Today is Tuesday, November 21, 2023

Const it ut ion St a t ut es Exec ut ive Issua nc es Judic ia l Issua nc es Ot her Issua nc es Jurisprudenc e Int erna t iona l Lega l Resourc es
AUSL Exc lusive

EN BANC

G.R. No. 144104 June 29, 2004

LUNG CENTER OF THE PHILIPPINES, pet it ioner,

DE C IS IO N

CALLEJO, SR., J.:

T his is a pet it ion for review on cert iorari under Rule 45 of t he Rules of Court , as amended, of t he Decision1 dat ed
July 17, 2000 of t he Court of Appeals in CA-G.R. SP No. 57014 which affirmed t he decision of t he Cent ral Board of
Assessment Appeals holding t hat t he lot owned by t he pet it ioner and it s hospit al building const ruct ed t hereon
are subject to assessment for purposes of real propert y t ax.

The Antecedents

T he pet it ioner Lung Cent er of t he Philippines is a non-stock and non-profit ent it y est ablished on January 16,
1981 by virt ue of President ial Decree No. 1823.2 It is t he regist ered owner of a parcel of land, part icularly
described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, locat ed at Quezon Avenue corner Ellipt ical Road, Cent ral
Dist rict , Quezon Cit y. T he lot has an area of 121,463 square met ers and is covered by Transfer Cert ificat e of
T it le (T CT ) No. 261320 of t he Regist ry of Deeds of Quezon Cit y. Erect ed in t he middle of t he aforesaid lot is a
hospit al known as t he Lung Cent er of t he Philippines. A big space at t he ground floor is being leased to privat e
part ies, for cant een and small store spaces, and to medical or professional pract it ioners who use t he same as
t heir privat e clinics for t heir pat ient s whom t hey charge for t heir professional services. Almost one-half of t he
ent ire area on t he left side of t he building along Quezon Avenue is vacant and idle, while a big port ion on t he right
side, at t he corner of Quezon Avenue and Ellipt ical Road, is being leased for commercial purposes to a privat e
ent erprise known as t he Ellipt ical Orchids and Garden Cent er.

T he pet it ioner accept s paying and non-paying pat ient s. It also renders medical services to out -pat ient s, bot h
paying and non-paying. Aside from it s income from paying pat ient s, t he pet it ioner receives annual subsidies
from t he government .

On June 7, 1993, bot h t he land and t he hospit al building of t he pet it ioner were assessed for real propert y t axes
in t he amount of ₱ 4,554,860 by t he Cit y Assessor of Quezon Cit y.3 Accordingly, Tax Declarat ion Nos. C-021-
01226 (16-2518) and C-021-01231 (15-2518-A) were issued for t he land and t he hospit al building, respect ively.4
On August 25, 1993, t he pet it ioner filed a Claim for Exempt ion5 from real propert y t axes wit h t he Cit y Assessor,
predicat ed on it s claim t hat it is a charit able inst it ut ion. T he pet it ioner’s request was denied, and a pet it ion was,
t hereaft er, filed before t he Local Board of Assessment Appeals of Quezon Cit y (QC-LBAA, for brevit y) for t he
reversal of t he resolut ion of t he Cit y Assessor. T he pet it ioner alleged t hat under Sect ion 28, paragraph 3 of t he
1987 Const it ut ion, t he propert y is exempt from real propert y t axes. It averred t hat a minimum of 60% of it s
hospit al beds are exclusively used for charit y pat ient s and t hat t he major t hrust of it s hospit al operat ion is to
serve charit y pat ient s. T he pet it ioner cont ends t hat it is a charit able inst it ut ion and, as such, is exempt from
real propert y t axes. T he QC-LBAA rendered judgment dismissing t he pet it ion and holding t he pet it ioner liable for
real propert y t axes.6

