CIR V. CA AND YMCA (TAX)

YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational, and charitable objectives.

In 1980, YMCA earned, among others, an income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and income form parking collected from non-members.

In 1985, CIR issued an assessment to YMCA, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA formally protested the assessment , which CIR denied.

Issue: Is the income derived from rentals of real property owned by YMCA - established as welfare, educational, and charitable non-profit corporation - subject to income tax under the NIRC and the Constitution?

Petitioner argued that while the income received by the organizations enumerated in the NIRC is, as a rule, exempt from payment of tax, in respect to income received by them as such, the exemption does not apply to income derived from any of its properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income.

Petitioner adds that rented income derived by a tax-exempt organization from the lease of its properties, real or personal, is not therefore exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives.

The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken.