CTA Case No. 3071 (Decision)

1 n ~.n:u. ~c Q;:r 1 HIL ��unu!'Prs:t.~ . , Cr' "Jifi~ OF '"fAX APPEA.LS LYCEUM OF THE PHILIPPINES r Petitioner , -� versus - C~T.A . CASE NO. 3071 COMHISSIONER OF IN'I'EENAL REVENUE, Respondent. X- - - - ....... .- .- .-... ~- _X D E C :.': S I 0 N This controversy questions the sufficiency of the statutory authority for an assessment based on the application of the regular corporate income tax rates of 25%-35% imposed on domes t ic corpo- rations vis a vis the reduced rate of 10% specifi - cally prescribed for the �non-tax exempt private educational institutions pursuant to the provision of Section 24(a) of the National Internal Revenue Code, thus - "Sec. 24. RQtes of tax on corporations. -( c ) Tax on domestic corporations. -A tax is h~reby imposed upon the Laxab l e net income received during each taxable year from all sources by every corporation organized in, or existing 1nder the laws of the Philipp ines no matter how created or organized, but not including duly registered general co-partner- ship (companias colectivas) , general pro- fessional partnerships, pri~ate educational institutions, and building and loan associa- tion s, in acc o rdanc e with the followi1g: �.

DECISION -~ CTA CASE NO . 3071 - 2- "T\venty-�five per cent upon the amount by which the taxable net income does not exceed one hundred thousand pesos; and "Thirty-five per cent upon the amount. by which the taxable net income exceeds one hundred thousand pesos. "Private educational institutions other. � than those exempt und(;)r Section 27 (e) of this Code shall pay a tax of ten per cent of their taxable nE~t income. x x x x" There are no issues of fact beyond stating that the petitioner Lyc e um of the Philippines is � a non-exempt private educational corporation duly organized and existin3 under the laws of the Philippines~ that it was assessed for a deficiency incon1e tax for the f isc al yea r ended May 31, 1974 in the amount of P56,727.37 on the gain derived fr om the sale of its stockholdings in othec cor- porations and in t 2rest income from placement~ in the money market under letter-denand issued on March 17, 1976 by the respondent Commissioner of Internal Revenue; that a reconsideration grounded on the application of the preferential corporate income tax rate of 10% for educational institutions filed on June 18, 1976 was denied and the assess- ment reiterated in a decision by respondent on February 5, 1980; Hence, th i s appeal. Respondent in his denial stresses the appli-

DECIL.ION - CTA CASE NO. 3071 -3 ~ cability of t he doctrine l aid down by this Cou r t i n the Xavier sc:wol case r infra 1 whe r eby the income not derived from purely ed ucational pur- poses and ac ti vities such as inter est and dividend i ncome are subject t o the regular rate o f income t ax on cor porations. Thus , " I t i s clea r, therefor e 1 that the interest income and cash divide d r~ali z ed by petitioner in 1959 1 1960 , , and 1 962 \vere not realized in the pursuit of its educational ob- jectives and , therefore~ they are subject to income tax within the pu:'"view of Sectio:1 2 7 (e ) _of the Tax Code, as amended by Sec t i o n 5 of Republic Act No . 82 ." (Xavie r Sc ool, I nc . v s. Commi ss ioner o f Internal Reve n ue, CT~ Case No . 1 68 2, Octo ber 8, 1.969 ) �. Ap p ~ied to tl:e case at bar , the gain derived by the pet1tio.er from the sale of its stocks in other corporations ab vell as the interest income from investments not having been derived from purely educational pUJposes and activities are subj e ct to the corporate income tax at the r egular rates of 25%-35%. Taking exception , peti tioner contends that 1) Section 24(Q) of the Tax Code does not differentiate nor q ualify t e part i cular type of il!V.nne upon ~Aih ich to impose the prescribed tate

DECISION - C1A CASE NO. 3071 -4 - of 10% for the non exempt private educational ins- . titutions. Moreover, the questioned gain carne from funds generated by its ~ducation ?l ac~ivity and was thereafter utilized for purposes dictated by the growing needs of tle school, e.g., expansion and improvement of plants , and prograls, cover con- tingercies for faculty and personnel retirement, support of sc olarships, grants and professorial chairs, which are not extraneous but directly re- lated and necessarily incidental to its educational activiti~s; and (2) the doctrine enunciated in the Xavier School case, suprav is not applicable, in- . volving as it does a tax exempt private educational institution governed by Section 27(e) .of the National Internal Revenue Code, quoted as f0llows: "Sec. 27. Exemption from tax on corporations. - The followin0 organi- zations shall not be taxed under this Title in respe t to income rec ived by them as such - "(e) Corporations or asE;ociat.ions organized "and op~rated exclusively for x x x educational purposes, x x x .o part of the net income of which inures to the be ne fit of any private stockholder or individual; Provided, however, That the income of what-ver k i nd and character from any of its properties, rea l or personal or from any a c tivity conducted for profit, r egardless of the disposition made of such income shall be liable to the tax imposed under this Code; x x x" 225

