FIRST DIVISION

[G.R. No. 215801. January 15, 2020.]

IN THE MATTER OF DECLARATORY RELIEF ON THE VALIDfITY OF BIR

REVENUE MEMORANDUM CIRCULAR NO. 65-2012 "CLARIFYING THE
TAXABILITY OF ASSOCIATION DUES, MEMBERSHIP FEES AND OTHER
ASSESSMENTS/CHARGES COLLECTED BY CONDOMINIUM
CORPORATIONS"

BUREAU OF INTERNAL REVENUE (BIR), as herein represented by its

COMMISSIONER KIM S. JACINTO-HENARES and REVENUE DISTRICT
OFFICER (RDO) RICARDO B. ESPIRITU, petitioner, vs. FIRST E-BANK
TOWER CONDOMINIUM CORP., respondent.

[G.R. No. 218924. January 15, 2020.]

IN THE MATTER OF DECLARATORY RELIEF ON THE VALIDITY OF BIR

REVENUE MEMORANDUM CIRCULAR NO. 65-2012 "CLARIFYING THE
TAXABILITY OF ASSOCIATION DUES, MEMBERSHIP FEES AND OTHER
ASSESSMENTS/CHARGES COLLECTED BY CONDOMINIUM
CORPORATIONS"

FIRST E-BANK TOWER CONDOMINIUM CORP., petitioner, vs. BUREAU OF

INTERNAL REVENUE (BIR), as herein represented by its COMMISSIONER
KIM S. JACINTO-HENARES, [*] respondent.

DECISION

LAZARO-JAVIER, J :p

The Cases
 These twin cases refer to the: 1) Petition for Review filed by the Bureau of Internal
Revenue (BIR) (G.R. No. 215801); and 2) Special Civil Action for Certiorari initiated by the
First E-Bank Tower Condominium Corp. (First E-Bank) (G.R. No. 218924). Both cases assail
the following dispositions of the Court of Appeals in CA-G.R. CV No. 102266 entitled "In the
Matter of Declaratory Relief on the Validity of BIR Revenue Memoandum Circular No. 65-
2012 'Clarifying the Taxability of Association Dues, Membership Fees and Other
Assessments/Charges Collected by Condominium Corporations,' First E-Bank Tower
Condominium Corp. v. Bureau of Internal Revenue (BIR) represented by its Commissioner
Kim S. Jacinto-Henares, et al.:"

1) Resolution [1]
dated June 26, 2014 dismissing for alleged lack of jurisdiction the
respective appeals of the First E-Bank and the BIR, et al., viz.:
It appearing from the records that the subject matter of the instant appeal
is the Resolution dated 05 September 2013 of the RTC-Branch 146, Makati City,
declaring "to have been invalidly issued" BIR Revenue Memorandum Circular
No. 65-2012 dated 31 October 2012 which imposed 12% value-added tax and
32% income tax on association dues/membership fees and other charges
collected by condominium corporation from its members and tenants, taking into
account Section 7 (a) of Republic Act No. 9282 (which took effect on 23 April
2004) which expressly provides that the Court of Tax Appeals has exclusive
appellate jurisdiction over "Decisions, orders or resolutions of the Regional Trial
Courts in local tax cases originally decided or resolved by them in the exercise of
their original or appellate jurisdiction," considering that the Court of Tax Appeals
is a highly specialized body specifically created for the purpose of reviewing tax
cases and resolving tax problems, the instant appeal is hereby DISMISSED
outright for lack of jurisdiction over the nature and subject matter of the action.

The Compliance/Manifestation dated 16 May 2014 of RTC Judge

Encarnacion Jaja G. Moya and Branch Clerk of Court Therese Lynn R. Bandong,
Manifestations dated 29 May 2014 and 30 May 2014 of First E-Bank Tower
Condominium Corporation and the Manifestation dated 02 June 2014 of the
Republic of the Philippines are NOTED.
Let the instant appeal be considered CLOSED and TERMINATED.

Let the original records be returned to the trial court.

SO ORDERED.

2) Resolution [2]
dated November 27, 2014 denying the parties' respective motions
for reconsideration.
 The Facts

The First E-Bank filed the petition below for declaratory relief seeking to declare as
invalid Revenue Memorandum Circular No. 65-2012 (RMC No. 65-2012) dated October 31,
2012. [3] The case was raffled to the Regional Trial Court, Branch 146, Makati City.
RMC No. 65-2012 entitled "Clarifying the Taxability of Association Dues, Membership
Fees and Other Assessments/Charges Collected by Condominium Corporations" relevantly
reads:
xxx xxx xxx

CLARIFICATION
The taxability of association dues, membership fees, and other
assessments/charges collected by a condominium corporation from its members,
tenants and other entities are discussed hereunder.
I. Income Tax — The amounts paid in as dues or fees by members and
tenants of a condominium corporation form part of the gross income of the latter subject
to income tax. This is because a condominium corporation furnishes its members and
tenants with benefits, advantages, and privileges in return for such payments. For tax
purposes, the association dues, membership fees, and other assessments/charges
collected by a condominium corporation constitute income payments or compensation
for beneficial services it provides to its members and tenants. The previous
interpretation that the assessment dues are funds which are merely held in trust by a
condominium corporation lacks legal basis and is hereby abandoned.

Moreover, since a condominium corporation is subject to income tax, income

payments made to it are subject to applicable withholding taxes under existing
regulations.

II. Value-Added Tax (VAT) — Association dues, membership fees, and other
assessments/charges collected by a condominium corporation are subject to VAT since
they constitute income payment or compensation for the beneficial services it provides
to its members and tenants.

Section 105 of the National Internal Revenue Code of 1997, as amended,

provides:

"SECTION 105. Persons Liable. — Any person who, in the course of

trade or business, sells, barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject to
the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

xxx xxx xxx

 The phrase 'in the course of trade or business' means the regular conduct
or pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit private organization
(irrespective of the disposition of its net income and whether or not
it sells exclusively to members or their guests), or government entity."
(Emphasis supplied)
The above provision is clear — even a non-stock, non-profit organization or
government entity is liable to pay VAT on the sale of goods or services. This conclusion
was affirmed by the Supreme Court in Commissioner of Internal Revenue v. Court of
Appeals and Commonwealth Management and Services Corporation, G.R. No. 125355,
March 30, 2000. In this case, the Supreme Court held:
"(E)ven a non-stock, non-profit organization or government entity,
is liable to pay VAT on the sale of goods or services. VAT is a tax on
transactions, imposed at every stage of the distribution process on the
sale, barter, exchange of goods or property, and on the performance of
services, even in the absence of profit attributable thereto. The term "in
the course of trade or business" requires the regular conduct or pursuit of
a commercial or an economic activity, regardless of whether or not the
entity is profit-oriented.

The definition of the term "in the course of trade or business"

incorporated in the present law applies to all transactions even to those
made prior to its enactment. Executive Order No. 273 stated that any
person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit organization
or government entity is liable to pay VAT for the sale of goods and
services.

Section 108 of the National Internal Revenue Code of 1997

defines the phrase "sale of services" as the "performance of all kinds of
services for others for a fee, remuneration or consideration." It includes
"the supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific,
industrial or commercial undertaking or project."
On February 5, 1998, the Commissioner of Internal Revenue
issued BIR Ruling No. 010-98 emphasizing that a domestic corporation
that provided technical, research, management and technical assistance
to its affiliated companies and received payments on a reimbursement-of-
cost basis, without any intention of realizing profit, was subject to VAT on
 services rendered. In fact, even if such corporation was organized without
any intention of realizing profit, any income or profit generated by the
entity in the conduct of its activities was subject to income tax.

Hence, it is immaterial whether the primary purpose of a

corporation indicates that it receives payments for services
rendered to its affiliates on a reimbursement-on-cost basis only,
without realizing profit, for purposes of determining liability for VAT
on services rendered. As long as the entity provides service for a
fee, remuneration or consideration, then the service rendered is
subject to VAT."

