CIR vs. De La Salle University

Constitution; All assets and revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes are exempt from taxes and duties. — Article XIV, Section 4 (3) categorically states that "[a]ll revenues and assets... used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. The text demonstrates the policy of the 1987 Constitution, discernible from the records of the 1986 Constitutional Commission to provide broader tax privilege to non-stock, non-profit educational institutions as recognition of their role in assisting the State provide a public good. The tax exemption was seen as beneficial to students who may otherwise be charged unreasonable tuition fees if not for the tax exemption extended to all revenues and assets of non-stock, non-profit educational institutions. Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the revenues and income must have also been sourced from educational activities or activities related to the purposes of an educational institution. The phrase all revenues is unqualified by any reference to the source of revenues. Thus, so long as the revenues and income are used actually, directly and exclusively for educational purposes, then said revenues and income shall be exempt from taxes and duties.

Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, directly, and exclusively for educational purposes, it shall be exempted from income tax, Value Added Tax, and Local Business Tax. On the other hand, when it also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted from RPT.

To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax from which the entity shall be exempted from shall depend on whether the item is an item of revenue or asset.

A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year if the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the [LOA]. ¬— LOA which contains unverified prior years is NOT void. It merely prescribes that if the audit includes more than one taxable period, the other periods or years must be specified. The provision read as a whole requires that if a taxpayer is audited for more than one taxable year, the BIR must specify each taxable year or taxable period on separate LOAs.

Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of the extent of the audit and the scope of the revenue officer's authority. Without this rule, a revenue officer can unduly burden the taxpayer by demanding random accounting records from random unverified years, which may include documents from as far back as ten years in cases of fraud audit.

In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified Prior Years. The LOA does not strictly comply with RMO 43-90 because it includes unverified prior years. This does not mean, however, that the entire LOA is void. As the CTA correctly held, the assessment for taxable year 2003 is valid because this taxable period is specified in the LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Corollarily, the assessments for taxable years 2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No. 43-90.