T he QC-LBAA’s decision was, likewise, affirmed on appeal by t he Cent ral Board of Assessment Appeals of
Quezon Cit y (CBAA, for brevit y)7 which ruled t hat t he pet it ioner was not a charit able inst it ut ion and t hat it s real
propert ies were not act ually, direct ly and exclusively used for charit able purposes; hence, it was not ent it led to
real propert y t ax exempt ion under t he const it ut ion and t he law. T he pet it ioner sought relief from t he Court of
Appeals, which rendered judgment affirming t he decision of t he CBAA.8

Undaunt ed, t he pet it ioner filed it s pet it ion in t his Court cont ending t hat :

A. T HE COURT A QUO ERRED IN DECLARING PET IT IONER AS NOT ENT IT LED T O REALT Y TAX EXEMPT IONS
ON T HE GROUND T HAT IT S LAND, BUILDING AND IMPROVEMENT S, SUBJECT OF ASSESSMENT, ARE NOT
ACT UALLY, DIRECT LY AND EXCLUSIVELY DEVOT ED FOR CHARITABLE PURPOSES.

B. WHILE PET IT IONER IS NOT DECLARED AS REAL PROPERT Y TAX EXEMPT UNDER IT S CHART ER, PD 1823,
SAID EXEMPT ION MAY NEVERT HELESS BE EXT ENDED UPON PROPER APPLICAT ION.

T he pet it ioner avers t hat it is a charit able inst it ut ion wit hin t he cont ext of Sect ion 28(3), Art icle VI of t he 1987
Const it ut ion. It assert s t hat it s charact er as a charit able inst it ut ion is not alt ered by t he fact t hat it admit s
paying pat ient s and renders medical services to t hem, leases port ions of t he land to privat e part ies, and rent s
out port ions of t he hospit al to privat e medical pract it ioners from which it derives income to be used for
operat ional expenses. T he pet it ioner point s out t hat for t he years 1995 to 1999, 100% of it s out -pat ient s were
charit y pat ient s and of t he hospit al’s 282-bed capacit y, 60% t hereof, or 170 beds, is allot t ed to charit y pat ient s.
It assert s t hat t he fact t hat it receives subsidies from t he government at t est s to it s charact er as a charit able
inst it ut ion. It cont ends t hat t he "exclusivit y" required in t he Const it ut ion does not necessarily mean "solely."
Hence, even if a port ion of it s real est at e is leased out to privat e individuals from whom it derives income, it
does not lose it s charact er as a charit able inst it ut ion, and it s exempt ion from t he payment of real est at e t axes
on it s real propert y. T he pet it ioner cit ed our ruling in Herrera v. QC-BAA9 to bolst er it s pose. T he pet it ioner furt her
cont ends t hat even if P.D. No. 1823 does not exempt it from t he payment of real est at e t axes, it is not precluded
from seeking t ax exempt ion under t he 1987 Const it ut ion.

In t heir comment on t he pet it ion, t he respondent s aver t hat t he pet it ioner is not a charit able ent it y. T he
pet it ioner’s real propert y is not exempt from t he payment of real est at e t axes under P.D. No. 1823 and even
under t he 1987 Const it ut ion because it failed to prove t hat it is a charit able inst it ut ion and t hat t he said
propert y is act ually, direct ly and exclusively used for charit able purposes. T he respondent s not ed t hat in a
newspaper report , it appears t hat graft charges were filed wit h t he Sandiganbayan against t he director of t he
pet it ioner, it s administ rat ive officer, and Zenaida Rivera, t he propriet ress of t he Ellipt ical Orchids and Garden
Cent er, for ent ering into a lease cont ract over 7,663.13 square met ers of t he propert y in 1990 for only ₱ 20,000 a
mont h, when t he mont hly rent al should be ₱ 357,000 a mont h as det ermined by t he Commission on Audit ; and
t hat inst ead of complying wit h t he direct ive of t he COA for t he cancellat ion of t he cont ract for being grossly
prejudicial to t he government , t he pet it ioner renewed t he same on March 13, 1995 for a mont hly rent al of only
₱ 24,000. T hey assert t hat t he pet it ioner uses t he subsidies grant ed by t he government for charit y pat ient s
and uses t he rest of it s income from t he propert y for t he benefit of paying pat ient s, among ot her purposes.
T hey aver t hat t he pet it ioner failed to adduce subst ant ial evidence t hat 100% of it s out -pat ient s and 170 beds
in t he hospit al are reserved for indigent pat ient s. T he respondent s furt her assert , t hus:

13. T hat t he claims/allegat ions of t he Pet it ioner LCP do not speak well of it s record of service. T hat
before a pat ient is admit t ed for t reat ment in t he Cent er, first impression is t hat it is pay-pat ient and
required to pay a cert ain amount as deposit . T hat even if a pat ient is living below t he povert y line, he is
charged wit h high hospit al bills. And, wit hout t hese bills being first set t led, t he poor pat ient cannot be
allowed to leave t he hospit al or be discharged wit hout first paying t he hospit al bills or issue a promissory
not e guarant eed and indorsed by an influent ial agency or person known only to t he Cent er; t hat even t he
remains of deceased poor pat ient s suffered t he same fat e. Moreover, before a pat ient is admit t ed for
t reat ment as free or charit y pat ient , one must undergo a series of int erviews and must submit all t he
requirement s needed by t he Cent er, usually accompanied by endorsement by an influent ial agency or
person known only to t he Cent er. T hese fact s were heard and admit t ed by t he Pet it ioner LCP during t he
hearings before t he Honorable QC-BAA and Honorable CBAA. T hese are t he reasons of indigent pat ient s,
inst ead of seeking t reat ment wit h t he Cent er, t hey prefer to be t reat ed at t he Quezon Inst it ut e. Can such
pract ice by t he Cent er be called charit able?10

The Issues

T he issues for resolut ion are t he following: (a) whet her t he pet it ioner is a charit able inst it ut ion wit hin t he
cont ext of President ial Decree No. 1823 and t he 1973 and 1987 Const it ut ions and Sect ion 234(b) of Republic
Act No. 7160; and (b) whet her t he real propert ies of t he pet it ioner are exempt from real propert y t axes.
 The Court ’s Ruling

T he pet it ion is part ially grant ed.

On t he first issue, we hold t hat t he pet it ioner is a charit able inst it ut ion wit hin t he cont ext of t he 1973 and 1987
Const it ut ions. To det ermine whet her an ent erprise is a charit able inst it ut ion/ent it y or not , t he element s which
should be considered include t he st at ut e creat ing t he ent erprise, it s corporat e purposes, it s const it ut ion and
by-laws, t he met hods of administ rat ion, t he nat ure of t he act ual work performed, t he charact er of t he services
rendered, t he indefinit eness of t he beneficiaries, and t he use and occupat ion of t he propert ies.11

In t he legal sense, a charit y may be fully defined as a gift , to be applied consist ent ly wit h exist ing laws, for t he
benefit of an indefinit e number of persons, eit her by bringing t heir minds and heart s under t he influence of
educat ion or religion, by assist ing t hem to est ablish t hemselves in life or ot herwise lessening t he burden of
government .12 It may be applied to almost anyt hing t hat t end to promot e t he well-doing and well-being of social
man. It embraces t he improvement and promot ion of t he happiness of man.13 T he word "charit able" is not
rest rict ed to relief of t he poor or sick.14 T he t est of a charit y and a charit able organizat ion are in law t he same.
T he t est whet her an ent erprise is charit able or not is whet her it exist s to carry out a purpose reorganized in law
as charit able or whet her it is maint ained for gain, profit , or privat e advant age.

