[G.R. No. 172087. March 15, 2011.]
PHILIPPINE AMUSEMENT AND GAMING CORPORATION
(PAGCOR), petitioner, vs. THE BUREAU OF INTERNAL
REVENUE (BIR), represented herein by HON. JOSE MARIO
BUÑAG, in his official capacity as COMMISSIONER OF
INTERNAL REVENUE, public respondent,
exclusive use of the casino or to be used to service the
operations and requirements of the casino, shall likewise be
totally exempt from the payment of all customs duties, taxes
and other imposts, including all kinds of fees, levies,
assessments or charges of any kind or nature, whether
National or Local.
JOHN DOE and JANE DOE, who are persons acting for, in
behalf, or under the authority of Respondent, public and
private respondents.
(2) Income and other taxes. — (a) Franchise Holder: No tax of
any kind or form, income or otherwise, as well as fees,
charges, or levies of whatever nature, whether National or
Local, shall be assessed and collected under this Franchise
from the Corporation; nor shall any form of tax or charge
attach in any way to the earnings of the Corporation, except
a Franchise Tax of five percent (5%)of the gross revenue or
earnings derived by the Corporation from its operation under
this Franchise. Such tax shall be due and payable quarterly to
the National Government and shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or
description, levied, established, or collected by any municipal,
provincial or national government authority.
DECISION
PERALTA, J p:
For resolution of this Court is the Petition for Certiorari and
Prohibition 1 with prayer for the issuance of a Temporary
Restraining Order and/or Preliminary Injunction, dated April
17, 2006, of petitioner Philippine Amusement and Gaming
Corporation (PAGCOR), seeking the declaration of nullity of
Section 1 of Republic Act (R.A.) No. 9337 insofar as it amends
Section 27 (c) of the National Internal Revenue Code of 1997,
by excluding petitioner from exemption from corporate
income tax for being repugnant to Sections 1 and 10 of
Article III of the Constitution. Petitioner further seeks to
prohibit the implementation of Bureau of Internal Revenue
(BIR) Revenue Regulations No. 16-2005 for being contrary to
law.
The undisputed facts follow.
PAGCOR was created pursuant to Presidential Decree (P.D.)
No. 1067-A 2 on January 1, 1977. Simultaneous to its creation,
P.D. No. 1067-B 3 (supplementing P.D. No. 1067-A) was
issued exempting PAGCOR from the payment of any type of
tax, except a franchise tax of five percent (5%) of the gross
revenue. 4 Thereafter, on June 2, 1978, P.D. No. 1399 was
issued expanding the scope of PAGCOR's exemption. 5
To consolidate the laws pertaining to the franchise and
powers of PAGCOR, P.D. No. 1869 6 was issued. Section 13
thereof reads as follows:
Sec. 13. Exemptions. — . . .
(1) Customs Duties, taxes and other imposts on importations.
— All importations of equipment, vehicles, automobiles,
boats, ships, barges, aircraft and such other gambling
paraphernalia, including accessories or related facilities, for
the sole and exclusive use of the casinos, the proper and
efficient management and administration thereof and such
other clubs, recreation or amusement places to be
established under and by virtue of this Franchise shall be
exempt from the payment of duties, taxes and other imposts,
including all kinds of fees, levies, or charges of any kind or
nature.
Vessels and/or accessory ferry boats imported or to be
imported by any corporation having existing contractual
arrangements with the Corporation, for the sole and
(b) Others: The exemption herein granted for earnings
derived from the operations conducted under the franchise,
specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies, shall
inure to the benefit of and extend to corporation(s),
association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in
connection with the operations of the casino(s) authorized to
be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation
as a result of essential facilities furnished and/or technical
services rendered to the Corporation or operator. DcSTaC
The fee or remuneration of foreign entertainers contracted
by the Corporation or operator in pursuance of this provision
shall be free of any tax.
(3) Dividend Income. — Notwithstanding any provision of law
to the contrary, in the event the Corporation should declare a
cash dividend income corresponding to the participation of
the private sector shall, as an incentive to the beneficiaries,
be subject only to a final flat income rate of ten percent (10%)
of the regular income tax rates. The dividend income shall
not in such case be considered as part of the beneficiaries'
taxable income; provided, however, that such dividend
income shall be totally exempted from income or other form
of taxes if invested within six (6) months from the date the
dividend income is received in the following:
(a) operation of the casino(s) or investments in any affiliate
activity that will ultimately redound to the benefit of the
Corporation; or any other corporation with whom the
Corporation has any existing arrangements in connection
with or related to the operations of the casino(s);
(b) Government bonds, securities, treasury notes, or
government debentures; or
(c) BOI-registered or export-oriented corporation(s). 7
PAGCOR's tax exemption was removed in June 1984 through
P.D. No. 1931, but it was later restored by Letter of
Instruction No. 1430, which was issued in September 1984.
On January 1, 1998, R.A. No. 8424, 8 otherwise known as the
National Internal Revenue Code of 1997, took effect. Section
27 (c) of R.A. No. 8424 provides that government-owned and
controlled corporations (GOCCs) shall pay corporate income
tax, except petitioner PAGCOR, the Government Service and
Insurance Corporation, the Social Security System, the
Philippine Health Insurance Corporation, and the Philippine
Charity Sweepstakes Office, thus:
(c) Government-owned or Controlled Corporations, Agencies
or Instrumentalities. — The provisions of existing special
general laws to the contrary notwithstanding, all
corporations, agencies or instrumentalities owned and
controlled by the Government, except the Government
Service and Insurance Corporation (GSIS), the Social Security
System (SSS), the Philippine Health Insurance Corporation
(PHIC), the Philippine Charity Sweepstakes Office (PCSO), and
the Philippine Amusement and Gaming Corporation
(PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or
associations engaged in similar business, industry, or activity.
With the enactment of R.A. No. 9337 10 on May 24, 2005,
certain sections of the National Internal Revenue Code of
1997 were amended. The particular amendment that is at
issue in this case is Section 1 of R.A. No. 9337, which
amended Section 27 (c) of the National Internal Revenue
Code of 1997 by excluding PAGCOR from the enumeration of
GOCCs that are exempt from payment of corporate income
tax, thus:
(c) Government-owned or Controlled Corporations, Agencies
or Instrumentalities. — The provisions of existing special
general laws to the contrary notwithstanding, all
corporations, agencies, or instrumentalities owned and
controlled by the Government, except the Government
Service and Insurance Corporation (GSIS), the Social Security
System (SSS), the Philippine Health Insurance Corporation
(PHIC), and the Philippine Charity Sweepstakes Office (PCSO),
shall pay such rate of tax upon their taxable income as are
imposed by this Section upon corporations or associations
engaged in similar business, industry, or activity.
the recommendation of the Secretary of Finance, to raise the
VAT rate to 12%. The said provisions were alleged to be
violative of Section 28 (2), Article VI of the Constitution,
which section vests in Congress the exclusive authority to fix
the rate of taxes, and of Section 1, Article III of the
Constitution on due process, as well as of Section 26 (2),
Article VI of the Constitution, which section provides for the
"no amendment rule" upon the last reading of a bill;
2) Sections 8 and 12 were alleged to be violative of Section 1,
Article III of the Constitution, or the guarantee of equal
protection of the laws, and Section 28 (1), Article VI of the
Constitution; and
3) other technical aspects of the passage of the law,
questioning the manner it was passed. THCSAE
On September 1, 2005, the Court dismissed all the petitions
and upheld the constitutionality of R.A. No. 9337. 12
On the same date, respondent BIR issued Revenue
Regulations (RR) No. 16-2005, 13 specifically identifying
PAGCOR as one of the franchisees subject to 10% VAT
imposed under Section 108 of the National Internal Revenue
Code of 1997, as amended by R.A. No. 9337. The said
revenue regulation, in part, reads:
Sec. 4. 108-3. Definitions and Specific Rules on Selected
Services. —
xxx xxx xxx
(h). . .
Gross Receipts of all other franchisees, other than those
covered by Sec. 119 of the Tax Code, regardless of how their
franchisees may have been granted, shall be subject to the 10%
VAT imposed under Sec.108 of the Tax Code. This includes,
among others, the Philippine Amusement and Gaming
Corporation (PAGCOR), and its licensees or franchisees.
Hence, the present petition for certiorari.
PAGCOR raises the following issues:
I. WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND
VOID AB INITIO FOR BEING REPUGNANT TO THE EQUAL
PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE III
OF THE 1987 CONSTITUTION.
Different groups came to this Court via petitions for certiorari
and prohibition 11 assailing the validity and constitutionality
of R.A. No. 9337, in particular:
II. WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND
VOID AB INITIO FOR BEING REPUGNANT TO THE NONIMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III
OF THE 1987 CONSTITUTION.
1) Section 4, which imposes a 10% Value Added Tax (VAT) on
sale of goods and properties; Section 5, which imposes a 10%
VAT on importation of goods; and Section 6, which imposes a
10% VAT on sale of services and use or lease of properties, all
contain a uniform proviso authorizing the President, upon
III. WHETHER OR NOT RR 16-2005, SECTION 4.108-3,
PARAGRAPH (H) IS NULL AND VOID AB INITIO FOR BEING
BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION
108, INSOFAR AS THE SAID REGULATION IMPOSED VAT ON
THE SERVICES OF THE PETITIONER AS WELL AS PETITIONER'S
LICENSEES OR FRANCHISEES WHEN THE BASIC LAW, AS
INTERPRETED BY APPLICABLE JURISPRUDENCE, DOES NOT
IMPOSE VAT ON PETITIONER OR ON PETITIONER'S LICENSEES
OR FRANCHISEES. 14
The BIR, in its Comment 15 dated December 29, 2006,
counters:
I. SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D.
1869 ARE BOTH VALID AND CONSTITUTIONAL PROVISIONS
OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED
TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR
PROVISIONS WHENEVER POSSIBLE.
II. SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION
1 AND SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION.
III. BIR REVENUE REGULATIONS ARE PRESUMED VALID AND
CONSTITUTIONAL UNTIL STRICKEN DOWN BY LAWFUL
AUTHORITIES. AaCTcI
The Office of the Solicitor General (OSG), by way of
Manifestation in Lieu of Comment, 16 concurred with the
arguments of the petitioner. It added that although the State
is free to select the subjects of taxation and that the inequity
resulting from singling out a particular class for taxation or
exemption is not an infringement of the constitutional
limitation, a tax law must operate with the same force and
effect to all persons, firms and corporations placed in a
similar situation. Furthermore, according to the OSG, public
respondent BIR exceeded its statutory authority when it
enacted RR No. 16-2005, because the latter's provisions are
contrary to the mandates of P.D. No. 1869 in relation to R.A.
No. 9337.
The main issue is whether or not PAGCOR is still exempt from
corporate income tax and VAT with the enactment of R.A. No.
9337.
After a careful study of the positions presented by the parties,
this Court finds the petition partly meritorious.
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of
the National Internal Revenue Code of 1977, petitioner is no
longer exempt from corporate income tax as it has been
effectively omitted from the list of GOCCs that are exempt
from it. Petitioner argues that such omission is
unconstitutional, as it is violative of its right to equal
protection of the laws under Section 1, Article III of the
Constitution:
Sec. 1. No person shall be deprived of life, liberty, or property
without due process of law, nor shall any person be denied
the equal protection of the laws.
In City of Manila v. Laguio, Jr., 17 this Court expounded the
meaning and scope of equal protection, thus:
Equal protection requires that all persons or things similarly
situated should be treated alike, both as to rights conferred
and responsibilities imposed. Similar subjects, in other words,
should not be treated differently, so as to give undue favor to
some and unjustly discriminate against others. The guarantee
means that no person or class of persons shall be denied the
same protection of laws which is enjoyed by other persons or
other classes in like circumstances. The "equal protection of
the laws is a pledge of the protection of equal laws." It limits
governmental discrimination. The equal protection clause
extends to artificial persons but only insofar as their property
is concerned.
xxx xxx xxx
Legislative bodies are allowed to classify the subjects of
legislation. If the classification is reasonable, the law may
operate only on some and not all of the people without
violating the equal protection clause. The classification must,
as an indispensable requisite, not be arbitrary. To be valid, it
must conform to the following requirements:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class. 18
It is not contested that before the enactment of R.A. No.
9337, petitioner was one of the five GOCCs exempted from
payment of corporate income tax as shown in R.A. No. 8424,
Section 27 (c) of which, reads:
(c) Government-owned or Controlled Corporations, Agencies
or Instrumentalities. — The provisions of existing special or
general laws to the contrary notwithstanding, all
corporations, agencies or instrumentalities owned and
controlled by the Government, except the Government
Service and Insurance Corporation (GSIS), the Social Security
System (SSS), the Philippine Health Insurance Corporation
(PHIC), the Philippine Charity Sweepstakes Office (PCSO), and
the Philippine Amusement and Gaming Corporation
(PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or
associations engaged in similar business, industry, or activity.
A perusal of the legislative records of the Bicameral
Conference Meeting of the Committee on Ways on Means
dated October 27, 1997 would show that the exemption of
PAGCOR from the payment of corporate income tax was due
to the acquiescence of the Committee on Ways on Means to
the request of PAGCOR that it be exempt from such tax. 20
The records of the Bicameral Conference Meeting reveal:
HON. R. DIAZ.
The other thing, sir, is we — I noticed we imposed a tax on
lotto winnings.
CHAIRMAN ENRILE.
Wala na, tinanggal na namin yon.
HON. R. DIAZ.
Tinanggal na ba natin yon?
CHAIRMAN ENRILE.
Oo.
HON. R. DIAZ.
Because I was wondering whether we covered the tax on —
Whether on a universal basis, we included a tax on
cockfighting winnings.
CHAIRMAN ENRILE.
No, we removed the —
HON. R. DIAZ.
I . . . (inaudible) natin yong lotto?
CHAIRMAN ENRILE.
Pati PAGCOR tinanggal upon request.
CHAIRMAN JAVIER.
Yeah, Philippine Insurance Commission.
CHAIRMAN ENRILE.
Philippine Insurance — Health, health ba. Yon ang request ng
Chairman, I will accept. (laughter) Pag-Pag-ibig yon, maliliit
na sa tao yon.
HON. ROXAS.
Mr. Chairman, I wonder if in the revenue gainers if we
factored in an amount that would reflect the VAT and other
sales taxes —
CHAIRMAN ENRILE.
No, we're talking of this measure only. We will not —
(discontinued)
HON. ROXAS.
No, no, no, no, from the — arising from the exemption.
Assuming that when we release the money into the hands of
the public, they will not use that to — for wallpaper. They will
spend that eh, Mr. Chairman. So when they spend that —
CHAIRMAN ENRILE.
There's a VAT. TAacHE
HON. ROXAS.
There will be a VAT and there will be other sales taxes no. Is
there a quantification? Is there an approximation?
CHAIRMAN JAVIER.
Not anything.
HON. ROXAS.
So, in effect, we have sterilized that entire seven billion. In
effect, it is not circulating in the economy which is unrealistic.
CHAIRMAN ENRILE.
It does, it does, because this is taken and spent by
government, somebody receives it in the form of wages and
supplies and other services and other goods. They are not
being taken from the public and stored in a vault.
CHAIRMAN JAVIER.
That 7.7 loss because of tax exemption. That will be extra
income for the taxpayers.
HON. ROXAS.
Precisely, so they will be spending it. 21
The discussion above bears out that under R.A. No. 8424, the
exemption of PAGCOR from paying corporate income tax was
not based on a classification showing substantial distinctions
which make for real differences, but to reiterate, the
exemption was granted upon the request of PAGCOR that it
be exempt from the payment of corporate income tax.
With the subsequent enactment of R.A. No. 9337, amending
R.A. No. 8424, PAGCOR has been excluded from the
enumeration of GOCCs that are exempt from paying
corporate income tax. The records of the Bicameral
Conference Meeting dated April 18, 2005, of the Committee
on the Disagreeing Provisions of Senate Bill No. 1950 and
House Bill No. 3555, show that it is the legislative intent that
PAGCOR be subject to the payment of corporate income tax,
thus:
THE CHAIRMAN (SEN. RECTO).
Yes, Osmeña, the proponent of the amendment.
SEN. OSMEÑA.
Yeah. Mr. Chairman, one of the reasons why we're even
considering this VAT bill is we want to show the world who
our creditors, that we are increasing official revenues that go
to the national budget. Unfortunately today, Pagcor is
unofficial.
Now, in 2003, I took a quick look this morning, Pagcor had a
net income of 9.7 billion after paying some small taxes that
they are subjected to. Of the 9.7 billion, they claim they
remitted to national government seven billion. Pagkatapos,
there are other specific remittances like to the Philippine
Sports Commission, etc., as mandated by various laws, and
then about 400 million to the President's Social Fund. But all
in all, their net profit today should be about 12 billion. That's
why I am questioning this two billion. Because while
essentially they claim that the money goes to government,
and I will accept that just for the sake of argument. It does
not pass through the appropriation process. And I think that
at least if we can capture 35 percent or 32 percent through
the budgetary process, first, it is reflected in our official
income of government which is applied to the national
budget, and secondly, it goes through what is constitutionally
mandated as Congress appropriating and defining where the
money is spent and not through a board of directors that has
absolutely no accountability.
REP. PUENTEBELLA. cCTAIE
Well, with all due respect, Mr. Chairman, follow up lang.
There is wisdom in the comments of my good friend from
Cebu, Senator Osmeña.
SEN. OSMEÑA.
And Negros.
REP. PUENTEBELLA.
And Negros at the same time ay Kasimanwa. But I would not
want to put my friends from the Department of Finance in a
difficult position, but may we know your comments on this
knowing that as Senator Osmeña just mentioned, he said, "I
accept that that a lot of it is going to spending for basic
services," you know, going to most, I think, supposedly a lot
or most of it should go to government spending, social
services and the like. What is your comment on this? This is
going to affect a lot of services on the government side.
THE CHAIRMAN (REP. LAPUS).
Mr. Chair, Mr. Chair.
SEN. OSMEÑA.
It goes from pocket to the other, Monico.
REP. PUENTEBELLA.
I know that. But I wanted to ask them, Mr. Senator, because
you may have your own pre-judgment on this and I don't
blame you. I don't blame you. And I know you have your own
research. But will this not affect a lot, the disbursements on
social services and other?
REP. LOCSIN.
Mr. Chairman. Mr. Chairman, if I can add to that question
also. Wouldn't it be easier for you to explain to, say, foreign
creditors, how do you explain to them that if there is a fiscal
gap some of our richest corporations has [been] spared [from]
taxation by the government which is one rich source of
revenues. Now, why do you save, why do you spare certain
government corporations on that, like Pagcor? So, would it
be easier for you to make an argument if everything was
exposed to taxation?
REP. TEVES.
Mr. Chair, please.
THE CHAIRMAN (REP. LAPUS).
Can we ask the DOF to respond to those before we call
Congressman Teves?
MR. PURISIMA.
Thank you, Mr. Chair.
Yes, from definitely improving the collection, it will help us
because it will then enter as an official revenue although
when dividends declare it also goes in as other income. (sic)
xxx xxx xxx
REP. TEVES.
Mr. Chairman. DCcIaE
xxx xxx xxx
THE CHAIRMAN (REP. LAPUS).
Congressman Teves.
REP. TEVES.
Yeah. Pagcor is controlled under Section 27, that is on income
tax. Now, we are talking here on value-added tax. Do you
mean to say we are going to amend it from income tax to
value-added tax, as far as Pagcor is concerned?
THE CHAIRMAN (SEN. RECTO).
No. We are just amending that section with regard to the
exemption from income tax of Pagcor.
xxx xxx xxx
REP. NOGRALES.
Mr. Chairman, Mr. Chairman. Mr. Chairman.
THE CHAIRMAN (REP. LAPUS).
Congressman Nograles.
REP. NOGRALES.
Just a point of inquiry from the Chair. What exactly are the
functions of Pagcor that are VATable? What will we VAT in
Pagcor?
THE CHAIRMAN (REP. LAPUS).
This is on own income tax. This is Pagcor income tax.
REP. NOGRALES.
No, that's why. Anong i-va-Vat natin sa kanya. Sale of what?
xxx xxx xxx
REP. VILLAFUERTE.
Mr. Chairman, my question is, what are we VATing Pagcor
with, is it the . . .
REP. NOGRALES.
Mr. Chairman, this is a secret agreement or the way they
craft their contract, which basis?
THE CHAIRMAN (SEN. RECTO).
Congressman Nograles, the Senate version does not discuss a
VAT on Pagcor but it just takes away their exemption from
non-payment of income tax. 22
Taxation is the rule and exemption is the exception. 23 The
burden of proof rests upon the party claiming exemption to
prove that it is, in fact, covered by the exemption so claimed.
24 As a rule, tax exemptions are construed strongly against
the claimant. 25 Exemptions must be shown to exist clearly
and categorically, and supported by clear legal provision. 26
In this case, PAGCOR failed to prove that it is still exempt
from the payment of corporate income tax, considering that
Section 1 of R.A. No. 9337 amended Section 27 (c) of the
National Internal Revenue Code of 1997 by omitting PAGCOR
from the exemption. The legislative intent, as shown by the
discussions in the Bicameral Conference Meeting, is to
require PAGCOR to pay corporate income tax; hence, the
omission or removal of PAGCOR from exemption from the
payment of corporate income tax. It is a basic precept of
statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio
alterius. 27 Thus, the express mention of the GOCCs
exempted from payment of corporate income tax excludes all
others. Not being excepted, petitioner PAGCOR must be
regarded as coming within the purview of the general rule
that GOCCs shall pay corporate income tax, expressed in the
maxim: exceptio firmat regulam in casibus non exceptis. 28
CSIDEc
PAGCOR cannot find support in the equal protection clause of
the Constitution, as the legislative records of the Bicameral
Conference Meeting dated October 27, 1997, of the
Committee on Ways and Means, show that PAGCOR's
exemption from payment of corporate income tax, as
provided in Section 27 (c) of R.A. No. 8424, or the National
Internal Revenue Code of 1997, was not made pursuant to a
valid classification based on substantial distinctions and the
other requirements of a reasonable classification by
legislative bodies, so that the law may operate only on some,
and not all, without violating the equal protection clause. The
legislative records show that the basis of the grant of
exemption to PAGCOR from corporate income tax was
PAGCOR's own request to be exempted.
