The Supreme Court has stopped the Bureau of Internal Revenue from collecting P122.4-million income tax deficiency from La Sallian Educational Innovators Foundation or De La Salle University-College of St. Benilde Inc. for the year 2002.
In a 19-page decision, the SC’s Third Division through Associate Justice Andres Reyes ordered the cancellation of the assessment notice that the Commissioner of Internal Revenue issued in 2005 covering the fiscal year ending May 31, 2002 against DLSU-College of St. Benilde for deficient income tax.
The high court granted the petition filed by DLSU-College of St. Benilde seeking the reversal of the April 19, 2012 decision of the Court of Tax Appeals en banc that granted the government’s tax collecting agency’s petition to hold DLSU-College of St. Benilde liable to pay P122.4-million deficiency income tax.
The SC ruled that the 1987 Constitution expressly exempts all revenues and assets of non-stock, non-profit educational institutions from taxes provided that they are actually, directly and exclusively used for educational purposes.
In particular, it cited Article XIV, Section 4, Paragraph 3 of the 1987 Constitution which states: “All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties.”
But the BIR insisted that the foundation has failed to comply with the constitutional requirements for being a profit-oriented educational institution, thus, it is no longer a tax-exempt entity, and is subject to a 10 percent income tax rate as a taxable proprietary educational institution.
The revenue collecting agency said the petitioner is not a non-profit educational institution anymore due to its alleged enormous profits.
It accused the petitioner of operating contrary to the nature of a non- profit educational institution by generating massive profits in the amount of P643,000,000.00 from tuition fees and having cash worth P775,000,000 in its bank.
But the SC said BIR’s allegations were unsupported by facts, noting that based on the evidence presented, the P643,000,000 is not petitioner’s profit as it is just the gross receipt from school year 2002.
The tribunal said the BIR overlooked petitioner’s administrative and non-administrative expenses amounting to P582,903,965.00, which constituted the total operating expenses of the foundation for the subject period.
“Considering the clear explanation of the nature of the money involved, it is evident that all of petitioner Foundation’s income is actually, directly and exclusively used or earmarked for promoting its educational purpose,” the high court declared.