FACTS:

Petitioner is engaged in both taxable and non-taxable operations. The income derived from the operations of the hospital and the nursing school are exempt from income tax while the rest of petitioner’s income are subject thereto. Its taxable or non-operating income consists of rentals, interests and dividends received from its properties and investments. In the computation of its taxable income for the years 1952 to 1955, petitioner allowed all its taxable income to share in the allocation of administrative expenses. Respondent, Commissioner of Internal Revenue disallowed, however, the interests and dividends from sharing in the allocation of administrative expense on the ground that the expenses incurred in the administration or management of petitioner’s investments are not allowable business expenses inasmuch as they were not incurred in ‘carrying on any trade or business’ within the contemplation of Section 30 (a) (1) of the Revenue Code. Consequently, petitioner was assessed deficiency income taxes for the years in question

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

Petitioner sought a review of the assessment by the CTA, which upheld the Commissioner holding that the expenses incurred by the petitioner for handling its funds or income consisting solely of dividends and interests, were not expenses incurred in “carrying on any trade or business,” hence, not deductible as business or administrative expenses.

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

ISSUE:

            Whether or not the dividends and interests are expenses incurred in carrying on any trade or business, hence, deductible as business expense under Section 30 (A) (I) of the Revenue Code.

RULING:

            The Supreme Court ruled in the negative.  The CTA found that petitioner failed to establish by competent proof that its receipt of interests and dividends constituted the carrying on of a trade or business so as to warrant the deductibility of the expenses incurred in their realization. Petitioner could have easily required any of its responsible officials to testify on this regard but it failed to do so. Under these circumstances and coupled with the fact that the interests and dividends here in question are merely incidental income to petitioner’s main activity, which is the operation of its hospital and nursing schools, the conclusion becomes inevitable that petitioner’s activities never go beyond that of a passive investor, which under existing jurisprudence do not come within the purview of carrying on any “trade or business”.

That factual finding is binding on this Court. And, as the principle of allocating expenses is grounded on the premise that the taxable income was derived from carrying on a trade or business, as distinguished from mere receipt of interests and dividends from one’s investments, the CTA correctly ruled that said income should not share in the allocation of administrative expenses.

Hospital de San Juan De Dios, Inc., according to its Articles of Incorporation, was established for purposes “Which are benevolent, charitable and religious, and not for financial gain”. It is not carrying on a trade or business for the word “business” in its ordinary and common use means “human efforts which have for their end living or reward; it is not commonly used as descriptive of charitable, religious, educational or social agencies” or “any particular occupation or employment habitually engaged in especially for livelihood or gain” or “activities where profit is the purpose or livelihood is the motive.”