FIRST DIVISION

[G.R. No. 203514. February 13, 2017.]

COMMISSIONER OF INTERNAL REVENUE , petitioner, vs. ST. LUKE'S

MEDICAL CENTER, INC. , respondent.

DECISION

DEL CASTILLO , J : p

The doctrine of stare decisis dictates that "absent any powerful countervailing
considerations, like cases ought to be decided alike." 1 ICHDca

This Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court assails
the May 9, 2012 Decision 3 and the September 17, 2012 Resolution 4 of the Court of
Tax Appeals (CTA) in CTA EB Case No. 716.
Factual Antecedents
On December 14, 2007, respondent St. Luke's Medical Center, Inc. (SLMC)
received from the Large Taxpayers Service-Documents Processing and Quality
Assurance Division of the Bureau of Internal Revenue (BIR) Audit Results/Assessment
Notice Nos. QA-07-000096 5 and QA-07-000097, 6 assessing respondent SLMC
de ciency income tax under Section 27 (B) 7 of the 1997 National Internal Revenue
Code (NIRC), as amended, for taxable year 2005 in the amount of P78,617,434.54 and
for taxable year 2006 in the amount of P57,119,867.33.
On January 14, 2008, SLMC led with petitioner Commissioner of Internal
Revenue (CIR) an administrative protest 8 assailing the assessments. SLMC claimed
that as a non-stock, non-pro t charitable and social welfare organization under Section
30 (E) and (G) 9 of the 1997 NIRC, as amended, it is exempt from paying income tax.
On April 25, 2008, SLMC received petitioner CIR's Final Decision on the Disputed
Assessment 1 0 dated April 9, 2008 increasing the de ciency income for the taxable
year 2005 tax to P82,419,522.21 and for the taxable year 2006 to P60,259,885.94,
computed as follows:
For Taxable Year 2005:
ASSESSMENT NO. QA-07-000096
PARTICULARS AMOUNT

Sales/Revenues/Receipts/Fees P3,623,511,616.00
Less: Cost of Sales/Services 2,643,049,769.00
Gross Income from Operation 980,461,847.00
Add: Non-Operating & Other Income -
Total Gross Income 980,461,847.00
Less: Deductions 481,266,883.00
Net Income Subject to Tax 499,194,964.00
X Tax Rate 10%
Tax Due 49,919,496.40
Less: Tax Credits -
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 Deficiency Income Tax 49,919,496.40
Add: Increments
25% Surcharge 12,479,874.10
20% Interest Per Annum (4/15/06-
19,995,151.71
4/15/08
Compromise Penalty for Late Payment 25,000.00
Total increments 32,500,025.81
––––––––––––––––
Total Amount Due P82,419,522.21
==============
For Taxable Year 2006: cDHAES

ASSESSMENT NO. QA-07-000097

PARTICULARS [AMOUNT]

Sales/Revenues/Receipts/Fees P3,815,922,240.00
Less: Cost of Sales/Services 2,760,518,437.00
Gross Income from Operation 1,055,403,803.00
Add: Non-Operating & Other Income -
Total Gross Income 1,055,403,803.00
Less: Deductions 640,147,719.00
Net Income Subject to Tax 415,256,084.00
X Tax Rate 10%
Tax Due 41,525,608.40
Less: Tax Credits -
Deficiency Income Tax 41,525,608.40
Add: Increments -
25% Surcharge 10,381,402.10
20% Interest Per Annum (4/15/07-
8,327,875.44
4/15/08)
Compromise Penalty for Late Payment 25,000.00
Total increments 18,734,277.54
–––––––––––––––
Total Amount Due P60,259,885.94 1 1
=============
Aggrieved, SLMC elevated the matter to the CTA via a Petition for Review, 1 2
docketed as CTA Case No. 7789.
Ruling of the Court of Tax Appeals Division
On August 26, 2010, the CTA Division rendered a Decision 1 3 nding SLMC not
liable for de ciency income tax under Section 27 (B) of the 1997 NIRC, as amended,
since it is exempt from paying income tax under Section 30 (E) and (G) of the same
Code. Thus: TCAScE

