations should be encouraged, considering that a great number of
our war veterans are in dire need of relief and rehabilitation.

The fourth amendment was mentioned for the first time in the report of the conference committee, which is
couched in the following language:

The Committee of Conference on the disagreeing votes of the two Houses on the amendment of the Senate to
H. No. 729, entitled:

"An Act to amend sections twenty-one, twenty-two, twenty-four, twenty-seven, twenty-nine, thirty, thirty-four,
fifty-three, fifty-four, and to repeal subsection (u) of section eighty-four of Commonwealth Act Numbered Four
hundred and sixty-six, as amended,"

having met, after full and free conference have agreed to recommend and do recommend to their respective
Houses, as follows:chanrobles virtual law library

The Committee of Conference on the Part of the House of Representatives regrets to state that it cannot
accept the amendments of the Senate to sections 1, 2, and 9 of H. Bill 729. However, it is willing to accept the
following amendments of the Senate:chanrobles virtual law library
1. In section 5, page 7, line 6, before the word "REGARDLESS "insert the words "OR FROM ANY ACTIVITY
CONDUCTED FOR PROFIT,"chanrobles virtual law library

2. In section 7, page 8, line 20, strike out the word "or"; same page, same section, line 30, strike the words "or
the."

Respectfully submitted:

Conferees on the Part of the Senate

(Sgd.) MELECIO ARRANZ (Sgd.) M. JESUS CUENCO

(Sgd.) CARLOS P. GARCIA

Conferees on the Part of the House of Representatives

(Sgd.) MODESTO FORMILLEZA (Sgd.) TORIBIO P. PEREZ

(Sgd.) CIPRIANO PRIMICIAS

(Appellees brief, pp. 11-12.)chanrobles virtual law library

There is no other official record concerning the amendment in question. However, we find in the record a
deposition - which was introduced in evidence as Exhibit A-1 - of Senator M. Cuenco, a member of said
conference committee, for the Senate, and sponsor of the bill on the floor thereof. The pertinent parts of said
deposition are quoted hereunder:

Las palabras "or from any activity conducted for profit" fueron insertadas durante las deliberaciones que hubo
en el comite de conferencia. Era general y unanime la opinion tanto de los representates que formaban parte
del comite de conferencia, como por parte de los senadores miembros del COMITE DE CONFERENCIA DE
PARTE del senado, de examir del pago de "income tax" los ingresos, si losmismos no fueran repartidos entre
los socios o accionistas; perotodos convenieron de que los ingresos de centros docentes organizados por
accionistas que recibieran dividendos y utilidades de los colegios deberian pagar "income tax". Se hablo de
que las matriculas, los ingressos de laboratorio, juegos atleticos, etcetera, debian ser exentos de `income tax';
pero los ingresos provinientes de actividades completamente ajenas o no esencialmente relacionadas con los
fines educacionles de cada colegio, tales ingresos deberian estar sujetos a "income
tax".chanroblesvirtualawlibrary chanrobles virtual law library

P. Al hablar de la exencion de "income tax" para los colegios que cobran matriculas, derechos de laboratorio,
derechos "for athletic purposes" usted empleo la palabra "etcetera", quiere Vd. decir que estan incluidos en
esa palabra "etcetera" los derechos por la expedicion de titulos o no?chanrobles virtual law library

R. Todo lo que se pagase por titulos deberia ser exento tambien, lo cual tenniamos en nuestra mente cuando
hemos aprobado la insercionde las palabras "or from any activity conducted for profits"; no estaban incluidos
dentro de esta frase que acabo de leer las matriculas, los ingresos de laboratorio, los ingresos por altetismo,
porque si las matriculas, los ingresos de laboratorio, lo que se paga por la expedicion de titulos estuviesen
sujetos a "income tax", entonces se cometerai un absurdo de no eximir de cualquier impuesto de `income tax'
todos los centros docentes privados aunque no fuerano perados en beneficio de los socios o accionistas. Los
Senadores y Representantes que companian el comitede conferencia no podian jamas atentar contra el
progreso del pais sujetando a impuestos de "income tax" los ingresos por matricula, porque entonces ningun
colegio podria mantenerse, equivaldrai sancionar el cobro de impuestos de todos los centros docentes
privados, lo cual es absurdo y completamente contrario no solamente al precedente establecido en este pais
sino a toda la practicas generales, continuas en Estados Unidos, de proteger la propagacion de la cultura,
civilization y progreso. Se hace mas patente esa necesidad si se considera que en Filipinas la ensen�anza
superior, principalment la academica, se ha dado no solamente en la Universidad de Filipinas, sino sobre las
universidades y colegios donde se educan cuando menos, 80 o 90%, los que buscan instruccion academica o
superior.chanroblesvirtualawlibrary chanrobles virtual law library

Esta frase "or from any activity conducted for profit" se inserto porque un colegio o una universidad pordria
tener ingresos no absolutamente esenciales para la ense�anza: tales, por ejemplo, en el caso de la
Universidad de Santos Tomas. La Universidad tiene un hospital, este hospital recibe enfermos de pago; si
esta frase "or from any activity conducted for profit" no se hubiera insertado, seria discutible si los ingresos que
reciba el hospital provenientes de enfermos de pago podrian sujetarse a impuestos de `income tax' o no. Pero
con la insercion de la frase `or from any activity conducted for profit' se hizo evidente que dichos ingresos
estan sujetos a "income tax". Podria darse el caso que el colegio o la universidad tuviera departmento de artes
y oficios en el cual se fabrican muebles, y estosmuebles se vendian al publico, naturalmente si dicha frase na
se hubiera insertado, las ganancias por la venta de esos muebles no estarian sujetos a "income tax"; pero con
la insercion que hemos hechono cabe duda ninguna de que tales ganancias deberian pagar "income tax".

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P. Cuando ha hablado de la Universidad de Santo Tomas quetiene un hospital, no cree Vd. que es una
actividad esencial dicho hospital para el funcion amiento del colegio de medicina de dicha universidad?

x x x           x x x           x x xchanrobles virtual law library

R. Si el hospital se limita a recibir enformos pobres, mi contestacion seria afirmativa; pero considerando que el
hospital tiene cuartos de pago, y a los mismos generalmente van enfermos de buena posicion social
economica, lo que se paga por estos enfermos debe estar sujeto a `income tax', y es una de las razones que
hemos tenido para insertar las palabras o frase "or from any activity conducted for
profit".chanroblesvirtualawlibrary chanrobles virtual law library

P. Cree Vd. que en la palabra "etcetera" que Vd. empleo antes estan incluidos los derechos que se cobran por
el uso de la biblioteca (library)?chanrobles virtual law library

R. Deberan de estar exentos.chanroblesvirtualawlibrary chanrobles virtual law library

P. Cree Vd. que en dicha palabra "etcetera" estan includos tambien los derechos que se cobran por internos
en un dormitorio de la universidad o por la escuela?chanrobles virtual law library

R. Si lo que se paga por estos internos representa unicamente los gastos necesarios, si, estan
incluidos.chanroblesvirtualawlibrary chanrobles virtual law library

P. Si los colegios tuvieran ingresos solo de matricula y derechso de laboratorio y derecho de `athletics' o
juegos atleticos, y por todo lo que Vd. incluye en la palabra "etcetera" tuvieran que pagarimpuestos de
"income tax" por dichos ingresos como pretende el Gobierno, ademas de estar incluidos por Vd. en la frase "or
from any activity conducted for profits, podria Vd. decir que otros ingresos de tales colegios quedarian exentos
de "income tax", no obstantelo qu dice la ley en terminos generales en la seccion 27(e) de quo quedan
exentos de pago de "income tax" toda corporacion on asociacion organizada y operada exclusivamente por
motivos de religion , caridad, ciencia o educacion?

