November 9, 2016 G.R. Nos.

196596, 198841 and 198941 all originated from CTA Special

First Division (CTA Division) Case No. 7303. G.R. No. 196596 stemmed
G.R. No. 196596 from CTA En Banc Case No. 622 filed by the Commissioner to
challenge CTA Case No. 7303. G.R. No. 198841 and 198941 both
COMMISSIONER OF INTERNAL REVENUE, Petitioner stemmed from CTA En Banc Case No. 671 filed by DLSU to also
vs. challenge CTA Case No. 7303.
DE LA SALLE UNIVERSITY, INC., Respondent
The Factual Antecedents
x-----------------------x
Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU
G.R. No. 198841 Letter of Authority (LOA) No. 2794 authorizing its revenue officers to
examine the latter's books of accounts and other accounting records for
all internal revenue taxes for the period Fiscal Year Ending 2003 and
DE LA SALLE UNIVERSITY INC., Petitioner,
Unverified Prior Years. 5

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
On May 19, 2004, BIR issued a Preliminary Assessment Notice to
DLSU. 6

x-----------------------x
Subsequently on August 18, 2004, the BIR through a Formal Letter of
G.R. No. 198941
Demand assessed DLSU the following deficiency taxes: (1) income
tax on rental earnings from restaurants/canteens and bookstores
COMMISSIONER OF INTERNAL REVENUE, Petitioner, operating within the campus; (2) value-added tax (VAI) on business
vs. income; and (3) documentary stamp tax (DSI) on loans and lease
DE LA SALLE UNIVERSITY, INC., Respondent. contracts. The BIR demanded the payment of ₱17,303,001.12, inclusive
of surcharge, interest and penalty for taxable years 2001, 2002 and
DECISION 2003. 7

BRION, J.: DLSU protested the assessment. The Commissioner failed to act on the
protest; thus, DLSU filed on August 3, 2005 a petition for review with the
Before the Court are consolidated petitions for review on certiorari: 1
CTA Division. 8

1. G.R. No. 196596 filed by the Commissioner of Internal DLSU, a non-stock, non-profit educational institution, principally
Revenue (Commissioner) to assail the December 10, 2010 decision and anchored its petition on Article XIV, Section 4 (3) of the Constitution,
March 29, 2011 resolution of the Court of Tax Appeals (CTA) in En which reads:
Banc Case No. 622; 2

(3) All revenues and assets of non-stock, non-profit educational

2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU) to assail institutions used actually, directly, and exclusively for educational
the June 8, 2011 decision and October 4, 2011 resolution in CTA En purposes shall be exempt from taxes and duties. xxx.
Banc Case No. 671;  and
3

On January 5, 2010, the CTA Division partially granted DLSU's petition

3. G.R. No. 198941 filed by the Commissioner to assail the June 8, 2011 for review. The dispositive portion of the decision reads:
decision and October 4, 2011 resolution in CTA En Banc Case No. 671. 4
WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The In addition, [DLSU] is hereby held liable to pay 20% per
DST assessment on the loan transactions of [DLSU] in the amount of annum deficiency interest on the ... basic deficiency taxes ... until full
₱1,1681,774.00 is hereby CANCELLED. However, [DLSU] is ORDERED payment thereof pursuant to Section 249(B) of the [National Internal
TO PAY deficiency income tax, VAT and DST on its lease contracts, plus Revenue Code] ... xxx.
25% surcharge for the fiscal years 2001, 2002 and 2003 in the total
amount of ₱18,421,363.53 ... xxx. Further, [DLSU] is hereby held liable to pay 20% per annum delinquency
interest on the deficiency taxes, surcharge and deficiency interest which
In addition, [DLSU] is hereby held liable to pay 20% delinquency interest have accrued ... from September 30, 2004 until fully paid. 15

on the total amount due computed from September 30, 2004 until full
payment thereof pursuant to Section 249(C)(3) of the [National Internal Consequently, the Commissioner supplemented its petition with the
Revenue Code]. Further, the compromise penalties imposed by [the CTA En Banc and argued that the CTA Division erred in admitting
Commissioner] were excluded, there being no compromise agreement DLSU's additional evidence. 16

between the parties.

Dissatisfied with the partial reduction of its tax liabilities, DLSU filed
SO ORDERED. 9
a separate petition for review with the CTA En Banc (CTA En Banc Case
No. 671) on the following grounds: (1) the entire assessment should have
Both the Commissioner and DLSU moved for the reconsideration of the been cancelled because it was based on an invalid LOA; (2) assuming
January 5, 2010 decision.  On April 6, 2010, the CTA Division denied the
10
the LOA was valid, the CTA Division should still have cancelled
Commissioner's motion for reconsideration while it held in abeyance the the entire assessment because DLSU submitted evidence similar to
resolution on DLSU's motion for reconsideration. 11
those submitted by Ateneo De Manila University (Ateneo) in
a separate case where the CTA cancelled Ateneo's tax
On May 13, 2010, the Commissioner appealed to the CTA En assessment;  and (3) the CTA Division erred in finding that a portion of
17

Banc (CTA En Banc Case No. 622) arguing that DLSU's use of its DLSU's rental income was not proved to have been used actually,
revenues and assets for non-educational or commercial purposes directly and exclusively for educational purposes. 18

removed these items from the exemption coverage under the

Constitution. 12
The CTA En Banc Rulings

On May 18, 2010, DLSU formally offered to the CTA Division CTA En Banc Case No. 622
supplemental pieces of documentary evidence to prove that its rental
income was used actually, directly and exclusively for educational The CTA En Banc dismissed the Commissioner's petition for review and
purposes.  The Commissioner did not promptly object to the formal offer
13
sustained the findings of the CTA Division. 19

of supplemental evidence despite notice. 14

Tax on rental income

On July 29, 2010, the CTA Division, in view of the supplemental evidence
submitted, reduced the amount of DLSU's tax deficiencies. The Relying on the findings of the court-commissioned Independent Certified
dispositive portion of the amended decision reads: Public Accountant (Independent CPA), the CTA En Banc found that
DLSU was able to prove that a portion of the assessed rental income
WHEREFORE, [DLSU]'s Motion for Partial Reconsideration is was used actually, directly and exclusively for educational purposes;
hereby PARTIALLY GRANTED. [DLSU] is hereby ORDERED TO hence, exempt from tax.  The CTA En Banc was satisfied with DLSU's
20

PAY for deficiency income tax, VAT and DST plus 25% surcharge for the supporting evidence confirming that part of its rental income had indeed
fiscal years 2001, 2002 and 2003 in the total adjusted amount been used to pay the loan it obtained to build the university's Physical
of ₱5,506,456.71 ... xxx. Education – Sports Complex. 21
Parenthetically, DLSU's unsubstantiated claim for exemption, i.e., the the audit includes more than one taxable period, the other periods or
part of its income that was not shown by supporting documents to have years shall be specifically indicated in the LOA.31

been actually, directly and exclusively used for educational purposes,

must be subjected to income tax and VAT. 22
In the present case, the LOA issued to DLSU is for Fiscal Year Ending
2003 and Unverified Prior Years. Hence, the assessments for deficiency
DST on loan and mortgage transactions income tax, VAT and DST for taxable years 2001 and 2002 are void, but
the assessment for taxable year 2003 is valid. 32