DECISION - CTA CASE NO. 3071 -- 5 �- The r ule we seek to apply has none of a pedigree of precedents b~the case can be simply v i ewed as one of statutJry construction. It would not be an ov er-simplica ti on to say that Sect i o n 2 4(a ) ~supra , i tself , even when most jealously read , furnish es t he best means of its own exposition. As thereby decreed, private educational institutions other than those exCfi0t under Section 2 7 (e) ?f this Code sharl~ pay a tax of ten per cent of their taxable .let income " received du r ing each taxabl e year from a l l sources . " There is nothing cryptic or abstract in these words as would pose an ambiguity or obscurity in their application. As such it is not for us to fashion the governing rule of law according to our own standard. "As pointed out by the Supreme Court in the Philippine Oxygen and Acetylene Co . vs . The Central Bank of the Philippines case (L-~3395, February 27, 197 1, 37 SCHA 691) t. the first and fun- damental duty of the Court is the application of the law according to its express terms , interpretation being called only when such literal application is i~posrible. It has to be as 'We do not assume to pass judgment upon the wi<!iom of the legislature. Our duty is done when we ascertai n that it has kept within its power.' (Justice Holmes in MisPouri, 226

.. CT./-\ CASE NO. 307 1 - ,6 ~� Kan s.:� Texas By Co. v s. May, 194 US Rep 267, cited in Notable Opinions of Justice Cardozo) ~ Short o f unc ri t ica l lenie ncy , we cannot say that any d i ffere nt conclu sion ough t to follow but to app ly the l av1 as we f i.nd it . " (Rura l Bank of Calinog , Inc. vs. Commissioner of Internal Revenue, CTA Case No. 2658, Janu ary 30, 1981) ~ The reasoning interposed by p etitioner seems little more than a st atement of the obvious. We uphol d. T ~e decision in Xavier School, Inc. vs . Commis- sione r of Internal Eevenue u ;::;upra, relied upon as authority for the petitioner's deficiency tax assessm~nt, is neither a controlling nor an illumi- nating precedent fo r the case before us. It dealt with a tax exempt private educational ins- titution governed separ ate ly unde r Section 27(e) ~ an exception grafted from the basic provision of Section 24 of t he Tax Cod~, which prescribes th e var ious rates of co r porate ~ax for non-exempt corporations i ncluding the private educational i nstitutions. The two-stac~ approach on the charac- ter or kind of income specifically required by the terms of Se~tio n 27(e) for purposes of as- c ertaining either the entitlement to the tax 227

.. DECISION -� CTA CASE NO. 3071 .� 7 -� pr i vilege or liabil~ty for payment of the corporate tax , ca;not impart a plausibility o r serve much a just i f i cation for the application of such measure of the non-exempt educational institutions within the exclusive coverage of Se~tion 24(a) ~ The circumstances of these institutions under their respective provisions vary as to the legal and operational footing and cannot the~efore be consi- dered at par with respect. to tax treatment. Sectio n 27 (e) was not meant to t runcate the salutary purpose specifically extending to non-exempt educational institutions the preferred rate of 10% o n their taxable net income received during each taxable year from all sources under Section 24. The cited elegance falls short of legal significance, ha ing been stretched too far the effective range o f ex- pediency only to fit the ins~ant case. We therefore hold�that the assessment against petitioner for deficiency income tax based on the regular corporate income tax rate of 25%-35% lacks legal b<..isis ~ .till~ with respondent's with- drawal and cancellation of similar assessments against the �niversity of the East and Manu 1 L. Quezon Educa ion~l Institution likewise circum- 228

DECISION - CTA CASE NO . 3071 stanced and of the same mold as petitioner'~ case. (Annexes "A" and "B" , Petitioner's M.emorandum) WHEREFORE, the decision appealed from is her eby set aside without pronouncement as to costs. SO ORDERED. ?"-, Quezon City, April 30~ 1981. __/~~(lZ4.~/~AE.\ Y~~J~//Q> ASSOCl.ate Judge \I.JE CONCUR: 229