Young Men's Christian Association of the Philippines, Inc. v. Commissioner of Internal Revenue

[CA-G.R. SP No. 32417. July 12, 1994.] (C.T.A. Case No. 4347) YOUNG MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS , respondents . D E C I S I O N PARDO , J p : The case is an appeal taken by petitioner from the decision of the Court of Tax Appeals sustaining the BIR's assessment of the following (a) 1980 deficiency expanded withholding tax P1,798.93 (b) 1980 deficiency expanded withholding tax on wages 33,058.82 Petitioner is a religious, charitable and educational institution established primarily for the promotion of social welfare, pleasure, recreation and other non-profitable purposes, for the development of the youth into upright civic minded and useful citizens and no part of the net income of which inures to the benefit of any private stockholder or member. As held by the Court of Tax Appeals, the petitioner was exempted from income taxation pursuant to Section 27 (g) and (h) of the Tax Code [of 1977]. On July 2, 1984, the Commissioner of Internal Revenue notified the petitioner that for the year 1980, there was due the amount of P415,651.01. as deficiency income tax and interest, expanded withholding tax for rentals and professional fees and withholding tax on wages, surcharge and interest. In due time, petitioner protested the deficiency tax assessments. On January 13, 1989, received by petitioner on February 13, 1989, the Commissioner of Internal Revenue issued a decision on petitioner's protest. He cancelled the following assessments, including increments, to wit: 1980 Deficiency Fixed Tax (Real Estate Dealer) P7,694.71 1980 Deficiency Expanded Withholding Tax (Professional Fees). 8,215.06 However, the Commissioner reiterated the following assessments, including increments, namely: 1980 Deficiency Fixed Tax (as operator of parking lots) P353.15 1980 Deficiency Contractor's Tax 3,129.73 1980 Deficiency Income Tax 372,578.20 1980 Deficiency Expanded Withholding Tax (Rental of Pinsetter) 1,798.93 1980 Deficiency Withholding Tax on Wages 33,058.82 On March 14, 1989, petitioner filed with the Court of Tax Appeals a petition for review of the disputed assessments. After due hearing, at which the parties adduced their respective evidence, on August 11, 1993, the Court of Tax Appeals rendered a decision, the dispositive portion of which reads as follows: "WHEREFORE, in view of all the foregoing, the following assessments are hereby dismissed for lack of merit: 1980 Deficiency Fixed Tax P353.15; 1980 Deficiency Contractor's Tax 3,129.23; 1980 Deficiency Income Tax 372,578.20. While the following assessments are hereby sustained: 1980 Deficiency Expanded Withholding Tax P1,798.93 1980 Deficiency Withholding Tax on Wages P33,058.82 plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid by not to exceed three (3) years pursuant to Section 51 (e) (2) & (3) of the National Internal Revenue Code effective as of 1984. On September 3, 1993, petitioner filed a motion for reconsideration of the decision insofar as it sustained the remaining assessments in dispute. On October 12, 1993, the Court of Tax Appeals denied petitioner's motion. Hence, this petition for review. The Court of Tax Appeals ruled that the petitioner is a non-stock, non-profit corporation organized for the promotion of social welfare as well as for pleasure, recreation and other non-profitable purposes and that it is exempt from income tax. Indeed, the tax court ruled that the petitioner's income is exempt from tax even if earned from any of its property, real or personal, or from any activity conducted for profit, regardless of the disposition of such income. Consequently, the tax court ruled that the petitioner was not subject to fixed tax as operator of parking lots and to contractor's tax. The tax court also ruled that petitioner was not liable for income tax on rental income or for any income from activity which would produce profit as long as no profit inured to the benefit of any private stockholder or individual and that it remained non-taxable as long as its activities were in pursuance of the benevolent objectives of the institution. Under the said ruling, the tax court held that there was no legal basis for the imposition of deficiency fixed tax and contractor's tax. The tax court also deleted petitioner's liability for deficiency income tax amounting to P372,578.20. However, the tax court held petitioner liable for deficiency withholding tax on the rental of pinsetter amounting to P1,798.93, and for deficiency withholding tax on wages of casual employees. The tax court ruled that petitioner was obliged to withholding taxes on rental on the pinsetters and on the salaries and wages of casual laborers and regular employees. Petitioner contended that the rental of pinsetters was actually payment for a service contractor that serviced the pinsetting machines of the bowling alleys when they were out of order by that the invoices could no longer be located due to petitioner's transfer of office and that petitioner was not required to withhold taxes on the payment to its service contractor nor on the wages of casual laborers. We can not sustain petitioner's view, While admittedly, the petitioner is not liable for income tax, it is covered by the revenue regulation (expanded withholding tax regulations) requiring it to withhold taxes on its payment to service contractors or on the wages of casual employees whether or not petitioner is engaged in trade or business (Sec. 2. Revenue Regulation No. 13-78, Series of 1978). IN VIEW WHEREOF, the Court AFFIRMS the appealed decision of the Court of Tax Appeals. No costs. SO ORDERED. Torres, Jr . and Ibay-Somera, JJ ., concur.