Contrary to the Commissioner's contention, DLSU froved its remittance

of the DST due on its loan and mortgage documents.  The CTA En
23
On the applicability of the Ateneo case
Banc found that DLSU's DST payments had been remitted to the BIR,
evidenced by the stamp on the documents made by a DST imprinting The CTA En Banc held that the Ateneo case is not a valid precedent
machine, which is allowed under Section 200 (D) of the National Internal because it involved different parties, factual settings, bases of
Revenue Code (Tax Code)  and Section 2 of Revenue Regulations (RR)
24
assessments, sets of evidence, and defenses. 33

No. 15-2001. 25

On the CTA Division's appreciation of the evidence

Admissibility of DLSU's supplemental evidence
The CTA En Banc affirmed the CTA Division's appreciation of DLSU' s
The CTA En Banc held that the supplemental pieces of documentary evidence. It held that while DLSU successfully proved that a portion of its
evidence were admissible even if DLSU formally offered them only when rental income was transmitted and used to pay the loan obtained to fund
it moved for reconsideration of the CTA Division's original decision. the construction of the Sports Complex, the rental income
Notably, the law creating the CTA provides that proceedings before it from other sources were not shown to have been actually, directly and
shall not be governed strictly by the technical rules of evidence.
26
exclusively used for educational purposes. 34

The Commissioner moved but failed to obtain a reconsideration of the Not pleased with the CTA En Banc's ruling, both DLSU (G.R. No.
CTA En Banc's December 10, 2010 decision.  Thus, she came to this
27
198841) and the Commissioner (G.R. No. 198941) came to this Court for
court for relief through a petition for review on certiorari (G.R. No. relief.
196596).
The Consolidated Petitions
CTA En Banc Case No. 671
G.R. No. 196596
The CTA En Banc partially granted DLSU's petition for review and further
reduced its tax liabilities to ₱2,554,825.47 inclusive of surcharge. 28
The Commissioner submits the following arguments:

On the validity of the Letter of Authority First, DLSU's rental income is taxable regardless of how such income is
derived, used or disposed of.  DLSU's operations of canteens and
35

The issue of the LOA' s validity was raised during trial;  hence, the issue
29
bookstores within its campus even though exclusively serving the
was deemed properly submitted for decision and reviewable on appeal. university community do not negate income tax liability.36

Citing jurisprudence, the CTA En Banc held that a LOA should cover only The Commissioner contends that Article XIV, Section 4 (3) of the
one taxable period and that the practice of issuing a LOA covering audit Constitution must be harmonized with Section 30 (H) of the Tax Code,
of unverified prior years is prohibited.  The prohibition is consistent with
30
which states among others, that the income of whatever kind and
Revenue Memorandum Order (RMO) No. 43-90, which provides that if character of [a non-stock and non-profit educational institution] from any
of [its] properties, real or personal, or from any of [its] activities conducted Banc's conclusion that the LOA is valid for taxable year 2003. According
for profit regardless of the disposition made of such income, shall be to DLSU, when RMO No. 43-90 provides that:
subject to tax imposed by this Code. 37

The practice of issuing [LOAs] covering audit of 'unverified prior years' is

The Commissioner argues that the CTA En Banc misread and hereby prohibited.
misapplied the case of Commissioner of Internal Revenue v.
YMCA  to support its conclusion that revenues however generated are
38
it refers to the LOA which has the format "Base Year + Unverified Prior
covered by the constitutional exemption, provided that, the revenues will Years." Since the LOA issued to DLSU follows this format, then any
be used for educational purposes or will be held in reserve for such assessment arising from it must be entirely voided. 48

purposes. 39

Second, DLSU invokes the principle of uniformity in taxation, which

On the contrary, the Commissioner posits that a tax-exempt organization mandates that for similarly situated parties, the same set of
like DLSU is exempt only from property tax but not from income tax on evidence should be appreciated and weighed in the same manner.  The 49

the rentals earned from property.  Thus, DLSU's income from the leases
40
CTA En Banc erred when it did not similarly appreciate DLSU' s evidence
of its real properties is not exempt from taxation even if the income would as it did to the pieces of evidence submitted by Ateneo, also a non-stock,
be used for educational purposes. 41
non-profit educational institution.50

Second, the Commissioner insists that DLSU did not prove the fact of G.R. No. 198941
DST payment  and that it is not qualified to use the On-Line Electronic
42

DST Imprinting Machine, which is available only to certain classes of The issues and arguments raised by the Commissioner in G.R. No.
taxpayers under RR No. 9-2000. 43
198941 petition are exactly the same as those she raised in her: (1)
petition docketed as G.R. No. 196596 and (2) comment on DLSU's
Finally, the Commissioner objects to the admission of DLSU's petition docketed as G.R. No. 198841. 51

supplemental offer of evidence. The belated submission of supplemental

evidence reopened the case for trial, and worse, DLSU offered the Counter-arguments
supplemental evidence only after it received the unfavorable CTA
Division's original decision.  In any case, DLSU's submission of
44

DLSU's Comment on G.R. No. 196596

supplemental documentary evidence was unnecessary since its rental
income was taxable regardless of its disposition. 45

First, DLSU questions the defective verification attached to the petition. 52

G.R. No. 198841

Second, DLSU stresses that Article XIV, Section 4 (3) of the Constitution
is clear that all assets and revenues of non-stock, non-profit educational
DLSU argues as that:
institutions used actually, directly and exclusively for educational
purposes are exempt from taxes and duties. 53

First, RMO No. 43-90 prohibits the practice of issuing a LOA with any
indication of unverified prior years. A LOA issued contrary to RMO No.
On this point, DLSU explains that: (1) the tax exemption of non-stock,
43-90 is void, thus, an assessment issued based on such defective LOA
non-profit educational institutions is novel to the 1987 Constitution and
must also be void. 46

that Section 30 (H) of the 1997 Tax Code cannot amend the 1987

Constitution;  (2) Section 30 of the 1997 Tax Code is almost an exact
54

DLSU points out that the LOA issued to it covered the Fiscal Year Ending replica of Section 26 of the 1977 Tax Code -with the addition of non-
2003 and Unverified Prior Years. On the basis of this defective LOA, the stock, non-profit educational institutions to the list of tax-exempt entities;
Commissioner assessed DLSU for deficiency income tax, VAT and DST and (3) that the 1977 Tax Code was promulgated when the 1973
for taxable years 2001, 2002 and 2003.  DLSU objects to the CTA En
47
Constitution was still in place.
DLSU elaborates that the tax exemption granted to a private educational Finally, DLSU underscores that the Commissioner, despite notice, did not
institution under the 1973 Constitution was only for real property oppose the formal offer of supplemental evidence. Because of the
tax. Back then, the special tax treatment on income of private Commissioner's failure to timely object, she became bound by the results
educational institutions only emanates from statute, i.e., the 1977 Tax of the submission of such supplemental evidence. 63

