The tax exemption granted by the Constitution to non-stock, non-profit educational institutions, unlike the exemption that may be availed of by proprietary educational institutions, is not subject to limitations imposed by law.

The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions, unlike the exemption
that may be availed of by proprietary
educational institutions, is not subject to
limitations imposed by law.

That the Constitution treats non-stock, non-profit educational institutions differently from proprietary educational institutions cannot be doubted. As discussed, the privilege granted to the former is conditioned only on the actual, direct and exclusive use of their revenues and assets for educational purposes. In clear contrast, the tax privilege granted to the latter may be subject to limitations imposed by law.

We spell out below the difference in treatment if only to highlight the privileged status of non-stock, non-profit educational institutions compared with their proprietary counterparts.

While a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30 (Exemptions from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered by Section 27 (Rates of Income Tax on Domestic Corporations).

To be specific, Section 30 provides that exempt organizations like non-stock, non-profit educational institutions shall not be taxed on income received by them as such.

Section 27 (B), on the other hand, states that "[p]roprietary educational institutions ... which are nonprofit shall pay a tax of ten percent (10%) on their taxable income .. . Provided, that if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions ... [the regular corporate income tax of 30%] shall be imposed on the entire taxable income ... "92

By the Tax Code's clear terms, a proprietary educational institution is entitled only to the reduced rate of 10% corporate income tax. The reduced rate is applicable only if: (1) the proprietary educational institution is nonprofit and (2) its gross income from unrelated trade, business or activity does not exceed 50% of its total gross income.

Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not apply to non-stock, non-profit educational institutions.

Thus, we declare the last paragraph of Section 30 of the Tax Code without force and effect for being contrary to the Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purpose. We make this declaration in the exercise of and consistent with our duty93 to uphold the primacy of the Constitution.94

Finally, we stress that our holding here pertains only to non-stock, non-profit educational institutions and does not cover the other exempt organizations under Section 30 of the Tax Code.

For all these reasons, we hold that the income and revenues of DLSU proven to have been used actually, directly and exclusively for educational purposes are exempt from duties and taxes.