WHEREFORE, premises considered, the Petition for Review is hereby

GRANTED. Accordingly, Audit Results/Assessment Notice Nos. QA-07-000096
and QA-07-000097, assessing petitioner for alleged de ciency income taxes for
the taxable years 2005 and 2006, respectively, are hereby CANCELLED and SET
ASIDE.
SO ORDERED. 1 4
CIR moved for reconsideration but the CTA Division denied the same in its
December 28, 2010 Resolution. 1 5
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 This prompted CIR to file a Petition for Review 1 6 before the CTA En Banc.
Ruling of the Court of Tax Appeals En Banc
On May 9, 2012, the CTA En Banc a rmed the cancellation and setting aside of
the Audit Results/Assessment Notices issued against SLMC. It sustained the ndings
of the CTA Division that SLMC complies with all the requisites under Section 30 (E) and
(G) of the 1997 NIRC and thus, entitled to the tax exemption provided therein. 1 7
On September 17, 2012, the CTA En Banc denied CIR's Motion for
Reconsideration.
Issue
Hence, CIR led the instant Petition under Rule 45 of the Rules of Court
contending that the CTA erred in exempting SLMC from the payment of income tax.
Meanwhile, on September 26, 2012, the Court rendered a Decision in G.R. Nos.
195909 and 195960, entitled Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc., 1 8 nding SLMC not entitled to the tax exemption under Section 30 (E) and
(G) of the NIRC of 1997 as it does not operate exclusively for charitable or social
welfare purposes insofar as its revenues from paying patients are concerned. Thus, the
Court disposed of the case in this manner:
WHEREFORE, the petition of the Commissioner of Internal Revenue in
G.R. No. 195909 is PARTLY GRANTED. The Decision of the Court of Tax
Appeals En Banc dated 19 November 2010 and its Resolution dated 1 March
2011 in CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center, Inc. is
ORDERED TO PAY the de ciency income tax in 1998 based on the 10%
preferential income tax rate under Section 27(B) of the National Internal
Revenue Code. However, it is not liable for surcharges and interest on such
de ciency income tax under Sections 248 and 249 of the National Internal
Revenue Code. All other parts of the Decision and Resolution of the Court of Tax
Appeals are AFFIRMED.
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is
DENIED for violating Section I, Rule 45 of the Rules of Court.
SO ORDERED. 1 9 ASEcHI

Considering the foregoing, SLMC then led a Manifestation and Motion 2 0

informing the Court that on April 30, 2013, it paid the BIR the amount of basic taxes due
for taxable years 1998, 2000-2002, and 2004-2007, as evidenced by the payment
con rmation 2 1 from the BIR, and that it did not pay any surcharge, interest, and
compromise penalty in accordance with the above-mentioned Decision of the Court. In
view of the payment it made, SLMC moved for the dismissal of the instant case on the
ground of mootness.
CIR opposed the motion claiming that the payment con rmation submitted by
SLMC is not a competent proof of payment as it is a mere photocopy and does not
even indicate the quarter/s and/or year/s said payment covers. 2 2
In reply, 2 3 SLMC submitted a copy of the Certi cation 2 4 issued by the Large
Taxpayers Service of the BIR dated May 27, 2013, certifying that, "[a]s far as the basic
de ciency income tax for taxable years 2000, 2001, 2002, 2004, 2005, 2006, 2007 are
concerned, this O ce considers the cases closed due to the payment made on April
30, 2013." SLMC likewise submitted a letter 2 5 from the BIR dated November 26, 2013
with attached Certi cation of Payment 2 6 and application for abatement, 2 7 which it
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 earlier submitted to the Court in a related case, G.R. No. 200688, entitled Commissioner
of Internal Revenue v. St. Luke's Medical Center, Inc. 2 8
Thereafter, the parties submitted their respective memorandum.
CIR's Arguments
CIR argues that under the doctrine of stare decisis SLMC is subject to 10%
income tax under Section 27 (B) of the 1997 NIRC. 2 9 It likewise asserts that SLMC is
liable to pay compromise penalty pursuant to Section 248 (A) 3 0 of the 1997 NIRC for
failing to file its quarterly income tax returns. 3 1
As to the alleged payment of the basic tax, CIR contends that this does not
render the instant case moot as the payment con rmation submitted by SLMC is not a
competent proof of payment of its tax liabilities. 3 2
SLMC's Arguments
SLMC, on the other hand, begs the indulgence of the Court to revisit its ruling in
G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc.) 3 3 positing that earning a pro t by a charitable, benevolent hospital or
educational institution does not result in the withdrawal of its tax exempt privilege. 3 4
SLMC further claims that the income it derives from operating a hospital is not income
from "activities conducted for pro t." 3 5 Also, it maintains that in accordance with the
ruling of the Court in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue
v. St. Luke's Medical Center, Inc.), 3 6 it is not liable for compromise penalties. 3 7
In any case, SLMC insists that the instant case should be dismissed in view of its
payment of the basic taxes due for taxable years 1998, 2000-2002, and 2004-2007 to
the BIR on April 30, 2013. 3 8 cTDaEH