Under P.D. No. 1823, t he pet it ioner is a non-profit and non-stock corporat ion which, subject to t he provisions of
t he decree, is to be administ ered by t he Office of t he President of t he Philippines wit h t he Minist ry of Healt h and
t he Minist ry of Human Set t lement s. It was organized for t he welfare and benefit of t he Filipino people principally
to help combat t he high incidence of lung and pulmonary diseases in t he Philippines. T he raison d’etre for t he
creat ion of t he pet it ioner is st at ed in t he decree, viz:

Whereas, for decades, respiratory diseases have been a priorit y concern, having been t he leading cause
of illness and deat h in t he Philippines, comprising more t han 45% of t he tot al annual deat hs from all
causes, t hus, exact ing a t remendous toll on human resources, which ailment s are likely to increase and
degenerat e into serious lung diseases on account of unabat ed pollut ion, indust rializat ion and unchecked
cigaret t e smoking in t he count ry; la vp h !l.n e t

Whereas, t he more common lung diseases are, to a great ext ent , prevent able, and curable wit h early and
adequat e medical care, immunizat ion and t hrough prompt and int ensive prevent ion and healt h educat ion
programs;

Whereas, t here is an urgent need to consolidat e and reinforce exist ing programs, st rat egies and effort s
at prevent ing, t reat ing and rehabilit at ing people affect ed by lung diseases, and to undert ake research and
t raining on t he cure and prevent ion of lung diseases, t hrough a Lung Cent er which will house and nurt ure
t he above and relat ed act ivit ies and provide t ert iary-level care for more difficult and problemat ical cases;

Whereas, to achieve t his purpose, t he Government int ends to provide mat erial and financial support
towards t he est ablishment and maint enance of a Lung Cent er for t he welfare and benefit of t he Filipino
people.15

T he purposes for which t he pet it ioner was creat ed are spelled out in it s Art icles of Incorporat ion, t hus:

SECOND: T hat t he purposes for which such corporat ion is formed are as follows:

1. To const ruct , est ablish, equip, maint ain, administ er and conduct an int egrat ed medical
inst it ut ion which shall specialize in t he t reat ment , care, rehabilit at ion and/or relief of lung and allied
diseases in line wit h t he concern of t he government to assist and provide mat erial and financial
support in t he est ablishment and maint enance of a lung cent er primarily to benefit t he people of
t he Philippines and in pursuance of t he policy of t he St at e to secure t he well-being of t he people by
providing t hem specialized healt h and medical services and by minimizing t he incidence of lung
diseases in t he count ry and elsewhere.

2. To promot e t he noble undert aking of scient ific research relat ed to t he prevent ion of lung or
pulmonary ailment s and t he care of lung pat ient s, including t he holding of a series of relevant
congresses, convent ions, seminars and conferences;

3. To st imulat e and, whenever possible, underwrit e scient ific researches on t he biological,

4. To facilit at e t he disseminat ion of ideas and public accept ance of informat ion on lung
consciousness or awareness, and t he development of fact -finding, informat ion and report ing
 facilit ies for and in aid of t he general purposes or object s aforesaid, especially in human lung
requirement s, general healt h and physical fit ness, and ot her relevant or relat ed fields;

5. To encourage t he t raining of physicians, nurses, healt h officers, social workers and medical and
t echnical personnel in t he pract ical and scient ific implement at ion of services to lung pat ient s;

6. To assist universit ies and research inst it ut ions in t heir st udies about lung diseases, to
encourage advanced t raining in mat t ers of t he lung and relat ed fields and to support educat ional
programs of value to general healt h;

7. To encourage t he format ion of ot her organizat ions on t he nat ional, provincial and/or cit y and
local levels; and to coordinat e t heir various effort s and act ivit ies for t he purpose of achieving a
more effect ive programmat ic approach on t he common problems relat ive to t he object ives
enumerat ed herein;

8. To seek and obt ain assist ance in any form from bot h int ernat ional and local foundat ions and
organizat ions; and to administ er grant s and funds t hat may be given to t he organizat ion;

9. To ext end, whenever possible and expedient , medical services to t he public and, in general, to
promot e and prot ect t he healt h of t he masses of our people, which has long been recognized as an
economic asset and a social blessing;

10. To help prevent , relieve and alleviat e t he lung or pulmonary afflict ions and maladies of t he people
in any and all walks of life, including t hose who are poor and needy, all wit hout regard to or
discriminat ion, because of race, creed, color or polit ical belief of t he persons helped; and to enable
t hem to obt ain t reat ment when such disorders occur;

