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G.R. No. 196596. November 9, 2016.*

 
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. DE LA SALLE UNIVERSITY, INC., respondent.

G.R. No. 198841. November 9, 2016.*

 
DE LA SALLE UNIVERSITY INC., petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 198941. November 9, 2016.*

 
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. DE LA SALLE UNIVERSITY, INC., respondent.

Taxation; Tax Exemptions; When a non-stock, nonprofit

educational institution proves that it uses its revenues actually,
directly, and exclusively for educational purposes, it shall be
exempted from income tax, value-added tax (VAT), and local
business tax. On the other hand, when it also shows that it uses its
assets in the form of real property for educational purposes, it shall
be exempted from real property tax.—Thus, when a non-stock,
nonprofit educational institution proves that it uses its revenues
actually, directly, and exclu-

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*  SECOND DIVISION.

 
 
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sively for educational purposes, it shall be exempted from

income tax, VAT, and LBT. On the other hand, when it also shows
that it uses its assets in the form of real property for educational
purposes, it shall be exempted from RPT.
Same; Same; Income and revenues of non-stock, nonprofit
educational institution not used actually, directly and exclusively
for educational purposes are not exempt from duties and taxes.—
Parenthetically, income and revenues of non-stock, nonprofit
educational institution not used actually, directly and exclusively
for educational purposes are not exempt from duties and taxes. To
avail of the exemption, the taxpayer must factually prove that it
used actually, directly and exclusively for educational purposes
the revenues or income sought to be exempted.
Same; Same; While a non-stock, nonprofit educational
institution is classified as a tax-exempt entity under Section 30
(Exemptions from Tax on Corporations) of the National Internal
Revenue Code (NIRC), a proprietary educational institution is
covered by Section 27 (Rates of Income Tax on Domestic
Corporations).—While a non-stock, nonprofit educational
institution is classified as a tax-exempt entity under Section 30
(Exemptions from Tax on Corporations) of the Tax Code, a
proprietary educational institution is covered by Section 27
(Rates of Income Tax on Domestic Corporations).
Same; A proprietary educational institution is entitled only to
the reduced rate of ten percent (10%) corporate income tax. The
reduced rate is applicable only if: (1) the proprietary educational
institution is nonprofit and (2) its gross income from unrelated
trade, business or activity does not exceed fifty percent (50%) of its
total gross income.—By the Tax Code’s clear terms, a proprietary
educational institution is entitled only to the reduced rate of 10%
corporate income tax. The reduced rate is applicable only if: (1)
the proprietary educational institution is nonprofit and (2) its
gross income from unrelated trade, business or activity does not
exceed 50% of its total gross income.
Same; The last paragraph of Section 30 of the National
Internal Revenue Code (NIRC) is declared without force and effect
for being contrary to the Constitution insofar as it subjects to tax
the income and revenues of non-stock, nonprofit educational
institutions

 
 

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used actually, directly and exclusively for educational

purpose.—Thus, we declare the last paragraph of Section 30 of
the Tax Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues
of non-stock, nonprofit educational institutions used actually,
directly and exclusively for educational purpose. We make this
declaration in the exercise of and consistent with our duty to
uphold the primacy of the Constitution.
Same; The requirement to specify the taxable period covered by
the Letter of Authority (LOA) is simply to inform the taxpayer of
the extent of the audit and the scope of the revenue officer’s
authority.—Read in this light, the requirement to specify the
taxable period covered by the LOA is simply to inform the
taxpayer of the extent of the audit and the scope of the revenue
officer’s authority. Without this rule, a revenue officer can unduly
burden the taxpayer by demanding random accounting records
from random unverified years, which may include documents from
as far back as ten years in cases of fraud audit.
Civil Procedure; If a party desires the court to reject the
evidence offered, it must so state in the form of a timely objection
and it cannot raise the objection to the evidence for the first time
on appeal.—The Court has held that if a party desires the court to
reject the evidence offered, it must so state in the form of a timely
objection and it cannot raise the objection to the evidence for the
first time on appeal. Because of a party’s failure to timely object,
the evidence offered becomes part of the evidence in the case. As a
consequence, all the parties are considered bound by any outcome
arising from the offer of evidence properly presented.
Same; Jurisdiction; Court of Tax Appeals; The Court will not
lightly set aside the conclusions reached by the Court of Tax
Appeals (CTA) which, by the very nature of its function of being
dedicated exclusively to the resolution of tax problems, has
developed an expertise on the subject, unless there has been an
abuse or improvident exercise of authority.—It is doctrinal that
the Court will not lightly set aside the conclusions reached by the
CTA which, by the very nature of its function of being dedicated
exclusively to the resolution of tax problems, has developed an
expertise on the subject, unless there has been an abuse or
improvident exercise of authority. We thus accord the findings of
fact by the CTA with the highest respect.