Our Ruling
SLMC is liable for income tax under
Section 27 (B) of the 1997 NIRC insofar
as its revenues from paying patients are
concerned.
The issue of whether SLMC is liable for income tax under Section 27 (B) of the
1997 NIRC insofar as its revenues from paying patients are concerned has been settled
in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v. St. Luke's
Medical Center, Inc.), 3 9 where the Court ruled that:
x x x We hold that Section 27(B) of the NIRC does not remove the income tax
exemption of proprietary non-pro t hospitals under Section 30(E) and (G).
Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be
construed together without the removal of such tax exemption. The effect of the
introduction of Section 27(B) is to subject the taxable income of two speci c
institutions, namely, proprietary non-pro t educational institutions and
proprietary non-profit hospitals, among the institutions covered by Section 30, to
the 10% preferential rate under Section 27(B) instead of the ordinary 30%
corporate rate under the last paragraph of Section 30 in relation to Section
27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the
income of (1) proprietary non-pro t educational institutions and (2) proprietary
non-pro t hospitals. The only quali cations for hospitals are that they must be
proprietary and non-profit. 'Proprietary' means private, following the definition of
a 'proprietary educational institution' as 'any private school maintained and
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 administered by private individuals or groups' with a government permit. 'Non-
pro t' means no net income or asset accrues to or bene ts any member or
speci c person, with all the net income or asset devoted to the institution's
purposes and all its activities conducted not for profit.
'Non-pro t' does not necessarily mean 'charitable.' In Collector of Internal
Revenue v. Club Filipino, Inc. de Cebu, this Court considered as non-pro t a
sports club organized for recreation and entertainment of its stockholders and
members. The club was primarily funded by membership fees and dues. If it
had pro ts, they were used for overhead expenses and improving its golf
course. The club was non-pro t because of its purpose and there was no
evidence that it was engaged in a profit-making enterprise.
The sports club in Club Filipino, Inc. de Cebu may be non-profit, but it was
not charitable. The Court de ned 'charity' in Lung Center of the Philippines v.
Quezon City as 'a gift, to be applied consistently with existing laws, for the
bene t of an inde nite number of persons, either by bringing their minds and
hearts under the in uence of education or religion, by assisting them to
establish themselves in life or [by] otherwise lessening the burden of
government.' A non-pro t club for the bene t of its members fails this test. An
organization may be considered as non-pro t if it does not distribute any part of
its income to stockholders or members. However, despite its being a tax exempt
institution, any income such institution earns from activities conducted for
profit is taxable, as expressly provided in the last paragraph of Section 30. ITAaHc

