Case Title: Lung Center of the Philippines vs Quezon City and Constantino Rosas as City Assessor of Quezon City

Facts: Lower Court Ruling:

Lung Center of the Philippines is a non-stock and non-profit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It The Local Board of Assessment Appeals of Quezon City (QC-
is the registered owner of a parcel of land located in located Quezon City. LBAA) rendered judgment dismissing the petition and holding the
Erected in the middle of the aforesaid lot is a hospital known as the petitioner liable for real property taxes.6
Lung Center of the Philippines. A big space at the ground floor is being leased
to private parties, for canteen and small store spaces, and to medical or The QC-LBAA’s decision was, likewise, affirmed on appeal by
professional practitioners who use the same as their private clinics for their the Central Board of Assessment Appeals of Quezon City (CBAA, for
patients whom they charge for their professional services. Almost one-half of brevity)7 which ruled that the petitioner was not a charitable institution
the entire area on the left side of the building along Quezon Avenue is vacant and that its real properties were not actually, directly and exclusively
and idle, while a big portion on the right side, at the corner of Quezon used for charitable purposes; hence, it was not entitled to real property
Avenue and Elliptical Road, is being leased for commercial purposes to a tax exemption under the constitution and the law. The petitioner sought
private enterprise known as the Elliptical Orchids and Garden Center. relief from the Court of Appeals, which rendered judgment affirming
The petitioner accepts paying and non-paying patients. It also renders the decision of the CBAA.
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.
On June 7, 1993, both the land and the hospital building of the
petitioner were assessed for real property taxes for the land and the hospital
building.

The petitioner filed a Claim for Exemption5 from real property taxes
with the City Assessor, predicated on its claim that it is a charitable
institution. The petitioner’s request was denied, and a petition was,
thereafter, filed before the Local Board of Assessment Appeals of Quezon City
(QC-LBAA, for brevity) for the reversal of the resolution of the City Assessor.

Petioner’s (Lung) Contentions: Issue #1:

It asserts that 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. It contends that the "exclusivity" required in
the Constitution does not necessarily mean "solely." 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.
Whether the petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and 1987 Constitution
Ruling:
Yes, the petitioner is a charitable institution.
We hold that the petitioner is a charitable institution within the
context of the 1973 and 1987 Constitutions. To determine whether an
enterprise is a charitable institution/entity or not, the elements which should
be considered include the statute creating the enterprise, its corporate

Respondent’s (Quezon City) Contentions:
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.
purposes, its constitution and by-laws, the methods of administration, the
nature of the actual work performed, the character of the services rendered,
the indefiniteness of the beneficiaries, and the use and occupation of the
properties.
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
Under P.D. No. 1823, the petitioner is a non-profit and non-stock
corporation which 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.
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.
Issue #2:
Whether the entire real properties of the petitioner are exempt
from real property taxes.
Ruling:
No, the entire real properties of the petitioner are not exempt from
real property taxes.
Even as we find that the petitioner 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.
 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 states that the Lung

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

It is plain as day that under the decree, the petitioner 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

Section 28(3), Article VI of the 1987 Philippine Constitution

provides that Charitable institutions 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.

In order to be entitled to the exemption, the petitioner is

burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes. "Exclusive" is defined as
possessed and enjoyed to the exclusion of others

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.

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. 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."

Doctrines:

- 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 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.

- 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.