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Taxation; Equality and uniformity of taxation means that all

taxable articles or kinds of property of the same class shall be
taxed at the same rate.—Equality and uniformity of taxation
means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. A tax is uniform when it
operates with the same force and effect in every place where the
subject of it is found.

 
LEONEN, J., Dissenting Opinion:
 

Taxation; View that to uphold the validity of a letter of

authority covering a base year plus unverified prior years, would
in essence encourage the unscrupulous practice of issuing letters of
authority even without prior compliance with the procedure that
the Commissioner of Internal Revenue (CIR) prescribed.—If we
were to uphold the validity of a letter of authority covering a base
year plus unverified prior years, we would in essence encourage
the unscrupulous practice of issuing letters of authority even
without prior compliance with the procedure that the
Commissioner herself prescribed. This would not help in
curtailing inefficiencies and abuses among revenue officers in the
discharge of their tasks.

PETITIONS for review on certiorari of the decisions and

resolutions of the Court of Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
   Office of the Solicitor General for petitioner.
    Joaquin G. Bernas and Zambrano & Gruba Law
Offices for DLSU.

 
BRION, J.:
 
Before the Court are consolidated petitions for review on
certiorari:1

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1  The petitions are filed under Rule 45 of the Rules of Court in relation
to Rule 16 of the Revised CTA Rules (A.M. No. 05-11-07). On November
28, 2011, the Court resolved to consolidate the petitions to avoid
conflicting decisions. Rollo, p. 78 (G.R. No. 198941).

 
 

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1. G.R. No. 196596 filed by the Commissioner of

Internal Revenue (Commissioner) to assail the
December 10, 2010 decision and March 29, 2011
resolution of the Court of Tax Appeals (CTA) in En
Banc Case No. 622;2
2. G.R. No. 198841 filed by De La Salle University, Inc.
(DLSU) to assail the June 8, 2011 decision and
October 4, 2011 resolution in CTA En Banc Case No.
671;3 and
3. G.R. No. 198941 filed by the Commissioner to assail
the June 8, 2011 decision and October 4, 2011
resolution in CTA En Banc Case No. 671.4
 
G.R. Nos. 196596, 198841 and 198941 all originated
from CTA Special First Division (CTA Division) Case No.
7303. G.R. No. 196596 stemmed from CTA En Banc Case
No. 622 filed by the Commissioner to challenge CTA Case
No. 7303. G.R. Nos. 198841 and 198941 both stemmed from
CTA En Banc Case No. 671 filed by DLSU to also
challenge CTA Case No. 7303.
 
The Factual Antecedents
 
Sometime in 2004, the Bureau of Internal Revenue
(BIR) issued to DLSU Letter of Authority (LOA) No. 2794
authorizing its revenue officers to examine the latter’s
books of accounts and other accounting records for all
internal revenue taxes for the period Fiscal Year Ending
2003 and Unverified Prior Years.5
On May 19, 2004, BIR issued a Preliminary Assessment
Notice to DLSU.6

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2  Id., at pp. 34-70 (G.R. No. 196596).