To be a charitable institution, however, an organization must meet the

substantive test of charity in Lung Center. The issue in Lung Center concerns
exemption from real property tax and not income tax. However, it provides for
the test of charity in our jurisdiction. Charity is essentially a gift to an inde nite
number of persons which lessens the burden of government. In other words,
charitable institutions provide for free goods and services to the public which
would otherwise fall on the shoulders of government. Thus, as a matter of
e ciency, the government forgoes taxes which should have been spent to
address public needs, because certain private entities already assume a part of
the burden. This is the rationale for the tax exemption of charitable institutions.
The loss of taxes by the government is compensated by its relief from doing
public works which would have been funded by appropriations from the
Treasury.
Charitable institutions, however, are not ipso facto entitled to a tax
exemption. The requirements for a tax exemption are speci ed by the law
granting it. The power of Congress to tax implies the power to exempt from tax.
Congress can create tax exemptions, subject to the constitutional provision that
'[n]o law granting any tax exemption shall be passed without the concurrence of
a majority of all the Members of Congress.' The requirements for a tax
exemption are strictly construed against the taxpayer because an exemption
restricts the collection of taxes necessary for the existence of the government.
The Court in Lung Center declared that the Lung Center of the Philippines
is a charitable institution for the purpose of exemption from real property taxes.
This ruling uses the same premise as Hospital de San Juan and Jesus Sacred
Heart College which says that receiving income from paying patients does not
destroy the charitable nature of a hospital.
As a general principle, a charitable institution does not lose
its character as such and its exemption from taxes simply
because it derives income from paying patients, whether
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 outpatient, or con ned in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve;
and no money inures to the private bene t of the persons
managing or operating the institution.
For real property taxes, the incidental generation of income is permissible
because the test of exemption is the use of the property. The Constitution
provides that '[c]haritable institutions, churches and personages or convents
appurtenant thereto, mosques, non-pro t cemeteries, and all lands, buildings,
and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation.' The test of
exemption is not strictly a requirement on the intrinsic nature or character of the
institution. The test requires that the institution use the property in a certain way,
i.e., for a charitable purpose. Thus, the Court held that the Lung Center of the
Philippines did not lose its charitable character when it used a portion of its lot
for commercial purposes. The effect of failing to meet the use requirement is
simply to remove from the tax exemption that portion of the property not
devoted to charity. cSaATC

The Constitution exempts charitable institutions only from real property

taxes. In the NIRC, Congress decided to extend the exemption to income taxes.
However, the way Congress crafted Section 30(E) of the NIRC is materially
different from Section 28(3), Article VI of the Constitution. Section 30(E) of the
NIRC de nes the corporation or association that is exempt from income tax. On
the other hand, Section 28(3), Article VI of the Constitution does not de ne a
charitable institution, but requires that the institution 'actually, directly and
exclusively' use the property for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the bene t
of any member, organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution
must be devoted 'exclusively' for charitable purposes. The organization of the
institution refers to its corporate form, as shown by its articles of incorporation,
by-laws and other constitutive documents. Section 30(E) of the NIRC
speci cally requires that the corporation or association be non-stock, which is
de ned by the Corporation Code as 'one where no part of its income is
distributable as dividends to its members, trustees, or o cers' and that any
pro t 'obtain[ed] as an incident to its operations shall, whenever necessary or
proper, be used for the furtherance of the purpose or purposes for which the
corporation was organized.' However, under Lung Center, any pro t by a
charitable institution must not only be plowed back 'whenever necessary or
proper,' but must be 'devoted or used altogether to the charitable object which it
is intended to achieve.'
The operations of the charitable institution generally refer to its regular
activities. Section 30(E) of the NIRC requires that these operations be exclusive
to charity. There is also a speci c requirement that 'no part of [the] net income
or asset shall belong to or inure to the bene t of any member, organizer, o cer
or any speci c person.' The use of lands, buildings and improvements of the
institution is but a part of its operations. CHTAIc