Code. Only under the 1987 Constitution that exemption from tax of all
the assets and revenues of non-stock, non-profit educational institutions The CIR's Comment on G.R. No. 198841
used actually, directly and exclusively for educational purposes, was
expressly and categorically enshrined. 55
The Commissioner submits that DLSU is estopped from questioning the
LOA's validity because it failed to raise this issue in both the
DLSU thus invokes the doctrine of constitutional supremacy, which administrative and judicial proceedings.  That it was asked on cross-
64

renders any subsequent law that is contrary to the Constitution void and examination during the trial does not make it an issue that the CTA could
without any force and effect.  Section 30 (H) of the 1997 Tax Code
56
resolve.  The Commissioner also maintains that DLSU's rental income is
65

insofar as it subjects to tax the income of whatever kind and character of not tax-exempt because an educational institution is only exempt from
a non-stock and non-profit educational institution from any of its property tax but not from tax on the income earned from the property. 66

properties, real or personal, or from any of its activities conducted for

profit regardless of the disposition made of such income, should be DLSU's Comment on G.R. No. 198941
declared without force and effect in view of the constitutionally granted
tax exemption on "all revenues and assets of non-stock, non-profit
DLSU puts forward the same counter-arguments discussed above.  In 67

educational institutions used actually, directly, and exclusively for

addition, DLSU prays that the Court award attorney's fees in its favor
educational purposes." 57

because it was constrained to unnecessarily retain the services of

counsel in this separate petition.
68

DLSU further submits that it complies with the requirements enunciated

in the YMCA case, that for an exemption to be granted under Article XIV,
Issues
Section 4 (3) of the Constitution, the taxpayer must prove that: (1) it falls
under the classification non-stock, non-profit educational institution; and
(2) the income it seeks to be exempted from taxation is used actually, Although the parties raised a number of issues, the Court shall decide
directly and exclusively for educational purposes.  Unlike YMCA, which
58 only the pivotal issues, which we summarize as follows:
is not an educational institution, DLSU is undisputedly a non-stock, non-
profit educational institution. It had also submitted evidence to prove that I. Whether DLSU' s income and revenues proved to have been
it actually, directly and exclusively used its income for educational used actually, directly and exclusively for educational purposes
purposes. 59 are exempt from duties and taxes;

DLSU also cites the deliberations of the 1986 Constitutional Commission II. Whether the entire assessment should be voided because of
where they recognized that the tax exemption was granted "to incentivize the defective LOA;
private educational institutions to share with the State the responsibility of
educating the youth." 60 III. Whether the CTA correctly admitted DLSU's supplemental
pieces of evidence; and
Third, DLSU highlights that both the CTA En Banc and Division found
that the bank that handled DLSU' s loan and mortgage transactions had IV. Whether the CTA's appreciation of the sufficiency of DLSU's
remitted to the BIR the DST through an imprinting machine, a method evidence may be disturbed by the Court.
allowed under RR No. 15-2001.  In any case, DLSU argues that it cannot
61

be held liable for DST owing to the exemption granted under the Our Ruling
Constitution. 62
As we explain in full below, we rule that: Proprietary educational institutions, including those cooperatively
owned, may likewise be entitled to such exemptions subject to
I. The income, revenues and assets of non-stock, non-profit the limitations provided by law including restrictions on dividends and
educational institutions proved to have been used actually, provisions for reinvestment. [underscoring and emphasis supplied]
directly and exclusively for educational purposes are exempt from
duties and taxes. Before fully discussing the merits of the case, we observe that:

II. The LOA issued to DLSU is not entirely void. The assessment First, the constitutional provision refers to two kinds of educational
for taxable year 2003 is valid. institutions: (1) non-stock, non-profit educational institutions and (2)
proprietary educational institutions.69

III. The CTA correctly admitted DLSU's formal offer of

supplemental evidence; and Second, DLSU falls under the first category. Even the Commissioner
admits the status of DLSU as a non-stock, non-profit educational
IV. The CTA's appreciation of evidence is conclusive unless the institution.
70

CTA is shown to have manifestly overlooked certain relevant

facts not disputed by the parties and which, if properly Third, while DLSU's claim for tax exemption arises from and is based on
considered, would justify a different conclusion. the Constitution, the Constitution, in the same provision, also imposes
certain conditions to avail of the exemption. We discuss below the import
The parties failed to convince the Court that the CTA overlooked or failed of the constitutional text vis-a-vis the Commissioner's counter-arguments.
to consider relevant facts. We thus sustain the CTA En Banc's findings
that: Fourth, there is a marked distinction between the treatment of non-stock,
non-profit educational institutions and proprietary educational institutions.
a. DLSU proved that a portion of its rental income was used The tax exemption granted to non-stock, non-profit educational
actually, directly and exclusively for educational purposes; and institutions is conditioned only on the actual, direct and exclusive use of
their revenues and assets for educational purposes. While tax
b. DLSU proved the payment of the DST through its bank's on- exemptions may also be granted to proprietary educational institutions,
line imprinting machine. these exemptions may be subject to limitations imposed by Congress.

I. The revenues and assets of non-stock, As we explain below, the marked distinction between a non-stock, non-
non-profit educational institutions profit and a proprietary educational institution is crucial in determining the
proved to have been used actually, nature and extent of the tax exemption granted to non-stock, non-profit
directly, and exclusively for educational educational institutions.
purposes are exempt from duties and
taxes. The Commissioner opposes DLSU's claim for tax exemption on the basis
of Section 30 (H) of the Tax Code. The relevant text reads:
DLSU rests it case on Article XIV, Section 4 (3) of the 1987 Constitution,
which reads: The following organizations shall not be taxed under this Title [Tax on

(3) All revenues and assets of non-stock, non-profit educational Income] in respect to income received by them as such:

institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Upon the dissolution xxxx
or cessation of the corporate existence of such institutions, their assets
shall be disposed of in the manner provided by law.
(H) A non-stock and non-profit educational institution the Tax Code, which mandates that the income of exempt organizations
from any of their properties, real or personal, are subject to the same tax
xxxx imposed by the Tax Code, regardless of how that income is used. The
Court ruled that the last paragraph of Section 27 unequivocally subjects
Notwithstanding the provisions in the preceding paragraphs, to tax the rent income of the YMCA from its property. 75

the income of whatever kind and character of the foregoing

organizations from any of their properties, real or personal, or from In short, the YMCA is exempt only from property tax but not from income
any of their activities conducted for tax.
profit regardless of the disposition made of such income shall be
subject to tax imposed under this Code. [underscoring and emphasis As a last ditch effort to avoid paying the taxes on its rental income, the
supplied] YMCA invoked the tax privilege granted under Article XIV, Section 4 (3)
of the Constitution.
The Commissioner posits that the 1997 Tax Code qualified the tax
exemption granted to non-stock, non-profit educational institutions such The Court denied YMCA's claim that it falls under Article XIV, Section 4
that the revenues and income they derived from their assets, or from any (3) of the Constitution holding that the term educational institution, when
of their activities conducted for profit, are taxable even if these revenues used in laws granting tax exemptions, refers to the school system
and income are used for educational purposes. (synonymous with formal education); it includes a college or an
educational establishment; it refers to the hierarchically structured and
Did the 1997 Tax Code qualify the tax exemption constitutionally- chronologically graded learnings organized and provided by the formal
granted to non-stock, non-profit educational institutions? school system. 76