11. To part icipat e, as circumst ances may warrant , in any act ivit y designed and carried on to
promot e t he general healt h of t he communit y;

12. To acquire and/or borrow funds and to own all funds or equipment , educat ional mat erials and
supplies by purchase, donat ion, or ot herwise and to dispose of and dist ribut e t he same in such
manner, and, on such basis as t he Cent er shall, from t ime to t ime, deem proper and best , under t he
part icular circumst ances, to serve it s general and non-profit purposes and object ives; la vp h il.n e t

13. To buy, purchase, acquire, own, lease, hold, sell, exchange, t ransfer and dispose of propert ies,
whet her real or personal, for purposes herein ment ioned; and

14. To do everyt hing necessary, proper, advisable or convenient for t he accomplishment of any of
t he powers herein set fort h and to do every ot her act and t hing incident al t hereto or connect ed
t herewit h.16

Hence, t he medical services of t he pet it ioner are to be rendered to t he public in general in any and all walks of
life including t hose who are poor and t he needy wit hout discriminat ion. Aft er all, any person, t he rich as well as
t he poor, may fall sick or be injured or wounded and become a subject of charit y.17

As a general principle, a charit able inst it ut ion does not lose it s charact er as such and it s exempt ion from t axes
simply because it derives income from paying pat ient s, whet her out -pat ient , or confined in t he hospit al, or
receives subsidies from t he government , so long as t he money received is devot ed or used altoget her to t he
charit able object which it is int ended to achieve; and no money inures to t he privat e benefit of t he persons
managing or operat ing t he inst it ut ion.18 In Congregational Sunday School, etc. v. Board of Review,19 t he St at e
Supreme Court of Illinois held, t hus:

… [A]n inst it ut ion does not lose it s charit able charact er, and consequent exempt ion from t axat ion, by
reason of t he fact t hat t hose recipient s of it s benefit s who are able to pay are required to do so, where no
profit is made by t he inst it ut ion and t he amount s so received are applied in furt hering it s charit able
purposes, and t hose benefit s are refused to none on account of inabilit y to pay t herefor. T he
fundament al ground upon which all exempt ions in favor of charit able inst it ut ions are based is t he benefit
conferred upon t he public by t hem, and a consequent relief, to some ext ent , of t he burden upon t he st at e
to care for and advance t he int erest s of it s cit izens.20

As apt ly st at ed by t he St at e Supreme Court of Sout h Dakot a in Lutheran Hospital Association of South Dakota v.
Baker:21

… [T ]he fact t hat paying pat ient s are t aken, t he profit s derived from at t endance upon t hese pat ient s
being exclusively devot ed to t he maint enance of t he charit y, seems rat her to enhance t he usefulness of
 t he inst it ut ion to t he poor; for it is a mat t er of common observat ion amongst t hose who have gone about
at all amongst t he suffering classes, t hat t he deserving poor can wit h difficult y be persuaded to ent er an
asylum of any kind confined to t he recept ion of object s of charit y; and t hat t heir honest pride is much
less wounded by being placed in an inst it ut ion in which paying pat ient s are also received. T he fact of
receiving money from some of t he pat ient s does not , we t hink, at all impair t he charact er of t he charit y,
so long as t he money t hus received is devot ed altoget her to t he charit able object which t he inst it ut ion is
int ended to furt her.22

T he money received by t he pet it ioner becomes a part of t he t rust fund and must be devot ed to public t rust
purposes and cannot be divert ed to privat e profit or benefit .23

Under P.D. No. 1823, t he pet it ioner is ent it led to receive donat ions. T he pet it ioner does not lose it s charact er as
a charit able inst it ut ion simply because t he gift or donat ion is in t he form of subsidies grant ed by t he
government . As held by t he St at e Supreme Court of Ut ah in Yorgason v. County Board of Equalization of Salt Lake
County:24

Second, t he … government subsidy payment s are provided to t he project . T hus, t hose payment s are like a
gift or donat ion of any ot her kind except t hey come from t he government . In bot h Intermountain Health
Care and t he present case, t he crux is t he presence or absence of mat erial reciprocit y. It is ent irely
irrelevant to t his analysis t hat t he government , rat her t han a privat e benefactor, chose to make up t he
deficit result ing from t he exchange bet ween St . Mark’s Tower and t he t enant s by making a cont ribut ion
to t he landlord, just as it would have been irrelevant in Intermountain Health Care if t he pat ient s’ income
supplement s had come from privat e individuals rat her t han t he government .