Accordingly, the gross receipts of condominium corporations including

association dues, membership fees, and other assessments/charges are subject to
VAT, income tax and income payments made to it are subject to applicable withholding
taxes under existing regulations. [4]
xxx xxx xxx

The First E-Bank's Allegations

In its Petition dated December 20, 2012, the First E-Bank essentially alleged: It was a
non-stock non-profit condominium corporation. It owned and possessed, through its
members, a condominium office building. RMC No. 65-2012 imposed on it two (2) tax
liabilities: 1) value-added tax (VAT) of P118,971.53 to be paid on December 2012 and every
month thereafter; and b) income tax of P665,904.12 to be paid on or before April 15, 2013
and every year thereafter. [5]

RMC No. 65-2012 burdened the owners of the condominium units with income tax and
VAT on their own money which they exclusively used for the maintenance and preservation of
the building and its premises. RMC No. 65-2012 was oppressive and confiscatory because it
required condominium unit owners to produce additional amounts for the thirty-two percent
(32%) income tax and twelve percent (12%) VAT. [6]

Through the Makati Commercial Estate Association, Inc., it sent a Letter dated
December 5, 2012 to the BIR Commissioner requesting deferment of RMC No. 65-2012. A
Letter dated December 19, 2012 was likewise sent to Makati City Revenue District Officer
Ricardo B. Espiritu informing him of the continuous judicial consignation of the income tax
and VAT payments due under RMC No. 65-2012. [7]
The BIR, et al.'s Comments
Under Comment dated February 11, 2013, the BIR and RDO Espiritu through the
Office of the Solicitor General (OSG) riposted that declaratory relief was no longer proper
here considering that RMC No. 65-2012 already took effect on October 31, 2012. The alleged
injury which the First E-Bank sought to prevent had already arisen as of that date. [8]

By its separate comment, [*] the BIR's Litigation Division argued that the petition should
be dismissed for violation of the principle of primary jurisdiction. Several condominium
corporations had already referred the issue to the BIR Law Division for further clarification.
Ultimately, only the Secretary of Finance had primary jurisdiction over the issue raised here.
Too, a petition for declaratory relief will not prosper if the questioned statute had already been
breached, as in this case. RMC No. 65-2012 was only a clarificatory issuance on pertinent
laws, specifically the National Internal Revenue Code (NIRC). It was merely a restatement of
the BIR's prevailing position on the issue of taxation. [9]
The First E-Bank's Reply
The First E-Bank replied that judicial consignation of its tax payments under protest
was necessary. [10]

The Trial Court's Ruling

By Resolution [11] dated September 5, 2013, the trial court ruled that the First E-Bank
correctly resorted to a petition for declaratory relief for the purpose of invalidating RMC No.
65-2012. On this score, the trial court declared as invalid RMC No. 65-2012 for it purportedly
expanded the law, created an additional tax burden on condominium corporations, and was
issued without the requisite notice and hearing, thus:
As to the validity of the Memorandum Circular issued, it is respondent's
contention that it merely clarified and was simply issued to restate and clarify the
prevailing position and ruling of the BIR. It was a mere interpretation of an existing law
which has already been in effect and which was not set to be amended. However, the
same appears to be not true as it goes beyond its objective to clarify the existing
statute. The assailed Revenue Memorandum Circular not merely interpreted or clarified
the existing BIR Ruling but in fact legislated or introduced a new legislation under the
mantle of its quasi-legislative authority. The BIR Commissioner, under the guise of
clarifying income tax on association dues, made Revenue Memorandum Circular
effective immediately. In so doing, the passage contravenes the constitutional mandate
of due process of law. [12]

xxx xxx xxx

The above cited portion of the Memorandum Circular failed to show what
particular law it clarified. Instead it shows that it merely departed from the several
rulings of the Bureau exempting from income tax the assessments/charges collected by
 condominium corporations from its members, on the ground that the collection of
association dues and other assessments/charges are merely held in trust to be used
solely for administrative expenses in implementing its purpose. The new circular in
effect made its own legislation abandoning the previous rulings of the BIR which
became the practice of the condominium corporations including herein petitioner. The
Revenue Circular changed and departed from the long standing ruling of the BIR that
association dues and other fees and charges collected from members are tax-exempt.
In so doing, it abruptly charges from taxpayer an imposition which was then not
existing, and worse made it immediately effective which is prejudicial to the rights of the
petitioner. It did not merely interpret or clarify but changed altogether the long standing
rules of the Bureau of Internal Revenue. [13]
xxx xxx xxx
Moreover, it is already the common business practice of petitioner that the
association dues, membership fees and the like are not included as part of its income
and therefore of the VAT. The advent of the Memorandum Circular 65-2012 issued by
the Commissioner changes the tax liability of petitioner in the sense that it is now
subject to tax. It created a new tax burden upon petitioner. Petitioner then could not be
faulted to consign judicially as they claim, the [VAT] amount pending resolution of the
petition for declaratory relief herein filed. Respondent BIR Commissioner should have
accorded petitioner the opportunity to be heard, which was the bone of contention of
the letter sent to the Honorable Commissioner which was not acted upon.

The Revenue Memorandum Circular did not only clarify an existing law, but
changes its import and interpretation that in so doing it prejudices the right of the
petitioner as a tax payer. [14]

xxx xxx xxx

Since the BIR in passing the subject memorandum circular failed to accord
respondent or those similarly situated as a tax payer due notice and opportunity to be
heard, before issuing said circular it is this court's opinion that the issuance was
arbitrarily and in violation of the due process clause of the constitution. The respondent
in imposing additional tax burden on petitioner violated the latter's constitutional right to
due notice and hearing. [15]
xxx xxx xxx

In another vein, the trial court noted the absence of proof that the First E-Bank actually
made a judicial consignation of its purported tax payments. [16]
The BIR, et al., moved for reconsideration. It argued that the petition was premature,
RMC No. 65-2012 was valid, and the petition for declaratory relief should be dismissed for
violating the principle of primary jurisdiction. For its part, the First E-Bank moved for partial
reconsideration, praying that the consignated funds be released. [17]

By Order [18] dated December 18, 2013, the trial court denied the parties' respective
motions for reconsideration. It reiterated that the First E-Bank properly resorted to a petition
for declaratory relief for the purpose of invalidating RMC No. 65-2012. It also noted that the
First E-Bank appeared to have judicially consignated the funds only on November 17, 2013,
following the resolution of the case on September 5, 2013. For sure, this judicial
consignation, which was belatedly done, cannot justify a modification of the aforesaid
resolution. The trial court, nonetheless, pronounced that the First E-Bank was not precluded
from filing the proper motion to withdraw the consignated amounts upon the finality of the
ruling on the validity of RMC 65-2012.

The Proceedings before the Court of Appeals

Aggrieved, both parties appealed to the Court of Appeals. On one hand, the BIR, et al.,
challenged the trial court's ruling insofar as it: a) decreed that the First E-Bank correctly
availed of the petition for declaratory relief when it sought to nullify RMC No. 65-2012; and b)
declared the same as invalid. On the other hand, the First E-Bank assailed the trial court's
ruling insofar as it declined to order the release of the judicially consignated amounts.

The Court of Appeals' Dispositions

By its first assailed Resolution dated June 26, 2014, the Court of Appeals dismissed
the appeal of the First E-Bank and the joint appeal of the BIR, et al., on ground of lack of
jurisdiction. It emphasized that jurisdiction over the case was exclusively vested in the Court
of Tax Appeals since the trial court's impugned resolution involved a tax matter.
Both the First E-Bank and the BIR, et al., moved for reconsideration. They commonly
asserted that the Court of Appeals had appellate jurisdiction over their respective appeals
emanating from a petition for declaratory relief which sought to invalidate RMC No. 65-2012.
[19]

By its second assailed Resolution [20] dated November 27, 2014, the Court of Appeals
denied the motions for reconsideration and stressed anew that the Court of Tax Appeals had
exclusive jurisdiction over the appeals.

The Present Petitions

 In G.R. No. 218924, the First E-Bank initiated, on alleged ground of grave abuse of
discretion, a Special Civil Action for Certiorari [21] to nullify the assailed dispositions of the
Court of Appeals. According to the First E-Bank, the Court of Appeals, not the Court of Tax
Appeals, has jurisdiction over its appeal since the subject matter of the case is not local tax or
taxes per se but a petition to declare as invalid RMC No. 65-2012. The Court of Appeals
purportedly based its rulings on conjectures and surmises, not on established facts and law.

In G.R. No. 215801, [22] the BIR, et al., availed of Rule 45 of the Revised Rules of
Court. They plead the same legal issue pertaining to which court has jurisdiction over the trial
court's decision.

Issues

First: Is a petition for declaratory relief proper for the purpose of invalidating RMC No.
65-2012?
Second: Did the Court of Appeals validly dismiss the twin appeals on ground of lack of
jurisdiction?
Third: Is RMC No. 65-2012 valid?
a) Is a condominium corporation engaged in trade or business?
b) Are association dues, membership fees, and other assessments/charges subject
to income tax, value-added tax, and withholding tax?
Fourth: Is the First E-Bank entitled to the release of its judicially consignated tax
payments?

