SC: Angeles University Foundation Not Entitled to a Refund for Payment of Building Permit and Real Property Taxes

06 July 2012 - The Supreme Court affirmed the ruling of the Court of Appeals (CA) that Angeles University Foundation is not entitled to a refund for the payment of its building permit and locational clearance fees as well as real property taxes amounting to P 826,662.99, which it had paid under protest.

Earlier, the CA had reversed the decision of the Regional Trial Court of Angeles City, Branch 57 declaring Angeles University Foundation exempt from payment of building permit and other fees and ordering the City of Angeles to refund the same with interest at the legal rate. Angeles University Foundation sought for a refund on the ground that the building permit and other fees are really taxes considering they are used to generate revenue; and Sec. 193 of the Local Government Code of 1991 which provides that non-stock and non-profit educational institutions, such as itself, are exempt from payment of these types of taxes.

In the 16-page decision penned by Justice Martin S. Villarama, Jr., the Court's First Division unanimously held that CA committed no reversible error in finding Angeles University Foundation liable to pay the protested permit and fees since the exemption from payment of regulatory fees was not among the incentives granted it under RA 6055 (An Act To Provide For The Conversion Of Educational Institutions From Stock Corporations To Non-Profit Foundations, Directing The Government Service Insurance System, The Social Security System And The Development Bank Of The Philippines To Assist In Such Conversion, And For Other Purposes) when it was promulgated in August 4, 1969 and the Local Government Code of 1991.

The Court stressed that exemption of “other charges” to include the payment of building permits and  locational clearance fees as claimed by the Angeles University Foundation is improper because Sec. 8 of RA 6055 is qualified by the words “imposed by the Government on all property used exclusively for the educational activities of the foundation.” In effect, building fees are not impositions on property but instead are  regulatory impositions on the activity the government regulates. A charge of a fixed sum is an exercise of police power if the purpose is primarily to regulate, even though revenue is generated incidentally.

The Court also ruled that for exemption from real property tax under Sec. 234(b) of the Local Government Code of 1991 to apply, the real property must “actually, directly, and exclusively used for... educational purposes”.

As clarified in Lung Center of the Philippines v. Quezon City, what is meant by actual, direct, and exclusive use of the property is direct and immediate and actual application of the property itself to the purpose of which the charitable institution is organized. The use of the income from the real property is not determinative for tax exempt purposes. The Court found Angeles University Foundation was not entitled to a refund for its payment of real property tax because it was not able to prove that its real property is actually, directly, and exclusively used for educational purposes. It held that the land of  Angeles University Foundation was correctly assessed  for real property taxes for the taxable period during which the land is not being devoted soly for the latter's educational activities.

source: sc.judiciary.gov.ph 
reference case: Angeles University v. City of Angeles, et. al., GR No. 189999 (June 27, 2012)