G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN’S CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents.

FACTS

The private respondent, Young Men’s Christian Association of the Philippines, Inc. (YMCA), is an association organized and operated exclusively for the promotion of social welfare and the physical and character development of the youth, as reflected in its Constitution and By-laws. To finance its multifarious projects and programs, YMCA engages in fund-raising activities, deriving income from membership dues, charges for the use of facilities (bowling, billiards, lodging), interest income, parking fees, and from restaurant and canteen operations. For the taxable year ending December 1980, YMCA earned gross rental income of P676,829.00 from leasing facilities to small shop owners and restaurant operators, and P44,259.00 from parking fees. The Commissioner of Internal Revenue assessed taxes on this income. The Court of Tax Appeals found that these leasing and parking operations were reasonably necessary and incidental to YMCA’s objectives, that rentals and fees were minimal and just enough to cover operation and maintenance costs, and that the earnings constituted the bulk of the income used to support YMCA’s programs. The Court of Appeals initially reversed this but later granted YMCA’s motion for reconsideration and upheld the Tax Court’s findings.

ISSUE

Whether the rental income and parking fees derived by YMCA from its properties are subject to income tax, notwithstanding YMCA’s status as a tax-exempt organization under Section 27 of the National Internal Revenue Code.

RULING

The dissenting opinion of Justice Bellosillo votes to deny the petition and hold the income not taxable. The opinion rules that the income derived by YMCA from its properties is not subject to tax. It interprets the last paragraph of Section 27 of the National Internal Revenue Code, which states that “the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax,” to mean that only income from properties or activities “conducted for profit” is taxable. The phrase “conducted for profit” qualifies and limits the types of income that are taxable. Since the Court of Tax Appeals and the Court of Appeals found that YMCA’s leasing and parking activities were not profit-making ventures but were aimed at fulfilling members’ needs and raising funds to finance its charitable programs, the income therefrom is not taxable. The opinion further states that the criterion for taxing income derived from property of an exempt corporation is whether it arises from a purely profit-making business. If the income is reasonable and incidental to the charitable, educational, or religious purpose of the corporation, it remains tax-exempt. The opinion cites precedent that the mere realization of profits does not automatically remove an institution’s tax exemption if no part of the profits inures to the benefit of any private individual, and analogizes to the tax exemption of educational institutions. It also cites the case of YMCA of Manila v. Collector of Internal Revenue, which held YMCA to be an institution used exclusively for religious, charitable, and educational purposes and thus entitled to tax exemption.