Ruling

A petition for declaratory

relief is not the proper
remedy to seek the invalidation
of RMC No. 65-2012
An action for declaratory relief is governed by Section 1, Rule 63 of the Revised Rules
of Court, thus:
Section 1. Who may file petition. — Any person interested under a deed, will,
contract or other written instrument, or whose rights are affected by a statute, executive
order or regulation, ordinance, or any other governmental regulation may, before
breach or violation thereof bring an action in the appropriate Regional Trial Court to
 determine any question of construction or validity arising, and for a declaration of his
rights or duties, thereunder.

Declaratory relief requires the following elements: (1) the subject matter of the
controversy must be a deed, will, contract or other written instrument, statute, executive order
or regulation, or ordinance; (2) the terms of said documents and the validity thereof are
doubtful and require judicial construction; (3) there must have been no breach of the
documents in question; (4) there must be an actual justiciable controversy or the "ripening
seeds" of one between persons whose interests are adverse; (5) the issue must be ripe for
judicial determination; and (6) adequate relief is not available through other means or other
forms of action or proceeding. [23]
The Court rules that certiorari or prohibition, not declaratory relief, is the proper remedy
to assail the validity or constitutionality of executive issuances. DOTr v. PPSTA [24] is
apropos:
The Petition for Declaratory Relief is not the proper remedy
One of the requisites for an action for declaratory relief is that it must be filed
before any breach or violation of an obligation. Section 1, Rule 63 of the Rules of Court
states, thus:
xxx xxx xxx

Thus, there is no actual case involved in a Petition for Declaratory Relief. It

cannot, therefore, be the proper vehicle to invoke the judicial review powers to
declare a statute unconstitutional.

It is elementary that before this Court can rule on a constitutional issue, there
must first be a justiciable controversy. A justiciable controversy refers to an existing
case or controversy that is appropriate or ripe for judicial determination, not one that is
conjectural or merely anticipatory. As We emphasized in Angara v. Electoral
Commission, any attempt at abstraction could only lead to dialectics and barren legal
questions and to sterile conclusions unrelated to actualities.
To question the constitutionality of the subject issuances, respondents
should have invoked the expanded certiorari jurisdiction under Section 1 of
Article VIII of the 1987 Constitution. The adverted section defines judicial power
as the power not only "to settle actual controversies involving rights which are
legally demandable and enforceable," but also "to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the Government."

There is a grave abuse of discretion when there is patent violation of the

Constitution, the law, or existing jurisprudence. On this score, it has been ruled that "the
 remedies of certiorari and prohibition are necessarily broader in scope and reach, and
the writ of certiorari or prohibition may be issued to correct errors of jurisdiction
committed not only by a tribunal, corporation, board or officer exercising judicial, quasi-
judicial or ministerial functions, but also to set right, undo[,] and restrain any act of
grave abuse of discretion amounting to lack or excess of jurisdiction by any branch or
instrumentality of the Government, even if the latter does not exercise judicial, quasi-
judicial or ministerial functions." Thus, petitions for certiorari and prohibition are the
proper remedies where an action of the legislative branch is seriously alleged to
have infringed the Constitution. (Emphasis supplied)

In Diaz v. The Secretary of Finance, et al., [25] the Court, nonetheless, held that a
petition for declaratory relief may be treated as one for prohibition if the case has far-reaching
implications and raises questions that need to be resolved for the public good; or if the
assailed act or acts of executive officials are alleged to have usurped legislative authority,
thus:
On August 24, 2010 the Court issued a resolution, treating the petition as one for
prohibition rather than one for declaratory relief, the characterization that petitioners
Diaz and Timbol gave their action. The government has sought reconsideration of the
Court's resolution, however, arguing that petitioners' allegations clearly made out a
case for declaratory relief, an action over which the Court has no original jurisdiction.
The government adds, moreover, that the petition does not meet the requirements of
Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-judicial,
or ministerial functions when it sought to impose VAT on toll fees. Besides, petitioners
Diaz and Timbol has a plain, speedy, and adequate remedy in the ordinary course of
law against the BIR action in the form of an appeal to the Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one
for prohibition if the case has far-reaching implications and raises questions that
need to be resolved for the public good. The Court has also held that a petition
for prohibition is a proper remedy to prohibit or nullify acts of executive officials
that amount to usurpation of legislative authority.

Here, the imposition of VAT on toll fees has far-reaching implications. Its
imposition would impact, not only on the more than half a million motorists who use the
tollways everyday, but more so on the government's effort to raise revenue for funding
various projects and for reducing budgetary deficits. (Emphasis supplied)

Here, RMC No. 65-2012 has far-reaching ramifications among condominium

corporations which have proliferated throughout the country. For numerous Filipino families,
professionals, and students have, for quite sometime now, opted for condominium living as
their new way of life. The matter of whether indeed the contributions of unit owners solely
intended for maintenance and upkeep of the common areas of the condominium building are
taxable is imbued with public interest. Suffice it to state that taxes, being the lifeblood of the
government, occupy a high place in the hierarchy of State priorities, hence, all questions
pertaining to their validity must be promptly addressed with the least procedural obstruction.
Notably, the issue at hand has already pended for six (6) years now, first with the trial
court, then with the Court of Appeals, and now with this Court. Hence, to forestall any further
delay, instead of remanding the cases to the Court of Appeals, we here and now write finis to
these cases once and for all, Diaz enunciated:
To dismiss the petition and resolve the issues later, after the challenged VAT has
been imposed, could cause more mischief both to the tax-paying public and the
government. A belated declaration of nullity of the BIR action would make any attempt
to refund to the motorists what they paid an administrative nightmare with no solution.
Consequently, it is not only the right, but the duty of the Court to take cognizance of and
resolve the issues that the petition raises.
Although the petition does not strictly comply with the requirements of Rule 65,
the Court has ample power to waive such technical requirements when the legal
questions to be resolved are of great importance to the public. The same may be said
of the requirement of locus standi which is a mere procedural requisite.

G.R. No. 218924

The First E-Bank faults the Court of Appeals with grave abuse of discretion amounting
to lack or excess of jurisdiction when the latter dismissed the former's appeal from the trial
court's Resolution dated September 5, 2013 and Order dated December 18, 2013.
A petition for certiorari is proper where the impugned dispositions, as in this case, are
tainted with grave abuse of discretion amounting to lack or excess of jurisdiction. [26] More so
where a petition for review on certiorari does not appear to be a plain, speedy, and adequate
remedy to address the First E-Bank's urgent concerns on its accumulated supposed tax
liabilities which will never get halted until the validity of RMC No. 65-2012 is finally resolved,
and considerations of public welfare and public policy compel the speedy resolution of the
cases through the extraordinary remedy of certiorari.
The Court, in some instances, allowed a petition for certiorari to prosper
notwithstanding the availability of appeal. Mallari v. Banco Filipino Savings & Mortgage
Bank [27] enumerates these instances, viz.:
Indeed, the Court in some instances has allowed a petition for certiorari to
prosper notwithstanding the availability of an appeal, such as, (a) when public welfare
and the advancement of public policy dictate it; (b) when the broader interest of justice
so requires; (c) when the writs issued are null; and (d) when the questioned order
amounts to an oppressive exercise of judicial authority.
 So must it be.
G.R. No. 215801
On the part of the BIR, et al., they opted to pursue the regular route under Rule 45 of
the Revised Rules of Court. Surely, being the beneficiary of the taxes paid by the First E-
Bank, the State has no compelling need to avail of the extraordinary remedy under Rule 65.
At any rate, Rule 45 is undoubtedly an available remedy in the ordinary course of law.
The parties' resort to the Court of
Appeals was proper in light of the
then prevailing jurisprudence
We now resolve the issue of jurisdiction.
[28]
Section 7 of Republic Act No. 9282 (RA 9282) outlines the appellate jurisdiction of
the Court of Tax Appeals, viz.:
Sec. 7. Jurisdiction. — The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:
1. Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue or other laws administered by the Bureau
of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relations thereto, or other matters arising
under the National Internal Revenue Code or other laws administered
by the Bureau of Internal Revenue, where the National Internal Revenue
Code provides a specific period of action, in which case the inaction shall
be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local
tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving
liability for customs duties, fees or other money charges, seizure,
detention or release of property affected, fines, forfeitures or other
penalties in relation thereto, or other matters arising under the Customs
Law or other laws administered by the Bureau of Customs;
 5. Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the assessment
and taxation of real property originally decided by the provincial or city
board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated
to him automatically for review from decisions of the Commissioner of
Customs which are adverse to the Government under Section 2315 of the
Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of
non-agricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Sections 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision
to impose or not to impose said duties.