We answer in the negative. The Court then significantly laid down the requisites for availing the tax
exemption under Article XIV, Section 4 (3), namely: (1) the taxpayer falls
While the present petition appears to be a case of first impression,  the
71 under the classification non-stock, non-profit educational
Court in the YMCA case had in fact already analyzed and explained the institution; and (2) the income it seeks to be exempted from taxation
meaning of Article XIV, Section 4 (3) of the Constitution. The Court in that is used actually, directly and exclusively for educational purposes. 77

case made doctrinal pronouncements that are relevant to the present

case. We now adopt YMCA as precedent and hold that:

The issue in YMCA was whether the income derived from rentals of real 1. The last paragraph of Section 30 of the Tax Code is without force and
property owned by the YMCA, established as a "welfare, educational and effect with respect to non-stock, non-profit educational
charitable non-profit corporation," was subject to income tax under the institutions, provided, that the non-stock, non-profit educational
Tax Code and the Constitution. 72 institutions prove that its assets and revenues are used actually, directly
and exclusively for educational purposes.
The Court denied YMCA's claim for exemption on the ground that as
a charitable institution falling under Article VI, Section 28 (3) of the 2. The tax-exemption constitutionally-granted to non-stock, non-profit
Constitution,  the YMCA is not tax-exempt per se; " what is exempted is
73 educational institutions, is not subject to limitations imposed by law.
not the institution itself... those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively used The tax exemption granted by the
for religious, charitable or educational purposes."74
Constitution to non-stock, non-profit
educational institutions is conditioned only
The Court held that the exemption claimed by the YMCA is expressly on the actual, direct and exclusive use of
disallowed by the last paragraph of then Section 27 (now Section 30) of
their assets, revenues and income  for78
Assets, on the other hand, are the tangible and intangible properties
educational purposes. owned by a person or entity.  It may refer to real estate, cash deposit in a
86

bank, investment in the stocks of a corporation, inventory of goods, or

We find that unlike Article VI, Section 28 (3) of the Constitution any property from which the person or entity may derive income or use to
(pertaining to charitable institutions, churches, parsonages or convents, generate the same. In Philippine taxation, the fair market value of real
mosques, and non-profit cemeteries), which exempts from property is a component of the tax base in real property tax (RPT).  Also,
87

tax only the assets, i.e., "all lands, buildings, and improvements, the landed cost of imported goods is a component of the tax base in VAT
actually, directly, and exclusively used for religious, charitable, or on importation  and tariff duties.
88 89

educational purposes ... ," Article XIV, Section 4 (3) categorically states

that "[a]ll revenues and assets ... used actually, directly, and exclusively Thus, when a non-stock, non-profit educational institution proves that it
for educational purposes shall be exempt from taxes and duties." uses its revenues actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax, VAT, and LBT. On the
The addition and express use of the word revenues in Article XIV, other hand, when it also shows that it uses its assets in the form of real
Section 4 (3) of the Constitution is not without significance. property for educational purposes, it shall be exempted from RPT.

We find that the text demonstrates the policy of the 1987 Constitution, To be clear, proving the actual use of the taxable item will result in an
discernible from the records of the 1986 Constitutional Commission  to79 exemption, but the specific tax from which the entity shall be exempted
provide broader tax privilege to non-stock, non-profit educational from shall depend on whether the item is an item of revenue or asset.
institutions as recognition of their role in assisting the State provide a
public good. The tax exemption was seen as beneficial to students who To illustrate, if a university leases a portion of its school building to a
may otherwise be charged unreasonable tuition fees if not for the tax bookstore or cafeteria, the leased portion is not actually, directly and
exemption extended to all revenues and assets of non-stock, non-profit exclusively used for educational purposes, even if the bookstore or
educational institutions. 80
canteen caters only to university students, faculty and staff.

Further, a plain reading of the Constitution would show that Article XIV, The leased portion of the building may be subject to real property
Section 4 (3) does not require that the revenues and income must have tax, as held in Abra Valley College, Inc. v. Aquino.  We ruled in that case
90

also been sourced from educational activities or activities related to the that the test of exemption from taxation is the use of the property for
purposes of an educational institution. The phrase all revenues is purposes mentioned in the Constitution. We also held that the exemption
unqualified by any reference to the source of revenues. Thus, so long as extends to facilities which are incidental to and reasonably necessary for
the revenues and income are used actually, directly and exclusively for the accomplishment of the main purposes.
educational purposes, then said revenues and income shall be exempt
from taxes and duties. 81
In concrete terms, the lease of a portion of a school building for
commercial purposes, removes such asset from the property
We find it helpful to discuss at this point the taxation of revenues versus tax exemption granted under the Constitution.  There is no exemption
91

the taxation of assets. because the asset is not used actually, directly and exclusively for
educational purposes. The commercial use of the property is
Revenues consist of the amounts earned by a person or entity from the also not incidental to and reasonably necessary for the accomplishment
conduct of business operations.  It may refer to the sale of goods,
82 of the main purpose of a university, which is to educate its students.
rendition of services, or the return of an investment. Revenue is a
component of the tax base in income tax,  VAT,  and local business
83 84
However, if the university actually, directly and exclusively uses for
tax (LBT).85
educational purposes the revenues earned from the lease of its school
building, such revenues shall be exempt from taxes and duties. The tax
exemption no longer hinges on the use of the asset from which the
revenues were earned, but on the actual, direct and exclusive use of the Section 27 (B), on the other hand, states that "[p]roprietary educational
revenues for educational purposes. institutions ... which are nonprofit shall pay a tax of ten percent (10%) on
their taxable income .. . Provided, that if the gross income from unrelated
Parenthetically, income and revenues of non-stock, non-profit trade, business or other activity exceeds fifty percent (50%) of the total
educational institution not used actually, directly and exclusively for gross income derived by such educational institutions ... [the regular
educational purposes are not exempt from duties and taxes. To avail of corporate income tax of 30%] shall be imposed on the entire taxable
the exemption, the taxpayer must factually prove that it used actually, income ... "
92

directly and exclusively for educational purposes the revenues or income

sought to be exempted. By the Tax Code's clear terms, a proprietary educational institution is
entitled only to the reduced rate of 10% corporate income tax. The
The crucial point of inquiry then is on the use of the assets or on reduced rate is applicable only if: (1) the proprietary educational
the use of the revenues. These are two things that must be viewed and institution is nonprofit and (2) its gross income from unrelated trade,
treated separately. But so long as the assets or revenues are used business or activity does not exceed 50% of its total gross income.
actually, directly and exclusively for educational purposes, they are
exempt from duties and taxes. Consistent with Article XIV, Section 4 (3) of the Constitution, these
limitations do not apply to non-stock, non-profit educational institutions.
The tax exemption granted by the
Constitution to non-stock, non-profit Thus, we declare the last paragraph of Section 30 of the Tax Code
educational institutions, unlike the exemption without force and effect for being contrary to the Constitution insofar as it
that may be availed of by proprietary subjects to tax the income and revenues of non-stock, non-profit
educational institutions, is not subject to educational institutions used actually, directly and exclusively for
limitations imposed by law. educational purpose. We make this declaration in the exercise of and
consistent with our duty  to uphold the primacy of the Constitution.
93 94