T herefore, t he fact t hat subsidizat ion of part of t he cost of furnishing such housing is by t he
government rat her t han privat e charit able cont ribut ions does not dict at e t he denial of a charit able
exempt ion if t he fact s ot herwise support such an exempt ion, as t hey do here.25

In t his case, t he pet it ioner adduced subst ant ial evidence t hat it spent it s income, including t he subsidies from
t he government for 1991 and 1992 for it s pat ient s and for t he operat ion of t he hospit al. It even incurred a net
loss in 1991 and 1992 from it s operat ions.

Even as we find t hat t he pet it ioner is a charit able inst it ut ion, we hold, anent t he second issue, t hat t hose
port ions of it s real propert y t hat are leased to privat e ent it ies are not exempt from real propert y t axes as t hese
are not act ually, direct ly and exclusively used for charit able purposes.

T he set t led rule in t his jurisdict ion is t hat laws grant ing exempt ion from t ax are const rued strictissimi juris
against t he t axpayer and liberally in favor of t he t axing power. Taxat ion is t he rule and exempt ion is t he
except ion. T he effect of an exempt ion is equivalent to an appropriat ion. Hence, a claim for exempt ion from t ax
payment s must be clearly shown and based on language in t he law too plain to be mist aken.26 As held in
Salvation Army v. Hoehn:27

An int ent ion on t he part of t he legislat ure to grant an exempt ion from t he t axing power of t he st at e will
never be implied from language which will admit of any ot her reasonable const ruct ion. Such an int ent ion
must be expressed in clear and unmist akable t erms, or must appear by necessary implicat ion from t he
language used, for it is a well set t led principle t hat , when a special privilege or exempt ion is claimed under
a st at ut e, chart er or act of incorporat ion, it is to be const rued st rict ly against t he propert y owner and in
favor of t he public. T his principle applies wit h peculiar force to a claim of exempt ion from t axat ion . …28

Sect ion 2 of President ial Decree No. 1823, relied upon by t he pet it ioner, specifically provides t hat t he pet it ioner
shall enjoy t he t ax exempt ions and privileges:

SEC. 2. TAX EXEMPT IONS AND PRIVILEGES. Being a non-profit , non-stock corporat ion organized primarily
to help combat t he high incidence of lung and pulmonary diseases in t he Philippines, all donat ions,
cont ribut ions, endowment s and equipment and supplies to be import ed by aut horized ent it ies or persons
and by t he Board of Trust ees of t he Lung Cent er of t he Philippines, Inc., for t he act ual use and benefit of
t he Lung Cent er, shall be exempt from income and gift t axes, t he same furt her deduct ible in full for t he
purpose of det ermining t he maximum deduct ible amount under Sect ion 30, paragraph (h), of t he Nat ional
Int ernal Revenue Code, as amended.

T he Lung Cent er of t he Philippines shall be exempt from t he payment of t axes, charges and fees
imposed by t he Government or any polit ical subdivision or inst rument alit y t hereof wit h respect to
equipment purchases made by, or for t he Lung Cent er.29
It is plain as day t hat under t he decree, t he pet it ioner does not enjoy any propert y t ax exempt ion privileges for
it s real propert ies as well as t he building const ruct ed t hereon. If t he int ent ions were ot herwise, t he same
should have been among t he enumerat ion of t ax exempt privileges under Sect ion 2:

It is a set t led rule of st at utory const ruct ion t hat t he express ment ion of one person, t hing, or
consequence implies t he exclusion of all ot hers. T he rule is expressed in t he familiar maxim, expressio
unius est exclusio alterius.