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 There is no dispute that St. Luke's is organized as a non-stock and non-
pro t charitable institution. However, this does not automatically exempt St.
Luke's from paying taxes. This only refers to the organization of St. Luke's. Even
if St. Luke's meets the test of charity, a charitable institution is not ipso facto
tax exempt. To be exempt from real property taxes, Section 28(3), 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. Likewise, to be
exempt from income taxes, Section 30(G) of the NIRC requires that the
institution be 'operated exclusively' for social welfare.
However, the last paragraph of Section 30 of the NLRC quali es the
words 'organized and operated exclusively' by providing that:
Notwithstanding the provisions in the preceding paragraphs, the
income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from
any of their activities conducted for pro t regardless of the
disposition made of such income, shall be subject to tax imposed
under this Code.
In short, the last paragraph of Section 30 provides that if a tax exempt
charitable institution conducts 'any' activity for pro t, such activity is not tax
exempt even as its not-for-pro t activities remain tax exempt. This paragraph
quali es the requirements in Section 30(E) that the '[n]on-stock corporation or
association [must be] organized and operated exclusively for . . . charitable . . .
purposes . . . .' It likewise qualifies the requirement in Section 30(G) that the civic
organization must be 'operated exclusively' for the promotion of social welfare.
Thus, even if the charitable institution must be 'organized and operated
exclusively' for charitable purposes, it is nevertheless allowed to engage in
'activities conducted for pro t' without losing its tax exempt status for its not-
for-pro t activities. The only consequence is that the 'income of whatever kind
and character' of a charitable institution 'from any of its activities conducted for
pro t, regardless of the disposition made of such income, shall be subject to
tax.' Prior to the introduction of Section 27(B), the tax rate on such income from
for-pro t activities was the ordinary corporate rate under Section 27(A). With the
introduction of Section 27(B), the tax rate is now 10%.
In 1998, St. Luke's had total revenues of P1,730,367,965 from services to
paying patients. It cannot be disputed that a hospital which receives
approximately P1.73 billion from paying patients is not an institution 'operated
exclusively' for charitable purposes. Clearly, revenues from paying patients are
income received from 'activities conducted for pro t.' Indeed, St. Luke's admits
that it derived pro ts from its paying patients. St. Luke's declared
P1,730,367,965 as 'Revenues from Services to Patients' in contrast to its 'Free
Services' expenditure of P218,187,498. In its Comment in G.R. No. 195909, St.
Luke's showed the following 'calculation' to support its claim that 65.20% of its
'income after expenses was allocated to free or charitable services' in 1998. cHDAIS

xxx xxx xxx

In Lung Center, this Court declared:
'[e]xclusive' is de ned as possessed and enjoyed to the exclusion
of others; debarred from participation or enjoyment; and
'exclusively' is de ned, 'in a manner to exclude; as enjoying a
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 privilege exclusively.' . . . The words 'dominant use' or 'principal
use' cannot be substituted for the words 'used exclusively' without
doing violence to the Constitution and the law. Solely is
synonymous with exclusively.
The Court cannot expand the meaning of the words 'operated exclusively'
without violating the NIRC. Services to paying patients are activities conducted
for pro t. They cannot be considered any other way. There is a 'purpose to
make pro t over and above the cost' of services. The P1.73 billion total
revenues from paying patients is not even incidental to St. Luke's charity
expenditure of P218,187,498 for non-paying patients.
St. Luke's claims that its charity expenditure of P218,187,498 is 65.20%
of its operating income in 1998. However, if a part of the remaining 34.80% of
the operating income is reinvested in property, equipment or facilities used for
services to paying and non-paying patients, then it cannot be said that the
income is 'devoted or used altogether to the charitable object which it is
intended to achieve.' The income is plowed back to the corporation not entirely
for charitable purposes, but for pro t as well. In any case, the last paragraph of
Section 30 of the NIRC expressly qualities that income from activities for pro t
is taxable 'regardless of the disposition made of such income.'
Jesus Sacred Heart College declared that there is no o cial legislative
record explaining the phrase 'any activity conducted for pro t.' However, it
quoted a deposition of Senator Mariano Jesus Cuenco, who was a member of
the Committee of Conference for the Senate, which introduced the phrase 'or
from any activity conducted for profit.'
P. Cuando ha hablado de la Universidad de Santo Tomas que
tiene un hospital, no cree Vd. que es una actividad esencial dicho
hospital para el funcionamiento del colegio de medicina de dicha
universidad?
xxx xxx xxx
R. Si el hospital se limita a recibir enformos pobres, mi
contestación series a rmativa; pero considerando que el hospital
tiene cuartos de pago, y a los mismos generalmente van enfermos
de buena posición social económica, 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.'
The question was whether having a hospital is essential to an
educational institution like the College of Medicine of the University of Santo
Tomas. Senator Cuenco answered that if the hospital has paid rooms generally
occupied by people of good economic standing, then it should be subject to
income tax. He said that this was one of the reasons Congress inserted the
phrase 'or any activity conducted for profit.' EATCcI