That the Constitution treats non-stock, non-profit educational institutions

differently from proprietary educational institutions cannot be doubted. As Finally, we stress that our holding here pertains only to non-stock, non-
discussed, the privilege granted to the former is conditioned only on the profit educational institutions and does not cover the other exempt
actual, direct and exclusive use of their revenues and assets for organizations under Section 30 of the Tax Code.
educational purposes. In clear contrast, the tax privilege granted to the
latter may be subject to limitations imposed by law. For all these reasons, we hold that the income and revenues of
DLSU proven to have been used actually, directly and exclusively for
We spell out below the difference in treatment if only to highlight the educational purposes are exempt from duties and taxes.
privileged status of non-stock, non-profit educational institutions
compared with their proprietary counterparts. II. The LOA issued to DLSU is
not entirely void. The
While a non-stock, non-profit educational institution is classified as a tax- assessment for taxable year
exempt entity under Section 30 (Exemptions from Tax on 2003 is valid.
Corporations) of the Tax Code, a proprietary educational institution is
covered by Section 27 (Rates of Income Tax on Domestic Corporations). DLSU objects to the CTA En Banc 's conclusion that the LOA is valid for
taxable year 2003 and insists that the entire LOA should be voided for
To be specific, Section 30 provides that exempt organizations like non- being contrary to RMO No. 43-90, which provides that if tax audit
stock, non-profit educational institutions shall not be taxed on income includes more than one taxable period, the other periods or years shall
received by them as such. be specifically indicated in the LOA.
A LOA is the authority given to the appropriate revenue officer to As the CTA correctly held, the assessment for taxable year 2003 is valid
examine the books of account and other accounting records of the because this taxable period is specified in the LOA. DLSU was fully
taxpayer in order to determine the taxpayer's correct internal revenue apprised that it was being audited for taxable year 2003. Corollarily, the
liabilities  and for the purpose of collecting the correct amount of tax,  in
95 96
assessments for taxable years 2001 and 2002 are void for having
accordance with Section 5 of the Tax Code, which gives the CIR the been unspecified on separate LOAs as required under RMO No. 43-90.
power to obtain information, to summon/examine, and take testimony of
persons. The LOA commences the audit process  and informs the
97
Lastly, the Commissioner's claim that DLSU failed to raise the issue of
taxpayer that it is under audit for possible deficiency tax assessment. the LOA' s validity at the CTA Division, and thus, should not have been
entertained on appeal, is not accurate.
Given the purposes of a LOA, is there basis to completely nullify the LOA
issued to DLSU, and consequently, disregard the BIR and the CTA's On the contrary, the CTA En Banc found that the issue of the LOA's
findings of tax deficiency for taxable year 2003? validity came up during the trial.  DLSU then raised the issue in
100

its memorandum and motion for partial reconsideration with the CTA

We answer in the negative. Division. DLSU raised it again on appeal to the CTA En Banc. Thus, the
CTA En Banc could, as it did, pass upon the validity of the
The relevant provision is Section C of RMO No. 43-90, the pertinent LOA.  Besides, the Commissioner had the opportunity to argue for the
101

portion of which reads: validity of the LOA at the CTA En Banc but she chose not to file her
comment and memorandum despite notice. 102

3. A Letter of Authority [LOA] should cover a taxable period not

exceeding one taxable year. The practice of issuing [LO As] covering III.The CTA correctly admitted
audit of unverified prior years is hereby prohibited. If the audit of a the supplemental evidence
taxpayer shall include more than one taxable period, the other periods or formally offered by DLSU.
years shall be specifically indicated in the [LOA].98

The Commissioner objects to the CTA Division's admission of DLSU's

What this provision clearly prohibits is the practice of issuing LOAs supplemental pieces of documentary evidence.
covering audit of unverified prior years. RMO 43-90 does not say that a
LOA which contains unverified prior years is void. It merely prescribes To recall, DLSU formally offered its supplemental evidence upon filing its
that if the audit includes more than one taxable period, the other periods motion for reconsideration with the CTA Division.  The CTA Division
103

or years must be specified. The provision read as a whole requires that if admitted the supplemental evidence, which proved that a portion of
a taxpayer is audited for more than one taxable year, the BIR must DLSU's rental income was used actually, directly and exclusively for
specify each taxable year or taxable period on separate LOAs. educational purposes. Consequently, the CTA Division reduced DLSU's
tax liabilities.
Read in this light, the requirement to specify the taxable period covered
by the LOA is simply to inform the taxpayer of the extent of the audit and We uphold the CTA Division's admission of the supplemental evidence
the scope of the revenue officer's authority. Without this rule, a revenue on distinct but mutually reinforcing grounds, to wit: (1) the Commissioner
officer can unduly burden the taxpayer by demanding random accounting failed to timely object to the formal offer of supplemental evidence; and
records from random unverified years, which may include documents (2) the CTA is not governed strictly by the technical rules of evidence.
from as far back as ten years in cases of fraud audit. 99

First, the failure to object to the offered evidence renders it admissible,

In the present case, the LOA issued to DLSU is for Fiscal Year Ending and the court cannot, on its own, disregard such evidence. 104

2003 and Unverified Prior Years. The LOA does not strictly comply with
RMO 43-90 because it includes unverified prior years. This does not The Court has held that if a party desires the court to reject the evidence
mean, however, that the entire LOA is void. offered, it must so state in the form of a timely objection and it cannot
raise the objection to the evidence for the first time on appeal.  Because 105
We applied the same reasoning in the subsequent cases of Filinvest
of a party's failure to timely object, the evidence offered becomes part of Development Corporation v. Commissioner of Internal
the evidence in the case. As a consequence, all the parties are Revenue  and Commissioner of Internal Revenue v. PERF Realty
113

considered bound by any outcome arising from the offer of evidence Corporation,  where the taxpayers also submitted the supplemental
114

properly presented. 106

supporting document only upon filing their motions for reconsideration.

