LUNG CENTER OF THE PHILIPPINES v. QUEZON CITY

LUNG CENTER OF THE PHILIPPINES v.

QUEZON CITY and CONSTANTINO ROSAS, in his capacity as City Assessor of QC

G.R. No. 144104

June 29, 2004

FACTS:

PETITIONER Lung Center of the Philippines

-           a non-stock and non-profit entity established on January 16, 1981 by virtue of PD No. 1823.

-           It is the registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon City.

-          The lot has an area of 121,463 square meters and is covered by TCT No. 261320 of the Registry of Deeds of Quezon City.

-          Erected in the middle of the lot is a hospital known as the LUNG CENTER OF THE PHILIPPINES.

o    A big space at the ground floor is being LEASED to private parties, f

§  for canteen and small store spaces,

§  and to medical or professional practitioners who use it as their private clinics for their patients whom they charge for their professional services.

o   Almost 1/2 of the entire area on the left side of the building along Quezon Avenue is vacant and idle,

o   while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being LEASED FOR COMMERCIAL PURPOSES to a private enterprise known as the Elliptical Orchids and Garden Center.

-          The petitioner accepts paying and non-paying patients.

-          It also renders medical services to out-patients, both paying and non-paying.

-          Aside from its income from paying patients, the petitioner receives annual subsidies from the government.

ASSESSMENT

-          June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City.

-          Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-021-01231 (15-2518-A) were issued for the land and the hospital building, respectively.

PETITIONER FILED A CLAIM FOR TAX EXEMPTION = DENIED

-          August 25, 1993, the petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a CHARITABLE INSTITUTION.

-          DENIED

PETITIONER FILED BEFORE QC-LBAA = DENIED

-           Petitioner filed before the Local Board of Assessment Appeals of Quezon City (for the reversal of the resolution of the City Assessor.

-          The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes.

o   a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients.

o    contends that it is a charitable institution and, as such, is exempt from real property taxes.

-          PETITION DENIED = MUST PAY REAL PROPERTY TAXES

PETITIONER APPEALED BEFORE CBAA = DENIED

-          Central Board of Assessment Appeals of Quezon City (CBAA)

-          CBAA RULING: not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable purposes;

-          PETITION DENIED = MUST PAY REAL PROPERTY TAXES, NOT EXEMPTED

CA AFFIRMED CBAA DECISION

SC FILED PETITION FOR REVIEW ON CERTIORARI

ISSUES:

1. W/N the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and

2. W/N the real properties of the petitioner are exempt from real property taxes.

PETITIONER’S ARGUMENTS

1. IT IS A CHARITABLE INSTITUTION WITHIN THE CONTEXT OF SECTION 28(3), ARTICLE VI OF THE 1987 CONSTITUTION.

-          its character as a charitable institution is not altered by the fact that it admits paying patients and renders medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it derives income to be used for operational expenses.

-          for the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospital's 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients.

-          the fact that it receives subsidies from the government attests to its character as a charitable institution.

-          the "exclusivity" required in the Constitution does not necessarily mean "solely."

o   Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real property.

o   The petitioner cited Herrera v . Q C - BAA to bolster its pose.

2. EVEN IF P .D. NO. 1823 DOES NOT EXEMPT IT FROM THE PAYMENT OF REAL ESTATE TAXES, IT IS NOT PRECLUDED FROM SEEKING TAX EXEMPTION UNDER THE 1987 CONSTITUTION.

RESPONDENT’S ARGUMENTS

-          petitioner is not a charitable entity. The petitioner's real property is not exempt from the payment of real estate taxes under P .D. No. 1823 and even under the 1987 Constitution because it failed to prove that it is a charitable institution and that the said property is actually, directly and exclusively used for charitable purposes.

-          The respondents noted that in a newspaper report, it appears that graft charges were filed with the Sandiganbayan against the director of the petitioner, its administrative ocer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease contract over 7,663.13 square meters of the property in 1990 for only P20,000 a month, when the monthly rental should be P357,000 a month as determined by the Commission on Audit;

-          and that instead of complying with the directive of the COA for the cancellation of the contract for being grossly prejudicial to the government, the petitioner renewed the same on March 13, 1995 for a monthly rental of only P24,000.