3  Id., at pp. 14-53 (G.R. No. 198841).
4  Id., at pp. 9-43.
5  Id., at p. 85. The date of the issuance of the LOA is not on record.
6   Id., at p. 4 (G.R. No. 196596). The PAN was issued by the BIR’s
Special Large Taxpayers Task Force on educational institutions.

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Subsequently on August 18, 2004, the BIR through a

Formal Letter of Demand assessed DLSU the following
deficiency taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within the
campus; (2) value-added tax (VAT) on business income; and
(3) documentary stamp tax (DST) on loans and lease
contracts. The BIR demanded the payment of
P17,303,001.12, inclusive of surcharge, interest and
penalty for taxable years 2001, 2002 and 2003.7
DLSU protested the assessment. The Commissioner
failed to act on the protest; thus, DLSU filed on August 3,
2005 a petition for review with the CTA Division.8
DLSU, a non-stock, nonprofit educational institution,
principally anchored its petition on Article XIV, Section
4(3) of the Constitution, which reads:

(3) All revenues and assets of non-stock, nonprofit educational

institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties.
x x x

 
On January 5, 2010, the CTA Division partially granted
DLSU’s petition for review. The dispositive portion of the
decision reads:

WHEREFORE, the Petition for Review is PARTIALLY

GRANTED. The DST assessment on the loan transactions of
[DLSU] in the amount of P1,681,774.00 is hereby CANCELLED.
However, [DLSU] is ORDERED TO PAY deficiency income tax,
VAT and DST on its lease contracts, plus 25% surcharge for the
fiscal years 2001, 2002 and 2003 in the total amount of
P18,421,363.53. . . x x x
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7  Id., at pp. 151-154.

8  Id., at pp. 38, 268.

 
 
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In addition, [DLSU] is hereby held liable to pay 20%

delinquency interest on the total amount due computed from
September 30, 2004 until full payment thereof pursuant to
Section 249(C)(3) of the [National Internal Revenue Code].
Further, the compromise penalties imposed by [the
Commissioner] were excluded, there being no compromise
agreement between the parties.
SO ORDERED.9

 
Both the Commissioner and DLSU moved for the
reconsideration of the January 5, 2010 decision.10 On April
6, 2010, the CTA Division denied the Commissioner’s
motion for reconsideration while it held in abeyance the
resolution on DLSU’s motion for reconsideration.11
On May 13, 2010, the Commissioner appealed to the
CTA En Banc (CTA En Banc Case No. 622) arguing that
DLSU’s use of its revenues and assets for noneducational or
commercial purposes removed these items from the
exemption coverage under the Constitution.12
On May 18, 2010, DLSU formally offered to the CTA
Division supplemental pieces of documentary evidence to
prove that its rental income was used actually, directly and
exclusively for educational purposes.13 The Commissioner
did not promptly object to the formal offer of supplemental
evidence despite notice.14

_______________

9   Id., at pp. 97-128.

10  Id., at pp. 39, 268-269.
11  Id., at pp. 129-137.
12  Id., at pp. 185-194.
13  Id., at pp. 155-159, filed on May 18, 2010.

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14  Id., at p. 302. DLSU quoted the June 9, 2010 resolution of the CTA
Division, viz.:
“For resolution is [DLSU’s] ‘Supplemental Formal Offer of Evidence
in Relation to the [CTA Division’s] Resolution Dated 06 April 2010’
filed on April 23, 2010, sans any Comment/Opposition from the
[Commissioner] despite notice.” [emphasis and underscoring
ours]

 
 
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On July 29, 2010, the CTA Division, in view of the

supplemental evidence submitted, reduced the amount of
DLSU’s tax deficiencies. The dispositive portion of the
amended decision reads:

WHEREFORE, [DLSU]’s Motion for Partial Reconsideration

is hereby PARTIALLY GRANTED. [DLSU] is hereby
ORDERED TO PAY for deficiency income tax, VAT and DST
plus 25% surcharge for the fiscal years 2001, 2002 and 2003 in the
total adjusted amount of P5,506,456.71. . . x x x
In addition, [DLSU] is hereby held liable to pay 20% per
annum deficiency interest on the . . . basic deficiency taxes . . .
until full payment thereof pursuant to Section 249(B) of the
[National Internal Revenue Code]. . . x x x
Further, [DLSU] is hereby held liable to pay 20% per annum
delinquency interest on the deficiency taxes, surcharge and
deficiency interest which have accrued . . . from September 30,
2004 until fully paid.15

 
Consequently, the Commissioner supplemented its
petition with the CTA En Banc and argued that the CTA
Division erred in admitting DLSU’s additional evidence.16
Dissatisfied with the partial reduction of its tax
liabilities, DLSU filed a separate petition for review with
the CTA En Banc (CTA En Banc Case No. 671) on the
following grounds: (1) the entire assessment should have
been cancelled because it was based on an invalid LOA; (2)
assuming the LOA was valid, the CTA Division should still
have cancelled the entire assessment because DLSU
submitted evidence similar to those submitted by Ateneo

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De Manila University (Ateneo) in a separate case where the

CTA cancelled Ateneo’s tax assess-

_______________

15  Id., at pp. 149-150.

16  Id., at p. 40.

 
 

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ment;17 and (3) the CTA Division erred in finding that a

portion of DLSU’s rental income was not proved to have
been used actually, directly and exclusively for educational
purposes.18
 
The CTA En Banc’s Rulings
 
CTA En Banc Case No. 622
 
The CTA En Banc dismissed the Commissioner’s
petition for review and sustained the findings of the CTA
Division.19
 
Tax on rental income
 
Relying on the findings of the court-commissioned
Independent Certified Public Accountant (Independent
CPA), the CTA En Banc found that DLSU was able to
prove that a portion of the assessed rental income was used
actually, directly and exclusively for educational purposes;
hence, exempt from tax.20 The CTA En Banc was satisfied
with DLSU’s supporting evidence confirming that part of
its rental income had indeed been used to pay the loan it
obtained to build the university’s Physical Education —
Sports Complex.21
Parenthetically, DLSU’s unsubstantiated claim for
exemption, i.e., the part of its income that was not shown
by supporting documents to have been actually, directly
and exclusively used for educational purposes, must be
subjected to income tax and VAT.22

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17  Ateneo de Manila University v. Commissioner of Internal Revenue,

CTA Case Nos. 7246 and 7293.
18  Rollo, p. 73 (G.R. No. 198841).
19   Id., at pp. 77-96 (G.R. No. 196596), decision dated December 10,
2010.
20  Id., at pp. 82-88.
21  Id., at p. 86.
22  Id., at pp. 86-87.

 
 
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DST on loan and mortgage

transactions
 
Contrary to the Commissioner’s contention, DLSU
proved its remittance of the DST due on its loan and
mortgage documents.23 The CTA En Banc found that
DLSU’s DST payments had been remitted to the BIR,
evidenced by the stamp on the documents made by a DST
imprinting machine, which is allowed under Section 200(D)
of the National Internal Revenue Code (Tax Code)24 and
Section 2 of Revenue Regulations (RR) No. 15-2001.25
 
Admissibility of DLSU’s
supplemental evidence
 
The CTA En Banc held that the supplemental pieces of
documentary evidence were admissible even if DLSU
formally offered them only when it moved for
reconsideration of the CTA Division’s original decision.
Notably, the law creating the CTA provides that
proceedings before it shall not be governed strictly by the
technical rules of evidence.26

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23  Id., at pp. 88-90.

24  Section 200(D) of the Tax Code provides:
(D) Exception.—In lieu of the foregoing provisions of thi

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