CIR v. ST. LUKE'S

COMMISSIONER OF INTERNAL REVENUE, Petitioner VS ST. LUKE’S MEDICAL CENTER INC., Respondent

G.R. No. 203514

February 13, 2017

FACTS:

The respondent St. Luke’s Medical Center, Inc. (SLMC) received a tax payment assessment from the Large Taxpayers Service-Documents Processing and Quality Assurance Division of the Bureau of Internal Revenue Audit Result/Assessment Notice on December 14, 2007. Based on the assessment the respondent SLMC has a deficiency income tax under Section 27 (B) of the 1997 National Internal Revenue Code (NIRC), as amended for the taxable year 2005 in the amount of P78, 617,434.54 and for taxable year 2006 in the amount of P57, 119,867.33.

In response to the received assessment from NIRC on January 14, 2008, SLMC filed with the petitioner Commission on Internal Revenue (CIR) an administrative protest assailing the assessments. The SLMC alleged that they are exempted from paying the income tax since SLMC is a non-stock, non-profit, charitable and social welfare organization under Section 30 (E) and (G) of the 1997 NIRC as amended.

However, on April 25, 2008, SLMC received the petitioner CIR’s Final Decision on the Disputed Assessment dated April 9, 2008 increasing the deficiency income from P78, 617, 434.54 to P82,419,522.21 for taxable year 2005 and from P57,119,867.33 to P60, 259,885.94 for taxable year 2006.

The aggrieved SLMC elevated the matter to Court of Tax Appeal (CTA) finding the decision that SLMC is not liable for the deficiency income tax under Section 27 (B) of the 1997 NIRC, as amended and exempt from paying the income under Section 30 (E) and (G) of the same code.

Consequently, the CIR moved for reconsideration but the CTA Division denied which the CIR prompted to file a petition for review before the CTA En Banc which eventually denied and affirmed the first decision of the CTA Division.

Moreover, the CIR filed an instant petition contending that the CTA erred in exempting SLMC from payment of income tax, where the CIR petition is partly granted. SLMC ordered to pay the deficiency income tax in 1998 based on the 10% preferential income tax. The CIR argues that under the doctrine of Stare Decisis SLMC is subject to 10% income tax under Section 27 (B) of the 1997 NIRC, and liable to pay the compromise penalty. SLMC argues that the income derives from operating a hospital is not income from activities conducted for profit. And the case should be dismissed since payment to BIR for the basic taxes due for taxable years 1998, 2000-2002 and 2004-2007 has been made.

ISSUES:

1. Whether or not SLMC is liable for income tax under Section 27 (B) of the 1997 NIRC.

2. Whether or not SLMC is not liable for compromise penalty.

3. Whether or not the petition is rendered moot by payment made by SLMC on April 30, 2013.

HELD:

1. Yes. Based on Section 27 (B) of the NIRC imposes 10% preferential tax rate on the income of (1) proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are they must be proprietary and non-profit. Proprietary means private, following the definition of a proprietary educational institution, as any other private school maintained and administered by private individuals or groups with government permit. While non-profit means no net income or asset accrues to or benefits any member or specific person with all the net income or asset devoted to the institution’s purposes and all its activities conducted not for profit.

2. Yes. Under Sections 248 and 249 of the 1997 NIRC the imposition of surcharges and interests were deleted on the basis of good faith and honest belief on the part of SLMC that it is not subject to tax so therefore, SLMC is not liable to pay the compromise penalty.

3. Yes. The payment of basic taxes made by the SLMC has become moot even the court agrees with the CIR that the payment confirmation from the BIR is not competent proof as presented by SLMC due to no specific taxable period for payments that it covers. However, the court finds sufficient proof of payment based on the Certification of Payment issued by the Large Taxpayers Service of the BIR since CIR never question for its documents authenticity. The court dismissed the petition and lowered the basic taxes for taxable year 2005 and 2006, in the amounts of P49, 919,496.40 and P41, 525,608.40.