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R. No. quedaria ningun ingreso libre de impuestos. Entonces la exencion prevista por la ley seria una letra
muerta, seria una redundancia. Por otro lado yo no puedo concebir que haya otros ingresos que podrian
quedar exentos de impuesto de "income tax" (Pages 4-7, Record of Exhibits; emphasis supplied.)

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R. Como yo habia dicho antes de conferencia nombrados, uno por parte del Senado, y otro por parte de la
Camara.chanroblesvirtualawlibrary chanrobles virtual law library

P. Recuerda Vd. el miembro del Comite de Conferencia que era responsable de dicha frase?chanrobles virtual
law library

Q. Como y habia dicho antes, los senadores y representantes que eran miembros de laos comites de
conferencia eran un animesen su sentir de que las matriculas, los ingresos de laboratorio, juegos atleticos,
etc, fueran exentos de "income tax" si el coligio no fuera organizado para beneficio de los sicios o accionistas;
pero como podria darse el caso de que ademas de las matriculas, ingresos de laboratorio, ingresos por titulos,
un centro docente pordra tener algunas actividades que pudieran rendir ganancias, asi es que se inserto la
frase "or from any activity conducted for profit".

x x x           x x x           x x xchanrobles virtual law library

P. No cree Vd. que la insercion de dicha frase es superflua, teniendo en cuenta que antes de la enmienda de
la seccion 27(e) (antes f) del Codigo de Impuestos , los ingresos de las corporaciones o asociaciones
mencionadas en la ley provenientes del ejercicio de las actividades que eran eran estrictamente religiosas,
caritativas, educacionales,etc. no estaban sujetos a "income tax"?

x x x           x x x           x x xchanrobles virtual law library

Sr. Cuenco: A simple vista parece casi superflua; pero considerando que una institucion educacional podria
tener ingresos provenientes de cualquiera activities "for profit", la frase tien razonde ser. En el caso, por
ejemplo, de la Universidad de Santos Tomas, esta universidad tiene una imprenta, al menos, anteriormente,
no solamente imprimia todo lo que fuese de uso exclusivo para la universidad y relacionado con sus fines
educacionales, sino tambien recibia trabajos de imprentea del publico. Si la frase en controversia no se
hubiera insertado no cabria duda alguna de que los trabajosde impresion recibidos por la imprenta de la
universidad de cualquiera persona, trabajos que devengan ganancias, no podrian estar sujetos a impuesto.

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P. Recuerda Vd. si al tiempo cuando se inserto esta frase en el proyecto en discusion algun miembro de
dichos comites haya considerado que alguna cantidad despues de deducidos todos los gastos de la cantidad
cobrada por matricula, etc., deberian considerarse sujeta a impuesto?chanrobles virtual law library

R. Los miembros de los comites tanto por parte del Senado como por parte de la Camara eran contestes en
su sentir de que toda matricula debe estar exenta del pago de "income tax". El exceso que Vd. cree que
puede haber entre los ingresos y los gastos necesarios, no podria ser considerados por el comite, porque si
los ingresos y los gastos se equiparan, no habria necesidad de consignar ninguna exencion porque entonces
no habria ninguna ganancia quetasar.chanroblesvirtualawlibrary chanrobles virtual law library

P. Pero ha tenido en cuenta el comite la posibilidad de que hubiera un ingreso neto despues del cobrode
matricula, despues de pagados los gastos?chanrobles virtual law library

R. Deseo advertir que todos los miembros del comite tenianuna actitud liberal hacia los centros docentes
privados, y nunca paso por nuestra mente crear cualqueir impuesto que tendiera obstaculizarsus actividades
culturales y educativas. Asi es que tratar de imponer `income tax' sobre las matriculas bajo el pretexto de que
los ingresos ascienden a una cantidad mayor que los gastos,seria establecer una legislacion no de proteccion
sino de persecucion;considerando que las leyes que tenenmos en cuanto a impuestos, principalmente el
impuesto que estamos considerando, tiene su fuente en las legislaciones sobre impuestos vigentes en
Estados Unidos: no creo yo que haya alguna legislacion en Estados Unidos que grave impuestos sobre
matriculas, si estas representan una cantidad mayor que los gastos de la
institucion.chanroblesvirtualawlibrary chanrobles virtual law library

