GR L 11807; (January, 1961) (Digest)
G.R. No. L-11807; January 28, 1961
COLLECTOR OF INTERNAL REVENUE, petitioner, vs. CONVENTION OF PHILIPPINE BAPTIST CHURCHES and THE COURT OF TAX APPEALS, respondents.
FACTS
The respondent, Convention of Philippine Baptist Churches, is a domestic religious corporation that owns and operates the Iloilo Mission Hospital. The hospital runs a pharmacy that supplies medicines exclusively to its patients. Medicines are provided free of charge to charity patients, while paying patients are charged the cost plus a 10% overprice. This overprice is designed to recover the cost of medicines given free to charity patients and the associated handling costs. On April 14, 1954, the petitioner, the Collector of Internal Revenue, assessed and demanded from the respondent the amount of P505.00 as a graduated fixed tax, including penalties, for the years 1946 to 1952, based on the total receipts from medicines sold to paying patients. The respondent contested the assessment through several motions for reconsideration filed with the Collector. After the Collector denied these requests, the respondent paid the tax under protest to avoid a levy on hospital equipment and subsequently appealed to the Court of Tax Appeals.
ISSUE
The primary issues are: (1) whether the respondent’s appeal to the Court of Tax Appeals was filed within the prescribed period; and (2) whether the sales of medicines by the respondent’s hospital pharmacy to its paying patients are subject to the privilege tax on business under the National Internal Revenue Code.
RULING
The Supreme Court affirmed the decision of the Court of Tax Appeals. On the procedural issue, the Court held that the respondent’s appeal was timely filed. It ruled that a motion for reconsideration filed with the Collector of Internal Revenue suspends the running of the 30-day period to appeal to the Court of Tax Appeals under Republic Act No. 1125. The period resumes the day after the taxpayer receives the denial of the reconsideration. Computing the periods from the relevant dates of denial and considering the interregnum during the court’s establishment, the respondent consumed only 20 days, well within the statutory limit.
On the substantive tax issue, the Court ruled that the respondent was not engaged in business for profit and was therefore exempt from the privilege tax. The operation of the pharmacy was not a commercial venture but an integral facility of the hospital to serve its patients. The 10% overcharge to paying patients was not for profit but was strictly calculated to offset the cost of medicines supplied free to charity patients and the handling expenses. The fundamental test is whether the activity is operated for profit. Since the pharmacy was operated not for gain but as a necessary service to hospital patients, with any excess charge merely covering costs for charitable work, the sales to paying patients were not taxable. The Court thus upheld the order for a refund of the tax paid, though subsequent resolutions exempted the government from paying costs and interest on the refund.