On August 30, 2008, the Court en banc decreed in British American Tobacco v.
Camacho, et al., [29] that the Court of Tax Appeals did not have jurisdiction to pass upon the
constitutionality or validity of a law or rule, thus:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its
quasi-legislative function, the regular courts have jurisdiction to pass upon the
same. The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts. This is within the scope of judicial power,
which includes the authority of the courts to determine in an appropriate action the
validity of the acts of the political departments. Judicial power includes the duty of the
courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government. (Emphasis supplied)

The prevailing dictum then was only regular courts had jurisdiction to pass upon the
constitutionality or validity of tax laws and regulations.
 On February 4, 2014, the Court en banc recognized that the Court of Tax Appeals
possessed all such implied, inherent, and incidental powers necessary to the full and
effective exercise of its appellate jurisdiction over tax cases. City of Manila v. Judge Grecia-
Cuerdo [30] is relevant, thus:
A grant of appellate jurisdiction implies that there is included in it the power
necessary to exercise it effectively, to make all orders that will preserve the subject of
the action, and to give effect to the final determination of the appeal. It carries with it the
power to protect that jurisdiction and to make the decisions of the court thereunder
effective. The court, in aid of its appellate jurisdiction, has authority to control all
auxiliary and incidental matters necessary to the efficient and proper exercise of that
jurisdiction. For this purpose, it may, when necessary, prohibit or restrain the
performance of any act which might interfere with the proper exercise of its rightful
jurisdiction in cases pending before it.

Lastly, it would not be amiss to point out that a court which is endowed with a
particular jurisdiction should have powers which are necessary to enable it to act
effectively within such jurisdiction. These should be regarded as powers which are
inherent in its jurisdiction and the court must possess them in order to enforce its rules
of practice and to suppress any abuses of its process and to defeat any attempted
thwarting of such process.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the
same level as the CA and shall possess all the inherent powers of a court of
justice.
Indeed, courts possess certain inherent powers which may be said to be
implied from a general grant of jurisdiction, in addition to those expressly
conferred on them. These inherent powers are such powers as are necessary for
the ordinary and efficient exercise of jurisdiction; or are essential to the
existence, dignity and functions of the courts, as well as to the due
administration of justice; or are directly appropriate, convenient and suitable to
the execution of their granted powers; and include the power to maintain the
court's jurisdiction and render it effective in behalf of the litigants.
Thus, this Court has held that "while a court may be expressly granted the
incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction,
in the absence of prohibitive legislation, implies the necessary and usual
incidental powers essential to effectuate it, and, subject to existing laws and
constitutional provisions, every regularly constituted court has power to do all
things that are reasonably necessary for the administration of justice within the
scope of its jurisdiction and for the enforcement of its judgments and mandates."
Hence, demands, matters or questions ancillary or incidental to, or growing out
 of, the main action, and coming within the above principles, may be taken
cognizance of by the court and determined, since such jurisdiction is in aid of its
authority over the principal matter, even though the court may thus be called on
to consider and decide matters which, as original causes of action, would not be
within its cognizance. (Emphasis supplied)

Consequently, the Court held that the authority of the Court of Tax Appeals to take
cognizance of petitions for certiorari against interlocutory orders of the RTC in local tax cases
was deemed included in the authority or jurisdiction granted it by law.
The Court underscored that the grant of appellate jurisdiction to the Court of Tax
Appeals included such power necessary to exercise it effectively. Besides, a split jurisdiction
between the Court of Tax Appeals and the Court of Appeals is anathema to the orderly
administration of justice. "The Court cannot accept that such was the legislative motive,
especially considering that the law expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the role of judicial review over local tax
cases without mention of any other court that may exercise such power." [31]

On August 16, 2016, in Banco de Oro v. Republic of the Phils., et al., [32] the Court
en banc pronounced in no uncertain terms that the Court of Tax Appeals had jurisdiction to
rule on the constitutionality or validity of a tax law or regulation or administrative issuance,
viz.:
The Court of Tax Appeals has undoubted jurisdiction to pass upon the
constitutionality or validity of a tax law or regulation when raised by the taxpayer
as a defense in disputing or contesting an assessment or claiming a refund. It is
only in the lawful exercise of its power to pass upon all matters brought before it,
as sanctioned by Section 7 of Republic Act No. 1125, as amended.

This Court, however, declares that the Court of Tax Appeals may likewise
take cognizance of cases directly challenging the constitutionality or validity of a
tax law or regulation or administrative issuance (revenue orders, revenue
memorandum circulars, rulings).
Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local
taxes, appeals from the decisions of quasi-judicial agencies (Commissioner of Internal
Revenue, Commissioner of Customs, Secretary of Finance, Central Board of
Assessment Appeals, Secretary of Trade and Industry) on tax-related problems must be
brought exclusively to the Court of Tax Appeals.
In other words, within the judicial system, the law intends the Court of Tax
Appeals to have exclusive jurisdiction to resolve all tax problems. Petitions for
writs of certiorari against the acts and omissions of the said quasi-judicial
agencies should, thus, be filed before the Court of Tax Appeals.
 Republic Act No. 9282, a special and later law than Batas Pambansa Blg.
129 provides an exception to the original jurisdiction of the Regional Trial Courts
over actions questioning the constitutionality or validity of tax laws or
regulations. Except for local tax cases, actions directly challenging the
constitutionality or validity of a tax law or regulation or administrative issuance
may be filed directly before the Court of Tax Appeals.
Furthermore, with respect to administrative issuances (revenue orders, revenue
memorandum circulars, or rulings), these are issued by the Commissioner under its
power to make rulings or opinions in connection with the implementation of the
provisions of internal revenue laws. Tax rulings, on the other hand, are official positions
of the Bureau on inquiries of taxpayers who request clarification on certain provisions of
the National Internal Revenue Code, other tax laws, or their implementing
regulations. Hence, the determination of the validity of these issuances clearly falls
within the exclusive appellate jurisdiction of the Court of Tax Appeals under Section 7(1)
of Republic Act No. 1125, as amended, subject to prior review by the Secretary of
Finance, as required under Republic Act No. 8424. (Emphasis supplied)

Banco de Oro further stressed that such undoubted jurisdiction is exclusively vested in
the Court of Tax Appeals whether it is raised by the taxpayer directly or as a defense.
Here, following the trial court's denial of their respective motions for reconsideration,
the parties appealed to the Court of Appeals. On June 26, 2014, the Court of Appeals
dismissed the appeals, and on November 27, 2014, denied the parties' motions for
reconsideration. [33]
Based on this sequence of events, the whole time the case was ongoing below, the
prevailing doctrine had been British American Tobacco ordaining that the Court of Tax
Appeals did not have jurisdiction to decide the validity or constitutionality of laws or rules.
Consequently, the parties correctly elevated the trial court's resolution to the Court of
Appeals, which should have taken cognizance of, and resolved, the appeals on the merits.
RMC No. 65-2012 is
invalid
We now turn to the substantive issue: Is RMC No. 65-2012 valid?
a) A condominium corporation is not engaged in trade or business
The issue on whether association dues, membership fees, and other
assessments/charges collected by a condominium corporation in the usual course of trade or
[34]
business is not novel. Yamane v. BA Lepanto Condominium Corp., positively resolved
it, viz.:
 Obviously, none of these stated corporate purposes are geared towards
maintaining a livelihood or the obtention of profit. Even though the Corporation
is empowered to levy assessments or dues from the unit owners, these amounts
collected are not intended for the incurrence of profit by the Corporation or its
members, but to shoulder the multitude of necessary expenses that arise from
the maintenance of the Condominium Project. Just as much is confirmed by
Section 1, Article V of the Amended By-Laws, which enumerate the particular
expenses to be defrayed by the regular assessments collected from the unit
owners. These would include the salaries of the employees of the Corporation,
and the cost of maintenance and ordinary repairs of the common areas.
The City Treasurer nonetheless contends that the collection of
these assessments and dues are "with the end view of getting full
appreciative living values" for the condominium units, and as a result,
profit is obtained once these units are sold at higher prices. The Court
cites with approval the two counterpoints raised by the Court of Appeals in
rejecting this contention. First, if any profit is obtained by the sale of the
units, it accrues not to the corporation but to the unit owner. Second, if the
unit owner does obtain profit from the sale of the corporation, the owner is
already required to pay capital gains tax on the appreciated value of the
condominium unit.