As disclosed by DLSU, the Commissioner did not oppose the Although the cited cases involved claims for tax refunds, we also
supplemental formal offer of evidence despite notice.  The107
dispense with the strict application of the technical rules of evidence in
Commissioner objected to the admission of the supplemental evidence the present tax assessment case. If anything, the liberal application of
only when the case was on appeal to the CTA En Banc. By the time the the rules assumes greater force and significance in the case of a
Commissioner raised her objection, it was too late; the formal offer, taxpayer who claims a constitutionally granted tax exemption. While the
admission and evaluation of the supplemental evidence were all fait taxpayers in the cited cases claimed refund of excess tax payments
accompli. based on the Tax Code,  DLSU is claiming tax exemption based on the
115

Constitution. If liberality is afforded to taxpayers who paid more than they

We clarify that while the Commissioner's failure to promptly object had no should have under a statute, then with more reason that we should allow
bearing on the materiality or sufficiency of the supplemental evidence a taxpayer to prove its exemption from tax based on the Constitution.
admitted, she was bound by the outcome of the CTA Division's
assessment of the evidence. 108
Hence, we sustain the CTA's admission of DLSU's supplemental offer of
evidence not only because the Commissioner failed to promptly object,
Second, the CTA is not governed strictly by the technical rules of but more so because the strict application of the technical rules of
evidence. The CTA Division's admission of the formal offer of evidence may defeat the intent of the Constitution.
supplemental evidence, without prompt objection from the
Commissioner, was thus justified. IV. The CTA's appreciation of
evidence is generally binding on
Notably, this Court had in the past admitted and considered evidence the Court unless compelling
attached to the taxpayers' motion for reconsideration. 1âwphi1
reasons justify otherwise.

In the case of BPI-Family Savings Bank v. Court of Appeals,  the tax 109 It is doctrinal that the Court will not lightly set aside the conclusions
refund claimant attached to its motion for reconsideration with the CT A reached by the CTA which, by the very nature of its function of being
its Final Adjustment Return. The Commissioner, as in the present case, dedicated exclusively to the resolution of tax problems, has developed an
did not oppose the taxpayer's motion for reconsideration and the expertise on the subject, unless there has been an abuse or improvident
admission of the Final Adjustment Return.  We thus admitted and gave
110 exercise of authority.  We thus accord the findings of fact by the CTA
116

weight to the Final Adjustment Return although it was only submitted with the highest respect. These findings of facts can only be disturbed on
upon motion for reconsideration. appeal if they are not supported by substantial evidence or there is a
showing of gross error or abuse on the part of the CTA. In the absence of
We held that while it is true that strict procedural rules generally frown any clear and convincing proof to the contrary, this Court must presume
upon the submission of documents after the trial, the law creating the that the CTA rendered a decision which is valid in every respect. 117

CTA specifically provides that proceedings before it shall not be

governed strictly by the technical rules of evidence  and that the
111 We sustain the factual findings of the CTA.
paramount consideration remains the ascertainment of truth. We ruled
that procedural rules should not bar courts from considering undisputed The parties failed to raise credible basis for us to disturb the CTA's
facts to arrive at a just determination of a controversy. 112
findings that DLSU had used actually, directly and exclusively for
educational purposes a portion of its assessed income and that it had containing a chronological listing of the numbers, dates and amounts
remitted the DST payments though an online imprinting machine. covered by receipts or invoices or other relevant documents and the
amount(s) of taxes paid; (d) making findings as to compliance with
a. DLSU used actually, directly, and exclusively for educational purposes substantiation requirements under pertinent tax laws, regulations
a portion of its assessed income. and jurisprudence; (e) submission of a formal report with certification of
authenticity and veracity of findings and conclusions in the performance
To see how the CTA arrived at its factual findings, we review the process of the audit; (f) testifying on such formal report; and (g) performing such
undertaken, from which it deduced that DLSU successfully proved that it other functions as the CTA may direct. 122

used actually, directly and exclusively for educational purposes

a portion of its rental income. Based on the Independent CPA's report and on its own appreciation of
the evidence, the CTA held that only the portion of the rental income
The CTA reduced DLSU' s deficiency income tax and VAT liabilities in pertaining to the substantiated disbursements (i.e., proved by receipts,
view of the submission of the supplemental evidence, which consisted vouchers, etc.) from the CF-CPA Account was considered as used
of statement of receipts, statement of disbursement and fund actually, directly and exclusively for educational purposes. Consequently,
balance and statement of fund changes. 118 the unaccounted and unsubstantiated disbursements must be subjected
to income tax and VAT. 123

These documents showed that DLSU borrowed ₱93.86 Million,  which 119

was used to build the university's Sports Complex. Based on these The CTA then further reduced DLSU's tax liabilities by cancelling the
pieces of evidence, the CTA found that DLSU' s rental income from its assessments for taxable years 2001 and 2002 due to the defective
concessionaires were indeed transmitted and used for the payment of LOA. 124

this loan. The CTA held that the degree of preponderance of evidence
was sufficiently met to prove actual, direct and exclusive use for The Court finds that the above fact-finding process undertaken by the
educational purposes. CTA shows that it based its ruling on the evidence on record, which we
reiterate, were examined and verified by the Independent CPA. Thus, we
The CTA also found that DLSU's rental income see no persuasive reason to deviate from these factual findings.
from other concessionaires, which were allegedly deposited to a fund
(CF-CPA Account),  intended for the university's capital projects,
120 However, while we generally respect the factual findings of the CTA, it
was not proved to have been used actually, directly and exclusively does not mean that we are bound by its conclusions. In the present case,
for educational purposes. The CTA observed that "[DLSU] ... failed to we do not agree with the method used by the CTA to arrive at DLSU' s
fully account for and substantiate all the disbursements from the [fund]." unsubstantiated rental income (i.e., income not proved to have been
Thus, the CTA "cannot ascertain whether rental income from the [other] actually, directly and exclusively used for educational purposes).
concessionaires was indeed used for educational purposes." 121

To recall, the CTA found that DLSU earned a rental

To stress, the CTA's factual findings were based on and supported by the income of ₱l0,610,379.00 in taxable year 2003.  DLSU earned this
125

report of the Independent CPA who reviewed, audited and examined the income from leasing a portion of its premises to: 1) MTG-Sports
voluminous documents submitted by DLSU. Complex, 2) La Casita, 3) Alarey, Inc., 4) Zaide Food Corp., 5) Capri
International, and 6) MTO Bookstore. 126

Under the CTA Revised Rules, an Independent CPA's functions include:

(a) examination and verification of receipts, invoices, vouchers and other To prove that its rental income was used for educational purposes, DLSU
long accounts; (b) reproduction of, and comparison of such reproduction identified the transactions where the rental income was
with, and certification that the same are faithful copies of original expended, viz.: 1) ₱4,007,724.00  used to pay the loan obtained by
127

documents, and pre-marking of documentary exhibits consisting of DLSU to build the Sports Complex; and 2) ₱6,602,655.00 transferred to
voluminous documents; (c) preparation of schedules or summaries the CF-CPA Account. 128
DLSU also submitted documents to the Independent CPA to prove that difference (₱6,602,655.00) was the portion claimed to have been
the ₱6,602,655.00 transferred to the CF-CPA Account was used actually, deposited to the CF-CPA Account.
directly and exclusively for educational purposes. According to the
Independent CPA' findings, DLSU was able to substantiate 2. The CTA then subtracted the supposed substantiated portion of CF-
disbursements from the CF-CPA Account amounting to ₱6,259,078.30. CPA disbursements (₱1,761,308.37) from the ₱6,602,655.00 to arrive at
the supposed unsubstantiated portion of the rental income
Contradicting the findings of the Independent CPA, the CTA concluded (₱4,841,066.65). 132

that out of the ₱l0,610,379.00 rental

income, ₱4,841,066.65 was unsubstantiated, and thus, subject to income 3. The substantiated portion of CF-CPA disbursements
tax and VAT. 129
(₱l,761,308.37)  was derived by multiplying the rental income claimed to
133

have been added to the CF-CPA Account (₱6,602,655.00) by 26.68% or

The CTA then concluded that the ratio of substantiated disbursements to the ratio of substantiated disbursements to total
the total disbursements from the CF-CPA Account for taxable year 2003 disbursements (₱23,463,543.02).
is only 26.68%.  The CTA held as follows:
130

