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Tax Case Digest: ANPC v. BIR,G.R. No. 228539, June 26, 2019

Association of Non-Profit Clubs, Inc. v. Bureau of Internal Revenue
G.R. No. 228539, June 26, 2019
Second Division
Perlas-Bernabe, J.:

Lessons Applicable: doctrine of hierarchy of courts, rule-making authority of BIR
Laws Applicable: RMC No. 35-2012

  • August 3, 2012: Bureau of Internal Revenue (BIR) issued issued Revenue Memorandum Circular (RMC) No. 35-2012 entitled “"Clarifying the Taxability of Clubs Organized and Operated Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes” which was addressed to all revenue officials, employees, and others concerned for their guidance regarding the income tax and Valued Added Tax (VAT) liability of the said recreational clubs.
  • RMC No. 35-2012 states that "clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes are subject to income tax under the National Internal Revenue Code of 1997, as amended (1997 NIRC)."  In justifying the interpration, the BIR raised the doctrine of casus omissus pro omisso habendus est, a person, object, or thing omitted from an enumeration must be held to have been omitted intentionally. The provision in the 1977 Tax Code which granted income tax exemption to such recreational clubs was omitted in the 1997 NIRC, as amended and  Section 105, Chapter I, Title IV of the 1997 NIRC, which states that even a nonstock, nonprofit private organization or government entity is liable to pay VAT on the sale of goods or services.
  • October 25, 2012: During the meeting of ANPC and other club member representatives with Atty. Elenita Quimosing (Atty. Quimosing), Chief of Staff and Operations Group of the BIR, Atty. Quimosing suggested the attendees to submit a position paper to the BIR regarding their concerts about the Circular.   
  • September Since the BIR has not action upon NPC’s request on its position paper for the non-application of RMC No. 35-2012, ANPC, filed before the RTC a petition for declaratory relief to declare RMC no. 35-2012 invalid, unjust, oppressive, confiscatory, and in violation of the due process clause of the Constitution for it is beyond the BIR’s rule-making authority.
  • RTC: Denied the petition for declaratory relief and upheld RMC No. 35-2012
  • ANPC filed a petition for review on certiorari raising pure questions of law
1.    W/N the doctrine of hierarchy of courts should apply and the matter should be first elevated the matter to the Secretary of Finance for review pursuant to Section 4, Title I of the 1997 NIRC.
2.    W/N RMC No. 35-2012 is constitutional.

HELD: Partly meritorious.
1.    NO.  The petition for review on certiorari, filed pursuant to Section 2 (c), Rule 41 in relation to Rule 45 of the Rules of Court, is the sole remedy to appeal a decision of the RTC in cases involving pure questions of law
  • The doctrine of hierarchy of courts is violated only when relief may be had through multiple fora having concurrent jurisdiction over the case, such as in petitions for certiorari, mandamus, and prohibition which are concurrently cognizable either by the Regional Trial Courts, the Court of Appeals, or the Supreme Court.
  • Uy v. Contreras: This Court, the Court of Appeals, and the Regional Trial Courts have concurrent original jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, and habeas corpus, such concurrence does not accord litigants unrestrained freedom of choice of the court to which application therefor may be directed. There is a hierarchy of courts determinative of the venue of appeals which should also serve as a general determinant of the proper forum for the application for the extraordinary writs.
2.    Yes.
  • RMC No. 35-2012 erroneously foisted a sweeping interpretation that membership fees and assessment dues are sources of income of recreational clubs from which income tax liability may accrue.  As correctly argued by ANPC, membership fees, assessment dues, and other fees of similar nature only constitute contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to their exclusive members.  They represent funds "held in trust" by these clubs to defray their operating and general costs and hence, only constitute infusion of capital.
  • Well-enshrined principle in our jurisdiction that the State cannot impose a tax on capital as it constitutes an unconstitutional confiscation of property.  An income tax is arbitrary and confiscatory if it taxes capital because capital is not income.
  • Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance Secretary (G.R. No. 108524, November 10, 1994): Court held that "as a matter of power, a court, when confronted with an interpretative rule, [such as RMC No. 35-2012] is free to (i) give the force of law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule."  By sweepingly including in RMC No. 35-2012 all membership fees and assessment dues in its classification of "income of recreational clubs from whatever source'' that are "subject to income tax,"the BIR exceeded its rule-making authority.
  • In the same way, the Court declares as invalid the BIR's interpretation in RMC No. 35-2012 that membership fees, assessment dues, and the like are part of "the gross receipts of recreational clubs" that are "subject to VAT.  Basic principle that before a transaction is imposed VAT, a sale, barter or exchange of goods or properties, or sale of a service is required.  This is true even if such sale is on a cost-reimbursement basis.