T he rule of expressio unius est exclusio alterius is formulat ed in a number of ways. One variat ion of t he rule
is t he principle t hat what is expressed put s an end to t hat which is implied. Expressium facit cessare
tacitum. T hus, where a st at ut e, by it s t erms, is expressly limit ed to cert ain mat t ers, it may not , by
int erpret at ion or const ruct ion, be ext ended to ot her mat t ers.

...

T he rule of expressio unius est exclusio alterius and it s variat ions are canons of rest rict ive int erpret at ion.
T hey are based on t he rules of logic and t he nat ural workings of t he human mind. T hey are predicat ed
upon one’s own volunt ary act and not upon t hat of ot hers. T hey proceed from t he premise t hat t he
legislat ure would not have made specified enumerat ion in a st at ut e had t he int ent ion been not to rest rict
it s meaning and confine it s t erms to t hose expressly ment ioned.30

T he exempt ion must not be so enlarged by const ruct ion since t he reasonable presumpt ion is t hat t he St at e
has grant ed in express t erms all it int ended to grant at all, and t hat unless t he privilege is limit ed to t he very
t erms of t he st at ut e t he favor would be int ended beyond what was meant .31

Sect ion 28(3), Art icle VI of t he 1987 Philippine Const it ut ion provides, t hus:

(3) Charit able inst it ut ions, churches and parsonages or convent s appurt enant t hereto, mosques, non-
profit cemet eries, and all lands, buildings, and improvement s, act ually, direct ly and exclusively used for
religious, charit able or educat ional purposes shall be exempt from t axat ion.32

T he t ax exempt ion under t his const it ut ional provision covers property t axes only.33 As Chief Just ice Hilario G.
Davide, Jr., t hen a member of t he 1986 Const it ut ional Commission, explained: ". . . what is exempt ed is not t he
inst it ut ion it self . . .; t hose exempt ed from real est at e t axes are lands, buildings and improvement s act ually,
direct ly and exclusively used for religious, charit able or educat ional purposes." 34

Consequent ly, t he const it ut ional provision is implement ed by Sect ion 234(b) of Republic Act No. 7160
(ot herwise known as t he Local Government Code of 1991) as follows:

SECT ION 234. Exemptions from Real Property Tax. – T he following are exempt ed from payment of t he real
propert y t ax:

...

(b) Charit able inst it ut ions, churches, parsonages or convent s appurt enant t hereto, mosques, non-
profit or religious cemet eries and all lands, buildings, and improvement s act ually, direct ly, and
exclusively used for religious, charit able or educat ional purposes.35

We not e t hat under t he 1935 Const it ut ion, "... all lands, buildings, and improvement s used ‘exclusively’ for …
charit able … purposes shall be exempt from t axat ion." 36 However, under t he 1973 and t he present
Const it ut ions, for "lands, buildings, and improvement s" of t he charit able inst it ut ion to be considered exempt ,
t he same should not only be "exclusively" used for charit able purposes; it is required t hat such propert y be used
"act ually" and "direct ly" for such purposes.37

In light of t he foregoing subst ant ial changes in t he Const it ut ion, t he pet it ioner cannot rely on our ruling in
Herrera v. Quezon City Board of Assessment Appeals which was promulgat ed on Sept ember 30, 1961 before t he
1973 and 1987 Const it ut ions took effect .38 As t his Court held in Province of Abra v. Hernando:39

… Under t he 1935 Const it ut ion: "Cemet eries, churches, and parsonages or convent s appurt enant t hereto,
and all lands, buildings, and improvement s used exclusively for religious, charit able, or educat ional
purposes shall be exempt from t axat ion." T he present Const it ut ion added "charit able inst it ut ions,
mosques, and non-profit cemet eries" and required t hat for t he exempt ion of "lands, buildings, and
improvement s," t hey should not only be "exclusively" but also "act ually" and "direct ly" used for religious or
charit able purposes. T he Const it ut ion is worded different ly. T he change should not be ignored. It must be
duly t aken into considerat ion. Reliance on past decisions would have sufficed were t he words "act ually" as
 well as "direct ly" not added. T here must be proof t herefore of t he actual and direct use of t he lands,
buildings, and improvement s for religious or charit able purposes to be exempt from t axat ion. …

