SAGRADA ORDEN DE PREDICADORES DE LA PROVINCIA DEL SANTISIMO ROSARIO DE FILIPINAS, PLAINTIFF AND APPELLEE, VS. WENCESLAO TRINIDAD, COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND AP…

On the 10th day of October, 1919, the
defendant Collector of Internal Revenue demanded of the plaintiff, and
the latter paid under protest, the sum of P1,541.31 as income tax
corresponding to the period from March 31 to December 31, 1913. To
recover the said amount, together with legal interest thereon and the
costs, the present action was commenced in the Court of First Instance
of the city of Manila on the 6th day of April, 1920. From a judgment
granting the prayer of the complaint the defendant has appealed to this
court.

The facts are stipulated by the parties as follows:

“That plaintiff is a corporation sole incorporated
under sections 154 to 164 of Act No. 1459 of the Philippine Commission,
and is organized and operated for religious, charitable, scientific and
educational purposes in these Islands and its missions in China, Cochin
China and Japan, and that neither its net income, nor any part thereof,
inures to the benefit of any private stockholder or individual, or any
one of its members, who have no right whatever to said income, even in
case of dissolution.

“That the dividends and interests or
profits and expenses stated in defendant’s Exhibit 1 as plaintiff’s
income, are the profits derived by plaintiff corporation from
investments made of part of its capital about the year 1913, to the
extent and in the manner specified in said defendant’s Exhibit 2, and
that the rents mentioned in said Exhibit 1 are rents on the properties
listed in the defendant’s Exhibit 3, with the respective value of each.”

According to Exhibits 1, 2, and 3, above-mentioned, the plaintiff
received P90,092.70 for rents on lands and buildings situated in
Manila, Cavite, and Rizal; P96,465.54 as dividends on shares of stock
in the Bank of the Philippine Islands, “Fabrica de Hielo de Manila,”
Johnson Picket Rope Company, Germinal Cigar and Cigarette Factory, and
Philippine Sugar Development Company; the sum of P54,239.19 as
interests on money loaned and funds deposited in banks; and the sum of
P68,144.45 as profits from sales of 12 Germinal Cigar and Cigarette
Factory stocks, wines, chocolate, merchandise, religious articles and
unclassified profits and donations. After expenditures had been
deducted from these earnings, the defendant found the sum of
P154,130.68 on which, according to the contention of the defendant,
income tax should be imposed at the rate of 1 per cent under the
provisions of the Federal Income Tax Law of 1913.

The only question presented by the appellant is whether the
plaintiff-appellee is exempt from the payment of income tax under
paragraph G (a) of the Federal Income Tax Law of 1913 (Act of
Congress of October 3, 1913). The pertinent part of said paragraph
provides that “nothing in this section shall apply * * * to any
corporation or association organized and operated exclusively for
religious, charitable, scientific, or educational purposes, no part of
the net income of which inures to the benefit of any private
stockholder or individual, * * *.”

The Act of Congress of February 24, 1919 (U. S. Stat. at L., vol. 40, part I) contains a similar provision as follows:

“SEC. 231. That the following organizations shall be exempt from taxation under this title—

* * * * * * *

” (6) Corporations organized and operated exclusively for religious,
charitable, scientific, or educational purposes, or for the prevention
of cruelty to children or animals, no part of the net earnings of which
inures to the benefit of any private stockholder or individual.”

As seen from the above stipulation of facts, the plaintiff is a
corporation sole, “organized and constituted for religious, charitable,
scientific and educational purposes,” and that no part of its property
or earnings belongs to, or inures to the benefit of, any of its
members, who have no right to the same even in case of dissolution.

The only contention of the defendant-appellant is, that inasmuch as
the plaintiff invested part of its capital in commercial and industrial
enterprises, it cannot be said to have been operated exclusively
for religious, charitable, scientific or educational purposes, and,
therefore, it is not entitled to exemption under the above-quoted
provisions of the law. Quoting from Mr. Holmes, in his work on the
Federal Taxes, and from the ruling of the Commissioner of Internal
Revenue of the United States, of May 15, 1919, appellant maintains
that: “In order to be exempt, the corporation or association must meet
three tests: (a) it must be organized and operated for one or more of the specified purposes; (b) it must be organized and operated exclusively for such purposes; and (c)
no part of its income must inure to the benefit of private stockholders
or individuals.” Appellant contends that the plaintiff did not meet the
second test; that it was not operated exclusively for religious,
charitable, scientific or educational purposes.

It is not contended that any part of the profits derived by the
plaintiff from the secular investments above referred to was devoted
to, or used for, any other purpose than the carrying out of its
religious and educational work. It is admitted, on the other hand, that
no part thereof inured to any individual member of the plaintiff
corporation. Neither is it even intimated by the appellant that the
funds so invested by the appellee, as above indicated, were, at the
time of their investment, needed by the plaintiff in order to carry out
its religious or educational work. On the contrary, appellant himself
says in his brief that “all these (funds) were in excess of the
corporation’s legitimate religious needs.”

It appears, then, that the plaintiff invested its surplus funds on
hand in the secular enterprises above-mentioned in order to derive
profits therefrom, to be used exclusively in its religious and
educational work. The operation, therefore, though, of course, not
religious or educational in nature, was made ultimately and exclusively
for religious and educational purposes. We are therefore of the opinion
that notwithstanding the investment of its surplus funds in the
enterprises mentioned in defendant’s Exhibits 2 and 3, the plaintiff
corporation still continued to be “organized and operated exclusively
for religious and educational purposes,” and was, therefore, entitled
to the exemption provided by law.

Wherefore, the judgment of the lower court is hereby affirmed, without any finding as to costs. So ordered.

Araullo, C. J., Street, Avancena, Villamor, and Romitaldez, JJ., concur.