4. The 26.68% ratio  was the result of dividing the substantiated

134

However, as regards petitioner's rental income from Alarey, Inc., Zaide disbursements from the CF-CPA Account as found by the Independent
Food Corp., Capri International and MTO Bookstore, which were CPA (₱6,259,078.30) by the total disbursements (₱23,463,543.02) from
transmitted to the CF-CPA Account, petitioner again failed to fully the same account.
account for and substantiate all the disbursements from the CF-CPA
Account; thus failing to prove that the rental income derived therein were We find that this system of calculation is incorrect and does not truly give
actually, directly and exclusively used for educational purposes. Likewise, effect to the constitutional grant of tax exemption to non-stock, non-profit
the findings of the Court-Commissioned Independent CPA show that the educational institutions. The CTA's reasoning is flawed because it
disbursements from the CF-CPA Account for fiscal year 2003 amounts to required DLSU to substantiate an amount that is greater than the rental
₱6,259,078.30 only. Hence, this portion of the rental income, being the income deposited in the CF-CPA Account in 2003.
substantiated disbursements of the CF-CPA Account, was considered by
the Special First Division as used actually, directly and exclusively for To reiterate, to be exempt from tax, DLSU has the burden of proving that
educational purposes. Since for fiscal year 2003, the total disbursements the proceeds of its rental income (which amounted to a total of ₱10.61
per voucher is ₱6,259,078.3 (Exhibit "LL-25-C"), and the total million)  were used for educational purposes. This amount was divided
135

disbursements per subsidiary ledger amounts to ₱23,463,543.02 (Exhibit into two parts: (a) the ₱4.0l million, which was used to pay the loan
"LL-29-C"), the ratio of substantiated disbursements for fiscal year 2003 obtained for the construction of the Sports Complex; and (b) the ₱6.60
is 26.68% (₱6,259,078.30/₱23,463,543.02). Thus, the substantiated million,  which was transferred to the CF-CPA account.
136

portion of CF-CPA Disbursements for fiscal year 2003, arrived at by

multiplying the ratio of 26.68% with the total rent income added to and
For year 2003, the total disbursement from the CF-CPA account
used in the CF-CPA Account in the amount of ₱6,602,655.00 is
amounted to ₱23 .46 million.  These figures, read in light of the
137

₱1,761,588.35.  (emphasis supplied)

131

constitutional exemption, raises the question: does DLSU claim that the

whole total CF-CPA disbursement of ₱23.46 million is tax-exempt so
For better understanding, we summarize the CTA's computation as that it is required to prove that all these disbursements had been
follows: made for educational purposes?

1. The CTA subtracted the rent income used in the construction of the We answer in the negative.
Sports Complex (₱4,007,724.00) from the rental income
(₱10,610,379.00) earned from the abovementioned concessionaries. The
The records show that DLSU never claimed that the total CF-CPA
disbursements of ₱23.46 million had been for educational purposes and
should thus be tax-exempt; DLSU only claimed ₱10.61 million for tax- Based on these considerations, DLSU should therefore be liable only for
exemption and should thus be required to prove that this amount had the difference between what it claimed and what it has proven. In more
been used as claimed. concrete terms, DLSU only had to prove that its rental income for taxable
year 2003 (₱10,610,379.00) was used for educational purposes. Hence,
Of this amount, ₱4.01 had been proven to have been used for while the total disbursements from the CF-CPA Account amounted to
educational purposes, as confirmed by the Independent CPA. The ₱23,463,543.02, DLSU only had to substantiate its Pl0.6 million rental
amount in issue is therefore the balance of ₱6.60 million which was income, part of which was the ₱6,602,655.00 transferred to the CF-CPA
transferred to the CF-CPA which in turn made disbursements of ₱23.46 account. Of this latter amount, ₱6.259 million was substantiated to have
million for various general purposes, among them the ₱6.60 million been used for educational purposes.
transferred by DLSU.
To summarize, we thus revise the tax base for deficiency income tax and
Significantly, the Independent CPA confirmed that the CF-CPA made VAT for taxable year 2003 as follows:
disbursements for educational purposes in year 2003 in the amount
₱6.26 million. Based on these given figures, the CT A concluded that the CTA
expenses for educational purposes that had been coursed through the Decision
138
Revised
CF-CPA should be prorated so that only the portion that ₱6.26 million
bears to the total CF-CPA disbursements should be credited to DLSU for Rental income 10,610,379.00 10,610,379.
tax exemption.
: Rent income used in construction of the Sports 4,007,724.00 4,007,724.
This approach, in our view, is flawed given the constitutional requirement Complex
that revenues actually and directly used for educational purposes should
be tax-exempt. As already mentioned above, DLSU is not claiming that    
the whole ₱23.46 million CF-CPA disbursement had been used for Rental income deposited to the CF-CPA Account 6,602,655.00 6,602,655.
educational purposes; it only claims that ₱6.60 million transferred to CF-
CPA had been used for educational purposes. This was what DLSU    
needed to prove to have actually and directly used for educational
purposes. Less: Substantiated portion of CF-CPA 1,761,588.35 6,259,078.
disbursements
That this fund had been first deposited into a separate fund (the CF -CPA
established to fund capital projects) lends peculiarity to the facts of this    
case, but does not detract from the fact that the deposited funds were Tax base for deficiency income tax and VAT 4,841,066.65 343.576.
DLSU revenue funds that had been confirmed and proven to have been
actually and directly used for educational purposes via the CF-CPA. That
the CF-CPA might have had other sources of funding is irrelevant On DLSU' s argument that the CTA should have appreciated its evidence
because the assessment in the present case pertains only to the rental in the same way as it did with the evidence submitted by Ateneo
income which DLSU indisputably earned as revenue in 2003. That the in another separate case, the CTA explained that the issue in the Ateneo
proven CF-CPA funds used for educational purposes should not be case was not the same as the issue in the present case.
prorated as part of its total CF-CPA disbursements for purposes of
crediting to DLSU is also logical because no claim whatsoever had been The issue in the Ateneo case was whether or not Ateneo could be held
made that the totality of the CF-CPA disbursements had been for liable to pay income taxes and VAT under certain BIR and Department of
educational purposes. No prorating is necessary; to state the obvious, Finance issuances  that required the educational institution to own and
139

exemption is based on actual and direct use and this DLSU has operate the canteens, or other commercial enterprises within its campus,
indisputably proven. as condition for tax exemption. The CTA held that the Constitution does
not require the educational institution to own or operate these commercial Independent CPA testified that some disbursements had not been proven
establishments to avail of the exemption. 140
to have been used actually, directly and exclusively for educational
purposes. 144

Given the lack of complete identity of the issues involved, the CTA held
that it had to evaluate the separate sets of evidence differently. The CTA The final nail on the question of evidence is DLSU's own admission that
likewise stressed that DLSU and Ateneo gave distinct defenses and that the original of these documents had not in fact been produced before the
its wisdom "cannot be equated on its decision on two different cases with CTA although it claimed that there was no bad faith on its part.  To our
145

two different issues."

