CIR vs. St. Luke's Medical Center, Inc.

FACTS: St. Luke's is a non-stock non-profit hospital. The BIR assessed St. Luke's
based on the argument that Section 27(B) of the Tax Code should apply to it and
hence all of St. Luke's income should be subject to the 10% tax therein as it is a
more specific provision and should prevail over Section 30 which is a general
provision. St. Luke's countered by saying that its free services to patients was
65% of its operating income and that no part of its income inures to the benefit of
any individual.

ISSUE: Does Section 27(B) have the effect of taking proprietary non-profit
hospitals out of the income tax exemption under Section 30 of the Tax Code and
should instead be subject to a preferential rate of 10% on its entire income?

RULING: No. The enactment of Section 27(B) does not remove the possible income tax
exemption of proprietary non-profit hospitals. The only thing that Section 27(B)
captures (at 10% tax) in the case of qualified hospitals is in the instance where
the income realized by the hospital falls under the last paragraph of Section 30
such as when the entity conducts any activity for profit. The revenues derived by
St. Luke's from pay patients are clearly income from activities conducted for
profit.