The question in Jesus Sacred Heart College involves an educational

institution. However, it is applicable to charitable institutions because Senator
Cuenco's response shows an intent to focus on the activities of charitable
institutions. Activities for pro t should not escape the reach of taxation. Being a
non-stock and non-pro t corporation does not, by this reason alone, completely
exempt an institution from tax. An institution cannot use its corporate form to
prevent its profitable activities from being taxed.
The Court nds that St. Luke's is a corporation that is not 'operated
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 exclusively' for charitable or social welfare purposes insofar as its revenues
from paying patients are concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also on the clear and
plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires
that an institution be 'operated exclusively' for charitable or social welfare
purposes to be completely exempt from income tax. An institution under Section
30(E) or (G) does not lose its tax exemption if it earns income from its for-pro t
activities. Such income from for-pro t activities, under the last paragraph of
Section 30, is merely subject to income tax, previously at the ordinary corporate
rate but now at the preferential 10% rate pursuant to Section 27(B).
A tax exemption is effectively a social subsidy granted by the State
because an exempt institution is spared from sharing in the expenses of
government and yet bene ts from them. Tax exemptions for charitable
institutions should therefore be limited to institutions bene cial to the public
and those which improve social welfare. A pro t-making entity should not be
allowed to exploit this subsidy to the detriment of the government and other
taxpayers.
St. Luke's fails to meet the requirements under Section 30(E) and (G) of
the NIRC to be completely tax exempt from all its income. However, it remains a
proprietary non-pro t hospital under Section 27(B) of the NIRC as long as it
does not distribute any of its pro ts to its members and such pro ts are
reinvested pursuant to its corporate purposes. St Luke's, as a proprietary non-
pro t hospital, is entitled to the preferential tax rate of 10% on its net income
from its for-profit activities.
ISHCcT

St. Luke's is therefore liable for de ciency income tax in 1998 under
Section 27(B) of the NIRC. However, St. Luke's has good reasons to rely on the
letter dated 6 June 1990 by the BIR, which opined that St. Luke's is 'a
corporation for purely charitable and social welfare purposes' and thus exempt
from income tax. In Michael J. Lhuillier, Inc. v. Commissioner of Internal
Revenue, the Court said that 'good faith and honest belief that one is not subject
to tax on the basis of previous interpretation of government agencies tasked to
implement the tax law, are su cient justi cation to delete the imposition of
surcharges and interest.' 4 0
A careful review of the pleadings reveals that there is no countervailing
consideration for the Court to revisit its aforequoted ruling in G.R. Nos. 195909 and
195960 (Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc.) . Thus,
under the doctrine of stare decisis, which states that "[o]nce a case has been decided in
one way, any other case involving exactly the same point at issue x x x should be
decided in the same manner," 4 1 the Court finds that SLMC is subject to 10% income tax
insofar as its revenues from paying patients are concerned.
To be clear, for an institution to be completely exempt from income tax, Section
30 (E) and (G) of the 1997 NIRC requires said institution to operate exclusively for
charitable or social welfare purpose. But in case an exempt institution under Section 30
(E) or (G) of the said Code earns income from its for-pro t activities, it will not lose its
tax exemption. However, its income from for-pro t activities will be subject to income
tax at the preferential 10% rate pursuant to Section 27 (B) thereof.
SLMC is not liable for
Compromise Penalty.
As to whether SLMC is liable for compromise penalty under Section 248 (A) of
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 the 1997 NIRC for its alleged failure to le its quarterly income tax returns, this has also
been resolved in G.R. Nos. 195909 and 195960 (Commissioner of Internal Revenue v.
St. Luke's Medical Center, Inc.) , 4 2 where the imposition of surcharges and interest
under Sections 248 4 3 and 249 4 4 of the 1997 NIRC were deleted on the basis of good
faith and honest belief on the part of SLMC that it is not subject to tax. Thus, following
the ruling of the Court in the said case, SLMC is not liable to pay compromise penalty
under Section 248 (A) of the 1997 NIRC.
The Petition is rendered moot by the
payment made by SLMC on April 30,
2013. DHITCc