-          assert that the petitioner uses the subsidies granted by the government for charity patients and uses the rest of its income from the property for the benefit of paying patients, among other purposes.

-          the petitioner failed to adduce substantial evidence that 100% of its out-patients and 170 beds in the hospital are reserved for indigent patients.

-          the claims/allegations of the Petitioner LCP do not speak well of its record of service.

o   That before a patient is admitted for treatment in the Center, first impression is that it is pay-patient and required to pay a certain amount as deposit.

o   That even if a patient is living below the poverty line, he is charged with high hospital bills.

o   And, without these bills being first settled, the poor patient cannot be allowed to leave the hospital or be discharged without first paying the hospital bills or issue a promissory note guaranteed and indorsed by an influential agency or person known only to the Center;

o   that even the remains of deceased poor patients suffered the same fate.

o   Moreover, before a patient is admitted for treatment as free or charity patient, one must undergo a series of interviews and must submit all the requirements needed by the Center, usually accompanied by endorsement by an influential agency or person known only to the Center.

o   These facts were heard and admitted by the Petitioner LCP during the hearings before the Honorable QC-BAA and Honorable CBAA.

o   CAN SUCH PRACTICE BY THE CENTER BE CALLED CHARITABLE?

RULING:

1. PETITIONER LCP IS A CHARITABLE INSTITUTION in the context of 1973 and 1987 Constitutions.

-          To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include:

o   the statute creating the enterprise,

o   its corporate purposes,

o   its constitution and by-laws,

o   the methods of administration,

o   the nature of the actual work performed,

o   the character of the services rendered,

o   the indefiniteness of the beneficiaries,

o   and the use and occupation of the properties

-          LEGAL DEFINITION: a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of government.

o   It may be applied to almost anything that tend to promote the well-doing and well-being of social man.

o   It embraces the improvement and promotion of the happiness of man.

-          The word "charitable" is not restricted to relief of the poor or sick.

-          The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable OR whether it is maintained for gain, profit, or private advantage

UNDER P .D. No. 1823

-           the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health and the Ministry of Human Settlements.

-          It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. The raison d'etre for the creation of the petitioner is stated in the decree:

o   respiratory diseases have been a priority concern, having been the leading cause of illness and death in the Philippines, comprising more than 45% of the total annual deaths from all causes

o   more common lung diseases are, to a great extent, preventable, and curable with early and adequate medical care, immunization and through prompt and intensive prevention and health education programs

o   there is an urgent need to consolidate and reinforce existing programs, strategies and efforts at preventing, treating and rehabilitating people affected by lung diseases, and to undertake research and training on the cure and prevention of lung diseases, through a Lung Center which will house and nurture the above and related activities and provide tertiary-level care for more difficult and problematical cases

o   to achieve this purpose, the Government intends to provide material and nancial support towards the establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people

The purposes for which the petitioner was created are spelled out in its Articles of Incorporation:

1.       To construct, establish, equip, maintain, administer and conduct an integrated medical institution which shall specialize in the treatment, care, rehabilitation and/or relief of lung and allied diseases in line with the concern of the government to assist and provide material and financial support in the establishment and maintenance of a lung center primarily to benefit the people of the Philippines

2.       To promote the noble undertaking of scientific research related to the prevention of lung or pulmonary ailments and the care of lung patients

3.       To stimulate and, whenever possible, underwrite scientific researches and to collect and publish the findings of such research for public consumption;

4.       To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness,

5.       To encourage the training of physicians, nurses, health officers, social workers and medical and technical personnel in the practical and scientific implementation of services to lung patients;

6.        To assist universities and research institutions in their studies about lung diseases,

7.       To encourage the formation of other organizations on the national, provincial and/or city and local levels;

8.       To seek and obtain assistance in any form from both international and local foundations and organizations; and to administer grants and funds that may be given to the organization;