Under t he 1973 and 1987 Const it ut ions and Rep. Act No. 7160 in order to be ent it led to t he exempt ion, t he
pet it ioner is burdened to prove, by clear and unequivocal proof, t hat (a) it is a charit able inst it ut ion; and (b) it s
real propert ies are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charit able purposes. "Exclusive" is defined
as possessed and enjoyed to t he exclusion of ot hers; debarred from part icipat ion or enjoyment ; and
"exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." 40 If real propert y is used for
one or more commercial purposes, it is not exclusively used for t he exempt ed purposes but is subject to
t axat ion.41 T he words "dominant use" or "principal use" cannot be subst it ut ed for t he words "used exclusively"
wit hout doing violence to t he Const it ut ions and t he law.42 Solely is synonymous wit h exclusively.43

What is meant by act ual, direct and exclusive use of t he propert y for charit able purposes is t he direct and
immediat e and act ual applicat ion of t he propert y it self to t he purposes for which t he charit able inst it ut ion is
organized. It is not t he use of t he income from t he real propert y t hat is det erminat ive of whet her t he propert y is
used for t ax-exempt purposes.44

T he pet it ioner failed to discharge it s burden to prove t hat t he ent iret y of it s real propert y is act ually, direct ly and
exclusively used for charit able purposes. While port ions of t he hospit al are used for t he t reat ment of pat ient s
and t he dispensat ion of medical services to t hem, whet her paying or non-paying, ot her port ions t hereof are
being leased to privat e individuals for t heir clinics and a cant een. Furt her, a port ion of t he land is being leased to
a privat e individual for her business ent erprise under t he business name "Ellipt ical Orchids and Garden Cent er."
Indeed, t he pet it ioner’s evidence shows t hat it collect ed ₱ 1,136,483.45 as rent als in 1991 and ₱ 1,679,999.28 for
1992 from t he said lessees.

Accordingly, we hold t hat t he port ions of t he land leased to privat e ent it ies as well as t hose part s of t he
hospit al leased to privat e individuals are not exempt from such t axes.45 On t he ot her hand, t he port ions of t he
land occupied by t he hospit al and port ions of t he hospit al used for it s pat ient s, whet her paying or non-paying,
are exempt from real propert y t axes.

IN LIGHT OF ALL THE FOREGOING, t he pet it ion is PARTIALLY GRANTED. T he respondent Quezon Cit y Assessor
is hereby DIRECTED to det ermine, aft er due hearing, t he precise port ions of t he land and t he area t hereof which
are leased to privat e persons, and to comput e t he real propert y t axes due t hereon as provided for by law.

SO ORDERED.

Davide, Jr., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez,
Corona, Carpio Morales, Azcuna, and Tinga, JJ., concur.

Footnotes
*
On official leave.
**
On leave.

1 Penned by Associat e Just ice Remedios A. Salazar-Fernando, wit h Associat e Just ices Fermin A. Mart in,
Jr. and Salvador J. Valdez, Jr. concurring.

2 SECT ION 1. – CREAT ION OF T HE LUNG CENT ER OF T HE PHILIPPINES. T here is hereby creat ed a t rust ,
under t he name and st yle of Lung Cent er of t he Philippines, which, subject to t he provisions of t his
Decree, shall be administ ered, according to t he Art icles of Incorporat ion, By-Laws and Object ives of t he
Lung Cent er of t he Philippines, Inc., duly regist ered (reg. No. 85886) wit h t he Securit ies and Exchange
Commission of t he Republic of t he Philippines, by t he Office of t he President , in coordinat ion wit h t he
Minist ry of Human Set t lement s and t he Minist ry of Healt h.
3 Annex "C," Rollo, p. 49.

4 Annexes "2" & "2-A," id. at 93-94.

5 Annex "D," id. at 50-52.

6 Annex "E," id. at 53-55.