In Hon. Kim S. Jacinto-Henares v. St. Paul College of Makati, the Supreme Court addressed the tax exemption privilege of non-stock, non-profit educational institutions. The Court ultimately denied the petition as moot, acknowledging that Revenue Memorandum Order (RMO) No. 44-2016 had superseded RMO No. 20-2013, effectively excluding non-stock, non-profit educational institutions from the coverage of the earlier order. This decision reinforces the constitutional mandate that revenues and assets used directly and exclusively for educational purposes are exempt from taxes, emphasizing the importance of upholding the intent and language of the Constitution in tax-related matters.

When Tax Rules Clash with Constitutional Exemptions: The St. Paul College Case

The legal saga began when St. Paul College of Makati (SPCM) challenged the constitutionality of RMO No. 20-2013, issued by the Bureau of Internal Revenue (BIR). SPCM contended that this RMO imposed additional prerequisites for non-stock, non-profit educational institutions to avail of the tax exemption privilege guaranteed under Section 4(3) of Article XIV of the Constitution. The heart of the matter was whether the BIR, through its RMO, could add requirements that might diminish the constitutional privilege granted to educational institutions.

SPCM argued that RMO No. 20-2013 introduced registration and approval requirements, necessitating an application for tax exemption subject to the CIR’s approval via a Tax Exemption Ruling (TER), valid for three years and subject to renewal. This, according to SPCM, added an extra layer to the existing requirements under Department of Finance Order No. 137-87. Furthermore, the RMO stipulated that failure to file an annual information return would automatically strip a non-stock, non-profit educational institution of its income tax-exempt status. The RTC initially sided with SPCM, issuing a temporary restraining order and later a writ of preliminary injunction against the implementation of RMO No. 20-2013.

The RTC’s decision hinged on the premise that RMO No. 20-2013, by imposing additional prerequisites, diminished a constitutional privilege—something even Congress could not do through legislation, let alone the CIR through its quasi-legislative functions. The CIR, however, maintained that the RMO merely provided guidelines for the issuance of tax exemption rulings and did not impose new requirements. This divergence in interpretation set the stage for the Supreme Court’s intervention.

However, before the Supreme Court could rule on the merits of the case, a significant event occurred: the issuance of RMO No. 44-2016 by the new CIR. This subsequent RMO explicitly excluded non-stock, non-profit educational institutions from the coverage of RMO No. 20-2013. The Supreme Court took judicial notice of this development, recognizing that it rendered the petition moot and academic. A case becomes moot when it ceases to present a justiciable controversy due to supervening events, making any adjudication of no practical value.

The Supreme Court emphasized that the tax exemption for non-stock, non-profit educational institutions is directly conferred by paragraph 3, Section 4, Article XIV 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.”

This constitutional exemption is reiterated in Section 30 (H) of the 1997 Tax Code, as amended. The Court underscored that only two requisites exist for this exemption: (1) the school must be non-stock and non-profit, and (2) the income must be actually, directly, and exclusively used for educational purposes. The Court stressed that no other conditions or limitations should diminish the intent of the Constitution.

While the Court denied the petition due to mootness, it set aside the RTC’s decision declaring RMO No. 20-2013 unconstitutional. The issuance of RMO No. 44-2016 effectively addressed the concerns raised by SPCM and rendered the original controversy obsolete. The implications of this decision lie in the affirmation of the constitutional right to tax exemption for qualified educational institutions, free from additional, potentially burdensome, requirements imposed by administrative issuances.

This case underscores the importance of aligning administrative regulations with constitutional mandates, particularly in matters of tax exemptions for educational institutions. It serves as a reminder that the BIR’s authority to issue revenue memorandum orders must be exercised within the bounds of the law and the Constitution. Any attempt to diminish or circumvent constitutional rights through administrative issuances will likely face legal challenges and judicial scrutiny.

FAQs

What was the key issue in this case?	The central issue was whether RMO No. 20-2013 unconstitutionally imposed additional requirements for non-stock, non-profit educational institutions to avail of the tax exemption privilege guaranteed by the Constitution. St. Paul College of Makati argued that the RMO added prerequisites that diminished this constitutional right.
What is RMO No. 20-2013?	RMO No. 20-2013, issued by the Bureau of Internal Revenue, prescribed policies and guidelines for issuing tax exemption rulings to qualified non-stock, non-profit corporations and associations under Section 30 of the National Internal Revenue Code. It was later amended and then effectively superseded by RMO No. 44-2016 concerning non-stock, non-profit educational institutions.
Why did the Supreme Court deny the petition?	The Supreme Court denied the petition filed by the CIR because the issuance of RMO No. 44-2016 rendered the case moot and academic. This subsequent RMO excluded non-stock, non-profit educational institutions from the coverage of RMO No. 20-2013, resolving the original controversy.
What does the Constitution say about tax exemptions for educational institutions?	Section 4(3) of Article XIV of the Constitution states that “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.” This provision directly confers tax exemption.
What are the requirements for a non-profit educational institution to be tax-exempt?	The Supreme Court clarified that there are only two requirements: (1) the school must be non-stock and non-profit, and (2) the income must be actually, directly, and exclusively used for educational purposes. No other conditions or limitations can diminish this constitutional right.
What is the effect of RMO No. 44-2016?	RMO No. 44-2016 clarified that non-stock, non-profit educational institutions are excluded from the coverage of RMO No. 20-2013. This means these institutions are not subject to the additional requirements and procedures prescribed by the earlier RMO for obtaining and renewing tax exemption rulings.
Was RMO No. 20-2013 declared unconstitutional?	While the Regional Trial Court declared RMO No. 20-2013 unconstitutional, the Supreme Court set aside this decision due to the case becoming moot. The Supreme Court did not make a determination on the constitutionality of RMO No. 20-2013.
Does this ruling impact other types of non-profit organizations?	This specific ruling primarily concerns non-stock, non-profit educational institutions. However, the principle of upholding constitutional rights against potentially restrictive administrative issuances can extend to other types of non-profit organizations with constitutionally protected rights or exemptions.

In conclusion, the Supreme Court’s resolution in Hon. Kim S. Jacinto-Henares v. St. Paul College of Makati underscores the primacy of constitutional provisions in granting tax exemptions to non-stock, non-profit educational institutions. While the specific legal challenge was rendered moot by subsequent administrative action, the case reinforces the principle that administrative regulations must align with and not diminish constitutional rights. This outcome safeguards the financial resources of educational institutions dedicated to furthering their educational missions.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Hon. Kim S. Jacinto-Henares v. St. Paul College of Makati, G.R. No. 215383, March 08, 2017