Moreover, the logic on this point of the City Treasurer is baffling. By

this rationale, every Makati City car owner may be considered as being
engaged in business, since the repairs or improvements on the car may
be deemed oriented towards appreciating the value of the car upon
resale. There is an evident distinction between persons who spend
on repairs and improvements on their personal and real property for
the purpose of increasing its resale value, and those who defray
such expenses for the purpose of preserving the property. The vast
majority of persons fall under the second category, and it would be
highly specious to subject these persons to local business taxes.
The profit motive in such cases is hardly the driving factor behind
such improvements, if it were contemplated at all. Any profit that
would be derived under such circumstances would merely be
incidental, if not accidental.

Besides, we shudder at the thought of upholding tax liability on the

basis of the standard of "full appreciative living values," a phrase that
defies statutory explication, commonsensical meaning, the English
language, or even definition from Google. The exercise of the power of
taxation constitutes a deprivation of property under the due process
 clause, and the taxpayer's right to due process is violated when
arbitrary or oppressive methods are used in assessing and
collecting taxes. The fact that the Corporation did not fall within the
enumerated classes of taxable businesses under either the Local
Government Code or the Makati Revenue Code already forewarns
that a clear demonstration is essential on the part of the City
Treasurer on why the Corporation should be taxed anyway. "Full
appreciative living values" is nothing but blather in search of meaning,
and to impose a tax hinged on that standard is both arbitrary and
oppressive.
xxx xxx xxx

Again, whatever capacity the Corporation may have pursuant

to its power to exercise acts of ownership over personal and real
property is limited by its stated corporate purposes, which are by
themselves further limited by the Condominium Act. A condominium
corporation, while enjoying such powers of ownership, is prohibited
by law from transacting its properties for the purpose of gainful
profit. (Emphasis supplied)
xxx xxx xxx

Yamane did emphasize that a corporation condominium is not designed to engage in

activities that generate income or profit. A discussion on the nature of a condominium
corporation is, indubitably, in order.
The creation of the condominium corporation is sanctioned by Republic Act No. 4726
(RA 4726) [35] (The Condominium Act). Under the law, a condominium is an interest in real
property consisting of a separate interest in a unit in a residential, industrial or commercial
building and an undivided interest in common, directly or indirectly, in the land on which it is
located and in other common areas of the building. To enable the orderly administration over
these common areas which the unit owners jointly own, RA 4726 permits the creation of a
condominium corporation for the purpose of holding title to the common areas. The unit
owners shall in proportion to the appurtenant interests of their respective units automatically
be members or shareholders of the condominium corporation to the exclusion of others. [36]
Sections 10 and 22 of RA 4726 focus on the non-profit purpose of a condominium
corporation. Under Section 10, [37] the corporate purposes of a condominium corporation are
limited to holding the common areas, either in ownership or any other interest in real property
recognized by law; management of the project; and to such other purposes necessary,
incidental, or convenient to the accomplishment of these purposes. Additionally, Section 10
prohibits the articles of incorporation or by-laws of the condominium corporation from
containing any provisions contrary to the provisions of RA 4726, the enabling or master deed,
or the declaration of restrictions of the condominium project. [38]

Also, under Section 22, [39] the condominium corporation, as the management body,
may only act for the benefit of the condominium owners in disposing tangible and intangible
personal property by sale or otherwise in proportion to the condominium owners' respective
interests in the common areas.

Further, Section 9 [40] allows a condominium corporation to provide for the means by
which it should be managed. Specifically, it authorizes a condominium corporation to collect
association dues, membership fees, and other assessments/charges for: a) maintenance of
insurance policies; b) maintenance, utility, gardening and other services benefiting the
common areas, for the employment of personnel necessary for the operation of the building,
and legal, accounting and other professional and technical services; c) purchase of materials,
supplies and the like needed by the common areas; d) reconstruction of any portion or
portions of any damage to or destruction of the project; and e) reasonable assessments to
meet authorized expenditures.
In fine, the collection of association dues, membership fees, and other
assessments/charges is purely for the benefit of the condominium owners. It is a necessary
incident to the purpose to effectively oversee, maintain, or even improve the common areas
of the condominium as well as its governance.
As held in Yamane, "[t]he profit motive in such cases is hardly the driving factor behind
such improvements, if it were contemplated at all. Any profit that would be derived under such
circumstances would merely be incidental, if not accidental." More, a condominium
corporation is especially formed for the purpose of holding title to the common area and
exists only for the benefit of the condominium owners. Nothing more.
RMC No. 65-2012, sharply departs from Yamane and the law on condominium
corporations. It invalidly declares that the amounts paid as dues or fees by members and
tenants of a condominium corporation form part of the gross income of the latter, thus,
subject to income tax, value-added tax, and withholding tax. The reason given — a
condominium corporation furnishes its members and tenants with benefits, advantages, and
privileges in return for such payments, consequently, these payments constitute taxable
income or compensation for beneficial services it provides to its members and tenants,
hence, subject to income tax, value-added tax, and withholding tax.
We cannot agree.
b) Association dues, membership fees, and other assessments/charges are
not subject to income tax, value-added tax and withholding tax.
 First. Capital is a fund or property existing at one distinct point in time while income
denotes a flow of wealth during a definite period of time. Income is gain derived and severed
from capital. [41] Republic Act No. 8424 (RA 8424) [42] or the Tax Reform Act of 1997 was in
effect when RMC No. 65-2012 was issued on October 31, 2012. In defining taxable income,
Section 31 of RA 8424 states:
Section 31. Taxable Income Defined. — The term taxable income means the
pertinent items of gross income specified in this Code, less the deductions and/or
personal and additional exemptions, if any, authorized for such types of income by this
Code or other special laws.

Gross income means income derived from whatever source, including compensation
for services; the conduct of trade or business or the exercise of a profession; dealings in
property; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions; and a
partner's distributive share in the net income of a general professional partnership, [43] among
others.
On December 19, 2017, Section 31 was amended by Republic Act No. 10963 (RA
10963 ) [44] (The TRAIN Law). The provision now reads:
Sec. 31. Taxable Income Defined. — The term "taxable income" means the
pertinent items of gross income specified in this Code, less deductions if any,
authorized for such types of income by this Code or other special laws.

There is no substantial difference between the original definition under RA 8424 and
the subsequent definition under the TRAIN Law. The only difference is that the phrase
"and/or personal and additional exemptions" was deleted. Still, both the former and current
definitions are consistent — 'taxable income' refers to "the pertinent items of gross income
specified in this Code." A comparison of RA 8424 and the TRAIN Law shows the items under
gross income insofar as they are relevant to the present case, viz.:

RA 8424 [45] RA 10963

(the law in effect when RMC No. (signed into law on December 19,
65-2012 was issued on October 31, 2017 and took effect on January 1,
2012) 2018)
Section 32. Gross Income. — Section 32. Gross Income. —
(A) General Definition. — Except (A) General Definition. — Except when
when otherwise provided in this Title, otherwise provided in this Title, gross
gross income means all income income means all income derived from
derived from whatever source, whatever source, including (but not
limited to) the following items:
 including (but not limited to) the (1) Compensation for services in
following items: whatever form paid, including, but
(1) Compensation for services in not limited to fees, salaries, wages,
whatever form paid, including, but commissions, and similar items;
not limited to fees, salaries, (2) Gross income derived from the
wages, commissions, and similar conduct of trade or business or the
items; exercise of a profession;
(2) Gross income derived from the xxx xxx xxx
conduct of trade or business or
the exercise of a profession;
xxx xxx xxx

Section 32 of RA 8424 does not include association dues, membership fees, and other
assessments/charges collected by condominium corporations as sources of gross income.
The subsequent amendment under the TRAIN Law substantially replicates the old Section
32.
Clearly, RMC No. 65-2012 expanded, if not altered, the list of taxable items in the law.
RMC No. 65-2012, therefore, is void. Besides, where the basic law and a rule or regulation
are in conflict, the basic law prevails. [46]
As established in Yamane, the expenditures incurred by condominium corporations on
behalf of the condominium owners are not intended to generate revenue nor equate to the
cost of doing business.

