This is an old taxation case which had been covered by the 1935 Constitution.
Question: Is tax exemption which is embraced in the words "Exclusively Used for Educational Purposes" liberally construed?
Answer: YES.
Therefore: A reasonable emphasis can be made that the tax exemption may extend to facilities which are INCIDENTAL TO and REASONABLY NECESSARY for the accomplishment of the main purpose (which is to educate).
Further Question: Can a ground floor of an educational institution (which is tax exempted), being used for commercial purpose and its second floor being used for residential purpose fall under said extension?
Further Answer: The residential issue may be qualified depending on who is residing. The commercial issue? NO.
FACTS:
Abra Valley College (a private school), located at Benguet, Abra, an educational corporation and institution of higher learning incorporated with the SEC filed a complaint with the Benguet provincial fiscal to annul and declare void the NOTICE OF SEIZURE and a NOTICE OF SALE of its lot and building by the municipal and provincial treasurers for non-payment of real estate taxes and its penalties.
So a certain Paterno Mellare who probably was with Public Respondent AQUINO (sorry I didn’t read any further) who most probably (patay to, I’m inferring once again) are the municipal and provincial treasurers filed through counsel a motion to dismiss the complaint.
So what the Provincial Fiscal did was they filed a memorandum for the government where they opined that based on the evidence, the laws applicable, and previous court decisions and jurisprudence, the school building and the school lot used for educational purpose of Abra Valley College are exempted from payment of taxes.
The trial court disagreed. Lets try to look at the evidence and what they found out.
You see what actually happened here was that Abra Valley College (AVC) was renting out the ground floor of its college building to Northern Marketing Corporation (NMC) while the second floor thereof is used by the Director of the College for residential purposes. So this is precisely the reason why the municipal and provincial treasurers served upon the College a “notice of seizure” and later a “notice of sale” due to the alleged failure of the College to pay real estate taxes and penalties thereon.
So this falls under a case of a claim for tax exemption.
ISSUE:
Was the tax imposition on the College is violative of the Constitutional prohibition against taxation of religious, charitable, and educational entities?
Maybe we should rephrase the question. The question is, whether or not the lot and building in question are used exclusively for educational purpose? E pinaparenta yung ground floor eh, ginawa namang residential yung second floor. Kaya siguro sinabe ng municipal and provincial treasurers “Pinaglololoko nyo kame, ok tataxan namen kayo, and pag di na kayo makabayad, we will seize that property, then we will sell it” (again don’t quote me on that, para may istorya lang).
RULING:
While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively used for educational purposes,” reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes.
While the second floor’s use, as residence of the director, is incidental to education; the lease of the first floor cannot by any stretch of imagination be considered incidental to the purposes of education.
The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.
So there we go. Let's reiterate: While the use of the second floor of the main building in the case at bar for residential purposes of the Director of the school and his family may find justification under the concept of INCIDENTAL USE, which is complimentary to the main or primary purpose which is educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of imagination be considered incidental to the purpose of education.
So the Supreme Court affirmed the lower court ruling stating it correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed. Not because of the second floor issue but of the first floor.
However since it is only a portion of its premises is used for purpose of commerce, the high court directed that it is only fair that half of the assessed tax be returned to the school.