P. Usted ha mencionado de que estos impuestos de "income tax" sobre matricula vendria a constituir una
persecucion contra los colegios, no es verdad que si se hiciera otra cosa vendria a favore certales
instituciones, teniendo en cuenta el ingreso neto que deberia estar sujeto a "income tax" de acuerdo con la
provision de la Constitucionde que todo impuesto debe ser uniforme? En realidad bajola Constitucion las
propiedades de estas instituciones estan yaexentas del pago de impuesto?chanrobles virtual law library

R. Siento tener que disentir. Creo que uno de los fines del Esetado es propulsar la cultura. El Gobierno no
tiene derecho a colocar un centro docente bajo el mismo nivel que una empresa absolutamente utilitaria. La
obligacion del esetado de propulsar la cultura, la propagacion del a ciencia y arte le obliga a colocar los
centros docentes privados bajo un plano mas elevado. Esta obligaciondel Gobierno en Filipinas es tanto mas
imperativo si se considera que sin estas instituciones privadas el 90% de los filipinosno podrian tener ninguna
cultura academica: asi es que nosotrosjamas hemos tenido la intencion de discutir se el total de los ingresos
provenientes de matriculas representan una cantidad mayoro menor que los gastos necesarios de un
colegio.chanroblesvirtualawlibrary chanrobles virtual law library

P. No es verdad que cuando el comite estaba delibernando la frase en cuestion el comite habia que algunas
instituciones privadastenian ganancias enormes que despues se habian dedicado a comprar mas equipos y a
la construccion de nuevos edificios asi es que el comite considero propio imponer impuestos sobre sus
ingresos?chanrobles virtual law library

R. Antes de la aprobacion de bill en cuestion, llamo la atenciondel Congreso de Filipinas de que instituciones
privadas organizadas como "stock corporations" rendian ganacias, y que estas gananciasiban en beneficio de
los socios o accionistas: de ahi la enmienda consistente en suprimir las palabras "is distributed" y sustituirlas
con las palabras `inures to the benefit of any stockholders' o individuos. No hay nada escandaloso si la
Universidad de Santo Tomas por tener muchos alumnos, y por obtener grandes ingresos procedentes de
matriculas levantara otros colegios, como el colegio deingenieria; que mal habria si una institucion puramente
cultural y educativa se ensanchara y pudiera prestar un servicio mayor al pais?chanrobles virtual law library

No veo nada malo que un centro docente privado dedicado a fines puramente educacionales y cientificos y no
en beneficio de cualquier individuo particular, construyera mas edificios para poder cumplir mejor los fines por
los cuales la institucion se ha establecido.chanroblesvirtualawlibrary chanrobles virtual law library

P. No es verdad que el intento de la ley era imponer impuestos sobre aquellas instituciones que tienen
grandes granancias o ingresos,y que por eso se enmendo la ley a�adiendose: regardless of the disposition
made by said institution?chanrobles virtual law library

R. El caso es distinto, porque antiguanmente estaban exentosde impuestos no solamente los ingresos de los
centros docentes relacionados estrictamente con la ense�anza, sino tambien se eximianlos ingresos de esas
instituciones que provienen de actos completamente mercantiles o economicos. (Pages 7-11, idem.)

It is clear from the foregoing not only that Congress had no intention of taxing matriculation, laboratory, library,
athletic and graduation fees and other fees of similar nature, essential to, or necessarily connected with, the
educational purposes of an institution of learning, but, also, that the legislative department positively intended
such fees to be exempt from taxation. Hence, viewed from any angle, the contention of appellant herein cannot
be sustained.chanroblesvirtualawlibrary chanrobles virtual law library

Wherefore, the decision appealed from is hereby affirmed, without special pronouncement as to
costs.chanroblesvirtualawlibrary chanrobles virtual law library

Pablo, Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo, and Labrador, JJ., concur.
Paras, C. J., concurs in the result.