Petitioner further contends that Section 1 (c) of R.A. No. 9337
is null and void ab initio for violating the non-impairment
clause of the Constitution. Petitioner avers that laws form
part of, and is read into, the contract even without the
parties expressly saying so. Petitioner states that the private
parties/investors transacting with it considered the tax
exemptions, which inure to their benefit, as the main
consideration and inducement for their decision to
transact/invest with it. Petitioner argues that the withdrawal
of its exemption from corporate income tax by R.A. No. 9337
has the effect of changing the main consideration and
inducement for the transactions of private parties with it;
thus, the amendatory provision is violative of the nonimpairment clause of the Constitution.
Petitioner's contention lacks merit.
The non-impairment clause is contained in Section 10, Article
III of the Constitution, which provides that no law impairing
the obligation of contracts shall be passed. The nonimpairment clause is limited in application to laws that
derogate from prior acts or contracts by enlarging, abridging
or in any manner changing the intention of the parties. 29
There is impairment if a subsequent law changes the terms of
a contract between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws remedies for
the enforcement of the rights of the parties. 30
As regards franchises, Section 11, Article XII of the
Constitution 31 provides that no franchise or right shall be
granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the
common good so requires. 32
In Manila Electric Company v. Province of Laguna, 33 the
Court held that a franchise partakes the nature of a grant,
which is beyond the purview of the non-impairment clause of
the Constitution. 34 The pertinent portion of the case states:
While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying
on the franchise, these exemptions, nevertheless, are far
from being strictly contractual in nature. Contractual tax
exemptions, in the real sense of the term and where the nonimpairment clause of the Constitution can rightly be invoked,
are those agreed to by the taxing authority in contracts, such
as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which
the government, acting in its private capacity, sheds its cloak
of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without
impairing the obligations of contracts. These contractual tax
exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes
the nature of a grant which is beyond the purview of the nonimpairment clause of the Constitution. Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall
be subject to amendment, alteration or repeal by Congress as
and when the common good so requires. 35
In this case, PAGCOR was granted a franchise to operate and
maintain gambling casinos, clubs and other recreation or
amusement places, sports, gaming pools, i.e., basketball,
football, lotteries, etc., whether on land or sea, within the
territorial jurisdiction of the Republic of the Philippines. 36
Under Section 11, Article XII of the Constitution, PAGCOR's
franchise is subject to amendment, alteration or repeal by
Congress such as the amendment under Section 1 of R.A. No.
9377. Hence, the provision in Section 1 of R.A. No. 9337,
amending Section 27 (c) of R.A. No. 8424 by withdrawing the
exemption of PAGCOR from corporate income tax, which
may affect any benefits to PAGCOR's transactions with
private parties, is not violative of the non-impairment clause
of the Constitution. SIcEHC
Anent the validity of RR No. 16-2005, the Court holds that the
provision subjecting PAGCOR to 10% VAT is invalid for being
contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it
provided that petitioner can be subjected to VAT. R.A. No.
9337 is clear only as to the removal of petitioner's exemption
from the payment of corporate income tax, which was
already addressed above by this Court.
special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to 0% rate. cSCTID
As pointed out by the OSG, R.A. No. 9337 itself exempts
petitioner from VAT pursuant to Section 7 (k) thereof, which
reads:
Petitioner's exemption from VAT under Section 108 (B) (3) of
R.A. No. 8424 has been thoroughly and extensively discussed
in Commissioner of Internal Revenue v. Acesite (Philippines)
Hotel Corporation. 39 Acesite was the owner and operator of
the Holiday Inn Manila Pavilion Hotel. It leased a portion of
the hotel's premises to PAGCOR. It incurred VAT amounting
to P30,152,892.02 from its rental income and sale of food
and beverages to PAGCOR from January 1996 to April 1997.
Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR. However,
PAGCOR refused to pay the taxes because of its tax-exempt
status. PAGCOR paid only the amount due to Acesite minus
VAT in the sum of P30,152,892.02. Acesite paid VAT in the
amount of P30,152,892.02 to the Commissioner of Internal
Revenue, fearing the legal consequences of its non-payment.
In May 1998, Acesite sought the refund of the amount it paid
as VAT on the ground that its transaction with PAGCOR was
subject to zero rate as it was rendered to a tax-exempt entity.
The Court ruled that PAGCOR and Acesite were both exempt
from paying VAT, thus:
xxx xxx xxx
Sec. 7. Section 109 of the same Code, as amended, is hereby
further amended to read as follows:
Section 109. Exempt Transactions. — (1) Subject to the
provisions of Subsection (2) hereof, the following
transactions shall be exempt from the value-added tax:
xxx xxx xxx
(k)Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except Presidential Decree No. 529. 37
Petitioner is exempt from the payment of VAT, because
PAGCOR's charter, P.D. No. 1869, is a special law that grants
petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported
by Section 6 of R.A. No. 9337, which retained Section 108 (B)
(3) of R.A. No. 8424, thus:
PAGCOR is exempt from payment of indirect taxes
[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A.
No. 8424), as amended, is hereby further amended to read as
follows:
It is undisputed that P.D. 1869, the charter creating PAGCOR,
grants the latter an exemption from the payment of taxes.
Section 13 of P.D. 1869 pertinently provides:
SEC. 108. Value-Added Tax on Sale of Services and Use or
Lease of Properties. —
Sec. 13. Exemptions. —
xxx xxx xxx
(A) Rate and Base of Tax. — There shall be levied, assessed
and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties: . . .
xxx xxx xxx
(2) Income and other taxes. — (a) Franchise Holder: No tax of
any kind or form, income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or
Local, shall be assessed and collected under this Franchise
from the Corporation; nor shall any form of tax or charge
attach in any way to the earnings of the Corporation, except
a Franchise Tax of five (5%) percent of the gross revenue or
earnings derived by the Corporation from its operation under
this Franchise. Such tax shall be due and payable quarterly to
the National Government and shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or
description, levied, established or collected by any municipal,
provincial, or national government authority.
(B) Transactions Subject to Zero Percent (0%) Rate. — The
following services performed in the Philippines by VAT
registered persons shall be subject to zero percent (0%) rate;
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to zero percent (0%) rate;
xxx xxx xxx 38
As pointed out by petitioner, although R.A. No. 9337
introduced amendments to Section 108 of R.A. No. 8424 by
imposing VAT on other services not previously covered, it did
not amend the portion of Section 108 (B) (3) that subjects to
zero percent rate services performed by VAT-registered
persons to persons or entities whose exemption under
(b) Others: The exemptions herein granted for earnings
derived from the operations conducted under the franchise
specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies, shall
inure to the benefit of and extend to corporation(s),
association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in
connection with the operations of the casino(s) authorized to
be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation
or operator as a result of essential facilities furnished and/or
technical services rendered to the Corporation or operator.
Petitioner contends that the above tax exemption refers only
to PAGCOR's direct tax liability and not to indirect taxes, like
the VAT. ITScHa
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a
blanket exemption to taxes with no distinction on whether
the taxes are direct or indirect. We are one with the CA ruling
that PAGCOR is also exempt from indirect taxes, like VAT, as
follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869],
the term "Corporation" or operator refers to PAGCOR.
Although the law does not specifically mention PAGCOR's
exemption from indirect taxes, PAGCOR is undoubtedly
exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino
operations. Although, differently worded, the provision
clearly exempts PAGCOR from indirect taxes. In fact, it goes
one step further by granting tax exempt status to persons
dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the
P30,152,892.02 VAT and neither is Acesite as the latter is
effectively subject to zero percent rate under Sec. 108 B (3),
R.A. 8424. (Emphasis supplied.)
Indeed, by extending the exemption to entities or individuals
dealing with PAGCOR, the legislature clearly granted
exemption also from indirect taxes. It must be noted that the
indirect tax of VAT, as in the instant case, can be shifted or
passed to the buyer, transferee, or lessee of the goods,
properties, or services subject to VAT. Thus, by extending the
tax exemption to entities or individuals dealing with PAGCOR
in casino operations, it is exempting PAGCOR from being
liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to
said tax.
It is true that VAT can either be incorporated in the value of
the goods, properties, or services sold or leased, in which
case it is computed as 1/11 of such value, or charged as an
additional 10% to the value. Verily, the seller or lessor has the
option to follow either way in charging its clients and
customer. In the instant case, Acesite followed the latter
method, that is, charging an additional 10% of the gross sales
and rentals. Be that as it may, the use of either method, and
in particular, the first method, does not denigrate the fact
that PAGCOR is exempt from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT
charged by Acesite, the latter is not liable for the payment of
it as it is exempt in this particular transaction by operation of
law to pay the indirect tax. Such exemption falls within the
former Section 102 (b) (3) of the 1977 Tax Code, as amended
(now Sec. 108 [b] [3] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services. — (a) Rate
and base of tax — There shall be levied, assessed and
collected, a value-added tax equivalent to 10% of gross
receipts derived by any person engaged in the sale of
services . . .; Provided, that the following services performed
in the Philippines by VAT­registered persons shall be subject
to 0%.
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to zero (0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided
for in P.D. 1869 and the extension of such exemption to
entities or individuals dealing with PAGCOR in casino
operations are best elucidated from the 1987 case of
Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc., where the absolute tax exemption of the World Health
Organization (WHO) upon an international agreement was
upheld. We held in said case that the exemption of
contractee WHO should be implemented to mean that the
entity or person exempt is the contractor itself who
constructed the building owned by contractee WHO, and
such does not violate the rule that tax exemptions are
personal because the manifest intention of the agreement is
to exempt the contractor so that no contractor's tax may be
shifted to the contractee WHO. Thus, the proviso in P.D. 1869,
extending the exemption to entities or individuals dealing
with PAGCOR in casino operations, is clearly to proscribe any
indirect tax, like VAT, that may be shifted to PAGCOR.
Although the basis of the exemption of PAGCOR and Acesite
from VAT in the case of The Commissioner of Internal
Revenue v. Acesite (Philippines) Hotel Corporation was
Section 102 (b) of the 1977 Tax Code, as amended, which
section was retained as Section 108 (B) (3) in R.A. No. 8424,
41 it is still applicable to this case, since the provision relied
upon has been retained in R.A. No. 9337. 42
It is settled rule that in case of discrepancy between the basic
law and a rule or regulation issued to implement said law, the
basic law prevails, because the said rule or regulation cannot
go beyond the terms and provisions of the basic law. 43 RR
No. 16-2005, therefore, cannot go beyond the provisions of
R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A.
No. 9337, the BIR exceeded its authority in subjecting
PAGCOR to 10% VAT under RR No. 16-2005; hence, the said
regulatory provision is hereby nullified.
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of
Republic Act No. 9337, amending Section 27 (c) of the
National Internal Revenue Code of 1997, by excluding
petitioner Philippine Amusement and Gaming Corporation
from the enumeration of government-owned and controlled
corporations exempted from corporate income tax is valid
and constitutional, while BIR Revenue Regulations No. 162005 insofar as it subjects PAGCOR to 10% VAT is null and
void for being contrary to the National Internal Revenue
Code of 1997, as amended by Republic Act No. 9337.
No costs. SO ORDERED.
[G.R. No. L-59431. July 25, 1984.]
ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA,
Acting Commissioner, Bureau of Internal Revenue; ROMULO
VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO, Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO
TANTUICO, Chairman, Commissioner on Audit, and CESAR E.
A. VIRATA, Minister of Finance, respondents.
Antero M. Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
SYLLABUS
1. CONSTITUTIONAL LAW; POWER OF THE STATE TO TAX;
EXERCISE THEREOF NECESSARY FOR THE PERFORMANCE OF
ITS VITAL FUNCTIONS. — It is manifest that the field of state
activity has assumed a much wider scope. Hence the need for
more revenues. The power to tax, an inherent prerogative,
has to be availed of to assure the performance of vital state
functions. It is the source of the bulk of public funds. To
paraphrase a recent decision, taxes being the lifeblood of the
government, their prompt and certain availability is of the
essence. (Cf. Vera v. Fernandez, L-31364, March 30, 1979, 89
SCRA 199)
2. ID., ID.; ID.; POWER TO TAX NOT WITHOUT RESTRICTIONS.
— The power to tax, to borrow from Justice Malcolm, "is an
attribute of sovereignty. It is the strongest of all the powers
of government." (Sarasola v. Trinidad, 40 Phil. 252, 262
[1919]) It is, of course, to be admitted that for all its
plenitude, the power to tax is not unconfined. There are
restrictions.
The
Constitution
sets
forth
such
limits. .Adversely affecting as it does property rights, both the
due process and equal protection clauses may properly be
invoked, as petitioner does, to invalidate in appropriate cases
a revenue measure. If it were otherwise, there would be
truth to the 1803 dictum of Chief Justice Marshall that "the
power to tax involves the power to destroy." (McCulloch vs.
Maryland, 4 Wheaton 316)
3. ID.; ID.; SECTION 1 BATAS PAMBANSA BLG. 135; NOT A
TRANSGRESSION OF THE DUE PROCESS IN THE ABSENCE OF A
SHOWING OF ARBITRARINESS. — Petitioner alleges
arbitrariness. A mere allegation does not suffice. There must
be a factual foundation of such unconstitutional taint.
Considering that petitioner would condemn the provision as
void on its face, he has not made out a case. This is merely to
adhere to the authoritative doctrine that where the due
process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive
character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.
4. ID.; ID.; ID.; INEQUALITY RESULTING FROM THE
CLASSIFICATION MADE, NOT A TRANSGRESSION OF THE
EQUAL PROTECTION CLAUSE AND THE RULE ON UNIFORMITY.
— Classification, if rational in character, is allowable. In a
leading case, Lutz v. Araneta, 98 Phil. 143 (1955), the Court
went so far as to hold "at any rate, it is inherent in the power
to tax that a state be free to select the subject of taxation,
and it has been repeatedly held that 'inequalities which result
from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.' " Petitioner
likewise invoked the kindred concept of uniformity.
According to the Constitution: "The rule of taxation shall be
uniform and equitable." (Art. VIII, Sec. 17, par. 1) This
requirement is met according to Justice Laurel in Philippine
Trust Company v: Yatco, 69 Phil. 420 (1940) when the tax
"operates with the same force and effect in every place
where the subject may be found. The rule of uniformity does
not call for perfect uniformity or perfect equality, because
this is hardly attainable."
5. ID.; ID., ID., AMPLE JUSTIFICATION EXISTS FOR THE
ADOPTION OF THE GROSS SYSTEM OF INCOME TAXATION TO
COMPENSATION INCOME. — In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the
discernible basis of classification is the susceptibility of the
income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a
set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are
set apart as a class. As there is practically no overhead
expense, these taxpayers are not entitled to make deductions
for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to
produce their income. It would not be just then to disregard
the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification for the
Batasang Pambansa to adopt the gross system of income
taxation to compensation income, while continuing the
system of net income taxation as regards professional and
business income.
DECISION
FERNANDO, C .J p:
The success of the challenge posed in this suit for declaratory
relief or prohibition proceeding 1 on the validity of Section 1
of Batas Pambansa Blg. 135 depends upon a showing of its
constitutional infirmity. The assailed provision further
amends Section 21 of the National Internal Revenue Code of
1977, which provides for rates of tax on citizens or residents
on (a) taxable compensation income, (b) taxable net income,
(c) royalties, prizes, and other winnings, (d) interest from
bank deposits and yield or any other monetary benefit from
deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner
in the net profits of taxable partnership, (f) adjusted gross
income. 3 as taxpayer alleges that by virtue thereof, "he
would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise
of his profession vis-a-vis those which are imposed upon
fixed income or salaried individual taxpayers." 4 He
characterizes the above section as arbitrary amounting to
class legislation, oppressive and capricious in character. 7
unconfined. There are restrictions. The Constitution sets
forth such limits. Adversely affecting as it does property
rights, both the due process and equal protection clauses
may properly be invoked, as petitioner does, to invalidate in
appropriate cases a revenue measure. If it were otherwise,
there would be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to
destroy." 15 Justice Frankfurter, after referring to it as an
"unfortunate remark," characterized it as "a flourish of
rhetoric [attributable to] the intellectual fashion of the times
[allowing] a free use of absolutes." 16 This is merely to
emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice
Holmes's pen: 'The power to tax is not the power to destroy
while this Court sits.'" 17 So it is in the Philippines.
The Court, in a resolution of January 26, 1982, required
respondents to file an answer within 10 days from notice.
Such an answer, after two extensions were granted the Office
of the Solicitor General, was filed on May 28, 1982. 8 The
facts as alleged were admitted but not the allegations which
to their mind are "mere arguments, opinions or conclusions
on the part of the petitioner, the truth [for them] being those
stated [in their] Special and Affirmative Defenses." 9 The
answer then affirmed: "Batas Pambansa Blg. 135 is a valid
exercise of the State's power to tax. The authorities and
cases cited, while correctly quoted or paraphrased, do not
support petitioner's stand." 10 The prayer is for the dismissal
of the petition for lack of merit.
3. This Court then is left with no choice. The Constitution as
the fundamental law overrides any legislative or executive
act that runs counter to it. In any case therefore where it can
be demonstrated that the challenged statutory provision —
as petitioner here alleges — fails to abide by its command,
then this Court must so declared and adjudge it null. The
inquiry thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived
from business or profession than on compensation is
constitutionally infirm.
This Court finds such a plea more than justified. The petition
must be dismissed.
1. It is manifest that the field of state activity has assumed a
much wider scope. The reason was so clearly set forth by
retired Chief Justice Makalintal thus:
"The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter
optionally, and only 'because it was better equipped to
administer for the public welfare than is any private
individual or group of individuals,' continue to lose their welldefined boundaries and to be absorbed within activities that
the government must undertake in its sovereign capacity if it
is to meet the increasing social challenges of the times."11
Hence the need for more revenues. The power to tax, an
inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the
bulk of public funds. To paraphrase a recent decision, taxes
being the lifeblood of the government, their prompt and
certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest of
all the powers of government." 13 It is, of course, to be
admitted that for all its plenitude, the power to tax is not
4. The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here
would condemn such a provision as void on its face, he has
not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal
protection clauses are invoked, considering that they are not
fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of
validity must prevail. 18
5. It is undoubted that the due process clause may be
invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it
can be shown to amount to the confiscation of property. That
would be a clear abuse of power. It then becomes the duty of
this Court to say that such an arbitrary act amounted to the
exercise of an authority not conferred. That properly calls for
the application of the Holmes dictum. It has also been held
that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in
case of a retroactive statute is so harsh and unreasonable, it
is subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid
the charge that there is a denial of this constitutional
mandate whether the assailed act is in the exercise of the
police power or the power of eminent domain is to
demonstrate "that the governmental act assailed, far from
being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least,
discrimination that finds to support in reason. It suffices then
that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be
treated in the same manner, the conditions not being
different, both in the privileges conferred and the liabilities
imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and
security shall be given to every person under circumstances,
which if not identical are analogous. If law be looks upon in
terms of burden or charges, those that fall within a class
should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding on the rest." 20
That same formulation applies as well to taxation measures.
The equal protection clause is, of course, inspired by the
noble concept of approximating the ideal of the laws's
benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of
the very essence of the idea of law. There is, however,
wisdom, as well as realism, in these words of Justice
Frankfurter: "The equality at which the 'equal protection'
clause aims is not a disembodied equality. The Fourteenth
Amendment enjoins 'the equal protection of the laws,' and
laws are not abstract propositions. They do not relate to
abstract units A, B and C, but are expressions of policy arising
out of specific difficulties, addressed to the attainment of
specific ends by the use of specific remedies. The
Constitution does not require things which are different in
fact or opinion to be treated in law as though they were the
same." 21 Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter
of fact, in a leading case of Lutz V. Araneta, 23
Pambansa Blg. 135, the discernible basis of classification is
the susceptibility of the income to the application of
generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class. As
there is practically no overhead expense, these taxpayers are
not entitled to make deductions for income tax purposes
because they are in the same situation more or less. On the
other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. It
would not be just then to disregard the disparities by giving
all of them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income. There is
ample justification then for the Batasang Pambansa to adopt
the gross system of income taxation to compensation income,
while continuing the system of net income taxation as
regards professional and business income.
7. Petitioner likewise invoked the kindred concept of
uniformity. According to the Constitution: "The rule of
taxation shall be uniform and equitable." 24 This requirement
is met according to Justice Laurel in Philippine Trust Company
v. Yatco, 25 decided in 1940, when the tax "operates with the
same force and effect in every place where the subject may
be found." 26 He likewise added: "The rule of uniformity
does not call for perfect uniformity or perfect equality,
because this is hardly attainable." 29 There is quite a
similarity then to the standard of equal protection for all that
is required is that the tax "applies equally to all persons, firms
and corporations placed in similar situation." 30
Angel C . Cruz, Gregorio A. Ejercito, Felix C . Chaves & Jose
Laureta for petitioner.
Sotero H . Laurel for respondents.
8. Further on this point. Apparently, what misled petitioner is
his failure to take into consideration the distinction between
a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different
categories. To repeat, it is enough that the classification must
rest upon substantial distinctions that make real differences.
In the case of the gross income taxation embodied in Batas
9. Nothing can be clearer, therefore, than that the petition is
without merit, considering the (1) lack of factual foundation
to show the arbitrary character of the assailed provision; 31
(2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and
taxable net income of professionals and businessmen
certainly not a suspect classification.
WHEREFORE, the petition is dismissed. Costs against
petitioner.
[G.R. No. L-29646. November 10, 1978.]
MAYOR ANTONIO J. VILLEGAS, petitioner, vs. HIU CHIONG
TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents.
DECISION
FERNANDEZ, J p:
This is a petition for certiorari to review the decision dated
September 17, 1968 of respondent Judge Francisco Arca of
the Court of First Instance of Manila, Branch I, in Civil Case No.
72797, the dispositive portion of which reads:
"Wherefore, judgment is hereby rendered in favor of the
petitioner and against the respondents, declaring Ordinance
No. 6537 of the City of Manila null and void. The preliminary
injunction is hereby made permanent. No pronouncement as
to cost. SO ORDERED.
Manila, Philippines, September 17, 1968.
(SGD.) FRANCISCO ARCA
Judge" 1
The controverted Ordinance No. 6537 was passed by the
Municipal Board of Manila on February 22, 1968 and signed
by the herein petitioner Mayor Antonio J. Villegas of Manila
on March 27, 1968. 2
3) It is arbitrary, oppressive and unreasonable, being applied
only to aliens who are thus, deprived of their rights to life,
liberty and property and therefore, violates the due process
and equal protection clauses of the Constitution. 7
City Ordinance No. 6537 is entitled:
On May 24, 1968, respondent Judge issued the writ of
preliminary injunction and on September 17, 1968 rendered
judgment declaring Ordinance No. 6537 null and void and
making permanent the writ of preliminary injunction.8
"AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON
NOT A CITIZEN OF THE PHILIPPINES TO BE EMPLOYED IN ANY
PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF
TRADE, BUSINESS OR OCCUPATION WITHIN THE CITY OF
MANILA WITHOUT FIRST SECURING AN EMPLOYMENT
PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER
PURPOSES." 3
Section 1 of said Ordinance No. 6537 4 prohibits aliens from
being employed or to engage or participate in any position or
occupation or business enumerated therein, whether
permanent, temporary or casual, without first securing an
employment permit from the Mayor of Manila and paying
the permit fee of P50.00 except persons employed in the
diplomatic or consular missions of foreign countries, or in the
technical assistance programs of both the Philippine
Government and any foreign government, and those working
in their respective households, and members of religious
orders or congregations, sect or denomination, who are not
paid monetarily or in kind. cdrep
Violations of this ordinance is punishable by an imprisonment
of not less than three (3) months to six (6) months or fine of
not less than P100.00 but not more than P200.00 or both
such fine and imprisonment, upon conviction. 5
On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho,
who was employed in Manila, filed a petition with the Court
of First Instance of Manila, Branch I, denominated as Civil
Case No. 72797, praying for the issuance of the writ of
preliminary injunction and restraining order to stop the
enforcement of Ordinance No. 6637 as well as for a judgment
declaring said Ordinance No. 6537 null and void. 6
In this petition, Hiu Chiong Tsai Pao Ho assigned the following
as his grounds for wanting the ordinance declared null and
void:
1) As a revenue measure imposed on aliens employed in the
City of Manila, Ordinance No. 6537 is discriminatory and
violative of the rule of the uniformity in taxation;
2) As a police power measure, it makes no distinction
between useful and non-useful occupations, imposing a fixed
P50.00 employment permit, which is out of proportion to the
cost of registration and that it fails to prescribe' any standard
to guide and/or limit the action of the Mayor, thus, violating
the fundamental principle on illegal delegation of legislative
powers:
Contesting the aforecited decision of respondent Judge, then
Mayor Antonio J. Villegas filed the present petition on March
27, 1969. Petitioner assigned the following as errors allegedly
committed by respondent Judge in the latter's decision of
September 17, 1968: 9
"I. THE RESPONDENT JUDGE COMMITTED A SERIOUS AND
PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO.
6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF
TAXATION.
II. RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND
PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO.
6537 VIOLATED THE PRINCIPLE AGAINST UNDUE
DESIGNATION OF LEGISLATIVE POWER.
IV. RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS
AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE
NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL
PROTECTION CLAUSES OF THE CONSTITUTION."
Petitioner Mayor Villegas argues that Ordinance No. 6537
cannot be declared null and void on the ground that it
violated the rule on uniformity of taxation because the rule
on uniformity of taxation applies only to purely tax or
revenue measures and that Ordinance No. 6537 is not a tax
or revenue measure but is an exercise of the police power of
the state, it being principally a regulatory measure in nature.
The contention that Ordinance No. 6537 is not a purely tax or
revenue measure because its principal purpose is regulatory
in nature has no merit. While it is true that the first part
which requires that the alien shall secure an employment
permit from the Mayor involves the exercise of discretion
and judgment in the processing and approval or disapproval
of applications for employment permits and therefore is
regulatory in character the second part which requires the
payment of P50.00 as employee's fee is not regulatory but a
revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment.
It is obvious that the purpose of the ordinance is to raise
money under the guise of regulation.
The P50.00 fee is unreasonable not only because it is
excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are
required to pay it. Although the equal protection clause of
the Constitution does not forbid classification, it is imperative
that the classification, should be based on real and
substantial differences having a reasonable relation to the
subject of the particular legislation. The same amount of
P50.00 is being collected from every employed alien, whether
he is casual or permanent, part time or full time or whether
he is a lowly employee or a highly paid executive.
Ordinance No. 6537 does not lay down any criterion or
standard to guide the Mayor in the exercise of his discretion.
It has been held that where an ordinance of a municipality
fails to state any policy or to set up any standard to guide or
limit the mayor's action, expresses no purpose to be attained
by requiring a permit, enumerates no conditions for its grant
or refusal, and entirely lacks standard, thus conferring upon
the Mayor arbitrary and unrestricted power to grant or deny
the issuance of building permits, such ordinance is invalid,
being an undefined and unlimited delegation of power to
allow or prevent an activity per se lawful. 10
In Chinese Flour Importers Association vs. Price Stabilization
Board, 11 where a law granted a government agency power
to determine the allocation of wheat flour among importers,
the Supreme Court ruled against the interpretation of
uncontrolled power as it vested in the administrative officer
an arbitrary discretion to be exercised without a policy, rule,
or standard from which it can be measured or controlled.
It was also held in Primicias vs. Fugoso 12 that the authority
and discretion to grant and refuse permits of all classes
conferred upon the Mayor of Manila by the Revised Charter
of Manila is not uncontrolled discretion but legal discretion
to be exercised within the limits of the law.
[G.R. No. L-49336. August 31, 1981.]
THE PROVINCE OF ABRA, represented by LADISLAO
ANCHETA, Provincial Assessor, petitioner, vs. HONORABLE
HAROLD M. HERNANDO, in his capacity as Presiding Judge
of Branch I, Court of First Instance Abra; THE ROMAN
CATHOLIC BISHOP OF BANGUED, INC., represented by
Bishop Odilo Etspueler and Reverend Felipe Flores,
respondents.
Sergio V . Paredes for petitioner.
Felix B. Claustro for respondent.
SYNOPSIS
The Provincial Assessor of Abra levied a tax assessment on
the properties of respondent Roman Catholic Bishop of
Bangued. The latter filed a petition for declaratory relief on
the ground that it is exempted from payment of real estate
taxes, its properties being actually, directly and exclusively
used for religious or charitable purposes as sources of
support for the bishop, the parish priest and his helpers.
Petitioner filed a motion to dismiss but the same was denied.
After conducting a summary hearing, respondent Judge
granted the exemption without hearing the side of petitioner.
Hence, this present petition for certiorari and mandamus
alleging denial of procedural due process.
The Supreme Court held that petitioner was right in seeking
necessary proof as the law frowns on exemptions from
taxation. The failure of respondent judge to accord a hearing
therefor was in violation of the constitutional command of
procedural due process.
Petition granted.
Ordinance No. 6537 is void because it does not contain or
suggest any standard or criterion to guide the mayor in the
exercise of the power which has been granted to him by the
ordinance.
The ordinance in question violates the due process of law
and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a
permit from the City Mayor of Manila who may withhold or
refuse it at will is tantamount to denying him the basic right
of the people in the Philippines to engage in a means of
livelihood. While it is true that the Philippines as a State is
not obliged to admit aliens within its territory, once an alien
is admitted, he cannot be deprived of life without due
process of law. This guarantee includes the means of
livelihood. The shelter of protection under the due process
and equal protection clause is given to all persons, both
aliens and citizens. 13
The trial court did not commit the errors assigned. LLpr
WHEREFORE, the decision appealed from is hereby affirmed,
without pronouncement as to costs. SO ORDERED.
SYLLABUS
1. CONSTITUTIONAL LAW; FREEDOM OF RELIGION; TAX
EXEMPTION
OF
CHURCH
PROPERTIES;
PRESENT
REQUIREMENT OF ACTUAL EXCLUSIVE AND DIRECT USE OF
PROPERTY FOR CHARITABLE AND RELIGIOUS PURPOSES. —
Under Article VI, Section 22, paragraph 3 of the 1935
Constitution: "Cemeteries, churches, and parsonages or
convents appurtenant thereto, and all lands, building, and
improvements used exclusively for religious, charitable, or
educational purposes shall be exempt from taxation." The
present Constitution (Article VIII, Section 17, paragraph 3)
added "charitable institutions, mosques, and non-profit
cemeteries" and required that for the exemption of "lands,
buildings, and improvements," they should not only be
"exclusively" but also "actually" and "directly" used for
religious or charitable purposes. The Constitution is worded
differently. The change should not be ignored. It must be
duly taken into consideration.
2. ID.; ID.; ID.; ID.; TAX EXEMPTIONS, STRICTLY CONSTRUED.
— There must be proof of the actual and direct use of the
lands, buildings, and improvements for religious or charitable
purposes to be exempt from taxation. According to
Commissioner of Internal Revenue v. Guerrero, L-20812,
September 22, 1967, "From 1906, in Catholic Church v.
Hastings to 1966, in Esso Standard Eastern Inc. v. Acting
Commissioner of Customs, it has been the constant and
uniform holding that exemption from taxation is not favored
and is never presumed, so that if granted it must be strictly
construed against the taxpayer. Affirmatively put, the law
frowns on exemption from taxation, hence, an exempting
provision should be construed strictissimi jurs." cdasia
3. ID.; ID.; ID.; PROOF TO DEMONSTRATE EXEMPTION;
ABSENCE OF HEARING, VIOLATIVE OF PROCEDURAL DUE
PROCESS. — Where respondent judge accepted at its face
the allegation of private respondent that certain parcels of
land owned by it are used "actually, directly and exclusively"
as sources of support of the parish priest and his helpers and
also of the Bishop; denied petitioner's motion to dismiss; and
rendered a summary judgment granting such exemption
without even hearing the side of petitioner, it clearly appears
that respondent judge failed to abide by the constitutional
command of procedural due process.
DECISION
FERNANDO, C .J p:
On the face of this certiorari and mandamus petition filed by
the Province of Abra, 1 it clearly appears that the actuation of
respondent Judge Harold M. Hernando of the Court of First
Instance of Abra left much to be desired. First, there was a
denial of a motion to dismiss 2 an action for declaratory relief
by private respondent Roman Catholic Bishop of Bangued
desirous of being exempted from a real estate tax followed
by a summary judgment 3 granting such exemption, without
even hearing the side of petitioner. In the rather vigorous
language of the Acting Provincial Fiscal, as counsel for
petitioner, respondent Judge "virtually ignored the pertinent
provisions of the Rules of Court; . . . wantonly violated the
rights of petitioner to due process, by giving due course to
the petition of private respondent for declaratory relief, and
thereafter without allowing petitioner to answer and without
any hearing, adjudged the case; all in total disregard of basic
laws of procedure and basic provisions of due process in the
constitution, thereby indicating a failure to grasp and
understand the law, which goes into the competence of the
Honorable Presiding Judge." 4
It was the submission of counsel that an action for
declaratory relief would be proper only before a breach or
violation of any statute, executive order or regulation. 5
Moreover, there being a tax assessment made by the
Provincial Assessor on the properties of respondent Roman
Catholic Bishop, petitioner failed to exhaust the
administrative remedies available under Presidential Decree
No. 464 before filing such court action. Further, it was
pointed out to respondent Judge that he failed to abide by
the pertinent provision of such Presidential Decree which
provides as follows: "No court shall entertain any suit
assailing the validity of a tax assessed under this Code until
the taxpayer, shall have paid, under protest, the tax assessed
against him nor shall any court declare any tax invalid by
reason of irregularities or informalities in the proceedings of
the officers charged with the assessment or collection of
taxes, or of failure to perform their duties within this time
herein specified for their performance unless such
irregularities, informalities or failure shall have impaired the
substantial rights of the taxpayers; nor shall any court declare
any portion of the tax assessed under the provisions of this
Code invalid except upon condition that the taxpayer shall
pay the just amount of the tax, as determined by the court in
the pending proceeding." 6
When asked to comment, respondent Judge began with the
allegation that there "is no question that the real properties
sought to be taxed by the Province of Abra are properties of
the respondent Roman Catholic Bishop of Bangued, Inc." 7
The very next sentence assumed the very point it asked when
he categorically stated: "Likewise, there is no dispute that the
properties including their produce are actually, directly and
exclusively used by the Roman Catholic Bishop of Bangued,
Inc. for religious or charitable purposes." 8 For him then:
"The proper remedy of the petitioner is appeal and not this
special civil action." 9 A more exhaustive comment was
submitted by private respondent Roman Catholic Bishop of
Bangued, Inc. It was, however, unable to lessen the force of
the objection raised by petitioner Province of Abra, especially
the due process aspect. It is to be admitted that his
opposition to the petition, pressed with vigor, ostensibly
finds a semblance of support from the authorities cited. It is
thus impressed with a scholarly aspect. It suffers, however,
from the grave infirmity of stating that only a pure question
of law is presented when a claim for exemption is made.
The petition must be granted.
1. Respondent Judge would not have erred so grievously had
he merely compared the provisions of the present
Constitution with that appearing in the 1935 Charter on the
tax exemption of "lands, buildings, and improvements."
There is a marked difference. Under the 1935 Constitution:
"Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, or
educational purposes shall be exempt from taxation." 10 The
present Constitution added "charitable institutions, mosques,
and non-profit cemeteries" and required that for the
exemption of "lands, buildings, and improvements," they
should not only be "exclusively" but also "actually" and
"directly" used for religious or charitable purposes. 11 The
Constitution is worded differently. The change should not be
ignored. It must be duly taken into consideration. Reliance on
past decisions would have sufficed were the words "actually"
as well as "directly" not added. There must be proof
therefore of the actual and direct use of the lands, buildings,
and improvements for religious or charitable purposes to be
exempt from taxation. According to Commissioner of Internal
Revenue v. Guerrero: 12 "From 1906, in Catholic Church v.
Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting
Commissioner of Customs, it has been the constant and
uniform holding that exemption from taxation is not favored
and is never presumed, so that if granted it must be strictly
construed against the taxpayer. Affirmatively put, the law
frowns on exemption from taxation, hence, an exempting
provision should be construed strictissimi juris." 13 In Manila
Electric Company v. Vera, 14 a 1975 decision, such principle
was reiterated, reference being made to Republic Flour Mills,
Inc. v. Commissioner of Internal Revenue; 15 Commissioner
of Customs v. Philippine Acetylene Co. & CTA; 16 and Davao
Light and Power Co., Inc. v. Commissioner of Customs. 17
2. Petitioner Province of Abra is therefore fully justified in
invoking the protection of procedural due process. If there is
any case where proof is necessary to demonstrate that there
is compliance with the constitutional provision that allows an
exemption, this is it. Instead, respondent Judge accepted at
its face the allegation of private respondent. All that was
alleged in the petition for declaratory relief filed by private
respondents, after mentioning certain parcels of land owned
by it, are that they are used "actually, directly and
exclusively" as sources of support of the parish priest and his
helpers and also of private respondent Bishop. 18 In the
motion to dismiss filed on behalf of petitioner Province of
Abra, the objection was based primarily on the lack of
jurisdiction, as the validity of a tax assessment may be
questioned before the Local Board of Assessment Appeals
and not with a court. There was also mention of a lack of a
cause of action, but only because, in its view, declaratory
relief is not proper, as there had been breach or violation of
the right of government to assess and collect taxes on such
property. It clearly appears, therefore, that in failing to
accord a hearing to petitioner Province of Abra and deciding
the case immediately in favor of private respondent,
respondent Judge failed to abide by the constitutional
command of procedural due process. LLjur
WHEREFORE, the petition is granted and the resolution of
June 19, 1978 is set aside. Respondent Judge, or who ever is
acting on his behalf, is ordered to hear the case on the merit.
No costs.
[G.R. No. L-23794. February 17, 1968.]
ORMOC SUGAR COMPANY, INC., plaintiff-appellant, vs. THE
TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF
ORMOC CITY, HON. ESTEBAN C. CONEJOS, as Mayor of
Ormoc City and ORMOC CITY, defendants-appellees.
Ponce Enrile, Siguion Reyna, Montecillo & Belo and
Teehankee, Carreon & Tañada for plaintiff-appellant.
Ramon O. de Veyra for defendants-appellees.
SYLLABUS
1. MUNICIPAL CORPORATIONS; POWER TO IMPOSE EXPORT
OR IMPORT TAX; REP. ACT 2264, SEC. 2; EFFECT ON SEC. 2287
OF REVISED ADMINISTRATIVE CODE. — Section 2 of Rep. Act
2264 which became effective on June 19, 1959, gave
chartered cities, municipalities and municipal districts
authority to levy for public purposes just and uniform taxes,
licenses or fees. This provision of law has repealed Sec. 2287
of the Revised Administrative Code (Nin Bay Mining Co. vs.
Municipality of Roxas, L-20125, July 20, 1965), which
withheld from municipalities the power to impose an import
or export tax upon such goods in the guise of an
unreasonable charge for wharfage.
2. CONSTITUTIONAL LAW; EQUAL PROTECTION OF LAW;
REASONABLE CLASSIFICATION; REQUISITES. — The equal
protection clause applies only to persons or things identically
situated and does not bar a reasonable classification of the
subject of legislation. A classification is reasonable where (1)
it is based on substantial distinctions which make real
differences; (2) these are germane to the purpose of the law;
(3) the classification applies not only to present conditions
but also to future conditions which are substantially identical
to those of the present; (4) the classification applies only to
those who belong to the same class.
3. ID.; ID.; ID.; TAX ORDINANCE SHOULD NOT BE SINGULAR
AND EXCLUSIVE. — When the taxing ordinance was enacted,
Ormoc Sugar Co,, Inc. was the only sugar central in the City. A
reasonable classification should be in terms applicable to
future conditions as well. The taxing ordinance should not be
singular and exclusive as to exclude any subsequently
established sugar central.
4. TAXATION; TAX, REFUND OF; NO INTEREST CAN BE
CLAIMED; REASONS. — Appellant is not entitled to interest
on the refund because the taxes were not arbitrarily
collected. There is sufficient basis to preclude arbitrariness.
The constitutionality of the statute is presumed until
declared otherwise.
DECISION
BENGZON, J.P., J p:
On January 29, 1964, the Municipal Board of Ormoc City
passed 1 Ordinance No. 4, Series of 1964, imposing "on any
and all productions of centrifugal sugar milled at the Ormoc
Sugar Company, Inc., in Ormoc City a municipal tax
equivalent to one per centum (1%) per export sale to the
United States of America and other foreign countries." 2
Payments for said tax were made, under protest, by Ormoc
Sugar Company, Inc. on March 20, 1964 for P7,087.50 and on
April 20, 1964 for P5,000.00, or a total of P12,087.50.
On June 1, 1964, Ormoc Sugar Company, Inc. filed before the
Court of First Instance of Leyte, with service of a copy upon
the Solicitor General, a complaint 3 against the City of Ormoc
as well as its Treasurer, Municipal Board and Mayor, alleging
that the afore-stated ordinance is unconstitutional for being
violative of the equal protection clause (Sec. 1[1], Art. III,
Constitution) and the rule of uniformity of taxation (Sec.
22[1], Art. VI, Constitution), aside from being an export tax
forbidden under Section 2287 of the Revised Administrative
Code. It further alleged that the tax is neither a production
nor a license tax which Ormoc City under Section 15-kk of its
charter and under Section 2 of Republic Act 2264, otherwise
known as the Local Autonomy Act, is authorized to impose;
and that the tax amounts to a customs duty, fee or charge in
violation of paragraph 1 of Section 2 of Republic Act 2264
because the tax is on both the sale and export of sugar.
Answering, the defendants asserted that the tax ordinance
was within defendant city's power to enact under the Local
Autonomy Act and that the same did not violate the aforecited constitutional limitations. After pre-trial and submission
of the case on memoranda, the Court of First Instance, on
August 6, 1964, rendered a decision that upheld the
constitutionality of the ordinance and declared the taxing
power of defendant chartered city broadened by the Local
Autonomy Act to include all other forms of taxes, licenses or
fees not excluded in its charter.
Appeal therefrom was directly taken to Us by plaintiff Ormoc
Sugar Company, Inc. Appellant alleges the same statutory
and constitutional violations in the aforesaid taxing
ordinance mentioned earlier.
Section 1 of the ordinance states: "There shall be paid to the
City Treasurer on any and all productions of centrifugal sugar
milled at the Ormoc Sugar Company Incorporated, in Ormoc
City a municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other foreign
countries." Though referred to as a "production tax", the
imposition actually amounts to a tax on the export of
centrifugal sugar produced at Ormoc Sugar Company, Inc. For
production of sugar alone is not taxable; the only time the tax
applies is when the sugar produced is exported.
Appellant questions the authority of the defendant Municipal
Board to levy such an export tax, in view of Section 2287 of
the Revised Administrative Code which denies from
municipal councils the power to impose an export tax.
Section 2287 in part states: "It shall not be in the power of
the municipal council to impose a tax in any form whatever,
upon goods and merchandise carried into the municipality, or
out of the same, and any attempt to impose an import or
export tax upon such goods in the guise of an unreasonable
charge for wharfage, use of bridges or otherwise, shall be
void."
Subsequently, however, Section 2 of Republic Act 2264,
effective June 19, 1959, gave chartered cities, municipalities
and municipal districts authority to levy for public purposes
just and uniform taxes, licenses or fees. Anent the
inconsistency between Section 2287 of the Revised
Administrative Code and Section 2 of Republic Act 2264, this
Court, in Nin Bay Mining Co. v. Municipality of Roxas, 4 held
the former to have been repealed by the latter. And
expressing Our awareness of the transcendental effects that
municipal export or import taxes or licenses will have on the
national economy, due to Section 2 of Republic Act 2264, We
stated that there was no other alternative until Congress acts
to provide remedial measures to forestall any unfavorable
results.
The point remains to be determined, however, whether
constitutional limits on the power of taxation, specifically the
equal protection clause and rule of uniformity of taxation,
were infringed.
The Constitution in the bill of rights provides: ". . . nor shall
any person be denied the equal protection of the laws." (Sec.
1[1], Art. 111) In Felwa v. Salas 5 We ruled that the equal
protection clause applies only to persons or things identically
situated and does not bar a reasonable classification of the
subject of legislation, and a classification is reasonable where
(1) it is based on substantial distinctions which make real
differences; (2) these are germane to the purpose of the law;
(3) the classification applies not only to present conditions
but also to future conditions which are substantially identical
to those of the present; (4) the classification applies only to
those who belong to the same class.
A perusal of the requisites instantly shows that the
questioned ordinance does not meet them, for it taxes only
centrifugal sugar produced and exported by the Ormoc Sugar
Company, Inc. and none other. At the time of the taxing
ordinance's enactment, Ormoc Sugar Company, Inc., it is true,
was the only sugar central in the city of Ormoc. Still, the
classification, to be reasonable, should be in terms applicable
to future conditions as well. The taxing ordinance should not
be singular and exclusive as to exclude any subsequently
established sugar central, of the same class as plaintiff, from
the coverage of the tax. As it is now, even if later a similar
company is set up, it cannot be subject to the tax because the
ordinance expressly points only to Ormoc Sugar Company,
Inc. as the entity to be levied upon.
Appellant, however, is not entitled to interest on the refund
because the taxes were not arbitrarily collected (Collector of
Internal Revenue v. Binalbagan).6 At the time of collection,
the ordinance provided a sufficient basis to preclude
arbitrariness, the same being then presumed constitutional
until declared otherwise.
WHEREFORE, the decision appealed from is hereby reversed,
the challenged ordinance is declared unconstitutional and
the defendants- appellees are hereby ordered to refund the
P12,087.50 plaintiff- appellant paid under protest. No. costs.
So ordered.
[G.R. No. 127410. January 20, 1999.]
CONRADO L. TIU, JUAN T. MONTELIBANO JR. and ISAGANI
M. JUNGCO, petitioners, vs. COURT OF APPEALS, HON.
TEOFISTO T. GUINGONA JR., BASES CONVERSION AND
DEVELOPMENT AUTHORITY, SUBIC BAY METROPOLITAN
AUTHORITY, BUREAU OF INTERNAL REVENUE, CITY
TREASURER OF OLONGAPO and MUNICIPAL TREASURER OF
SUBIC, ZAMBALES, respondents.
Isagani M. Jungco for petitioners.
The Solicitor General for respondents.
SYNOPSIS
This is a petition for review under Rule 45 of the Revised
Rules of Court, seeking the reversal of the Court of Appeals'
Decision upholding the constitutionality and validity of
Executive Order No. 97-A. Under the said Executive Order,
the grant and enjoyment of the tax and duty incentives
authorized under Republic Act No. 7227 were limited to the
business enterprises and residents within the fenced-in area
of the Subic Special Economic Zone. TAcDHS
Petitioners challenged the constitutionality of EO 97-A for
allegedly being violative of their right to equal protection of
the laws. Petitioners contended that the provisions of EO 97A confining the application of R.A. 7227 within the secured
area and excluding the residents of the zone outside of the
secured area is discriminatory.
The Supreme Court ruled in favor of the constitutionality and
validity of the assailed EO. Said Order is not violative of the
equal protection clause; neither is it discriminatory. Rather,
the Court found real and substantive distinctions between
the circumstances obtaining inside and those outside the
Subic Naval Base, thereby justifying a valid and reasonable
classification. The Court believed that it was reasonable for
the President to have delimited the application of some
incentives to the confines of the former Subic military base. It
is this specific area which the government intends to
transform and develop from its status quo ante as an
abandoned naval facility into a self-sustaining industrial and
commercial zone. Moreover, the equal protection guarantee
does not require territorial uniformity of laws. Anyone,
including the petitioners, possessing the requisite investment
capital can always avail of the same benefits by channeling
his or her resources or business operations into the fencedoff free port zone. The Court also believed that the
classification set forth by the executive issuance does not
apply merely to existing conditions. As laid down in RA 7227,
the objective is to establish a "self-sustaining, industrial,
commercial, financial and investment center" in the area.
There will, therefore, be a long-term difference between
such investment center and the areas outside it. Lastly, the
classification applies equally to all the resident individuals
and businesses within the "secured area". The residents,
being in like circumstances or contributing directly to the
achievement of the end purpose of the law, are not
categorized further. Instead, they are all similarly treated,
both in privileges granted and in obligations required. No
undue favor or privilege was therefore extended. Thus, the
Court held that the classification occasioned by EO 97-A was
not unreasonable, capricious or unfounded. It was based,
rather, on fair and substantive considerations that were
germane to the legislative purpose. The Court therefore
affirmed the assailed Decision and Resolution. IHEDAT
SYLLABUS
1. CONSTITUTIONAL LAW; BILL OF RIGHTS; EQUAL
PROTECTION CLAUSE; NOT ABSOLUTE BUT SUBJECT TO
REASONABLE CLASSIFICATION; REQUISITES FOR VALIDITY OF
CLASSIFICATION, ENUMERATED. — The fundamental right of
equal protection of the laws is not absolute, but is subject to
reasonable classification. If the groupings are characterized
by substantial distinctions that make real differences, one
class may be treated and regulated differently from another.
The classification must also be germane to the purpose of the
law and must apply to all those belonging to the same class.
Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to the purpose of the law, (3) not
be limited to existing conditions only, and (4) apply equally to
all members of the same class.
2. ID.; ID.; DOES NOT REQUIRE TERRITORIAL UNIFORMITY OF
LAWS. — It is well-settled that the equal-protection
guarantee does not require territorial uniformity of laws. As
long as there are actual and material differences between
territories, there is no violation of the constitutional clause.
And of course, anyone, including the petitioners, possessing
the requisite investment capital can always avail of the same
benefits by channeling his or her resources or business
operations into the fenced-off free port zone.
3. ID.; ID.; NOT VIOLATED BY AN EXECUTIVE ORDER
GRANTING TAX AND DUTY INCENTIVES ONLY TO BUSINESSES
AND RESIDENTS WITHIN THE "SECURED AREA" OF THE SUBIC
SPECIAL ECONOMIC ZONE. — The constitutional right to
equal protection of the law is not violated by an executive
order, issued pursuant to law, granting tax and duty
incentives only to businesses and residents within the
"secured area" of the Subic Special Economic Zone and
denying them to those who live within the Zone but outside
such "fenced-in" territory. The Constitution does not require
absolute equality among residents. It is enough that all
persons under like circumstances or conditions are given the
same privileges and required to follow the same obligations.
In short, a classification based on valid and reasonable
standards does not violate the equal protection clause.
4 ID.; ID.; EXECUTIVE ORDER 97-A; NEITHER VIOLATIVE OF
EQUAL
PROTECTION
CLAUSE
NOR
CONSIDERED
DISCRIMINATORY. — We rule in favor of the constitutionality
and validity of the assailed EO 97-A. Said Order is not
violative of the equal protection clause; neither is it
discriminatory. Rather, we find real and substantive
distinctions between the circumstances obtaining inside and
those outside the Subic Naval Base, thereby justifying a valid
and reasonable classification. THAECc
5. ID.; ID.; ID.; LIMITATION OF THE APPLICATION OF
INCENTIVES TO THE CONFINES OF THE FORMER SUBIC
MILITARY BASE, CONSIDERED REASONABLE IN CASE AT BAR;
CLASSIFICATION IS GERMANE TO THE PURPOSES OF THE LAW.
— We believe it was reasonable for the President to have
delimited the application of some incentives to the confines
of the former Subic military base. It is this specific area which
the government intends to transform and develop from its
status quo ante as an abandoned naval facility into a selfsustaining industrial and commercial zone, particularly for big
foreign and local investors to use as operational bases for
their businesses and industries. Why the seeming bias for big
investors? Undeniably, they are the ones who can pour huge
investments to spur economic growth in the country and to
generate employment opportunities for the Filipinos, the
ultimate goals of the government for such conversion. The
classification is, therefore, germane to the purposes of the
law. And as the legal maxim goes, "The intent of a statute is
the law."
6. ID.; ID.; ID.; ID.; REASONS. — Certainly, there are
substantial differences between the big investors who are
being lured to establish and operate their industries in the
so-called "secured area" and the present business operators
outside the area. On the one hand, we are talking of billionpeso investments and thousands of new jobs. On the other
hand, definitely none of such magnitude. In the first, the
economic impact will be national; in the second, only local.
Even more important, at this time the business activities
outside the "secured area" are not likely to have any impact
in achieving the purpose of the law, which is to turn the
former military base to productive use for the benefit of the
Philippine economy. There is, then, hardly any reasonable
basis to extend to them the benefits and incentives accorded
in RA 7227. Additionally, as the Court of Appeals pointed out,
it will be easier to manage and monitor the activities within
the "secured area," which is already fenced off, to prevent
"fraudulent importation of merchandise" or smuggling.
7. ID.; ID.; ID.; CLASSIFICATION SET FORTH THEREIN, DOES
NOT APPLY MERELY TO EXISTING CONDITIONS. — We believe
that the classification set forth by the executive issuance
does not apply merely to existing conditions. As laid down in
RA 7227, the objective is to establish a "self-sustaining,
industrial, commercial, financial and investment center" in
the area. There will, therefore, be a long-term difference
between such investment center and the areas outside it.
aITECA
8. ID.; ID.; ID.; CLASSIFICATION SET FORTH THEREIN, NOT
UNREASONABLE, CAPRICIOUS OR UNFOUNDED; APPLIES
EQUALLY TO ALL RESIDENT INDIVIDUALS AND BUSINESSES
WITHIN THE "SECURED AREA." — The classification applies
equally to all the resident individuals and businesses within
the "secured area." The residents, being in like circumstances
or contributing directly to the achievement of the end
purpose of the law, are not categorized further. Instead, they
are all similarly treated, both in privileges granted and in
obligations required. All told, the Court holds that no undue
favor or privilege was extended. The classification occasioned
by EO 97-A was not unreasonable, capricious or unfounded.
To repeat, it was based, rather, on fair and substantive
considerations that were germane to the legislative purpose.
DECISION
PANGANIBAN, J p:
The constitutional right to equal protection of the law is not
violated by an executive order, issued pursuant to law,
granting tax and duty incentives only to businesses and
residents within the "secured area" of the Subic Special
Economic Zone and denying them to those who live within
the Zone but outside such "fenced-in" territory. The
Constitution does not require absolute equality among
residents. It is enough that all persons under like
circumstances or conditions are given the same privileges
and required to follow the same obligations. In short, a
classification based on valid and reasonable standards does
not violate the equal protection clause. LLphil
The Case
Before us is a petition for review under Rule 45 of the Rules
of Court, seeking the reversal of the Court of Appeals'
Decision 1 promulgated on August 29, 1996, and Resolution 2
dated November 13, 1996, in CA-GR SP No. 37788. 3 The
challenged Decision upheld the constitutionality and validity
of Executive Order No. 97-A (EO 97-A), according to which
the grant and enjoyment of the tax and duty incentives
authorized under Republic Act No. 7227 (RA 7227) were
limited to the business enterprises and residents within the
fenced-in area of the Subic Special Economic Zone (SSEZ).
The assailed Resolution denied the petitioners' motion for
reconsideration.
The Facts
On March 13, 1992, Congress, with the approval of the
President, passed into law RA 7227 entitled "An Act
Accelerating the Conversion of Military Reservations Into
Other Productive Uses, Creating the Bases Conversion and
Development Authority for this Purpose, Providing Funds
Therefor and for Other Purposes." Section 12 thereof created
the Subic Special Economic Zone and granted thereto special
privileges, as follows:
"SEC. 12. Subic Special Economic Zone. — Subject to the
concurrence by resolution of the sangguniang panlungsod of
the City of Olongapo and the sangguniang bayan of the
Municipalities of Subic, Morong and Hermosa, there is
hereby created a Special Economic and Free-port Zone
consisting of the City of Olongapo and the Municipality of
Subic, Province of Zambales, the lands occupied by the Subic
Naval Base and its contiguous extensions as embraced,
covered, and defined by the 1947 Military Bases Agreement
between the Philippines and the United States of America as
amended, and within the territorial jurisdiction of the
Municipalities of Morong and Hermosa, Province of Bataan,
hereinafter referred to as the Subic Special Economic Zone
whose metes and bounds shall be delineated in a
proclamation to be issued by the President of the Philippines.
Within thirty (30) days after the approval of this Act, each
local government unit shall submit its resolution of
concurrence to join the Subic Special Economic Zone to the
Office of the President. Thereafter, the President of the
Philippines shall issue a proclamation defining the metes and
bounds of the zone as provided herein.
commercial banks and offshore banking units of foreign
banks with minimum Central Bank regulation;
"The abovementioned zone shall be subject to the following
policies:
"(g) Any investor within the Subic Special Economic Zone
whose continuing investment shall not be less than two
hundred fifty thousand dollars ($250,000), his/her spouse
and dependent children under twenty-one (21) years of age,
shall be granted permanent resident status within the Subic
Special Economic Zone. They shall have the freedom of
ingress and egress to and from the Subic Special Economic
Zone without any need of special authorization from the
Bureau of Immigration and Deportation. The Subic Bay
Metropolitan Authority referred to in Section 13 of this Act
may also issue working visas renewable every two (2) years
to foreign executives and other aliens possessing highly
technical skills which no Filipino within the Subic Special
Economic Zone possesses, as certified by the Department of
Labor and Employment. The names of aliens granted
permanent residence status and working visas by the Subic
Bay Metropolitan Authority shall be reported to the Bureau
of Immigration and Deportation within thirty (30) days after
issuance thereof;
"(a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of
the Local Government Code, the Subic Special Economic Zone
shall be developed into a self-sustaining, industrial,
commercial, financial and investment center to generate
employment opportunities in and around the zone and to
attract and promote productive foreign investments;
"(b) The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow
or movement of goods and capital within, into and exported
out of the Subic Special Economic Zone, as well as provide
incentives such as tax and duty-free importations of raw
materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the
Philippines;
"(c) The provision of existing laws, rules and regulations to
the contrary notwithstanding, no taxes, local and national,
shall be imposed within the Subic Special Economic Zone. In
lieu of paying taxes, three percent (3%) of the gross income
earned by all businesses and enterprises within the Subic
Special Economic Zone shall be remitted to the National
Government, one percent (1%) each to the local government
units affected by the declaration of the zone in proportion to
their population area, and other factors. In addition, there is
hereby established a development fund of one percent (1%)
of the gross income earned by all businesses and enterprises
within the Subic Special Economic Zone to be utilized for the
development of municipalities outside the City of Olongapo
and the Municipality of Subic, and other municipalities
contiguous to the base areas.
"In case of conflict between national and local laws with
respect to tax exemption privileges in the Subic Special
Economic Zone, the same shall be resolved in favor of the
latter;
"(d) No exchange control policy shall be applied and free
markets for foreign exchange, gold, securities and future shall
be allowed and maintained in the Subic Special Economic
Zone;
"(e) The Central Bank, through the Monetary Board, shall
supervise and regulate the operations of banks and other
financial institutions within the Subic Special Economic Zone;
"(f) Banking and finance shall be liberalized with the
establishment of foreign currency depository units of local
"(h) The defense of the zone and the security of its
perimeters shall be the responsibility of the National
Government in coordination with the Subic Bay Metropolitan
Authority. The Subic Bay Metropolitan Authority shall provide
and establish its own security and fire-fighting forces; and
"(i) Except as herein provided, the local government units
comprising the Subic Special Economic Zone shall retain their
basic autonomy and identity. The cities shall be governed by
their respective charters and the municipalities shall operate
and function in accordance with Republic Act No. 7160,
otherwise known as the Local Government Code of 1991."
On June 10, 1993, then President Fidel V. Ramos issued
Executive Order No. 97 (EO 97), clarifying the application of
the tax and duty incentives thus:
"Section 1. On Import Taxes and Duties. — Tax and duty-free
importations shall apply only to raw materials, capital goods
and equipment brought in by business enterprises into the
SSEZ. Except for these items, importations of other goods
into the SSEZ, whether by business enterprises or resident
individuals, are subject to taxes and duties under relevant
Philippine laws. cda
"The exportation or removal of tax and duty-free goods from
the territory of the SSEZ to other parts of the Philippine
territory shall be subject to duties and taxes under relevant
Philippine laws.
"Section 2. On All Other Taxes. — In lieu of all local and
national taxes (except import taxes and duties), all business
enterprises in the SSEZ shall be required to pay the tax
specified in Section 12(c) of R.A. No. 7227."
Nine days after, on June 19, 1993, the President issued
Executive Order No. 97-A (EO 97-A), specifying the area
within which the tax-and-duty-free privilege was operative,
viz.:
"Section 1.1. The Secured Area consisting of the presently
fenced-in former Subic Naval Base shall be the only
completely tax and duty-free area in the SSEFPZ [Subic
Special Economic and Free Port Zone]. Business enterprises
and individuals (Filipinos and foreigners) residing within the
Secured Area are free to import raw materials, capital goods,
equipment, and consumer items tax and duty-free.
Consumption items, however, must be consumed within the
Secured Area. Removal of raw materials, capital goods,
equipment and consumer items out of the Secured Area for
sale to non-SSEFPZ registered enterprises shall be subject to
the usual taxes and duties, except as may be provided
herein"
On October 26, 1994, the petitioners challenged before this
Court the constitutionality of EO 97-A for allegedly being
violative of their right to equal protection of the laws. In a
Resolution dated June 27, 1995, this Court referred the
matter to the Court of Appeals, pursuant to Revised
Administrative Circular No. 1-95.
Incidentally, on February 1, 1995, Proclamation No. 532 was
issued by President Ramos. It delineated the exact metes and
bounds of the Subic Special Economic and Free Port Zone,
pursuant to Section 12 of RA 7227.
Ruling of the Court of Appeals
Respondent Court held that "there is no substantial
difference between the provisions of EO 97-A and Section 12
of RA 7227. In both, the 'Secured Area' is precise and welldefined as '. . . the lands occupied by the Subic Naval Base
and its contiguous extensions as embraced, covered and
defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America, as
amended . . .'" The appellate court concluded that such being
the case, petitioners could not claim that EO 97-A is
unconstitutional, while at the same time maintaining the
validity of RA 7227. cdasia
The court a quo also explained that the intention of Congress
was to confine the coverage of the SSEZ to the "secured
area" and not to include the "entire Olongapo City and other
areas mentioned in Section 12 of the law." It relied on the
following deliberations in the Senate:
"Senator Paterno. Thank you, Mr. President. My first
question is the extent of the economic zone. Since this will be
a free port, in effect, I believe that it is important to delineate
or make sure that the delineation will be quite precise. [M]y
question is: Is it the intention that the entire of Olongapo City,
the Municipality of Subic and the Municipality of Dinalupihan
will be covered by the special economic zone or only portions
thereof?
"Senator Shahani. Only portions, Mr. President. In other
words, where the actual operations of the free port will take
place.
"Senator Paterno. I see. So, we should say, 'COVERING THE
DESIGNATED PORTIONS OR CERTAIN PORTIONS OF
OLONGAPO CITY, SUBIC AND DINALUPIHAN" to make it clear
that it is not supposed to cover the entire area of all of these
territories.
"Senator Shahani. So, the Gentleman is proposing that the
words 'CERTAIN AREAS' . . .
"The President. The Chair would want to invite the attention
of the Sponsor and Senator Paterno to letter 'C,' which says:
'THE PRESIDENT OF THE PHILIPPINES IS HEREBY AUTHORIZED
TO PROCLAIM, DELINEATE AND SPECIFY THE METES AND
BOUNDS OF OTHER SPECIAL ECONOMIC ZONES WHICH MAY
BE CREATED IN THE CLARK MILITARY RESERVATIONS AND ITS
EXTENSIONS.'
"Probably, this provision can be expanded since, apparently,
the intention is that what is referred to in Olongapo as Metro
Olongapo is not by itself ipso jure already a special economic
zone.
"Senator Paterno. That is correct.
"The President. Someone, some authority must declare
which portions of the same shall be the economic zone. Is it
the intention of the author that it is the President of the
Philippines who will make such delineation?
"Senator Shahani. Yes, Mr. President."
The Court of Appeals further justified the limited application
of the tax incentives as being within the prerogative of the
legislature, pursuant to its "avowed purpose [of serving]
some public benefit or interest." It ruled that "EO 97-A
merely implements the legislative purpose of [RA 7227]."
Disagreeing, petitioners now seek before us a review of the
aforecited Court of Appeals Decision and Resolution.
The Issue
Petitioners submit the following issue for the resolution of
the Court:
''[W]hether or not Executive Order No. 97-A violates the
equal protection clause of the Constitution. Specifically the
issue is whether the provisions of Executive Order No. 97-A
confining the application of R.A. 7227 within the secured area
and excluding the residents of the zone outside of the
secured area is discriminatory or not." 4
The Court's Ruling
grounds exist for making a distinction between those who fall
within such class and those who do not." cdasia
The petition 5 is bereft of merit.
Main Issue:
The Constitutionality of EO 97-A
Citing Section 12 of RA 7227, petitioners contend that the
SSEZ encompasses (1) the City of Olongapo, (2) the
Municipality of Subic in Zambales, and (3) the area formerly
occupied by the Subic Naval Base. However, EO 97-A,
according to them, narrowed down the area within which the
special privileges granted to the entire zone would apply to
the present "fenced-in former Subic Naval Base" only. It has
thereby excluded the residents of the first two components
of the zone from enjoying the benefits granted by the law. It
has effectively discriminated against them without
reasonable or valid standards, in contravention of the equal
protection guarantee.
On the other hand, the solicitor general defends, on behalf of
respondents, the validity of EO 97-A, arguing that Section 12
of RA 7227 clearly vests in the President the authority to
delineate the metes and bounds of the SSEZ. He adds that
the issuance fully complies with the requirements of a valid
classification.
We rule in favor of the constitutionality and validity of the
assailed EO. Said Order is not violative of the equal
protection clause; neither is it discriminatory. Rather, we find
real and substantive distinctions between the circumstances
obtaining inside and those outside the Subic Naval Base,
thereby justifying a valid and reasonable classification.
The fundamental right of equal protection of the laws is not
absolute, but is subject to reasonable classification. If the
groupings are characterized by substantial distinctions that
make real differences, one class may be treated and
regulated differently from another. 6 The classification must
also be germane to the purpose of the law and must apply to
all those belonging to the same class. 7 Explaining the nature
of the equal protection guarantee, the Court in Ichong v.
Hernandez 8 said:
"The equal protection of the law clause is against undue
favor and individual or class privilege, as well as hostile
discrimination or the oppression of inequality. It is not
intended to prohibit legislation which is limited either [by]
the object to which it is directed or by [the] territory within
which it is to operate. It does not demand absolute equality
among residents; it merely requires that all persons shall be
treated alike, under like circumstances and conditions both
as to privileges conferred and liabilities enforced. The equal
protection clause is not infringed by legislation which applies
only to those persons falling within a specified class, if it
applies alike to all persons within such class, and reasonable
Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to the purpose of the law, (3) not
be limited to existing conditions only, and (4) apply equally to
all members of the same class. 9
We first determine the purpose of the law. From the very
title itself, it is clear that RA 7227 aims primarily to accelerate
the conversion of military reservations into productive uses.
Obviously, the "lands covered under the 1947 Military Bases
Agreement" are its object. Thus, the law avows this policy:
"SEC. 2. Declaration of Policies. — It is hereby declared the
policy of the Government to accelerate the sound and
balanced conversion into alternative productive uses of the
Clark and Subic military reservations and their extensions
(John Hay Station, Wallace Air Station, O'Donnell Transmitter
Station, San Miguel Naval Communications Station and Capas
Relay Station), to raise funds by the sale of portions of Metro
Manila military camps, and to apply said funds as provided
herein for the development and conversion to productive
civilian use of the lands covered under the 1947 Military
Bases Agreement between the Philippines and the United
States of America, as amended."
To undertake the above objectives, the same law created the
Bases Conversion and Development Authority, some of
whose relevant defined purposes are:
"(b) To adopt, prepare and implement a comprehensive and
detailed development plan embodying a list of projects
including but not limited to those provided in the LegislativeExecutive Bases Council (LEBC) framework plan for the sound
and balanced conversion of the Clark and Subic military
reservations and their extensions consistent with ecological
and environmental standards, into other productive uses to
promote the economic and social development of Central
Luzon in particular and the country in general;
"(c) To encourage the active participation of the private
sector in transforming the Clark and Subic military
reservations and their extensions into other productive
uses;"
Further, in creating the SSEZ, the law declared it a policy to
develop the zone into a "self-sustaining, industrial,
commercial, financial and investment center." 10
From the above provisions of the law, it can easily be
deduced that the real concern of RA 7227 is to convert the
lands formerly occupied by the US military bases into
economic or industrial areas. In furtherance of such objective,
Congress deemed it necessary to extend economic incentives
to attract and encourage investors, both local and foreign.
Among such enticements are: 11 (1) a separate customs
territory within the zone, (2) tax-and-duty-free importations,
(3) restructured income tax rates on business enterprises
within the zone, (4) no foreign exchange control, (5)
liberalized regulations on banking and finance, and (6) the
grant of resident status to certain investors and of working
visas to certain foreign executives and workers. cdll
We believe it was reasonable for the President to have
delimited the application of some incentives to the confines
of the former Subic military base. It is this specific area which
the government intends to transform and develop from its
status quo ante as an abandoned naval facility into a selfsustaining industrial and commercial zone, particularly for big
foreign and local investors to use as operational bases for
their businesses and industries. Why the seeming bias for big
investors? Undeniably, they are the ones who can pour huge
investments to spur economic growth in the country and to
generate employment opportunities for the Filipinos, the
ultimate goals of the government for such conversion. The
classification is, therefore, germane to the purposes of the
law. And as the legal maxim goes, "The intent of a statute is
the law." 12
Certainly, there are substantial differences between the big
investors who are being lured to establish and operate their
industries in the so-called "secured area" and the present
business operators outside the area. On the one hand, we
are talking of billion-peso investments and thousands of new
jobs. On the other hand, definitely none of such magnitude.
In the first, the economic impact will be national; in the
second, only local. Even more important, at this time the
business activities outside the "secured area" are not likely to
have any impact in achieving the purpose of the law, which is
to turn the former military base to productive use for the
benefit of the Philippine economy. There is, then, hardly any
reasonable basis to extend to them the benefits and
incentives accorded in RA 7227. Additionally, as the Court of
Appeals pointed out, it will be easier to manage and monitor
the activities within the "secured area," which is already
fenced off, to prevent "fraudulent importation of
merchandise" or smuggling.
It is well-settled that the equal-protection guarantee does
not require territorial uniformity of laws. 13 As long as there
are actual and material differences between territories, there
is no violation of the constitutional clause. And of course,
anyone, including the petitioners, possessing the requisite
investment capital can always avail of the same benefits by
channeling his or her resources or business operations into
the fenced-off free port zone.
We believe that the classification set forth by the executive
issuance does not apply merely to existing conditions. As laid
down in RA 7227, the objective is to establish a "selfsustaining, industrial, commercial, financial and investment
center" in the area. There will, therefore, be a long-term
difference between such investment center and the areas
outside it.
Lastly, the classification applies equally to all the resident
individuals and businesses within the "secured area." The
residents, being in like circumstances or contributing directly
to the achievement of the end purpose of the law, are not
categorized further. Instead, they are all similarly treated,
both in privileges granted and in obligations required.
All told, the Court holds that no undue favor or privilege was
extended. The classification occasioned by EO 97-A was not
unreasonable, capricious or unfounded. To repeat, it was
based, rather, on fair and substantive considerations that
were germane to the legislative purpose.
WHEREFORE, the petition is DENIED for lack of merit. The
assailed Decision and Resolution are hereby AFFIRMED. Costs
against petitioners. SO ORDERED.
[G.R. No. 115455. August 25, 1994.]
ARTURO M. TOLENTINO, petitioner, vs. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL REVENUE,
respondents.
[G.R. No. 115525. August 25, 1994.]
JUAN T. DAVID, petitioner, vs. TEOFISTO T. GUINGONA, JR.,
as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner
of Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
[G.R. No. 115543. August 25, 1994.]
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners, vs. THE SECRETARY OF THE
DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS,
respondents.
[G.R. No. 115544. August 25, 1994.]
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners, vs. HON. LIWAYWAY V. CHATO, in
her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive
Secretary; and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
[G.R. No. 115754. August 25, 1994.]
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS,
INC., (CREBA), petitioner, vs. THE COMMISSIONER OF
INTERNAL REVENUE, respondent.
[G.R. No. 115781. August 25, 1994.]
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL,
MOVEMENT
OF
ATTORNEYS
FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC.,
PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO TAÑADA,
petitioners, vs. THE EXECUTIVE SECRETARY, THE SECRETARY
OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE
and THE COMMISSIONER OF CUSTOMS, respondents.
These are various suits for certiorari and prohibition,
challenging the constitutionality of Republic Act No. 7716 on
various grounds summarized in the resolution of July 6, 1994
of this Court, as follows:
[G.R. No. 115852. August 25, 1994.]
PHILIPPINE AIRLINES, INC., petitioner, vs. THE SECRETARY
OF FINANCE, and COMMISSIONER OF INTERNAL REVENUE,
respondents.
A. Does Republic Act No. 7716 violate Art. VI, § 24 of the
Constitution?
[G.R. No. 115873. August 25, 1994.]
COOPERATIVE UNION OF THE PHILIPPINES, petitioners, vs.
HON. LIWAYWAY V. CHATO in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary, and
HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary
of Finance, respondents.
C. What is the extent of the power of the Bicameral
Conference Committee?
[G.R. No. 115931. August 25, 1994.]
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC.,
and ASSOCIATION OF PHILIPPINE BOOKSELLERS, petitioners,
vs. HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the Commissioner
of Internal Revenue and HON. GUILLERMO PARAYNO, JR., in
his capacity as the Commissioner of Customs, respondents.
1. § 1
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners
in G.R. No 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner
R.S. Roco.
Villaraza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in
G.R. No. 115754.
Salonga, Hernandez & Allado for Freedom from Debts
Coalition, Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices
for petitioners in G.R. No 115873.
R. B. Rodriguez & Associates for petitioners in G.R. No.
115931.
Rene A.V. Saguisag for MABINI.
B. Does the law violate the following other provisions of the
Constitution?
DECISION
MENDOZA, J p:
The value-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross
selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the
sale or exchange of services. Republic Act No. 7716 seeks to
widen the tax base of the existing VAT system and enhance
its administration by amending the National Internal Revenue
Code.
The contention of petitioners is that in enacting Republic Act
No. 7716, or the Expanded Value-Added Tax Law, Congress
violated the Constitution because, although H. No. 11197 had
originated in the House of Representatives, it was not passed
by the Senate but was simply consolidated with the Senate
version (S. No. 1630) in the Conference Committee to
produce the bill which the President signed into law. The
following provisions of the Constitution are cited in support
of the proposition that because Republic Act No. 7716 was
passed in this manner, it did not originate in the House of
Representatives and it has not thereby become a law:
I. Procedural Issues:
B. Does it violate Art. VI, § 26(2) of the Constitution?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of
Rights (Art. III)?
2. § 4
3. § 5
4. § 10
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated
above. As will presently be explained not all of these
questions are judicially cognizable, because not all provisions
of the Constitution are self executing and, therefore,
judicially enforceable. The other departments of the
government are equally charged with the enforcement of the
Constitution, especially the provisions relating to them.
I. PROCEDURAL ISSUES
Art. VI, § 24: All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or
concur with amendments.
On February 8, 1994, the Senate began consideration of the
bill (S. No. 1630). It finished debates on the bill and approved
it on second reading on March 24, 1994. On the same day, it
approved the bill on third reading by the affirmative votes of
13 of its members, with one abstention.
Id., § 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed
to its Members three days before its passage, except when
the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter,
and the yeas and nays entered in the Journal.
H. No. 1197 and its Senate version (S. No. 1630) were then
referred to a conference committee which, after meeting
four times (April 13, 19, 21 and 25, 1994), recommended that
"House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of
the bill as reconciled and approved by the conferees."
It appears that on various dates between July 22, 1992 and
August 31, 1993, several bills 1 were introduced in the House
of Representatives seeking to amend certain provisions of
the National Internal Revenue Code relative to the valueadded tax or VAT. These bills were referred to the House
Ways and Means Committee which recommended for
approval a substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110
OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237 AND
238 OF TITLE IX, AND REPEALING SECTIONS 113 AND 114 OF
TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED.
The bill (H. No. 11197) was considered on second reading
starting November 6, 1993 and, on November 17, 1993, it
was approved by the House of Representatives after third
and final reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its
report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF
TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX,
AND REPEALING SECTIONS 113, 114 and 116 OF TITLE V, ALL
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED,
AND FOR OTHER PURPOSES.
It was stated that the bill was being submitted "in
substitution of Senate Bill No. 1129, taking into consideration
P. S. Res. No. 734 and H. B. No. 11197."
The Conference Committee bill, entitled "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES," was thereafter approved by the
House of Representatives on April 27, 1994 and by the
Senate on May 2, 1994. The enrolled bill was then presented
to the President of the Philippines who, on May 5, 1994,
signed it. It became Republic Act No. 7716. On May 12, 1994,
Republic Act No. 7716 was published in two newspapers of
general circulation and, on May 28, 1994, it took effect,
although its implementation was suspended until June 30,
1994 to allow time for the registration of business entities. It
would have been enforced on July 1, 1994 but its
enforcement was stopped because the Court, by the vote of
11 to 4 of its members, granted a temporary restraining
order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did
not "originate exclusively" in the House of Representatives as
required by Art. VI, § 24 of the Constitution, because it is in
fact the result of the consolidation of two distinct bills, H. No.
11197 and S. No. 1630. In this connection, petitioners point
out that although Art. VI, § 24 was adopted from the
American Federal Constitution, 2 it is notable in two respects:
the verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as on
other bills" in the American version is omitted. This means,
according to them, that to be considered as having originated
in the House, Republic Act No. 7716 must retain the essence
of H. No. 11197.
This argument will not bear analysis. To begin with, it is not
the law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of
the whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is
important to note is that, as a result of the Senate action, a
distinct bill may be produced. To insist that a revenue statute
— and not only the bill which initiated the legislative process
culminating in the enactment of the law — must substantially
be the same as the House bill would be to deny the Senate's
power not only to "concur with amendments" but also to "
propose amendments." It would be to violate the coequality
of legislative power of the two houses of Congress and in fact
make the House superior to the Senate.
The contention that the constitutional design is to limit the
Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-ratifying
power 3 and thereby equalize its powers and those of the
House overlooks the fact that the powers being compared
are different. We are dealing here with the legislative power.
which under the Constitution is vested not in any particular
chamber but in the Congress of the Philippines, consisting of
"a Senate and a House of Representatives." 4 The exercise of
the treaty-ratifying power is not the exercise of legislative
power. It is the exercise of a check on the executive power.
There is, therefore, no justification for comparing the
legislative powers of the House and of the Senate on the
basis of the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S. Senate
5 has never been thought of as giving it more legislative
powers than the House of Representatives.
In the United States, the validity of a provision (sec. 37)
imposing an ad valorem tax based on the weight of vessels,
which the U.S. Senate had inserted in the Tariff Act of 1909,
was upheld against the claim that the provision was a
revenue bill which originated in the Senate in contravention
of Art. I, § 7 of the U.S. Constitution. 6 Nor is the power to
amend limited to adding a provision or two in a revenue bill
emanating from the House. The U.S. Senate has gone so far
as changing the whole of bills following the enacting clause
and substituting its own versions. In 1883, for example, it
struck out everything after the enacting clause of a tariff bill
and wrote in its place its own measure, and the House
subsequently accepted the amendment. The U.S. Senate
likewise added 847 amendments to what later became the
Payne-Aldrich Tariff Act of 1909; it dictated the schedules of
the Tariff Act of 1921; it rewrote an extensive tax revision bill
in the same year and recast most of the tariff bill of 1992. 7
Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to
originate in the House.
It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill (S. No.
1129) earlier filed and that what the Senate did was merely
to "take [H. No. 11197] into consideration" in enacting S. No.
1630. There is really no difference between the Senate
preserving H. No. 11197 up to the enacting clause and then
writing its own version following the enacting clause (which,
it would seem, petitioners admit is an amendment by
substitution), and, on the other hand, separately presenting a
bill of its own on the same subject matter. In either case the
result are two bills on the same subject.
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills authorizing
an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on
the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive
to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach
the same problems from the national perspective. Both views
are thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of
a substitute bill in anticipation of its receipt of the bill from
the House, so long as action by the Senate as a body is
withheld pending receipt of the House bill. The Court cannot,
therefore, understand the alarm expressed over the fact that
on March 1, 1993, eight months before the House passed H.
No. 11197, S. No. 1129 had been filed in the Senate. After all
it does not appear that the Senate ever considered it. It was
only after the Senate had received H. No. 11197 on
November 23, 1993 that the process of legislation in respect
of it began with the referral to the Senate Committee on
Ways and Means of H. No. 11197 and the submission by the
Committee on February 7, 1994 of S. No. 1630. For that
matter, if the question were simply the priority in the time of
filing of bills, the fact is that it was in the House that a bill (H.
No. 253) to amend the VAT law was first filed on July 22,
1992. Several other bills had been filed in the House before S.
No. 1129 was filed in the Senate, and H. No. 11197 was only a
substitute of those earlier bills. LLphil
Second. Enough has been said to show that it was within the
power of the Senate to propose S. No. 1630. We not pass to
the next argument of petitioners that S. No. 1630 did not
pass three readings on separate days as required by the
Constitution 8 because the second and third readings were
done on the same day, March 24, 1994. But this was because
on February 24, 1994 9 and again on March 22, 1994, 10 the
President had certified S. No. 1630 as urgent. The
presidential certification dispensed with the requirement not
only of printing but also that of reading the bill on separate
days. The phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI, § 26(2)
qualified the two stated conditions before a bill can become
a law: (i) the bill has passed three readings on separate days
and (ii) it has been printed in its final form and distributed
three days before it is finally approved.
In other words, the "unless" clause must be read in relation
to the "except" clause, because the two are really coordinate
clauses of the same sentence. To construe the "except"
clause as simply dispensing with the second requirement in
the "unless" clause (i.e., printing and distribution three days
before final approval) would not only violate the rules of
grammar. It would also negate the very premise of the
"except" clause: the necessity of securing the immediate
enactment of a bill which is certified in order to meet a public
calamity or emergency. For if it is only the printing that is
dispensed with by presidential certification, the time saved
would be so negligible as to be of any use in insuring
immediate enactment. It may well be doubted whether doing
away with the necessity of printing and distributing copies of
the bill three days before the third reading would insure
speedy enactment of a law in the face of an emergency
requiring the calling of a special election for President and
Vice-President. Under the Constitution such a law is required
to be made within seven days of the convening of Congress in
emergency session. 11
That upon the certification of a bill by the President the
requirement of three readings on separate days and of
printing and distribution can be dispensed with is supported
by the weight of legislative practice. For example, the bill
defining the certiorari jurisdiction of this Court which, in
consolidation with the Senate version, became Republic Act
No. 5440, was passed on second and third readings in the
House of Representatives on the same day (May 14, 1968)
after the bill had been certified by the President as urgent. 12
There is, therefore, no merit in the contention that
presidential certification dispenses only with the requirement
for the printing of the bill and its distribution three days
before its passage but not with the requirement of three
readings on separate days, also. cdasia
It is nonetheless urged that the certification of the bill in this
case was invalid because there was no emergency, the
condition stated in the certification of a "growing budget
deficit" not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to
controvert the reality of the factual basis of the certification.
To the contrary, by passing S. No. 1630 on second and third
readings on March 24, 1994, the Senate accepted the
President's certification. Should such certification be now
reviewed by this Court, especially when no evidence has
been shown that, because S. No. 1630 was taken up on
second and third readings on the same day, the members of
the Senate were deprived of the time needed for the study of
a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the
writ of habeas corpus or declaration of martial law under Art.
VII, § 18, or the existence of a national emergency justifying
the delegation of extraordinary powers to the President
under Art. VI, § 23(2), is subject to judicial review because
basic rights of individuals may be at hazard. But the factual
basis of presidential certification of bills, which involves doing
away with procedural requirements designed to insure that
bills are duly considered by members of Congress, certainly
should elicit a different standard of review.
Petitioners also invite attention to the fact that the President
certified S. No. 1630 and not H. No. 11197. That is because S.
No. 1630 was what the Senate was considering. When the
matter was before the House, the President likewise certified
H. No. 9210 then pending in the House.
Third. Finally it is contended that the bill which became
Republic Act No. 7716 is the bill which the Conference
Committee prepared by consolidating H. No. 11197 and S. No.
1630. It is claimed that the Conference Committee report
included provisions not found in either the House bill or the
Senate bill and that these provisions were "surreptitiously"
inserted by the Conference Committee. Much is made of the
fact that in the last two days of its session on April 21 and 25,
1994 the Committee met behind closed doors. We are not
told, however, whether the provisions were not the result of
the give and take that often mark the proceedings of
conference committees.
Nor is there anything unusual or extraordinary about the fact
that the Conference Committee met in executive sessions.
Often the only way to reach agreement on conflicting
provisions is to meet behind closed doors, with only the
conferees present. Otherwise, no compromise is likely to be
made. The Court is not about to take the suggestion of a
cabal or sinister motive attributed to the conferees on the
basis solely of their "secret meetings" on April 21 and 25,
1994, nor read anything into the incomplete remarks of the
members, marked in the transcript of stenographic notes by
ellipses. The incomplete sentences are probably due to the
stenographer's own limitations or to the incoherence that
sometimes characterize conversations. William Safire noted
some such lapses in recorded talks even by recent past
Presidents of the United States.
In any event, in the United States conference committees
had been customarily held in executive sessions with only the
conferees and their staffs in attendance. 13 Only in
November 1975 was a new rule adopted requiring open
sessions. Even then a majority of either chamber's conferees
may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emergency out of a
Conference Committee, it has been explained:
Under congressional rules of procedure, conference
committees are not expected to make any material change in
the measure at issue, either by deleting provisions to which
both houses have already agreed or by inserting new
provisions. But this is a difficult provision to enforce. Note
the problem when one house amends a proposal originating
in either house by striking out everything following the
enacting clause and substituting provisions which make it an
entirely new bill. The versions are now altogether different,
permitting a conference committee to draft essentially a new
bill . . . 15
The result is a third version, which is considered an
"amendment in the nature of a substitute," the only
requirement for which being that the third version be
germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of
a conference committee to include in its report an entirely
new provision that is not found either in the House bill or in
the Senate bill. 17 If the committee can propose an
amendment consisting of one or two provisions, there is no
reason why it cannot propose several provisions, collectively
considered as an "amendment in the nature of a substitute,"
so long as such amendment is germane to the subject of the
bills before the committee. After all, its report was not final
but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The
charge that in this case the Conference Committee acted as a
third legislative chamber is thus without any basis. 18
while the roll is being called or the House is dividing on any
question. Each of the pages of such reports shall be signed by
the conferees. Each report shall contain a detailed,
sufficiently explicit statement of the changes in or
amendments to the subject measure.
The consideration of such report shall not be in order unless
copies thereof are distributed to the Members: Provided,
That in the last fifteen days of each session period it shall be
deemed sufficient that three copies of the report, signed as
above provided, are deposited in the office of the Secretary
General.
(Emphasis added)
Nonetheless, it is argued that under the respective Rules of
the Senate and the House of Representatives a conference
committee can only act on the differing provisions of a
Senate bill and a House bill, and that contrary to these Rules
the Conference Committee inserted provisions not found in
the bills submitted to it. The following provisions are cited in
support of this contention:
Rules of the Senate
Rule XII:
§ Sec. 26. In the event that the Senate does not agree with
the House of Representatives on the provision of any bill or
joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet
within ten days after their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 3 of
Rule III.
Each Conference Committee Report shall contain a detailed
and sufficiently explicit statement of the changes in or
amendments to the subject measure, and shall be signed by
the conferees.
The consideration of such report shall not be in order unless
the report has been filed with the Secretary of the Senate
and copies thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ Sec. 85. Conference Committee Reports. — In the event
that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences
may be settled by conference committees of both Chambers.
The consideration of conference committee reports shall
always be in order, except when the journal is being read,
To be sure, nothing in the Rules limits a conference
committee to a consideration of conflicting provisions. But
Rule XLIV, § 112 of the Rules of the Senate is cited to the
effect that "If there is no Rule applicable to a specific case the
precedents of the Legislative Department of the Philippines
shall be resorted to, and as a supplement of these, the Rules
contained in Jefferson's Manual." The following is then
quoted from the Jefferson's Manual:
The managers of a conference must confine themselves to
the differences committed to them . . . and may not include
subjects not within disagreements, even though germane to
a question in issue.
Note that, according to Rule XLIX, § 112, in case there is no
specific rule applicable, resort must be to the legislative
practice. The Jefferson's Manual is resorted to only as
supplement. It is common place in Congress that conference
committee reports include new matters which, though
germane, have not been committed to the committee. This
practice was admitted by Senator Raul S. Roco, petitioner in
G.R. No. 115543, during the oral argument in these cases.
Whatever, then, may be provided in the Jefferson's Manual
must be considered to have been modified by the legislative
practice. If a change is desired in the practice it must be
sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each
house. Thus, Art. VI, § 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the
Rules of the two chambers were likewise disregarded in the
preparation of the Conference Committee Report because
the Report did not contain a "detailed and sufficiently explicit
statement of changes in, or amendments to, the subject
measure." The Report used brackets and capital letters to
indicate the changes. This is a standard practice in billdrafting. We cannot say that in using these marks and
symbols the Committee violated the Rules of the Senate and
the House. Moreover, this Court is not the proper forum for
the enforcement of these internal Rules. To the contrary, as
we have already ruled, "parliamentary rules are merely
procedural and with their observance the courts have no
concern." 19 Our concern is with the procedural
requirements of the Constitution for the enactment of laws.
As far as these requirements are concerned, we are satisfied
that they have been faithfully observed in these cases. cdphil
Nor is there any reason for requiring that the Committee's
Report in these cases must have undergone three readings in
each of the two houses. If that be the case, there would be
no end to negotiation since each house may seek
modifications of the compromise bill. The nature of the bill,
therefore, requires that it be acted upon by each house on a
"take it or leave it" basis, with the only alternative that if it is
not approved by both houses, another conference
committee must be appointed. But then again the result
would still be a compromise measure that may not be wholly
satisfying to both houses.
Art. VI, § 26(2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee report. For if the
purpose of requiring three readings is to give members of
Congress time to study bills, it cannot be gainsaid that H. No.
11197 was passed in the House after three reading; that in
the Senate it was considered on first reading and then
referred to a committee of that body; that although the
Senate committee did not report out the House bill, it
submitted a version (S. No. 1630) which it had prepared by
"taking into consideration" the House bill; that for its part the
Conference Committee consolidated the two bills and
prepared a compromise version; that the Conference
Committee Report was thereafter approved by the House
and the Senate, presumably after appropriate study by their
members. We cannot say that, as a matter of fact, the
members of Congress were not fully informed of the
provisions of the bill. The allegation that the Conference
Committee usurped the legislative power of Congress is, in
our view, without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal
validity of Republic Act No. 7716 must be resolved in its favor.
Our cases 20 manifest firm adherence to the rule that an
enrolled copy of a bill is conclusive not only of its provisions
but also of its due enactment. Not even claims that a
proposed constitutional amendment was invalid because the
requisite votes for its approval had not been obtained 21 or
that certain provisions of a statute had been "smuggled" in
the printing of the bill 22 have moved or persuaded us to
look behind the proceedings of a coequal branch of the
government. There is no reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute.
In fact in one case 23 we "went behind" an enrolled bill and
consulted the Journal to determine whether certain
provisions of a statute had been approved by the Senate in
view of the fact that the President of the Senate himself, who
had signed the enrolled bill, admitted a mistake and
withdrew his signature, so that in effect there was no longer
an enrolled bill to consider. cda
But where allegations that the constitutional procedures for
the passage of bills have not been observed have no more
basis than another allegation that the Conference Committee
"surreptitiously" inserted provisions into a bill which it had
prepared, we should decline the invitation to go behind the
enrolled copy of the bill. To disregard the "enrolled bill" rule
in such cases would be to disregard the respect due the other
two departments of our government.
Fifth. An additional attack on the formal validity of Republic
Act No. 7716 is made by the Philippine Airlines, Inc.,
petitioner in G.R. No. 11582, namely, that it violates Art. VI, §
26(1) which provides that "Every bill passed by Congress shall
embrace only one subject which shall be expressed in the
title thereof." It is contended that neither H. No. 11197 nor S.
No. 1630 provided for removal of exemption of PAL
transactions from the payment of the VAT and that this was
made only in the Conference Committee bill which became
Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES.
Among the provisions of the NIRC amended is sec. 103, which
originally read:
§ Sec. 103. Exempt transactions. — The following shall be
exempt from the value-added tax:
...
(q) Transactions which are exempt under special laws or
international agreements to which the Philippines is a
signatory.
Among the transactions exempted from the VAT were those
of PAL because it was exempted under its franchise (P.D. No.
1590) from the payment of all "other taxes . . . now or in the
near future," in consideration of the payment by it either of
the corporate income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, § 103
of the NIRC now provides:
§ 103. Exempt transactions. — The following shall be exempt
from the value-added tax:
...
(q) Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972,
1491, 1590. . . .
The effect of the amendment is to remove the exemption
granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of § 103 of the NIRC
is fairly embraced in the title of Republic Act No. 7716,
although no mention is made therein of P.D. No. 1590 as
among those which the statute amends. We think it is, since
the title states that the purpose of the statute is to expand
the VAT system, and one way of doing this is to widen its
base by withdrawing some of the exemptions granted before.
To insist that P.D. No. 1590 be mentioned in the title of the
law, in addition to § 103 of the NIRC, in which it is specifically
referred to, would be to insist that the title of a bill should be
a complete index of its content.
The constitutional requirement that every bill passed by
Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon the
members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard
regarding it. If, in the case at bar, petitioner did not know
before that its exemption had been withdrawn, it is not
because of any defect in the title but perhaps for the same
reason other statutes, although published, pass unnoticed
until some event somehow calls attention to their existence.
Indeed, the title of Republic Act No. 7716 is not any more
general than the title of PAL's own franchise under P.D. No.
1590, and yet no mention is made of its tax exemption. The
title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE
AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN AIRTRANSPORT SERVICES IN THE PHILIPPINES AND BETWEEN
THE PHILIPPINES AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly
interfere with the enactment of necessary legislation and to
consider it sufficient if the title expresses the general subject
of the statute and all its provisions are germane to the
general subject thus expressed. 24
It is further contended that amendment of petitioner's
franchise may only be made by special law, in view of sec. 24
of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision
hereof may only be modified, amended, or repealed
expressly by a special law or decree that shall specifically
modify, amend, or repeal this franchise or any section or
provision thereof. LexLib
This provision is evidently intended to prevent the
amendment of the franchise by mere implication resulting
from the enactment of a later inconsistent statute, in
consideration of the fact that a franchise is a contract which
can be altered only by consent of the parties. Thus in Manila
Railroad Co. v. Rafferty, 25 it was held that an Act of the U.S.
Congress, which provided for the payment of tax on certain
goods and articles imported into the Philippines, did not
amend the franchise of plaintiff, which exempted it from all
taxes except those mentioned in its franchise. It was held
that a special law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716
expressly amends PAL's franchise (P.D. No. 1590) by
specifically excepting from the grant of exemptions from the
VAT PAL's exemption under P.D. No. 1590. This is within the
power of Congress to do under Art. XII, § 11 of the
Constitution, which provides that the grant of a franchise for
the operation of a public utility is subject to amendment,
alteration or repeal by Congress when the common good so
requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of Thought
and Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No.
115544, is a nonprofit organization of newspaper publishers
established for the improvement of journalism in the
Philippines. On the other hand, petitioner in G.R. No. 115781,
the Philippine Bible Society (PBS), is a nonprofit organization
engaged in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of their
rights under § §4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.
The PPI question the law insofar as it has withdrawn the
exemption previously granted to the press under § 103 (f) of
the NIRC. Although the exemption was subsequently restored
by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of
the possibility that the exemption may still be removed by
mere revocation of the regulation of the Secretary of Finance.
On the other hand, the PBS goes so far as to question the
Secretary's power to grant exemption for two reasons: (1)
The Secretary of Finance has no power to grant tax
exemption because this is vested in Congress and requires for
its exercise the vote of a majority of all its members 26 and (2)
the Secretary's duty is to execute the law.
§ 103 of the NIRC contains a list of transactions exempted
from VAT. Among the transactions previously granted
exemption were:
(f) Printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale
and which is devoted principally to the publication of
advertisements.
Republic Act No. 7716 amended § 103 by deleting par. (f)
with the result that print media became subject to the VAT
with respect to all aspects of their operations. Later, however,
based on a memorandum of the Secretary of Justice,
respondent Secretary of Finance issued Revenue Regulations
No. 11-94, dated June 27, 1994, exempting the "circulation
income of print media pursuant to § 4 Article III of the 1987
Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of
"circulation income" has left income from advertisements
still subject to the VAT.
It is unnecessary to pass upon the contention that the
exemption granted is beyond the authority of the Secretary
of Finance to give, in view of PPI's contention that even with
the exemption of the circulation revenue of print media
there is still an unconstitutional abridgment of press freedom
because of the imposition of the VAT on the gross receipts of
newspapers from advertisements and on their acquisition of
paper, ink and services for publication. Even on the
assumption that no exemption has effectively been granted
to print media transactions, we find no violation of press
freedom in these cases.
To be sure, we are not dealing here with a statute that on its
face operates in the area of press freedom. The PPI's claim is
simply that, as applied to newspapers, the law abridges press
freedom. Even with due recognition of its high estate and its
importance in a democratic society, however, the press is not
immune from general regulation by the State. It has been
held:
The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to
invade the rights and liberties of others. He must answer for
libel. He may be punished for contempt of court. Like others,
he must pay equitable and nondiscriminatory taxes on his
business. . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption
previously granted to print media transactions involving
printing, publication, importation or sale of newspapers,
Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving
broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a
differential treatment of the press by the law, much less any
censorial motivation for its enactment. If the press is now
required to pay a value-added tax on its transactions, it is not
because it is being singled out, much less targeted, for special
treatment but only because of the removal of the exemption
previously granted to it by law. The withdrawal of exemption
is all that is involved in these cases. Other transactions,
likewise previously granted exemption, have been delisted as
part of the scheme to expand the base and the scope of the
VAT system. The law would perhaps be open to the charge of
discriminatory treatment if the only privilege withdrawn had
been that granted to the press. But that is not the case. prcd
The situation in the case at bar is indeed a far cry from those
cited by the PPI in support of its claim that Republic Act No.
7716 subjects the press to discriminatory taxation. In the
cases cited, the discriminatory purpose was clear either from
the background of the law or from its operation. For example,
in Grosjean v. American Press Co., 28 the law imposed a
license tax equivalent to 2% of the gross receipts derived
from advertisements only on newspapers which had a
circulation of more than 20,000 copies per week. Because the
tax was not based on the volume of advertisement alone but
was measured by the extent of its circulation as well, the law
applied only to the thirteen large newspapers in Louisiana,
leaving untaxed four papers with circulation of only slightly
less than 20,000 copies a week and 120 weekly newspapers
which were in serious competition with the thirteen
newspapers in question. It was well known that the thirteen
newspapers had been critical of Senator Huey Long, and the
Long-dominated legislature of Louisiana responded by taxing
what Long described as the "lying newspapers" by imposing
on them "a tax on lying." The effect of the tax was to curtail
both their revenue and their circulation. As the U.S. Supreme
Court noted, the tax was "a deliberate and calculated device
in the guise of a tax to limit the circulation of information to
which the public is entitled in virtue of the constitutional
guaranties." 29 The case is a classic illustration of the warning
that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also
found to have been singled out because everything was
exempt from the "use tax" on ink and paper, except the press.
Minnesota imposed a tax on the sales of goods in that state.
To protect the sales tax, it enacted a complementary tax on
the privilege of "using, storing or consuming in that state
tangible personal property" by eliminating the residents'
incentive to get goods from outside states where the sales
tax might be lower. The Minnesota Star Tribune was
exempted from both taxes from 1967 to 1971. In 1971,
however, the state legislature amended the tax scheme by
imposing the "use tax" on the cost of paper and ink used for
publication. The law was held to have singled out the press
because (1) there was no reason for imposing the "use tax"
since the press was exempt from the sales tax and (2) the
"use tax" was laid on an "intermediate transaction rather
than the ultimate retail sale." Minnesota had a heavy burden
of justifying the differential treatment and it failed to do so.
In addition, the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again amending
the law so as to exempt the first $100,000 of paper and ink
used, further narrowed the coverage of the tax so that "only
a handful of publishers pay any tax at all and even fewer pay
any significant amount of tax." 31 The discriminatory purpose
was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland,
32 it was held that a law which taxed general interest
magazines but not newspapers and religious, professional,
trade and sports journals was discriminatory because while
the tax did not single out the press as a whole, it targeted a
small group within the press. What is more, by differentiating
on the basis of contents (i.e., between general interest and
special interests such as religion or sports) the law became
"entirely incompatible with the First Amendment's guarantee
of freedom of the press."
These cases come down to this: that unless justified, the
differential treatment of the press creates risks of
suppression of expression. In contrast, in the cases at bar, the
statute applies to a wide range of goods and services. The
argument that, by imposing the VAT only on print media
whose gross sales exceeds P480,000 but not more than
P750,000, the law discriminates 33 is without merit since it
has not been shown that as a result the class subject to tax
has been unreasonably narrowed. The fact is that this
limitation does not apply to the press alone but to all sales.
Nor is impermissible motive shown by the fact that print
media and broadcast media are treated differently. The press
is taxed on its transactions involving printing and publication,
which are different from the transactions of broadcast media.
There is thus a reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any
suggestion that "owners of newspapers are immune from
any forms of ordinary taxation." The license tax in the
Grosjean case was declared invalid because it was "one single
in kind, with a long history of hostile misuse against the
freedom of the press." 34 On the other hand, Minneapolis
Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States and
the Federal Government can subject newspapers to generally
applicable economic regulations without creating
constitutional problems." 35
What has been said above also disposes of the allegations of
the PBS that the removal of the exemption of printing,
publication or importation of books and religious articles, as
well as their printing and publication, likewise violates
freedom of thought and of conscience. For as the U.S.
Supreme Court unanimously held in Jimmy Swaggart
Ministries v. Board of Equalization, 36 the Free Exercise of
Religion Clause does not prohibit imposing a generally
applicable sales and use tax on the sale of religious material
by a religious organization.
This brings us to the question whether the registration
provision of the law, 337 although of general applicability,
nonetheless is invalid when applied to the press because it
lays a prior restraint on its essential freedom. The case of
American Bible Society v. City of Manila 38 is cited by both
the PBS and the PPI in support of their contention that the
law imposes censorship. There, this Court held that an
ordinance of the City of Manila, which imposed a license fee
on those engaged in the business of general merchandise,
could not be applied to the appellant's sale of bibles and
other religious literature. This Court relied on Murdock v.
Pennsylvania 39 in which it was held that, as a license fee is
fixed in amount and unrelated to the receipts of the taxpayer,
the license fee, when applied to a religious sect, was actually
being imposed as a condition for the exercise of the sect's
right under the Constitution. For that reason, it was held, the
license fee "restrains in advance those constitutional liberties
of press and religion and inevitably tends to suppress their
exercise." 40
But, in this case, the fee in § 107, although a fixed amount
(P1,000), is not imposed for the exercise of a privilege but
only for the purpose of defraying part of the cost of
registration. The registration requirement is a central feature
of the VAT system. It is designed to provide a record of tax
credits because any person who is subject to the payment of
the VAT pays an input tax, even as he collects an output tax
on sales made or services rendered. The registration fee is
thus a mere administrative fee, one not imposed on the
exercise of a privilege, much less a constitutional right. cdrep
For the foregoing reasons, we find the attack on Republic Act
No. 7716 on the ground that it offends the free speech, press
and freedom of religion guarantees of the Constitution to be
without merit. For the same reasons, we find the claim of the
Philippine Educational Publishers Association (PEPA) in G.R.
No. 115931 that the increase in the price of books and other
educational materials as a result of the VAT would violate the
constitutional mandate to the government to give priority to
education, science and technology (Art. II, sec. 17) to be
untenable.
B. Claims of Regressivity, Denial of Due Process, Equal
Protection,
and Impairment of Contracts
There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech, press
and religion. The possible "chilling effect" which it may have
on the essential freedom of the mind and conscience and the
need to assure that the channels of communication are open
and operating importunately demand the exercise of this
Court's power of review.
There is, however, no justification for passing upon the
claims that the law also violates the rule that taxation must
be progressive and that it denies petitioners' right to due
process and the equal protection of the laws. The reason for
this different treatment has been cogently stated by an
eminent authority on constitutional law thus: "[W]hen
freedom of the mind is imperiled by law, it is freedom that
commands a moments of respect; when property is imperiled
it is the lawmakers' judgment that commands respect. This
dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does
set up a hierarchy of values within the due process clause."
Indeed, the absence of threat of immediate harm makes the
need for judicial intervention less evident and underscores
the essential nature of petitioners' attack on the law on the
grounds of regressivity, denial of due process and equal
protection and impairment of contracts as a mere academic
discussion of the merits of the law. For the fact is that there
have even been no notices of assessments issued to
petitioners and no determinations at the administrative
levels of their claims so as to illuminate the actual operation
of the law and enable us to reach sound judgment regarding
so fundamental questions as those raised in these suits. cdlex
Thus, the broad argument against the VAT is that it is
regressive and that it violates the requirement that "The rule
of taxation shall be uniform and equitable [and] Congress
shall evolve a progressive system of taxation." 42 Petitioners
in G.R. No. 115781 quote from a paper, entitled "VAT Policy
Issues: Structure, Regressivity, Inflation and Exports" by Alan
A. Tait of the International Monetary Fund, that "VAT
payment by low-income households will be a higher
proportion of their incomes (and expenditures) than
payments by higher-income households. That is, the VAT will
be regressive." Petitioners contend that as a result of the
uniform 10% VAT, the tax on consumption goods of those
who are in the higher-income bracket, which before were
taxed at a rate higher than 10%, has been reduced, while
basic commodities, which before were taxed at rates ranging
from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive,
the opposite claim is pressed by respondents that in fact it
distributes the tax burden to as many goods and services as
possible particularly to those which are within the reach of
higher-income groups, even as the law exempts basic goods
and services. It is thus equitable. The goods and properties
subject to the VAT are those used or consumed by higherincome groups. These include real properties held primarily
for sale to customers or held for lease in the ordinary course
of business, the right or privilege to use industrial,
commercial or scientific equipment, hotels, restaurants and
similar places, tourist buses, and the like. On the other hand,
small business establishments, with annual gross sales of less
than P500,000, are exempted. This, according to respondents,
removes from the coverage of the law some 30,000 business
establishments. On the other hand, an occasional paper 43 of
the Center for Research and Communication cites a NEDA
study that the VAT has minimal impact on inflation and
income distribution and that while additional expenditure for
the lowest income class is only P301 or 1.49% a year, that for
a family earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the VAT
is regressive in the sense that it will hit the "poor" and
middle-income group in society harder than it will the "rich,"
as the Cooperative Union of the Philippines (CUP) claims in
G.R. No. 115873, is largely an academic exercise. On the
other hand, the CUP's contention that Congress' withdrawal
of exemption of producers cooperatives, marketing
cooperatives, and service cooperatives, while maintaining
that granted to electric cooperatives, not only goes against
the constitutional policy to promote cooperatives as
instruments of social justice (Art. XII, § 15) but also denies
such cooperatives the equal protection of the law is actually
a policy argument. The legislature is not required to adhere
to a policy of "all or none" in choosing the subject of taxation.
Nor is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in G.R. 115754, that
the VAT will reduce the mark up of its members by as much
as 85% to 90% any more concrete. It is a mere allegation. On
the other hand, the claim of the Philippine Press Institute,
petitioner in G.R. No. 115544, that the VAT will drive some of
its members out of circulation because their profits from
advertisements will not be enough to pay for their tax liability,
while purporting to be based on the financial statements of
the newspapers in question, still falls short of the
establishment of facts by evidence so necessary for
adjudicating the question whether the tax is oppressive and
confiscatory.
Indeed, regressivity is not a negative standard for courts to
enforce. What Congress is required by the Constitution to do
is to "evolve a progressive system of taxation." This is a
directive to Congress, just like the directive to it to give
priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic and
political inequalities (Art. XIII, § 1), or for the promotion of
the right to "quality education" (Art. XIV, § 1). These
provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have
laid to rest the question now raised against the VAT. There
similar arguments made against the original VAT Law
(Executive Order No. 273) were held to be hypothetical, with
no more basis than newspaper articles which this Court
found to be "hearsay and [without] evidentiary value." As
Republic Act No. 7716 merely expands the base of the VAT
system and its coverage as provided in the original VAT Law,
further debate on the desirability and wisdom of the law
should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the
contention of CREBA that the imposition of the VAT on the
sales and leases of real estate by virtue of contracts entered
into prior to the effectivity of the law would violate the
constitutional provision that "No law impairing the obligation
of contracts shall be passed." It is enough to say that the
parties to a contract cannot, through the exercise of
prophetic discernment, fetter the exercise of the taxing
power of the State. For not only are existing laws read into
contracts in order to fix obligations as between parties, but
the reservation of essential attributes of sovereign power is
also read into contracts as a basic postulate of the legal order.
The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains
adequate authority to secure the peace and good order of
society. 46
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation
save only where a tax exemption has been granted for a valid
consideration. 47 Such is not the case of PAL in G.R. No.
115852, and we do not understand it to make this claim.
Rather, its position, as discussed above, is that the removal of
its tax exemption cannot be made by a general, but only by a
specific, law. dctai
of the legislature, but only asserts the solemn and sacred
obligation assigned to it by the Constitution to determine
conflicting claims of authority under the Constitution and to
establish for the parties in an actual controversy the rights
which that instrument secures and guarantees to them. 51
The substantive issues raised in some of the cases are
presented in abstract, hypothetical form because of the lack
of a concrete record. We accept that this Court does not only
adjudicate private cases; that public actions by "nonHohfeldian" 48 or ideological plaintiffs are now cognizable
provided they meet the standing requirement of the
Constitution; that under Art. VIII, § 1, par. 2 the Court has a
"special function" of vindicating constitutional rights.
Nonetheless the feeling cannot be escaped that we do not
have before us in these cases a fully developed factual record
that alone can impart to our adjudication the impact of
actuality 49 to insure that decision-making is informed and
well grounded. Needless to say, we do not have power to
render advisory opinions or even jurisdiction over petitions
for declaratory judgment. In effect we are being asked to do
what the Conference Committee is precisely accused of
having done in these cases — to sit as a third legislative
chamber to review legislation.
It does not add anything, therefore, to invoke this "duty" to
justify this Court's intervention in what is essentially a case
that at best is not ripe for adjudication. That duty must still
be performed in the context of a concrete case or
controversy, as Art. VIII, § 5(2) clearly defines our justification
in terms of "cases," and nothing but "cases." That the other
departments of the government may have committed a
grave abuse of discretion is not an independent ground for
exercising our power. Disregard of the essential limits
imposed by the case and controversy requirement can in the
long run only result in undermining our authority as a court
of law. For, as judges, what we are called upon to render is
judgment according to what may appear to be the opinion of
the day.
We are told, however, that the power of judicial review is not
so much power as it is duty imposed on this Court by the
Constitution and that we would be remiss in the performance
of that duty if we decline to look behind the barriers set by
the principle of separation of powers. Art. VIII, § 1, par. 2 is
cited in support of this view:
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. cdll
To view the judicial power of review as a duty is nothing new.
Chief Justice Marshall said so in 1803, to justify the assertion
of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial
department to say what the law is. Those who apply the rule
to particular cases must of necessity expound and interpret
that rule. If two laws conflict with each other, the courts
must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v.
Electoral Commission:
And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act
This conception of the judicial power has been affirmed in
several cases 52 of this Court following Angara.
In the preceding pages we have endeavored to discuss,
within limits, the validity of Republic Act No. 7716 in its
formal and substantive aspects as this has been raised in the
various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution
have been complied with by Congress in the enactment of
the statute;
(2) That judicial inquiry whether the formal requirements for
the enactment of statutes — beyond those prescribed by the
Constitution — have been observed is precluded by the
principle of separation of powers;
(3) That the law does not abridge freedom of speech,
expression or the press, nor interfere with the free exercise
of religion, nor deny to any of the parties the right to an
education; and
(4) That, in view of the absence of a factual foundation of
record, claims that the law is regressive, oppressive and
confiscatory and that it violates vested rights protected
under the Contract Clause are prematurely raised and do not
justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED. SO
ORDERED.
[G.R. No. L-9637. April 30, 1957.]
AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs. CITY OF
MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Nañawa for appellee.
SYLLABUS
1. STATUTES; SIMULTANEOUS REPEAL AND RE-ENACTMENT;
EFFECT OF REPEAL UPON RIGHTS AND LIABILITIES WHICH
ACCRUED UNDER THE ORIGINAL STATUTE. — Where the old
statute is repealed in its entirety and by the same enactment
re-enacts all or certain portions of the pre-existing law, the
majority view holds that the rights and liabilities which have
accrued under the original statute are preserved and may be
enforced, since the re-enactment neutralizes the repeal,
therefore continuing the law in force without interruption.
(Crawford, Statutory Construction, Sec. 322). In the case at
bar, Ordinances Nos. 2529 and 3000 of the City of Manila
were enacted by the Municipal Board of the City of Manila by
virtue of the power granted to it by section 2444, Subsection
(m-2) of the Revised Administrative Code, superseded on
June 13, 1949, by section 13, Subsection (o) of Republic Act
No. 409, known as the Revised Charter of the City of Manila.
The only essential difference between these two provisions is
that while Subsection (m-2) prescribes that the combined
total tax of any dealer or manufacturer, or both, enumerated
under Subsections (m-1) and (m-2), whether dealing in one or
all of the articles mentioned therein, shall not be in excess of
P500 per annum, the corresponding Section 18, subsection (o)
of Republic Act No. 409, does not contain any limitation as to
the amount of tax or license fee that the retail dealer has to
pay per annum. Hence, and in accordance with the weight of
authorities aforementioned, City ordinances Nos. 2529 and
3000 are still in force and effect.
2. MUNICIPAL TAX; RETAIL DEALERS IN GENERAL
MERCHANDISE; ORDINANCE PRESCRIBING TAX NEED NOT BE
APPROVED BY THE PRESIDENT TO BE EFFECTIVE. — The
business of "retail dealers in general merchandise" is
expressly enumerated in subsection (o), section 18 of
Republic Act No. 409: hence, an ordinance prescribing a
municipal tax on said business does not have to be approved
by the President to be effective, as it is not among those
businesses referred to in subsection (ii) Section 18 of the
same Act subject to the approval of the President.
3.
CONSTITUTIONAL
LAW;
RELIGIOUS
FREEDOM;
DISSEMINATION OF RELIGIOUS INFORMATION, WHEN MAY
BE RESTRAINED; PAYMENT OF LICENSE FEE, IMPAIRS FREE
EXERCISE OF RELIGION. — The constitutional guaranty of the
free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious
information. Any restraint of such right can only be justified
like other restraints of freedom of expression on the grounds
that there is a clear and present danger of any substantive
evil which the State has the right to prevent." (Tañada and
Fernando on the Constitution of the Philippines, Vol. I, 4th
ed., p. 297). In the case at bar, plaintiff is engaged in the
distribution and sales of bibles and religious articles. The City
Treasurer of Manila informed the plaintiff that it was
conducting the business of general merchandise without
providing itself with the necessary Mayor's permit and
municipal license, in violation of Ordinance No. 3000, as
amended, and Ordinance No. 2529, as amended, and
required plaintiff to secure the corresponding permit and
license. Plaintiff protested against this requirement and
claimed that it never made any profit from the sale of its
bibles. Held: It is true the price asked for the religious articles
was in some instances a little bit higher than the actual cost
of the same, but this cannot mean that plaintiff was engaged
in the business or occupation of selling said "merchandise"
for profit. For this reasons, the provisions of City Ordinance
No. 2529, as amended, which requires the payment of license
fee for conducting the business of general merchandise,
cannot be applied to plaintiff society, for in doing so, it would
impair its free exercise and enjoyment of its religious
profession and worship, as well as its rights of dissemination
of religious beliefs. Upon the other hand, City Ordinance No.
3000, as amended, which requires the obtention of the
Mayor's permit before any person can engage in any of the
businesses, trades or occupations enumerated therein, does
not impose any charge upon the enjoyment of a right granted
by the Constitution, nor tax the exercise of religious practices.
Hence, it cannot be considered unconstitutional, even if
applied to plaintiff Society. But as Ordinance No. 2529 is not
applicable to plaintiff and the City of Manila is powerless to
license or tax the business of plaintiff society involved herein,
for the reasons above stated, Ordinance No. 3000 is also
inapplicable to said business, trade or occupation of the
plaintiff.
DECISION
FELIX, J p:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious,
missionary corporation duly registered and doing business in
the Philippines through its Philippine agency established in
Manila in November, 1898, with its principal office at 636
Isaac Peral in said City. The defendant-appellee is a municipal
corporation with powers that are to be exercised in
conformity with the provisions of Republic Act No. 409,
known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has
been distributing and selling bibles and/or gospel portions
thereof (except during the Japanese occupation) throughout
the Philippines and translating the same into several
Philippine dialects. On May 29, 1953, the acting City
Treasurer of the City of Manila informed plaintiff that it was
conducting the business of general merchandise since
November, 1945, without providing itself with the necessary
Mayor's permit and municipal license, in violation of
Ordinance No. 3000, as amended, and Ordinances Nos. 2529,
3028 and 3364, and required plaintiff to secure, within three
days, the corresponding permit and license fees, together
with compromise covering the period from the 4th quarter of
1945 to the 2nd quarter of 1953, in the total sum of
P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City
Treasurer demanded that plaintiff deposit and pay under
protest the sum of P5,891.45, if suit was to be taken in court
regarding the same (Annex B). To avoid the closing of its
business as well as further fines and penalties in the premises,
on October 24, 1953, plaintiff paid to the defendant under
protest the said permit and license fees in the
aforementioned amount, giving at the same time notice to
the City Treasurer that suit would be taken in court to
question the legality of the ordinances under which the said
fees were being collected (Annex C), which was done on the
same date by filing the complaint that gave rise to this action.
In its complaint plaintiff prays that judgment be rendered
declaring the said Municipal Ordinance No. 3000, as
amended, and Ordinances Nos. 2529, 3028 and 3364 illegal
and unconstitutional, and that the defendant be ordered to
refund to the plaintiff the sum of P5,891.45 paid under
protest, together with legal interest thereon, and the costs,
plaintiff further praying for such other relief and remedy as
the court may deem just and equitable.
Defendant answered the complaint, maintaining in turn that
said ordinances were enacted by the Municipal Board of the
City of Manila by virtue of the power granted to it by section
2444, subsection (m-2) of the Revised Administrative Code,
superseded on June 18, 1949, by section 18, subsection (1) of
Republic Act No. 409, known as the Revised Charter of the
City of Manila, and praying that the complaint be dismissed,
with costs against plaintiff. This answer was replied by the
plaintiff reiterating the unconstitutionality of the oftenrepeated ordinances.
Before trial the parties submitted the following stipulation of
facts:
"COME NOW the parties in the above-entitled case, thru
their undersigned attorneys and respectfully submit the
following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at its
principal office at 636 Isaac Peral, Manila, Bibles, New
Testaments, bible portions and bible concordance in English
and other foreign languages imported by it from the United
States as well as Bibles, New Testaments and bible portions
in the local dialects imported and/or purchased locally; that
from the fourth quarter of 1945 to the first quarter of 1953
inclusive the sales made by the plaintiff were as follows:
Quarter
Amount of Sales
4th quarter 1945
1st quarter 1946
2nd quarter 1946
3rd quarter 1946
4th quarter 1946
1st quarter 1947
2nd quarter 1947
3rd quarter 1947
4th quarter 1947
1st quarter 1948
2nd quarter 1948
3rd quarter 1948
P1,244.21
2,206.85
1,950.38
2,235.99
3,256.04
13,241.07
15,774.55
14,654.13
12,590.94
11,143.90
14,715.26
38,333.83
4th quarter 1948
1st quarter 1949
2nd quarter 1949
3rd quarter 1949
4th quarter 1949
1st quarter 1950
2nd quarter 1950
3rd quarter 1950
4th quarter 1950
1st quarter 1951
2nd quarter 1951
3rd quarter 1951
4th quarter 1951
1st quarter 1952
2nd quarter 1952
3rd quarter 1952
4th quarter 1952
1st quarter 1953
16,179.90
23,975.10
17,802.08
16,640.79
15,961.38
18,562.46
21,816.32
25,004.55
45,287.92
37,841.21
29,103.98
20,181.10
22,968.91
23,002.65
17,626.96
17,921.01
24,180.72
29,516.21
2. That the parties hereby reserve the right to present
evidence of other facts not herein stipulated.
WHEREFORE, it is respectfully prayed that this case be set for
hearing so that the parties may present further evidence on
their behalf (Record on Appeal, pp. 15-16)".
When the case was set for hearing, plaintiff proved, among
other things, that it has been in existence in the Philippines
since 1899, and that its parent society is in New York, United
States of America; that its contiguous real properties located
at Isaac Peral are exempt from real estate taxes; and that it
was never required to pay any municipal license fee or tax
before the war, nor does the American Bible Society in the
United States pay any license fee or sales tax for the sale of
bible therein. Plaintiff further tried to establish that it never
made any profit from the sale of its bibles, which are
disposed of for as low as one third of the cost, and that in
order to maintain its operating cost it obtains substantial
remittances from its New York office and voluntary
contributions and gifts from certain churches, both in the
United States and in the Philippines, which are interested in
its missionary work. Regarding plaintiff's contention of lack of
profit in the sale of bibles, defendant retorts that the
admissions of plaintiff-appellant's lone witness who testified
on cross-examination that bibles bearing the price of 70 cents
each from plaintiff-appellant's New York office are sold here
by plaintiff- appellant at P1.30 each; those bearing the price
of $4.50 each are sold here at P10 each; those bearing the
price of $7 each are sold here at P15 each; and those bearing
the price of $11 each are sold here at P22 each, clearly show
that plaintiff's contention that it never makes any profit from
the sale of its bible, is evidently untenable.
After hearing the Court rendered judgment, the last part of
which is as follows:
"As may be seen from the repealed section (m-2) of the
Revised Administrative Code and the repealing portions (o) of
section 18 of Republic Act No. 409, although they seemingly
differ in the way the legislative intent is expressed, yet their
meaning is practically the same for the purpose of taxing the
merchandise mentioned in said legal provisions, and that the
taxes to be levied by said ordinances is in the nature of
percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as
amended, and Sec. 1, Group 2, of Ordinance No. 2529, as
amended by Ordinance No. 3364).
Predicated on this constitutional mandate, plaintiff-appellant
contends that Ordinances Nos. 2529 and 3000, as
respectively amended, are unconstitutional and illegal in so
far as its society is concerned, because they provide for
religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the distribution
and sale of bibles and other religious literature to the people
of the Philippines.
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is
of the opinion and so holds that this case should be dismissed,
as it is hereby dismissed, for lack of merits, with costs against
the plaintiff."
Before entering into a discussion of the constitutional aspect
of the case, We shall first consider the provisions of the
questioned ordinances in relation to their application to the
sale of bibles, etc. by appellant. The records show that by
letter of May 29, 1953 (Annex A), the City Treasurer required
plaintiff to secure a Mayor's permit in connection with the
society's alleged business of distributing and selling bibles,
etc. and to pay permit dues in the sum of P35 for the period
covered in this litigation, plus the sum of P35 for compromise
on account of plaintiff's failure to secure the permit required
by Ordinance No. 3000 of the City of Manila, as amended.
This Ordinance is of general application and not particularly
directed against institutions like the plaintiff, and it does not
contain any provisions whatsoever prescribing religious
censorship nor restraining the free exercise and enjoyment of
any religious profession. Section 1 of Ordinance No. 3000
reads as follows:
Not satisfied with this verdict plaintiff took up the matter to
the Court of Appeals which certified the case to Us for the
reason that the errors assigned to the lower Court involved
only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as
respectively amended, are not unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the
Revised Administrative Code under which Ordinances Nos.
2529 and 3000 were promulgated, was not repealed by
Section 18 of Republic Act No. 409;
3. In not holding that an ordinance providing for percentage
taxes based on gross sales or receipts, in order to be valid
under the new Charter of the City of Manila, must first be
approved by the President of the Philippines; and
4. In holding that, as the sales made by the plaintiff-appellant
have assumed commercial proportions, it cannot escape
from the operation of said municipal ordinances under the
cloak of religious privilege.
The issues. — As may be seen from the preceding statement
of the case, the issues involved in the present controversy
may be reduced to the following: (1) whether or not the
ordinances of the City of Manila, Nos. 3000, as amended, and
2529, 3028 and 3364, are constitutional and valid; and (2)
whether the provisions of said ordinances are applicable or
not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of
the Republic of the Philippines, provides that:
"(7) No law shall be made respecting an establishment of
religion, or prohibiting the free exercise thereof, and the free
exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be
allowed. No religion test shall be required for the exercise of
civil or political rights."
"SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any
person or entity to conduct or engage in any of the
businesses, trades, or occupations enumerated in Section 3
of this Ordinance or other businesses, trades, or occupations
for which a permit is required for the proper supervision and
enforcement of existing laws and ordinances governing the
sanitation, security, and welfare of the public and the health
of the employees engaged in the business specified in said
section 3 hereof, WITHOUT FIRST HAVING OBTAINED A
PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY
LICENSE FROM THE CITY TREASURER."
The business, trade or occupation of the plaintiff involved in
this case is not particularly mentioned in Section 3 of the
Ordinance, and the record does not show that a permit is
required therefor under existing laws and ordinances for the
proper supervision and enforcement of their provisions
governing the sanitation, security and welfare of the public
and the health of the employees engaged in the business of
the plaintiff. However, section 3 of Ordinance 3000 contains
item No. 79, which reads as follows:
"79. All other businesses, trades or occupations not
mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax . . . P5.00".
Therefore, the necessity of the permit is made to depend
upon the power of the City to license or tax said business,
trade or occupation.
As to the license fees that the Treasurer of the City of Manila
required the society to pay from the 4th quarter of 1945 to
the 1st quarter of 1953 in the sum of P5,821.45, including the
sum of P50 as compromise, Ordinance No. 2529, as amended
by Ordinances Nos. 2779, 2821 and 3028 prescribes the
following:
"SEC. 1. FEES. — Subject to the provisions of section 578 of
the Revised Ordinances of the City of Manila, as amended,
there shall be paid to the City Treasurer for engaging in any
of the businesses or occupations below enumerated,
quarterly, license fees based on gross sales or receipts
realized during the preceding quarter in accordance with the
rates herein prescribed: PROVIDED, HOWEVER, That a person
engaged in any business or occupation for the first time shall
pay the initial license fee based on the probable gross sales
or receipts for the first quarter beginning from the date of
the opening of the business as indicated herein for the
corresponding business or occupation.
GROUP 2. — Retail dealers in new (not yet used)
merchandise, which dealers are not yet subject to the
payment of any municipal tax, such as (1) retail dealers in
general merchandise; (2) retail dealers exclusively engaged in
the sale of . . . books, including stationery.
As may be seen, the license fees required to be paid
quarterly- in Section 1 of said Ordinance No. 2529, as
amended, are not imposed directly upon any religious
institution but upon those engaged in any of the business or
occupations therein enumerated, such as retail "dealers in
general merchandise" which, it is alleged, cover the business
or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which
includes section 2444, subsection (m-2) of said legal body, as
amended by Act No. 3659, approved on December 8, 1929,
empowers the Municipal Board of the City of Manila:
"(M-2) To tax and fix the license fee on (a) dealers in new
automobiles or accessories or both, and (b) retail dealers in
new (not yet used) merchandise, which dealers are not yet
subject to the payment of any municipal tax.
"For the purpose of taxation, these retail dealers shall be
classified as (1) retail dealers in general merchandise, and (2)
retail dealers exclusively engaged in the sale of (a) textiles . . .
(e) books, including stationery paper and office supplies . . .
PROVIDED, HOWEVER, That the combined total tax of any
debtor or manufacturer, or both, enumerated under these
subsections (m-1) and (m-2), whether dealing in one or all of
the articles mentioned herein, SHALL NOT BE IN EXCESS OF
FIVE HUNDRED PESOS PER ANNUM."
and appellee's counsel maintains that City Ordinances Nos.
2529 and 3000, as amended, were enacted in virtue of the
power that said Act No. 3669 conferred upon the City of
Manila. Appellant, however, contends that said ordinances
are no longer in force and effect as the law under which they
were promulgated has been expressly repealed by Section
102 of Republic Act No. 409 passed on June 18, 1949, known
as the Revised Manila Charter.
Passing upon this point the lower Court categorically stated
that Republic Act No. 409 expressly repealed the provisions
of Chapter 60 of the Revised Administrative Code but in the
opinion of the trial Judge, although Section 244 (m-2) of the
former Manila Charter and section 18 (o) of the new
seemingly differ in the way the legislative intent was
expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in both legal
provisions and, consequently, Ordinances Nos. 2529 and
3000, as amended, are to be considered as still in full force
and effect uninterruptedly up to the present.
"Often the legislature, instead of simply amending the
preexisting statute, will repeal the old statute in its entirety
and by the same enactment re-enact all or certain portions of
the preexisting law. Of course, the problem created by this
sort of legislative action involves mainly the effect of the
repeal upon rights and liabilities which accrued under the
original statute. Are those rights and liabilities destroyed or
preserved? The authorities are divided as to the effect of
simultaneous repeals and re- enactments. Some adhere to
the view that the rights and liabilities accrued under the
repealed act are destroyed, since the statutes from which
they sprang are actually terminated, even though for only a
very short period of time. Others, and they seem to be in the
majority, refuse to accept this view of the situation, and
consequently maintain that all rights and liabilities which
have accrued under the original statute are preserved and
may be enforced, since the re-enactment neutralizes the
repeal, therefore continuing the law in force without
interruption". (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act
No. 409 introduces a new and wider concept of taxation and
is so different from the provisions of Section 2444(m-2) that
the former cannot be considered as a substantial reenactment of the provisions of the latter. We have quoted
above the provisions of section 2444 (m-2) of the Revised
Administrative Code and We shall now copy hereunder the
provisions of Section 18, subdivision (o) of Republic Act No.
409, which reads as follows:
"(o) To tax and fix the license fee on dealers in general
merchandise, including importers and indentors, except
those dealers who may be expressly subject to the payment
of some other municipal tax under the provisions of this
section.
Dealers in general merchandise shall be classified as (a)
wholesale dealers and (b) retail dealers. For purposes of the
tax on retail dealers, general merchandise shall be classified
into four main classes: namely (1) luxury articles, (2) semiluxury articles, (3) essential commodities, and (4)
miscellaneous articles. A separate license shall be prescribed
for each class but where commodities of different classes are
sold in the same establishment, it shall not be compulsory for
the owner to secure more than one license if he pays the
higher or highest rate of tax prescribed by ordinance.
Wholesale dealers shall pay the license tax as such, as may be
provided by ordinance.