However, in view of the payment of the basic taxes made by SLMC on April 30,
2013, the instant Petition has become moot.
While the Court agrees with the CIR that the payment con rmation from the BIR
presented by SLMC is not a competent proof of payment as it does not indicate the
speci c taxable period the said payment covers, the Court nds that the Certi cation
issued by the Large Taxpayers Service of the BIR dated May 27, 2013, and the letter
from the BIR dated November 26, 2013 with attached Certi cation of Payment and
application for abatement are su cient to prove payment especially since CIR never
questioned the authenticity of these documents. In fact, in a related case, G.R. No.
200688, entitled Commissioner of Internal Revenue v. St. Luke's Medical Center, Inc., 4 5
the Court dismissed the petition based on a letter issued by CIR con rming SLMC's
payment of taxes, which is the same letter submitted by SLMC in the instant case.
In ne, the Court resolves to dismiss the instant Petition as the same has been
rendered moot by the payment made by SLMC of the basic taxes for the taxable years
2005 and 2006, in the amounts of P49,919,496.40 and P41,525,608.40, respectively. 4 6
WHEREFORE , the Petition is hereby DISMISSED .
SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Perlas-Bernabe and Caguioa, JJ., concur.
Footnotes
1. Ty v. Banco Filipino Savings & Mortgage Bank, 511 Phil. 510, 520 (2005).
2. Rollo, pp. 13-34.
3. Id. at 39-51; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding
Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Caesar A.
Casanova, Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-
Grulla, and Amelia R. Cotangco-Manalastas; Associate Justice Erlinda P. Uy on leave.

4. Id. at 52-55; penned by Associate Justice Lovell R. Bautista and concurred in by Presiding
Justice Ernesto D. Acosta and Associate Justices Juanito C. Castañeda, Jr., Caesar A.
Casanova, Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-
Grulla, and Amelia R. Cotangco-Manalastas; Associate Justice Erlinda P. Uy took no part.
5. CTA rollo (Division), pp. 32-33.
6. Id. at 34-35.
7. SEC. 27. Rates of Income Tax on Domestic Corporations. —

xxx xxx xxx

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   (B) Proprietary Educational Institutions and Hospitals. — Proprietary educational
institutions and hospitals which are non-pro t shall pay a tax of ten percent
(10%) on their taxable income except those covered by Subsection (D) hereof:
Provided, That if the gross income from unrelated trade, business or other activity
exceeds fty percent (50%) of the total gross income derived by such educational
institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof
shall be imposed on the entire taxable income. For purposes of this Subsection, the term
'unrelated trade, business or other activity means any trade, business or other activity,'
the conduct of which is not substantially related to the exercise or performance by such
educational institution or hospital of its primary purpose or function. A 'proprietary
educational institution' is any private school maintained and administered by private
individuals or groups with an issued permit to operate from the Department of
Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED),
or the Technical Education and Skills Development Authority (TESDA), as the case may
be, in accordance with existing laws and regulations. (Emphasis supplied)
8. CTA rollo (Division), pp. 36-46.
9. SEC. 30. Exemptions from Tax on Corporations . — The following organizations shall not be
taxed under this Title in respect to income received by them as such:
xxx xxx xxx
 (E) Nonstock corporation or association organized and operated exclusively for
religious, charitable , scienti c, athletic, or cultural purposes , or for the rehabilitation of
veterans, no part of its net income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any specific person;
xxx xxx xxx

  (G) Civic league or organization not organized for pro t but operated exclusively for
the promotion of social welfare;
xxx xxx xxx

 Notwithstanding the provisions in the preceding paragraphs, the income of whatever

kind and character of the foregoing organizations from any of their properties,
real or personal, or from any of their activities conducted for pro t regardless of
the disposition made of such income, shall be subject to tax imposed under this
Code. (Emphasis supplied)

10. CTA rollo (Division), pp. 47-50.

11. Id. at 47-48.

12. Id. at 1-31.

13. Id. at 1059-1079; penned by Associate Justice Cielito N. Mindaro-Grulla and concurred in by
Associate Justices Juanito C. Castañeda, Jr. and Caesar A. Casanova.
14. Id. at 1079.

15. Id. at 1117-1125 (last page missing).

16. CTA rollo (En Banc) , pp. 1-8.

17. Rollo, pp. 47-49.

18. 695 Phil. 867 (2012).

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 19. Id. at 895.