In the very recent case of ANPC v. BIR, [47] the Court pronounced that membership
fees, assessment dues, and other fees collected by recreational clubs are not subject to
income tax, thus:
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.
Case law provides that in order to constitute "income," there must be realized
"gain." Clearly, because of the nature of membership fees and assessment dues as
funds inherently dedicated for the maintenance, preservation, and upkeep of the clubs'
general operations and facilities, nothing is to be gained from their collection. This
stands in contrast to the fees received by recreational clubs coming from their income-
generating facilities, such as bars, restaurants, and food concessionaires, or from
 income-generating activities, like the renting out of sports equipment, services, and
other accommodations: In these latter examples, regardless of the purpose of the fees'
eventual use, gain is already realized from the moment they are collected because
capital maintenance, preservation, or upkeep is not their pre-determined purpose. As
such, recreational clubs are generally free to use these fees for whatever purpose they
desire and thus, considered as unencumbered "fruits" coming from a business
transaction.
Further, given these recreational clubs' non-profit nature, membership fees
and assessment dues cannot be considered as funds that would represent these
clubs' interest or profit from any investment. In fact, these fees are paid by the
clubs' members without any expectation of any yield or gain (unlike in stock
subscriptions), but only for the above-stated purposes and in order to retain their
membership therein.
In fine, for as long as these membership fees, assessment dues, and the
like are treated as collections by recreational clubs from their members as an
inherent consequence of their membership, and are, by nature, intended for the
maintenance, preservation, and upkeep of the clubs' general operations and
facilities, then these fees cannot be classified as "the income of recreational
clubs from whatever source" that are "subject to income tax. Instead, they only
form part of capital from which no income tax may be collected or imposed.
(Emphasis supplied)

Similarly, therefore, association dues, membership fees, and other

assessments/charges are not subject to income tax because they do not constitute profit or
gain. To repeat, they are collected purely for the benefit of the condominium owners and are
the incidental consequence of a condominium corporation's responsibility to effectively
oversee, maintain, or even improve the common areas of the condominium as well as its
governance.
Second. Association dues, membership fees, and other assessments/charges do not
arise from transactions involving the sale, barter, or exchange of goods or property. Nor are
they generated by the performance of services. As such, they are not subject to value-added
tax per Section 105 of RA 8424, viz.:
Section 105. Persons Liable. — Any person who, in the course of trade or
business, sells, barters, exchanges, leases goods or properties, renders services, and
any person who imports goods shall be subject to the value-added tax (VAT) imposed
in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services. This
 rule shall likewise apply to existing contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct
or pursuit of a commercial or an economic activity including transactions
incidental thereto, by any person regardless of whether or not the person
engaged therein is a non-stock, non-profit private organization (irrespective of
the disposition of its net income and whether or not it sells exclusively to
members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this

Code rendered in the Philippines by nonresident foreign persons shall be considered
as being course of trade or business. (Emphasis supplied)

The value-added tax is a burden on transactions imposed at every stage of the

distribution process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto, so much so that
even a non-stock, non-profit organization or government entity, is liable to pay value-added
tax on the sale of goods or services. [48]
Section 106 of RA 8424 imposes value-added tax on the sale of goods and properties.
The term 'goods' or 'properties' shall mean all tangible and intangible objects which are
capable of pecuniary estimation. These 'goods' or 'properties' include real property,
intellectual property, equipment, and rights over motion picture films. [49] Section 106 of RA
8424 likewise imposes value-added tax on transactions such as transfer of goods, properties,
profits, or inventories. [50]

Section 108 of RA 8424 further imposes value-added tax on sale of services and use
or lease of properties. It defines "sale or exchange of services," as follows:

The phrase 'sale or exchange of services' [51] means the performance of all
kinds of services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; stock,
real estate, commercial, customs and immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, rest-houses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land
relative to their transport of goods or cargoes; common carriers by air and sea relative
to their transport of passengers, goods or cargoes from one place in the Philippines to
 another place in the Philippines; sales of electricity by generation companies,
transmission, and distribution companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television broadcasting and all other
franchise grantees except those under Section 119 of this Code and non-life insurance
companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. x x x

The phrase 'sale or exchange of services' shall include the use of intellectual property,
use of certain types of equipment, supplying certain types of knowledge or information, lease
of motion picture films, and use of transmission or air time.

Both under RA 8424 (Sections 106, 107, [52] and 108) and the TRAIN Law, there, too,
is no mention of association dues, membership fees, and other assessments/charges
collected by condominium corporations being subject to VAT. And rightly so. For when a
condominium corporation manages, maintains, and preserves the common areas in the
building, it does so only for the benefit of the condominium owners. It cannot be said to be
engaged in trade or business, thus, the collection of association dues, membership fees, and
other assessments/charges is not a result of the regular conduct or pursuit of a commercial or
an economic activity, or any transactions incidental thereto.
Neither can it be said that a condominium corporation is rendering services to the unit
owners for a fee, remuneration or consideration. Association dues, membership fees, and
other assessments/charges form part of a pool from which a condominium corporation must
draw funds in order to bear the costs for maintenance, repair, improvement, reconstruction
expenses and other administrative expenses.
Indisputably, the nature and purpose of a condominium corporation negates the carte
blanche application of our value-added tax provisions on its transactions and activities. CIR v.
Magsaysay Lines, Inc., [53] stated:
Yet VAT is not a singular-minded tax on every transactional level. Its assessment
bears direct relevance to the taxpayer's role or link in the production chain. Hence, as
affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is
levied only on the sale, barter or exchange of goods or services by persons who
engage in such activities, in the course of trade or business. These transactions
outside the course of trade or business may invariably contribute to the
production chain, but they do so only as a matter of accident or incident. As the
sales of goods or services do not occur within the course of trade or business,
the providers of such goods or services would hardly, if at all, have the
opportunity to appropriately credit any VAT liability as against their own
accumulated VAT collections since the accumulation of output VAT arises in the
 first place only through the ordinary course of trade or business. (Emphasis
supplied)

Too, ANPC [54] held that membership fees, assessment dues, and the like collected by
recreational clubs are not subject to value-added tax "because in collecting such fees, the
club is not selling its service to the members. Conversely, the members are not buying
services from the club when dues are paid; hence, there is no economic or commercial
activity to speak of as these dues are devoted for the operations/maintenance of the facilities
of the organization. As such, there could be no 'sale, barter or exchange of goods or
properties, or sale of a service' to speak of, which would then be subject to VAT under the
1997 NIRC." This principle equally applies to condominium corporations which are similarly
situated with recreational clubs insofar as membership fees, assessment dues, and other
fees of similar nature collected from condominium owners are devoted to the operations and
maintenance of the facilities of the condominium. In sum, RMC No. 65-2012 illegally imposes
value-added tax on association dues, membership fees, and other assessments/charges
collected and received by condominium corporations.
Third. The withholding tax system was devised for three (3) primary reasons, i.e., —
(1) to provide taxpayers a convenient manner to meet their probable income tax liability; (2)
to ensure the collection of income tax which can otherwise be lost or substantially reduced
through failure to file the corresponding returns; and (3) to improve the government's cash
flow. This results in administrative savings, prompt and efficient collection of taxes, prevention
of delinquencies and reduction of governmental effort to collect taxes through more
complicated means and remedies. [55] Succinctly put, withholding tax is intended to facilitate
the collection of income tax. And if there is no income tax, withholding tax cannot be
collected.
Section 57 of RA 8424 directs that only income, be it active or passive, earned by a
payor-corporation can be subject to withholding tax, viz.:
Section 57. Withholding of Tax at Source. —
(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and
regulations the Secretary of Finance may promulgate, upon the recommendation of the
Commissioner, requiring the filing of income tax return by certain income payees, the
tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2),
25(A)(3), 25(B), 25(C), 25(D), 25(E), 27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4),
28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4),
28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on specified items of
income shall be withheld by payor-corporation and/or person and paid in the same
manner and subject to the same conditions as provided in Section 58 of this Code.
 (B) Withholding of Creditable Tax at Source. — The Secretary of Finance may,
upon the recommendation of the Commissioner, require the withholding of a tax on the
items of income payable to natural or juridical persons, residing in the Philippines, by
payor-corporation/persons as provided for by law, at the rate of not less than one
percent (1%) but not more than thirty-two percent (32%) thereof, which shall be credited
against the income tax liability of the taxpayer for the taxable year.
xxx xxx xxx

Although Section 57 (B) was later amended by the TRAIN Law, it still decrees that the
withholding of tax covers only the income payable to natural or juridical persons, thus:
Sec. 57. Withholding of Tax at Source. —
(A) xxx—
(B) Withholding of Creditable Tax at Source. — The Secretary of Finance may,
upon the recommendation of the Commissioner, require the withholding of a tax on the
items of income payable to natural or juridical persons, residing in the Philippines, by
payor-corporation/persons as provided for by law, at the rate of not less than one
percent (1%) but not more than thirty-two percent (32%) thereof, which shall be credited
against the income tax liability of the taxpayer for the taxable year: Provided, That,
beginning January 1, 2019, the rate of withholding shall not be less than one percent
(1%) but not more than fifteen percent (15%) of the income payment.
xxx xxx xxx