9.       To extend medical services to the public and, in general, to promote and protect the health of the masses of our people

10.   To help prevent, relieve and alleviate the lung or pulmonary afflictions and maladies of the people in any and all walks of life and to enable them to obtain treatment when such disorders occur;

11.   To participate, as circumstances may warrant, in any activity designed and carried on to promote the general health of the community;

12.   To acquire and/or borrow funds and to own all funds or equipment, educational materials and supplies by purchase, donation, or otherwise and to dispose of and distribute the same in such manner, and, on such basis as the Center shall, from time to time, deem proper and best, under the particular circumstances, to serve its general and non-profit purposes and objectives;

13.   To buy, purchase, acquire, own, lease, hold, sell, exchange, transfer and dispose of properties, whether real or personal, for purposes herein mentioned;

14.   To do everything necessary, proper, advisable or convenient for the accomplishment of any of the powers herein set forth and to do every other act and thing incidental thereto or connected therewith.

EVEN IF IT DERIVES INCOME FROM PAYING PATIENTS, LCP STILL A CHARITABLE INSTITUTION

-          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 out-patient, or conned 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 benefit of the persons managing or operating the institution.

-          In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its operations.

2. PORTIONS OF REAL PROPERTY LEASED TO PRIVATE ENTITIES = NOT EXEMPT FROM REAL PROPERTY TAX

-          those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.

-          laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.

o   Taxation is the rule and exemption is the exception.

o   The effect of an exemption is equivalent to an appropriation.

o   Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.

-          Section 2 of Presidential Decree No. 1823 provides:

o   SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. — Being a non-profit, non-stock corporation organized primarily to help combat the high incidence of lung and pulmonary diseases in the Philippines, all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, Inc., for the actual use and benefit of the Lung Center, shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under SECTION 30 (h) of the NATIONAL INTERNAL REVENUE CODE, as amended.

The LCP shall be exempt from the payment of taxes, charges, and fees by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for the Lung Center.

-          It is clear that under the decree, the LCP does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon.

o   If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2

o   EXPRESSION UNIUS EST EXCLUSIO ALTERIUS - express mention of one person, thing, or consequence implies the exclusion of all others.

o   EXPRESSIUM FACIT CESSARE TACITUM- where a statute, by its terms, is expressly limited to certain matters, it may not, by interpretation or construction, be extended to other matters.

-          Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:

o   “(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, ACTUALLY, DIRECTLY AND EXCLUSIVELY used for religious, charitable or educational purposes shall be exempt from taxation

o   The tax exemption under this constitutional provision covers PROPERTY TAXES ONLY AND NOT THE INSTITUTION.

§  As Chief Justice Hilario G. Davide, Jr., then a member of the 1986 Constitutional Commission, explained: ". . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes."

o   under the 1935 Constitution, ". . . all lands, buildings, and improvements used 'exclusively' for … charitable . . . purposes shall be exempt from taxation." 36 36

o   However, under the 1973 and the present Constitutions, for "lands, buildings, and improvements" of the charitable institution to be considered exempt, the same should not only be "exclusively" used for charitable purposes; it is required that such property be used "actually" and "directly" for such purposes.

o   In light of the foregoing substantial changes in the Constitution, the petitioner cannot rely on our ruling in Herrera v. QC Board of Assessment Appeals which was promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took effect.

-          Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that

o   (a) it is a charitable institution; and

o   (b) its real properties are ACTUALLY , DIRECTLY and EXCLUSIVELY used for charitable purposes.

o    

o   "EXCLUSIVE"

§  defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment;

§  is defined, "in a manner to exclude; as enjoying a privilege exclusively."

§  If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation.

§   The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law. Solely is synonymous with exclusively.

-          actual, direct and exclusive use of the property for charitable purposes MEANS:

o   the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized.

o   It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.

-          The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes.

o   While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen.

o   Further, a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center."

o   Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes.

o   On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.

DISPOSITIVE PORTION:

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to determine, after due hearing, precise portions of the land and the area thereof which are leased to private persons, and to compute the real property taxes due thereon as provided for by law.