20. Rollo, pp. 80-82.

21. Id. at 83.

22. Id. at 99-106.

23. Id. at 112-116.

24. Id. at 118.

25. Id. at 119.

26. Id. at 121.

27. Id. at 123-129.

28. G.R. No. 200688 (Notice), April 15, 2015.

29. Rollo, pp. 186-193.

30. Section 248. Civil Penalties. —

 (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent
to twenty-five percent (25%) of the amount due, in the following cases:

 (1) Failure to le any return and pay the tax due thereon as required under the provisions
of this Code or rules and regulations on the date prescribed; or
  (2) Unless otherwise authorized by the Commissioner, ling a return with an internal
revenue officer other than those with whom the return is required to be filed; or

  (3) Failure to pay the de ciency tax within the time prescribed for its payment in the
notice of assessment; or
 (4) Failure to pay the full or part of the amount of tax shown on any return required to be
led under the provisions of this Code or rules and regulations, or the full amount of tax
due for which no return is required to be led, on or before the date prescribed for its
payment.

xxx xxx xxx

31. Rollo, p. 193.

32. Id. at 193-194.

33. Supra note 19.

34. Rollo, pp. 150-155.

35. Id. at 155-156.

36. Supra note 19.

37. Rollo, pp. 158-160.

38. Id. at 160-162.

39. Supra note 19.

40. Id. at 885-895.

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 41. Chinese Young Men's Christian Association of the Philippine Islands v. Remington Steel
Corporation, 573 Phil. 320, 337 (2008).
42. Supra note 19.

43. Section 248. Civil Penalties. —

 (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent
to twenty-five percent (25%) of the amount due, in the following cases:

 (1) Failure to le any return and pay the tax due thereon as required under the provisions
of this Code or rules and regulations on the date prescribed; or
  (2) Unless otherwise authorized by the Commissioner, ling a return with an internal
revenue officer other than those with whom the return is required to be filed; or

  (3) Failure to pay the de ciency tax within the time prescribed for its payment in the
notice of assessment; or
 (4) Failure to pay the full or part of the amount of tax shown on any return required to be
led under the provisions of this Code or rules and regulations, or the full amount of tax
due for which no return is required to be led, on or before the date prescribed for its
payment.
 (B) In case of willful neglect to le the return within the period prescribed by this Code or
by rules and regulations, or in case a false or fraudulent return is willfully made, the
penalty to be imposed shall be fty percent (50%) of the tax or of the de ciency tax, in
case, any payment has been made on the basis of such return before the discovery of
the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales,
receipts or income, or a substantial overstatement of deductions, as determined by the
Commissioner pursuant to the rules and regulations to be promulgated by the Secretary
of Finance, shall constitute prima facie evidence of a false or fraudulent return: Provided,
further, That failure to report sales, receipts or income in an amount exceeding thirty
percent (30%) of that declared per return, and a claim of deductions in an amount
exceeding (30%) of actual deductions, shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for overstatement of deductions, as
mentioned herein.
44. Section 249. Interest. —

  (A) In General. — There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of twenty percent (20%) per annum, or such higher rate as may be
prescribed by rules and regulations, from the date prescribed for payment until the
amount is fully paid.

 (B) Deficiency Interest. — Any deficiency in the tax due, as the term is defined in this Code,
shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall
be assessed and collected from the date prescribed for its payment until the full
payment thereof.
 (C) Delinquency Interest. — In case of failure to pay:

 (1) The amount of the tax due on any return to be filed, or

 (2) The amount of the tax due for which no return is required, or

 (3) A de ciency tax, or any surcharge or interest thereon on the due date appearing in the
notice and demand of the Commissioner, there shall be assessed and collected on the
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 unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount
is fully paid, which interest shall form part of the tax.
 (D) Interest on Extended Payment. — If any person required to pay the tax is quali ed and
elects to pay the tax on installment under the provisions of this Code, but fails to pay the
tax or any installment hereof, or any part of such amount or installment on or before the
date prescribed for its payment, or where the Commissioner has authorized an extension
of time within which to pay a tax or a de ciency tax or any part thereof, there shall be
assessed and collected interest at the rate hereinabove prescribed on the tax or
de ciency tax or any part thereof unpaid from the date of notice and demand until it is
paid.

45. Supra note 28.

46. Rollo, p. 120.

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