Yamane aptly stated "[e]ven though the Corporation is empowered to levy

assessments or dues from the unit owners, these amounts collected are not intended for the
incurrence of profit by the Corporation or its members, but to shoulder the multitude of
necessary expenses that arise from the maintenance of the Condominium Project."
Fourth. Section 4 of RA 8424 empowers the BIR Commissioner to interpret tax laws
and to decide tax cases:
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. — The power to interpret the provisions of this Code and other tax laws shall
be under the exclusive and original jurisdiction of the Commissioner, subject to review
by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of Internal
Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.
 But the BIR Commissioner cannot, in the exercise of such power, issue administrative
rulings or circulars inconsistent with the law to be implemented. Administrative issuances
must not override, supplant, or modify the law, they must remain consistent with the law
intended to carry out. Surely, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with the law they seek to apply and
implement. [56]
As shown, the BIR Commissioner expanded or modified the law when she declared
that association dues, membership fees, and other assessments/charges are subject to
income tax, value-added tax, and withholding tax. In doing so, she committed grave abuse of
discretion amounting to lack or excess of jurisdiction. As to what constitutes 'grave abuse of
discretion' and when a government branch, agency, or instrumentality is deemed to have
committed it, Kilusang Mayo Uno v. Aquino III [57] instructs:
Grave abuse of discretion denotes a "capricious, arbitrary[,] and whimsical
exercise of power. The abuse of discretion must be patent and gross as to amount to
an evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as
not to act at all in contemplation of law, or where the power is exercised in an arbitrary
and despotic manner by reason of passion or hostility."
Any act of a government branch, agency, or instrumentality that violates a statute
or a treaty is grave abuse of discretion. However, grave abuse of discretion pertains
to acts of discretion exercised in areas outside an agency's granted authority
and, thus, abusing the power granted to it. Moreover, it is the agency's exercise of
its power that is examined and adjudged, not whether its application of the law is
correct. (Emphasis supplied)

In sum, the BIR Commissioner is empowered to interpret our tax laws but not expand
or alter them. In the case of RMC No. 65-2012, however, the BIR Commissioner went
beyond, if not, gravely abused such authority.
If proper, the First E-Bank may
recover the consignated amounts,
through a separate action or proceeding
The general rule is that a void law or administrative act cannot be the source of legal
rights or duties. Article 7 of the Civil Code enunciates this general rule, as well as its
exception: "Laws are repealed only by subsequent ones, and their violation or non-
observance shall not be excused by disuse, or custom or practice to the contrary. When the
courts declared a law to be inconsistent with the Constitution, the former shall be void and the
latter shall govern. Administrative or executive acts, orders and regulations shall be valid only
when they are not contrary to the laws or the Constitution." [58] Jurisprudence is replete with
instances when this Court had directed the refund of taxes that were paid under invalid tax
measures, thus:

1) In Icard v. The City Council of Baguio, [59] this Court held that the City of
Baguio's ordinances, namely, Ordinance No. 6-V (which imposed an amusement
tax of 0.20 for each person entering a night club) and Ordinance No. 11-V (which
provides for a property tax on motor vehicles) were ultra vires. As a
consequence, this Court ordered the City of Baguio to refund to petitioner-
appellee in that case the sum of P254.80 which he paid as amusement tax.

2) In Matalin Coconut Co., Inc. v. The Municipal Council of Malabang [60] the
Court agreed with the trial court's finding that the Municipality of Malabang's
Municipal Ordinance No. 45-66, imposing a "police inspection fee" of P0.30 per
sack of cassava starch or flour was an invalid act of taxation. The trial court's
directive to the municipal treasurer "to refund to the petitioner the payments it
made under the said ordinance from September 27, 1966 to May 2, 1967,
amounting to P25,500.00, as well as all payments made subsequently
thereafter" was likewise affirmed by this Court.

3) In Cagayan Electric Power and Light, Co. Inc. v. City of Cagayan de Oro, [61]
this Court directed the City of Cagayan de Oro to refund to CEPALCO the tax
payments made by the latter "on the lease or rental of electric and/or
telecommunication posts, poles or towers by pole owners to other pole users at
ten percent (10%) of the annual rental income derived from such lease or rental"
after the city's tax Ordinance No. 9503-2005 was declared invalid.
Petitioner resorted to judicial consignation of its alleged tax payments in the court, thus,
reckons with the requirements of judicial consignation, viz.: (1) a debt due; (2) the creditor to
whom tender of payment was made refused without just cause to accept the payment, or the
creditor was absent, unknown or incapacitated, or several persons claimed the same right to
collect, or the title of the obligation was lost; (3) the person interested in the performance of
the obligation was given notice before consignation was made; (4) the amount was placed at
the disposal of the court; and (5) the person interested in the performance of the obligation
was given notice after the consignation was made. [62]
Here, it is imperative to determine whether the First E-Bank actually complied with the
requirements for judicial consignation. This is a question of fact which by this Court, not being
a trial court cannot pass upon. The trial court, therefore, thus correctly held that the First E-
Bank may initiate the appropriate motion for the release of the consignated funds, upon
finality of the judicial determination on the validity of RMC No. 65-2012 and only after it has
determined the presence of the requirements for judicial consignation.
A final word
RMC No. 65-2012 is invalid for ordaining that "gross receipts of condominium
corporations including association dues, membership, fees, and other assessments/charges
are subject to VAT, income tax and income payments made to it are subject to applicable
withholding taxes." A law will not be construed as imposing a tax unless it does so clearly and
expressly. In case of doubt, tax laws must be construed strictly against the government and in
favor of the taxpayer. [63] Taxes, as burdens that must be endured by the taxpayer, should not
be presumed to go beyond what the law expressly and clearly declares. [64]

ACCORDINGLY, the Court RESOLVES:

1) To REVERSE and SET ASIDE the assailed Resolutions dated June 26, 2014
and November 27, 2014 of the Court of Appeals in CA-G.R. CV No. 102266;
2) To DENY the Petition for Review dated February 17, 2015 in G.R. No. 215801
and the Special Civil Action for Certiorari dated February 12, 2015 in G.R. No.
218924; and
3) To AFFIRM the Resolution dated September 5, 2013 and Order dated
December 18, 2013 of the Regional Trial Court, Branch 146, Makati City in
Special Civil Action No. 12-1236.
SO ORDERED.
Peralta, C.J., Caguioa, J.C. Reyes, Jr. and Lopez, JJ., concur.

Footnotes

* Petitioner First E-Bank Tower Condominium Corp. sought to change the caption of its petition in
order to include the Court of Appeals as public respondent but its motion to amend the title was
denied under Resolution dated October 12, 2015 in G.R. No. 218924.

1. Penned by Associate Justice Ramon M. Bato, Jr., with the concurrence of Associate Justices
Rodil V. Zalameda (now a member of this Court) and Agnes Reyes-Carpio, all members of the
Special Seventeenth Division, G.R. No. 218924, rollo, pp. 37-38.

2. Penned by Associate Justice Ramon M. Bato, Jr. with the concurrence of Associate Justices
Rodil V. Zalameda (now a member of this Court) and Agnes Reyes-Carpio, all members of the
Former Special Seventeenth Division, id. at 12-16.
3. Id. at 50-51.

4. Bureau of Internal Revenue, Revenue Memorandum Circular No. 65-2012

https://www.bir.gov.ph/images/bir_files/old_files/pdf/66019RMC%20No%2065-2012.pdf
(Accessed on July 24, 2019).

5. G.R. No. 218924, rollo, p. 51.

6. Id.

7. Id.

8. Id. at 52.

* date unknown.

9. Id.

10. Id. at 54.

11. Id. at 50-63.

12. Id. at 57-58.

13. Id. at 59.

14. Id. at 60-61.

15. Id. at 62.

16. G.R. No. 218924, Id. at 62.

17. Id. at 45-46.

18. Id. at 45-48.

19. Id. at 12-16.

20. Id. at 16.

21. Id. at 2-11.

22. G.R. No. 215801, rollo, pp. 23-39.

23. CIR v. Standard Insurance Co., Inc., G.R. No. 219340, November 07, 2018.

24. G.R. No. 230107, July 24, 2018.

25. G.R. No. 193007, 669 Phil. 371, 382-383 (2011).

26. See Rural Bank of Calinog (Iloilo), Inc. v. Court of Appeals, G.R. No. 146519, August 08,
2005.

27. G.R. No. 157660, 585 Phil. 657, 662 (2008).

28. AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA),
ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL
JURISDICTION AND ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE
CERTAIN SECTIONS OF REPUBLIC ACT NO. 1125, AS AMENDED, OTHERWISE KNOWN
AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES.