141
mind, this admission is a good indicator of how the Ateneo and the DLSU
cases varied, resulting in DLSU's failure to substantiate a portion of its
DLSU disagrees with the CTA and argues that the entire assessment claimed exemption.
must be cancelled because it submitted similar, if not stronger sets of
evidence, as Ateneo. We reject DLSU's argument for being non Further, DLSU's invocation of Section 5, Rule 130 of the Revised
sequitur. Its reliance on the concept of uniformity of taxation is also
incorrect. Rules on Evidence, that the contents of the missing supporting
documents were proven by its recital in some other authentic
First, even granting that Ateneo and DLSU submitted similar documents on record,  can no longer be entertained at this late stage of
146

evidence, the sufficiency and materiality of the evidence supporting the proceeding. The CTA did not rule on this particular claim. The CTA
their respective claims for tax exemption would necessarily differ also made no finding on DLSU' s assertion of lack of bad faith. Besides, it
because their attendant issues and facts differ. is not our duty to go over these documents to test the truthfulness of their
contents, this Court not being a trier of facts.
To state the obvious, the amount of income received by DLSU and by
Ateneo during the taxable years they were assessed varied. The amount Second, DLSU misunderstands the concept of uniformity of taxation.
of tax assessment also varied. The amount of income proven to have
been used for educational purposes Equality and uniformity of taxation means that all taxable articles or kinds
also varied because the amount substantiated varied.  Thus, the
142
of property of the same class shall be taxed at the same rate.  A tax is
147

amount of tax assessment cancelled by the CTA varied. uniform when it operates with the same force and effect in every place
where the subject of it is found.  The concept requires that all subjects of
148

On the one hand, the BIR assessed DLSU a total tax deficiency taxation similarly situated should be treated alike and placed in equal
of ₱17,303,001.12 for taxable years 2001, 2002 and 2003. On the other footing.
149

hand, the BIR assessed Ateneo a total deficiency tax

of ₱8,864,042.35 for the same period. Notably, DLSU was assessed In our view, the CTA placed Ateneo and DLSU in equal footing. The CTA
deficiency DST, while Ateneo was not. 143
treated them alike because their income proved to have been used
actually, directly and exclusively for educational purposes were exempted
Thus, although both Ateneo and DLSU claimed that they used their rental from taxes. The CTA equally applied the requirements in the YMCA case
income actually, directly and exclusively for educational purposes by to test if they indeed used their revenues for educational purposes.
submitting similar evidence, e.g., the testimony of their employees on the
use of university revenues, the report of the Independent CPA, their DLSU can only assert that the CTA violated the rule on uniformity if it can
income summaries, financial statements, vouchers, etc., the fact remains show that, despite proving that it used actually, directly and exclusively
that DLSU failed to prove that a portion of its income and revenues had for educational purposes its income and revenues, the CTA still affirmed
indeed been used for educational purposes. the imposition of taxes. That the DLSU secured a different result
happened because it failed to fully prove that it used actually, directly and
The CTA significantly found that some documents that could have fully exclusively for educational purposes its revenues and income.
supported DLSU's claim were not produced in court. Indeed, the
On this point, we remind DLSU that the rule on uniformity of taxation Electronic DST Imprinting Machine but the bank that handled its
does not mean that subjects of taxation similarly situated are treated mortgage and loan transactions. RR No. 9-2000 expressly includes
in literally the same way in all and every occasion. The fact that the banks in the class of taxpayers that can use the On-Line Electronic DST
Ateneo and DLSU are both non-stock, non-profit educational institutions, Imprinting Machine.
does not mean that the CTA or this Court would similarly decide every
case for (or against) both universities. Success in tax litigation, like in any Thus, the Court sustains the finding of the CTA that DLSU proved the
other litigation, depends to a large extent on the sufficiency of evidence.
DLSU's evidence was wanting, thus, the CTA was correct in not fully payment of the assessed DST deficiency, except for the unpaid balance
cancelling its tax liabilities. of

b. DLSU proved its payment of the DST ₱13,265.48. 152

The CTA affirmed DLSU's claim that the DST due on its mortgage and WHEREFORE, premises considered, we DENY the petition of the
loan transactions were paid and remitted through its bank's On-Line Commissioner of Internal Revenue in G.R. No. 196596 and AFFIRM the
Electronic DST Imprinting Machine. The Commissioner argues that December 10, 2010 decision and March 29, 2011 resolution of the Court
DLSU is not allowed to use this method of payment because an of Tax Appeals En Banc in CTA En Banc Case No. 622, except for the
educational institution is excluded from the class of taxpayers who can total amount of deficiency tax liabilities of De La Salle University, Inc.,
use the On-Line Electronic DST Imprinting Machine. which had been reduced.

We sustain the findings of the CTA. The Commissioner's argument lacks We also DENY both the petition of De La Salle University, Inc. in G.R.
basis in both the Tax Code and the relevant revenue regulations. No. 198841 and the petition of the Commissioner of Internal Revenue in
G.R. No. 198941 and thus AFFIRM the June 8, 2011 decision and
DST on documents, loan agreements, and papers shall be levied, October 4, 2011 resolution of the Court of Tax Appeals En Banc in
collected and paid for by the person making, signing, issuing, accepting, CTA En Banc Case No. 671, with the MODIFICATION that the base for
or transferring the same.  The Tax Code provides that whenever one
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the deficiency income tax and VAT for taxable year 2003 is ₱343,576.70.
party to the document enjoys exemption from DST, the other party not
exempt from DST shall be directly liable for the tax. Thus, it is clear that SO ORDERED.
DST shall be payable by any party to the document, such that the
payment and compliance by one shall mean the full settlement of the
DST due on the document.

In the present case, DLSU entered into mortgage and loan agreements
with banks. These agreements are subject to DST.  For the purpose of
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showing that the DST on the loan agreement has been paid, DLSU
presented its agreements bearing the imprint showing that DST on the
document has been paid by the bank, its counterparty. The imprint
should be sufficient proof that DST has been paid. Thus, DLSU cannot
be further assessed for deficiency DST on the said documents.

Finally, it is true that educational institutions are not included in the class
of taxpayers who can pay and remit DST through the On-Line Electronic
DST Imprinting Machine under RR No. 9-2000. As correctly held by the
CTA, this is irrelevant because it was not DLSU who used the On-Line