LUNG CENTER OF THE PHILIPPINES V. QUEZON CITY (TAX)

Issues:

1. Whether Lung Center is a charitable institution within the context of PD 1823 ans the 1973 and 1987 Constitutions ans Section 234(b) of RA 7160;
2. Whether the real properties of the Lung Center are exempt from real property taxes.

Petition is partially granted.

On the first issue, petitioner Lung Center is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise id a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the method of administration, the nature of the actual work performed , character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties.

Under Pd 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 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.

Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination.

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 confined 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.

The money received by the petitioners becomes part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit. Under PD 1823, the petitioner is entitled to receive donations. The petitioner does not lose its character as a charitable institution simply because the gift or donations is in the form of subsidies granted by the government.

Therefore, the fact that subsidization is by the government rather than private charitable contributions does not dictate the denial of a charitable exemption if the facts otherwise support such an exemption, as they do here.

Even if we find that petitioner Lung Center is a charitable institution, we hold, anent the second issue, that 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.

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 payment of taxes must be clearly shown and based on language in the law too plain to be mistaken.

It is plain as day that under the decree, petitioner Lung Center does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2 of the decree.

Section 28(3) Article VI of the 1987 Constitution provides:

(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.

The tax exemption under this constitutional provision covers property taxes only. 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.

What is meant by actual, direct, and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. 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.

Petitioner Lung Center failed to discharge its burden to prove that the entirety of its real property is actually, directly, and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients, other portions thereof are being leased to individuals for their clinics, canteen, and for business enterprise named Elliptical Orchids and Garden Center.

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