HOSPITAL DE SAN JUAN DE DIOS, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

In a letter dated January
15, 1959, the Commissioner of Internal Revenue assessed and demanded from the petitioner, Hospital De San Juan De Dios, Inc., payment
of P51,462
as deficiency income taxes for 1952 to 1955.

The petitioner protested
against the assessment and requested the Commissioner to cancel and withdraw
it.  After reviewing the assessment, the
Commissioner advised petitioner on November 8, 1960 that the deficiency income tax assessment
against it was reduced to only P16,852.41.  Still the petitioner, through its auditors,
insisted on the cancellation of the revised assessment.  The request was, however, denied.

On September
18, 1965, petitioner
sought a review of the assessment by the Court of Tax Appeals (hereafter
“CTA”).  In a decision dated August
29, 1969, the CTA
upheld the Commissioner.  It held that
the expenses incurred by the petitioner for handling its funds or income
consisting solely of dividends and interests, were not expenses incurred in
“carrying on any trade or business,” hence, not deductible as
business or administrative expenses.

Petitioner filed a motion
for reconsideration of the CTA decision. 
When its motion was denied, it filed this petition for review.

The background of the controversy, is stated in the decision of the CTA as
follows:

“There is no dispute that petitioner is engaged in both
taxable and non-taxable operations.  The
income derived from the operations of the hospital and the nursing school are exempt from income tax while the rest of
petitioner’s income are subject thereto. 
Its taxable or non?operating income consists of rentals, interests
and dividends received from its properties and investments.  In the computation of its taxable income for
the years 1952 to 1955, petitioner allowed all its taxable income to
share in the allocation of administrative expenses.  Respondent disallowed, however, the interests
and dividends from sharing in the allocation of administrative expenses
on the ground that the expenses incurred in the administration or management of
petitioner’s investments are not allowable business expense inasmuch as they
were not incurred in ‘carrying on any trade or business’ within the
contemplation of Section 30 (a) (1) of the Revenue Code.  Consequently, petitioner was assessed deficiency income taxes
for the years in question.” (pp. 45-46, Rollo.)

The applicable law is
Section 30 of the Revenue Code which provides:

“SEC. 30.  Deductions from
Gross Income. – In computing net income there shall be
allowed as deductions –

“(A) Expenses:

“(1) In General. – All the
ordinary and necessary expenses paid or
incurred during the taxable year in carrying
on any trade or business, including a
reasonable allowance for salaries or other compensation for personal services
actually rendered . . . .  (Underscoring
supplied).” (p. 46, Rollo.)

The Court of Tax Appeals found, however, that:

“x
x x petitioner
failed to establish by competent proof that its receipt of interests and
dividends constituted the carrying on of a ‘trade or business’ so as to warrant
the deductibility of the expense incurred in their realization.  No evidence whatsoever was presented by
petitioner to show how it
handled its investment, the manner it bought, sold and reinvested its
securities, how it made decisions, and whether it consulted brokers, investment or
statistical services.  Neither is there
any showing of the extent of its activities in stocks or bonds, and
participation, if any, direct or indirect, in the
management of the corporations where it made investments.  In effect, there is total absence of any
indication of a business-like management or operation of its interests and
dividends.  (See Roebling
vs. Comm. of Int. Rev., 37 BTA 82). 
Instead, petitioner merely relied on the assumption that ‘if it is to
handle its investment portfolio profitably, it has either to engage the
services of an investment banker or administer it from within but the latter
necessarily involves studying the securities market, the tax aspects of the
investments, hiring accountants, collectors, clerical help, etc. without
showing that it was actually performing these varied activities.  Petitioner could have easily required any of
its responsible officials to testify on this regard but it failed to do
so.  Under these circumstances and
coupled with the fact that the interests and dividends here in question are
merely incidental income to petitioner’s main activity, which is the operation
of its hospital and nursing schools, the conclusion becomes inevitable that
petitioner’s activities never go beyond that of a passive investor, which under
existing jurisprudence do not come within the purview of carrying on any ‘trade
or business.'” (pp. 47-48, Rollo.)

The Court of Tax Appeals
found that the interests and dividends received by the petitioner “were
merely incidental income to petitioner’s main activity, which is the operation
of its hospital and nursing schools [hence] the conclusion is inevitable that
petitioner’s activities never went beyond that of a
passive investor, which under existing jurisprudence do not come within the
purview of carrying on any ‘trade or business.’ “ (pp. 47-48, Rollo.)
That factual finding is binding on this Court. 
And, as the principle of allocating
expenses is grounded on the
premise that the taxable income was derived from carrying on a trade or
business, as distinguished from mere receipt of interests and dividends from
one’s investments, the Court of Tax Appeals correctly ruled that said income
should not share in the
allocation of administrative expenses (p. 49, Rollo).

Hospital de San Juan De Dios, Inc., according to its Articles of
Incorporation, was established for purposes “which are benevolent,
charitable and religious, and not for financial gain” (p. 12, Petitioner’s
Brief).  It is not carrying on a trade or
business for the word “business” in its ordinary and common
use means “human efforts which have for their end living or reward; it is
not commonly used as descriptive of charitable, religious, educational or
social agencies” or “any particular occupation or employment
habitually engaged in especially for livelihood or gain” or
“activities where profit is the purpose or livelihood is the motive.”
(Collector of Internal Revenue vs. Manila Lodge BPOE,
105 Phil. 986).

The fact that petitioner
was assessed a real estate dealer’s fixed tax of P640 on its rental income does
not alter its status as a charitable, non-stock, non-profit corporation.

WHEREFORE, finding no reversible error in the decision of the Court of Tax Appeals,
the same is affirmed in toto.  Costs against the
petitioner.  This decision is immediately executory.

SO ORDERED.

Narvasa, (Chairman), Cruz, and Medialdea, JJ., concur.

Gancayco, J., on leave.