29. 584 Phil. 489, 511 (2008).

30. 726 Phil. 9, 26-27 (2014).

31. Id.

32. 793 Phil. 97, 124-125 (2016).

33. G.R. No. 215801, rollo, pp. 26-27.

34. 510 Phil. 750, 775-777 (2005).

35. AN ACT TO DEFINE CONDOMINIUM, ESTABLISH REQUIREMENTS FOR ITS

CREATION, AND GOVERN ITS INCIDENTS.

36. Section 2, RA 4726 [n] (The Condominium Act).

37. Sec. 10. Whenever the common areas in a condominium project are held by a condominium
corporation, such corporation shall constitute the management body of the project. The
corporate purposes of such a corporation shall be limited to the holding of the common areas,
either in ownership or any other interest in real property recognized by law, to the management
of the project, and to such other purposes as may be necessary, incidental or convenient to the
accomplishment of said purposes. The articles of incorporation or by-laws of the corporation
shall not contain any provision contrary to or inconsistent with the provisions of this Act, the
enabling or master deed, or the declaration of restrictions of the project. Membership in a
condominium corporation, regardless of whether it is a stock or non-stock corporation, shall not
be transferable separately from the condominium unit of which it is an appurtenance. When a
member or stockholder ceases to own a unit in the project in which the condominium
corporation owns or holds the common areas, he shall automatically cease to be a member or
stockholder of the condominium corporation.
38. Yamane v. BA Lepanto Condominium Corp., 510 Phil. 750, 773-774 (2005).

39. Sec. 22. Unless otherwise provided for by the declaration of restrictions, the management
body, provided for herein, may acquire and hold, for the benefit of the condominium owners,
tangible and intangible personal property and may dispose of the same by sale or otherwise;
and the beneficial interest in such personal property shall be owned by the condominium
owners in the same proportion as their respective interests in the common areas. A transfer of a
condominium shall transfer to the transferee ownership of the transferor's beneficial interest in
such personal property.

40. Sec. 9. The owner of a project shall, prior to the conveyance of any condominium therein,
register a declaration of restrictions relating to such project, which restrictions shall constitute a
lien upon each condominium in the project, and shall insure to and bind all condominium owners
in the project. Such liens, unless otherwise provided, may be enforced by any condominium
owner in the project or by the management body of such project. The Register of Deeds shall
enter and annotate the declaration of restrictions upon the certificate of title covering the land
included within the project, if the land is patented or registered under the Land Registration or
Cadastral Acts.

The declaration of restrictions shall provide for the management of the project by anyone of the
following management bodies: a condominium corporation, an association of the condominium
owners, a board of governors elected by condominium owners, or a management agent elected
by the owners or by the board named in the declaration. It shall also provide for voting majorities
quorums, notices, meeting date, and other rules governing such body or bodies.

Such declaration of restrictions, among other things, may also provide:

(a) As to any such management body;

(1) For the powers thereof, including power to enforce the provisions of the declarations of
restrictions;

(2) For maintenance of insurance policies, insuring condominium owners against loss by fire,
casualty, liability, workmen's compensation and other insurable risks, and for bonding of the
members of any management body;

(3) Provisions for maintenance, utility, gardening and other services benefiting the common
areas, for the employment of personnel necessary for the operation of the building, and legal,
accounting and other professional and technical services;

(4) For purchase of materials, supplies and the like needed by the common areas;
 (5) For payment of taxes and special assessments which would be a lien upon the entire project
or common areas, and for discharge of any lien or encumbrance levied against the entire project
or the common areas;

(6) For reconstruction of any portion or portions of any damage to or destruction of the project;

(7) The manner for delegation of its powers;

(8) For entry by its officers and agents into any unit when necessary in connection with the
maintenance or construction for which such body is responsible;

(9) For a power of attorney to the management body to sell the entire project for the benefit of
all of the owners thereof when partition of the project may be authorized under Section 8 of this
Act, which said power shall be binding upon all of the condominium owners regardless of
whether they assume the obligations of the restrictions or not.

(b) The manner and procedure for amending such restrictions: Provided, That the vote of not
less than a majority in interest of the owners is obtained.

(c) For independent audit of the accounts of the management body;

(d) For reasonable assessments to meet authorized expenditures, each condominium unit to be
assessed separately for its share of such expenses in proportion (unless otherwise provided) to
its owners fractional interest in any common areas;

(e) For the subordination of the liens securing such assessments to other liens either generally
or specifically described;

(f) For conditions, other than those provided for in Sections eight and thirteen of this Act, upon
which partition of the project and dissolution of the condominium corporation may be made.
Such right to partition or dissolution may be conditioned upon failure of the condominium
owners to rebuild within a certain period or upon specified inadequacy of insurance proceeds, or
upon specified percentage of damage to the building, or upon a decision of an arbitrator, or
upon any other reasonable condition.

41. Chamber of Real Estate and Builders' Assn., Inc. v. Hon. Executive Sec. Romulo, et al.,
562 Phil. 508, 530 (2010).

42. AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED,

AND FOR OTHER PURPOSES.

43. See CIR v. PAL, 535 Phil. 95, 106 (2006).

44. Tax Reform for Acceleration and Inclusion (TRAIN) Act.

45. As amended by Republic Act Nos. 8424, 9337, 9442, and 9504.

46. PAGCOR v. BIR, 660 Phil. 636, 664 (2011).

47. G.R. No. 228539, June 26, 2019.

48. CIR v. Negros Consolidated Farmers Multi-Purpose Cooperative, G.R. No. 212735,
December 05, 2018.

49. The term 'goods' or 'properties' shall mean all tangible and intangible objects which are
capable of pecuniary estimation and shall include: a) real properties held primarily for sale to
customers or held for lease in the ordinary course of trade or business; b) the right or the
privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right; c) the right or the privilege to use in the
Philippines of any industrial, commercial or scientific equipment;

d) the right or the privilege to use motion picture films, tapes and discs; and e) radio, television,
satellite transmission and cable television time.

50. Section 106 of RA 8424 likewise imposes VAT on the following transactions: 1) transfer, use or
consumption not in the course of business of goods or properties originally intended for sale or
for use in the course of business; 2) distribution or transfer to shareholders or investors as share
in the profits of the VAT-registered persons; 3) distribution or transfer of profits of VAT-registered
persons to creditors in payment of debt; 4) consignment of goods if actual sale is not made
within sixty (60) days following the date such goods were consigned; and 5) retirement from or
cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation.

51. The phrase 'sale or exchange of services' shall likewise include: a) the lease or the use of or
the right or privilege to use any copyright, patent, design or model, plan secret formula or
process, goodwill, trademark, trade brand or other like property or right; 2) the lease of the use
of, or the right to use of any industrial, commercial or scientific equipment; 3) the supply of
scientific, technical, industrial or commercial knowledge or information; 4) the supply of any
assistance that is ancillary and subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right or any such knowledge or information; 5)
the supply of services by a non-resident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such non-resident person; 6) the supply of technical advice,
assistance or services rendered in connection with technical management or administration of
any scientific, industrial or commercial undertaking, venture, project or scheme; 7) the lease of
motion picture films, films, tapes and discs; and 8) the lease or the use of or the right to use
radio, television, satellite transmission and cable television time.
52. x x x There shall be levied, assessed and collected on every importation of goods a value-
added tax x x x based on the total value used by the Bureau of Customs in determining tariff
and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be
paid by the importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of the goods,
the value-added tax shall be based on the landed cost plus excise taxes, if any, x x x.

53. 529 Phil. 64, 73 (2006).

54. Id.

55. COURAGE v. Commissioner, Bureau of Internal Revenue, G.R. No. 213446, July 03,
2018.

56. Id.

57. G.R. No. 210500, April 02, 2019.

58. CIR v. San Roque Power Corporation, 719 Phil. 137, 157 (2013).

59. 83 Phil. 870 (1949).

60. 227 Phil. 370 (1986).

61. 698 Phil. 788, 793 (2012).

62. Dalton v. FGR Realty and Dev't. Corp., 655 Phil. 93, 97-98 (2011).

63. See CIR v. SM Prime Holdings, Inc., 627 Phil. 581 (2010).

64. Philacor Credit Corporation v. CIR, 703 Phil. 26, 46 (2013).

n Note from the Publisher: Written as "RA 8424" in the official document.