DOJ Opinion No. 130, s. 1987

DOJ OPINION NO. 130 , s. 1987 November 19, 1987 Commissioner Bienvenido A. Tan, Jr. Bureau of Internal Revenue Quezon City Sir : This has reference to your request for opinion on the following queries, to wit: (1) "Is the exemption from tax of the revenue and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes effective immediately upon the ratification of the Constitution or is a legislative act necessary in order to specify when tax exemption should actually commence to apply?" (2) "Corollary thereto, is legislation also essential in order to prescribe the requirements for exemption, such as who would qualify as 'non-stock, non-profit' educational institutions and so as to specify the nature and scope of the phrase 'actually, directly and exclusively used for educational purposes' as a requisite for tax exemption of the school's revenue and assets?" LibLex (3) "In case of proprietary educational institutions including those cooperatively owned, is prior legislation likewise necessary before tax exemption can accrue in their favor?", and (4) "With respect to grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes, is the tax exemption thereof applicable to both non-profit as well as proprietary educational institutions?" The constitutional provisions pertinent to the abovementioned queries read as follows: "All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purpose shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law." "Propriety educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law including restrictions on dividends and provisions for reinvestments." (Sec. 4[3], Art. XIV, 1987 Constitution) "Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax." (Sec. 4[4], Idem ) With respect to the first query, it is believed that the tax exemption in Section 4(3), supra , took effect upon the ratification of the charter. The reason is that a constitutional provision declaring certain properties as exempt from taxation is self-executing and propio vigore exempts the property specified and does not therefore need a legislative enactment to put it into effect (Alejandro, Taxation, 1961 Ed., p. 275; 71 Am Jur 2d 623). This is consonant with the presumption that provisions of the Constitution are generally self-executing, otherwise it will be within the powers of the legislature to ignore or practically nullify the directions of the fundamental law (Gonzales, Constitutional Law, p. 17). As regards the second query, it follows from the foregoing answer that there is no necessity for legislations to prescribe the requirements for the application of such exemption. For one thing, the terms "non-stock, non-profit" are fairly settled legal concepts and are adequately defined by existing laws (see Secs. 3 and 87, Corporation Code). For another, the deliberations of the 1986 constituent assembly disclose that the members thereof were clear as to the meaning of such phrase (see Journal of the Constitutional Commission No. 40 dated September 8, 1986, pp. 40-41). Besides, any doubt as to the meaning of the phrases "non-stock, non-profit" and "actually, directly and exclusively used for educational purposes" can be made the subject of executive or judicial interpretations. prcd The foregoing notwithstanding, it has been said that the self-executing character of a constitutional provision granting exemption from taxes does not preclude the legislature from enacting legislations providing for reasonable regulations in the exercise of the right to exemptions on the basis of the rule that the legislature is empowered to enact statutes providing for reasonable regulations and control of rights granted by the constitution (Chesney vs. Bryan, 101 P2d 1106; Gherna vs. State, 146 P 494; State vs. Allred, 4 ALR 2d 735). Anent the third query, the second paragraph of Section 4(3), supra , states that proprietary educational institutions "may likewise be entitled to such exemptions subject to limitations provided by law." It is believed that these institutions may enjoy the tax exemptions with respect to their assets and revenues only after the lawmaking body shall have prescribed the conditions under which the exemptions may be enjoyed. It is noted that the language employs the word "may", which is generally construed as permissive or discretionary, the rule being that the words used in the Constitution should be given their common and ordinary meaning (J.M. Tuason vs. Land Tenure Administration, 31 SCRA 413; Occea vs. Commission, 95 SCRA 755). This means that the fundamental law has given Congress discretion to determine whether or not assets and revenues of proprietary educational institutions should likewise enjoy exemption from taxes. The last query should be answered in the affirmative. All grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes to both non-profit and propriety educational institutions shall be exempt from taxes. It is axiomatic that where the law does not distinguish, one should not distinguish. It is noted that exemption in Section 4(3) is granted on the basis of the intended use of the donation and not on the character of the recipient-donee. It is pertinent to add, however, that this particular exemption will apply only after the Congress has laid down the conditions for its enjoyment. Please be advised accordingly. Very truly yours, (SGD.) SEDFREY A. ORDOEZ Secretary of Justice