For purposes of this section, the term 'General merchandise'
shall include poultry and livestock, agricultural products, fish
and other allied products."
The only essential difference that We find between these two
provisions that may have any bearing on the case at bar, is
that while subsection (m-2) prescribes that the combined
total tax of any dealer or manufacturer, or both, enumerated
under subsections (m-1) and (m- 2), whether dealing in one
or all of the articles mentioned therein, shall not be in excess
of P500 per annum, the corresponding section 18, subsection
(o) of Republic Act No. 409, does not contain any limitation
as to the amount of tax or license fee that the retail dealer
has to pay per annum. Hence, and in accordance with the
weight of the authorities above referred to that maintain that
"all rights and liabilities which have accrued under the
original statute are preserved and may be enforced, since the
reenactment neutralizes the repeal, therefore continuing the
law in force without interruption", We hold that the
questioned ordinances of the City of Manila are still in force
and effect.
Plaintiff, however, argues that the questioned ordinances, to
be valid, must first be approved by the President of the
Philippines as per section 18, subsection (ii) of Republic Act
No. 409, which reads as follows:
"(ii) To tax, license and regulate any business, trade or
occupation being conducted within the City of Manila, not
otherwise enumerated in the preceding subsections,
including percentage taxes based on gross sales or receipts,
subject to the approval of the PRESIDENT, except amusement
taxes."
but this requirement of the President's approval was not
contained in section 2444 of the former Charter of the City of
Manila under which Ordinance No. 2529 was promulgated.
Anyway, as stated by appellee's counsel, the business of
"retail dealers in general merchandise" is expressly
enumerated in subsection (o), section 18 of Republic Act No.
409; hence, an ordinance prescribing a municipal tax on said
business does not have to be approved by the President to be
effective, as it is not among those referred to in said
subsection (ii). Moreover, the questioned ordinances are still
in force, having been promulgated by the Municipal Board of
the City of Manila under the authority granted to it by law.
The question that now remains to be determined is whether
said ordinances are inapplicable, invalid or unconstitutional if
applied to the alleged business of distribution and sale of
bibles to the people of the Philippines by a religious
corporation like the American Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by
Ordinances Nos. 2779, 2821 and 3028, appellant contends
that it is unconstitutional and illegal because it restrains the
free exercise and enjoyment of the religious profession and
worship of appellant.
Article III, section 1, clause (7) of the Constitution of the
Philippines aforequoted, guarantees the freedom of religious
profession and worship. "Religion has been spoken of as 'a
profession of faith to an active power that binds and elevates
man to its Creator' (Aglipay vs. Ruiz, 64 Phil., 201). It has
reference to one's views of his relations to His Creator and to
the obligations they impose of reverence to His being and
character, and obedience to His Will (Davis vs. Beason, 133
U.S., 342). The constitutional guaranty of the free exercise
and enjoyment of religious profession and worship carries
with it the right to disseminate religious information. Any
restraint of such right can only be justified like other
restraints of freedom of expression on the grounds that there
is a clear and present danger of any substantive evil which
the State has the right to prevent". (Tañada and Fernando on
the Constitution of the Philippines, Vol. I, 4th ed., p. 297). In
the case at bar the license fee herein involved is imposed
upon appellant for its distribution and sale of bibles and
other religious literature.
"In the case of Murdock vs. Pennsylvania, it was held that an
ordinance requiring that a license be obtained before a
person could canvass or solicit orders for goods, paintings,
pictures, wares or merchandise cannot be made to apply to
members of Jehovah's Witnesses who went about from door
to door distributing literature and soliciting people to
'purchase' certain religious books and pamphlets, all
published by the Watch Tower Bible & Tract Society. The
'price' of the books was twenty-five cents each, the 'price' of
the pamphlets five cents each. It was shown that in making
the solicitations there was a request for additional
'contribution' of twenty-five cents each for the books and five
cents each for the pamphlets. Lesser sum were accepted,
however, and books were even donated in case interested
persons were without funds.
On the above facts the Supreme Court held that it could not
be said that petitioners were engaged in commercial rather
than a religious venture. Their activities could not be
described as embraced in the occupation of selling books and
pamphlets. Then the Court continued:
'We do not mean to say that religious groups and the press
are free from all financial burdens of government. See
Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed.
660, 668, 56 S. Ct. 444. We have here something quite
different, for example, from a tax on the income of one who
engages in religious activities or a tax on property used or
employed in connection with those activities. It is one thing
to impose a tax on the income or property of a preacher. It is
quite another thing to exact a tax from him for the privilege
of delivering a sermon. The tax imposed by the City of
Jeannette is a flat license tax, payment of which is a condition
of the exercise of these constitutional privileges. The power
to tax the exercise of a privilege is the power to control or
suppress its enjoyment. . . . Those who can tax the exercise of
this religious practice can make its exercise so costly as to
deprive it of the resources necessary for its maintenance.
Those who can tax the privilege of engaging in this form of
missionary evangelism can close all its doors to all 'those who
do not have a full purse. Spreading religious beliefs in this
ancient and honorable manner would thus be denied the
needy. . . .
It is contended however that the fact that the license tax can
suppress or control this activity is unimportant if it does not
do so. But that is to disregard the nature of this tax. It is a
license tax — a flat tax imposed on the exercise of a privilege
granted by the Bill of Rights . . . The power to impose a
license tax on the exercise of these freedoms is indeed as
potent as the power of censorship which this Court has
repeatedly struck down. . . . It is not a nominal fee imposed
as a regulatory measure to defray the expenses of policing
the activities in question. It is in no way apportioned. It is flat
license tax levied and collected as a condition to the pursuit
of activities whose enjoyment is guaranteed by the
constitutional liberties of press and religion and inevitably
tends to suppress their exercise. That is almost uniformly
recognized as the inherent vice and evil of this flat license
tax.'
Nor could dissemination of religious information be
conditioned upon the approval of an official or manager even
if the town were owned by a corporation as held in the case
of Marsh vs. State of Alabama (326 U.S. 501) or by the United
States itself as held in the case of Tucker vs. Texas (326 U.S.
517). In the former case the Supreme Court expressed the
opinion that the right to enjoy freedom of the press and
religion occupies a preferred position as against the
constitutional right of property owners.
'When we balance the constitutional rights of owners of
property against those of the people to enjoy freedom of
press and religion, as we must here, we remain mindful of
the fact that the latter occupy a preferred position. . . . In our
view the circumstance that the property rights to the
premises where the deprivation of property here involved,
took place, were held by others than the public, is not
sufficient to justify the State's permitting a corporation to
govern a community of citizens so as to restrict their
fundamental liberties and the enforcement of such restraint
by the application of a State statute.'" (Tañada and Fernando
on the Constitution of the Philippines, Vol. I, 4th ed., p. 304306).
Section 27 of Commonwealth Act No. 466, otherwise known
as the National Internal Revenue Code, provides:
"SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. —
The following organizations shall not be taxed under this Title
in respect to income received by them as such —
"(e) Corporations or associations organized and operated
exclusively for religious, charitable, . . . or educational
purposes, . . Provided however, That the income of whatever
kind and character from any of its properties, real or personal,
or from any activity conducted for profit, regardless of the
disposition made of such income, shall be liable to the tax
imposed under this Code;"
Appellant's counsel claims that the Collector of Internal
Revenue has exempted the plaintiff from this tax and says
that such exemption clearly indicates that the act of
distributing and selling bibles, etc. is purely religious and does
not fall under the above legal provisions.
It may be true that in the case at bar the price asked for the
bibles and other religious pamphlets was in some instances a
little bit higher than the actual cost of the same, but this
cannot mean that appellant was engaged in the business or
occupation of selling said "merchandise" for profit. For this
reason We believe that the provisions of City of Manila
Ordinance No. 2529, as amended, cannot be applied to
appellant, for in doing so it would impair its free exercise and
enjoyment of its religious profession and worship as well as
its rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which
requires the obtention of the Mayor's permit before any
person can engage in any of the businesses, trades or
occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right granted by
the Constitution, nor tax the exercise of religious practices. In
the case of Coleman vs. City of Griffin, 189 S.E. 427, this point
was elucidated as follows:
"An ordinance by the City of Griffin, declaring that the
practice of distributing either by hand or otherwise, circulars,
handbooks, advertising, or literature of any kind, whether
said articles are being delivered free, or whether same are
being sold within the city limits of the City of Griffin, without
first obtaining written permission from the city manager of
the City of Griffin, shall be deemed a nuisance and
punishable as an offense against the City of Griffin, does not
deprive defendant of his constitutional right of the free
exercise and enjoyment of religious profession and worship,
even though it prohibits him from introducing and carrying
out a scheme or purpose which he sees fit to claim as a part
of his religious system."
It seems clear, therefore, that Ordinance No. 3000 cannot be
considered unconstitutional, even if applied to plaintiff
Society. But as Ordinance No. 2529 of the City of Manila, as
amended, is not applicable to plaintiff-appellant and
defendant-appellee is powerless to license or tax the
business of plaintiff Society involved herein for, as stated
before, it would impair plaintiff's right to the free exercise
and enjoyment of its religious profession and worship, as well
as its rights of dissemination of religious beliefs, We find that
Ordinance No. 3000, as amended, is also inapplicable to said
business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing
considerations, We hereby reverse the decision appealed
from, sentencing defendant to return to plaintiff the sum of
P5,891.45 unduly collected from it. Without pronouncement
as to costs. It is so ordered.
[G.R. No. 120082. September 11, 1996.]
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY,
petitioner, vs. HON. FERDINAND J. MARCOS, in his capacity
as the Presiding Judge of the Regional Trial Court, Branch 20,
Cebu City, THE CITY OF CEBU, represented by its Mayor,
HON. TOMAS R. OSMEÑA, and EUSTAQUIO B. CESA,
respondents.
The Solicitor General for petitioner.
The Office of the City Attorney for City of Cebu.
SYLLABUS
1. POLITICAL LAW; GOVERNMENT; POWER OF TAXATION;
CONSTRUED. — As a general rule, the power to tax is an
incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of
the legislature which imposes the tax on the constituency
who are to pay it. Nevertheless, effective limitations thereon
may be imposed by the people through their Constitution.
Our Constitution, for instance, provides that the rule of
taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation. So potent indeed is
the power that it was once opined that "the power to tax
involves the power to destroy." Verily, taxation is a
destructive power which interferes with the personal and
property rights of the people and takes from them a portion
of their property for the support of the government.
Accordingly, tax statutes must be construed strictly against
the government and liberally in favor of the taxpayer. But
since taxes are what we pay for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting the exemptions are thus
construed strictissimi juris against the taxpayer and liberally
in favor of the taxing authority. A claim of exemption from
tax payments must be clearly shown and based on language
in the law too plain to be mistaken. Elsewise stated, taxation
is the rule, exemption therefrom is the exception. However, if
the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply
because the practical effect of the exemption is merely to
reduce the amount of money that has to be handled by the
government in the course of its operation.
2. ID., ID.; ID.; MAYBE EXERCISED BY THE LOCAL LEGISLATIVE
BODIES. — The power to tax is primarily vested in the
Congress; however, in our jurisdictions, it may be exercised
by local legislative bodies, no longer merely by virtue of a
valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution. Under
the latter, the exercise of the power may be subject to such
guidelines and limitations as the Congress may provide which,
however, must be consistent with the basic policy of local
autonomy. The LGC, enacted pursuant to Section 3, Article X
of the Constitution, provides for the exercise by local
government units of their power to tax, the scope thereof or
its limitations, and the exemptions from taxation. Section 133
of the LGC prescribes the common limitations on the taxing
powers of local government units.
3. ID.; ID .; ID.; EXEMPTION FROM PAYMENT OF TAX MAYBE
WITHDRAWN AT THE PLEASURE OF THE TAXING AUTHORITY;
EXCEPTION. — There can be no question that under Section
14 of R.A. No. 6958 the petitioner is exempt from the
payment of realty taxes imposed by the National
Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and
exemption therefrom the exception, the exemption may thus
be withdrawn at the pleasure of the taxing authority. The
only exception to this rule is where the exemption was
granted to private parties based on material consideration of
a mutual nature, which then becomes contractual and is thus
covered by the non-impairment claim of the Constitution.
4. ID.; LOCAL GOVERNMENT CODE; SEC. 234 PROVIDES FOR
THE EXEMPTION FROM THE PAYMENT OF REAL PROPERTY
TAX; BASIS THEREOF. — Section 234 of the LGC provides for
the exemptions from payment of real property taxes and
withdraws previous exemptions therefrom granted to natural
and juridical persons, including government-owned and
controlled corporations, except as provided therein. These
exemptions are based on the ownership, character, and use
of the property. Thus: (a) Ownership Exemptions. Exemptions
from real property taxes on the basis of ownership are real
properties owned by: (i) the Republic, (ii) a province, (iii) a
city, (iv) a municipality, (v) a barangay, (vi) registered
cooperatives. (b) character exemptions. Exempted from real
property taxes on the basis of their character are: (i)
charitable institutions, (ii) houses and temples of prayer like
churches, parsonages or convents appurtenant thereto,
mosques, and (iii) non-profit or religious cemeteries. (c)
Usage exemptions. Exempted from real property taxes on the
basis of the actual, direct and exclusive use to which they are
devoted are: (i) all lands, buildings and improvements which
are actually, directly and exclusively used for religious,
charitable or educational purposes; (ii) all machineries and
equipment actually, directly and exclusively used by local
water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and
environmental protection. To help provide a healthy
environment in the midst of the modernization of the
country, all machinery and equipment for pollution control
and environmental protection may not be taxed by local
governments. 2. Other Exemptions Withdrawn. All other
exemptions previously granted to natural or juridical persons
including government-owned or controlled corporations are
withdrawn upon effectivity of the Code.
5. ID.; REPUBLIC OF THE PHILIPPINES AS DISTINGUISHED
FROM NATIONAL GOVERNMENT. — The terms "Republic of
the Philippines" and "National Government" are not
interchangeable. The former is broader and synonymous with
"Government of the Republic of the Philippines" which the
Administrative Code of 1987 defines as the "corporate
governmental entity through which the functions of
government are exercised throughout the Philippines,
including, save as the contrary appears from the context, the
various arms through which political authority is made
effective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or
barangay subdivisions or other forms of local government."
(Section 2[1], Introductory Provisions, Administrative Code of
1987.) These "autonomous regions, provincial, city, municipal
or barangay subdivisions" are the political subdivisions.
(Section 1, Article X, 1987 Constitution.) On the other hand,
"National Government" refers "to the entire machinery of
the central government, as distinguished from the different
forms of local government." (Section 2[2], Introductory
Provisions, Administrative Code of 1987. The National
Government then is composed of the three great
departments: the executive, the legislative and the judicial.
6. ID.; GOVERNMENT; AGENCY AS DISTINGUISHED FROM
INSTRUMENTALITY. — An "agency" of the Government refers
to "any of the various units of the Government, including a
department, bureau, office, instrumentality, or governmentowned or controlled corporation, or a local government or a
distinct unit therein," while an "instrumentality" refers to
"any agency of the National Government, not integrated
within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying
operational autonomy, usually, through a charter. This term
includes regulatory agencies, chartered institutions and
government-owned and controlled corporations."
DECISION
DAVIDE, JR., J p:
For review under Rule 45 of the Rules of Court on a pure
question of law are the decision of 22 March 1995 1 of the
Regional Trial Court (RTC) of Cebu City, Branch 20, dismissing
the petition for declaratory relief in Civil Case No. CEB-16900,
entitled "Mactan Cebu International Airport Authority vs. City
of Cebu," and its order of 4 May 1995 2 denying the motion
to reconsider the decision.
We resolved to give due course to this petition for it raises
issues dwelling on the scope of the taxing power of local
government units and the limits of tax exemption privileges
of government-owned and controlled corporations.
The uncontradicted factual antecedents are summarized in
the instant petition as follows:
Petitioner Mactan Cebu International Airport Authority
(MCIAA) was created by virtue of Republic Act No. 6958,
mandated to "principally undertake the economical, efficient
and effective control, management and supervision of the
Mactan International Airport in the Province of Cebu and the
Lahug Airport in Cebu City, . . . and such other airports as may
be established in the Province of Cebu . . ." (Sec. 3, RA 6958).
It is also mandated to:
a) encourage, promote and develop international and
domestic air traffic in the Central Visayas and Mindanao
regions as a means of making the regions centers of
international trade and tourism, and accelerating the
development of the means of transportation and
communication in the country; and,
b) upgrade the services and facilities of the airports and to
formulate internationally acceptable standards of airport
accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in
accordance with Section 14 of its Charter:
Sec. 14. Tax Exemptions. — The Authority shall be exempt
from realty taxes imposed by the National Government or
any of its political subdivisions, agencies and
instrumentalities . . ..
On October 11, 1994, however, Mr. Eustaquio B. Cesa,
Officer-in-Charge, Office of the Treasurer of the City of Cebu,
demanded payment for realty taxes on several parcels of
land belonging to the petitioner (Lot Nos. 913-G, 743, 88
SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941,
942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and
Barrio Kasambagan, Lahug, Cebu City, in the total amount of
P2,229,078.79.
Petitioner objected to such demand for payment as baseless
and unjustified, claiming in its favor the aforecited Section 14
of RA 6958 which exempts it from payment of realty taxes. It
was also asserted that it is an instrumentality of the
government performing governmental functions, citing
Section 133 of the Local Government Code of 1991 which
puts limitations on the taxing powers of local government
units:
Section 133. Common Limitations on the Taxing Powers of
Local Government Units. — Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
a) . . .
xxx xxx xxx
o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, and local
government units. (italics supplied)
Respondent City refused to cancel and set aside petitioner's
realty tax account, insisting that the MCIAA is a governmentcontrolled corporation whose tax exemption privilege has
been withdrawn by virtue of Sections 193 and 234 of the
Local Government Code that took effect on January 1, 1992:
Section 193. Withdrawal of Tax Exemption Privilege. —
Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons
whether natural or juridical, including government-owned or
controlled corporations, except local water districts,
cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. (italics
supplied)
xxx xxx xxx
Section 234. Exemptions from Real Property Taxes. — . . .
(a) . . .
xxx xxx xxx
(e) . . .
Except as provided herein, any exemption from payment of
real property tax previously granted to, or presently enjoyed
by all persons, whether natural or juridical, including
government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy
against the properties of petitioner, the latter was compelled
to pay its tax account "under protest" and thereafter filed a
Petition for Declaratory Relief with the Regional Trial Court of
Cebu, Branch 20, on December 29, 1994. MCIAA basically
contended that the taxing powers of local government units
do not extend to the levy of taxes or fees of any kind on an
instrumentality of the national government. Petitioner
insisted that while it is indeed a government-owned
corporation, it nonetheless stands on the same footing as an
agency or instrumentality of the national government by the
very nature of its powers and functions.
Respondent City, however, asserted that MCIAA is not an
instrumentality of the government but merely a governmentowned corporation performing proprietary functions. As such,
all exemptions previously granted to it were deemed
withdrawn by operation of law, as provided under Sections
193 and 234 of the Local Government Code when it took
effect on January 1, 1992. 3
The petition for declaratory relief was docketed as Civil Case
No. CEB-16900.
In its decision of 22 March 1995, 4 the trial court dismissed
the petition in light of its findings, to wit:
A close reading of the New Local Government Code of 1991
or RA 7160 provides the express cancellation and withdrawal
of exemption of taxes by government-owned and controlled
corporation per Sections after the effectivity of said Code on
January 1, 1992, to wit: [proceeds to quote Sections 193 and
234]
Petitioners claimed that its real properties assessed by
respondent City Government of Cebu are exempted from
paying realty taxes in view of the exemption granted under
RA 6958 to pay the same (citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All general and
special laws, acts, city charters, decrees [sic], executive
orders, proclamations and administrative regulations, or part
or parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified
accordingly." (/f/, Section 534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and
state that the tax exemption provided for in RA 6958 creating
petitioner had been expressly repealed by the provisions of
the New Local Government Code of 1991.
So that petitioner in this case has to pay the assessed realty
tax of its properties effective after January 1, 1992 until the
present.
This Court's ruling finds expression to give impetus and
meaning to the overall objectives of the New Local
Government Code of 1991, RA 7160. "It is hereby declared
the policy of the State that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful
local autonomy to enable them to attain their fullest
development as self-reliant communities and make them
more effective partners in the attainment of national goals.
Toward this end, the State shall provide for a more
responsive and accountable local government structure
instituted through a system of decentralization whereby local
government units shall be given more powers, authority,
responsibilities,
and
resources.
The
process
of
decentralization shall proceed from the national government
to the local government units. . . ." 5
Its motion for reconsideration having been denied by the trial
court in its 4 May 1995 order, the petitioner filed the instant
petition based on the following assignment of errors:
I. RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE
PETITIONER IS VESTED WITH GOVERNMENT POWERS AND
FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT.
II. RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER
IS LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF
CEBU.
Anent the first assigned error, the petitioner asserts that
although it is a government-owned or controlled corporation,
it is mandated to perform functions in the same category as
an instrumentality of Government. An instrumentality of
Government is one created to perform governmental
functions primarily to promote certain aspects of the
economic life of the people. 6 Considering its task "not
merely to efficiently operate and manage the Mactan-Cebu
International Airport, but more importantly, to carry out the
Government policies of promoting and developing the
Central Visayas and Mindanao regions as centers of
international trade and tourism, and accelerating the
development of the means of transportation and
communication in the country," 7 and that it is an attached
agency of the Department of Transportation and
Communication (DOTC), 8 the petitioner "may stand in [sic]
the same footing as an agency or instrumentality of the
national government." Hence, its tax exemption privilege
under Section 14 of its Charter "cannot be considered
withdrawn with the passage of the Local Government Code
of 1991 (hereinafter LGC) because Section 133 thereof
specifically states that the 'taxing powers of local government
units shall not extend to the levy of taxes or fees or charges
of any kind on the national government, its agencies and
instrumentalities.'"
As to the second assigned error, the petitioner contends that
being an instrumentality of the National Government,
respondent City of Cebu has no power nor authority to
impose realty taxes upon it in accordance with the aforesaid
Section 133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation: 9
Local governments have no power to tax instrumentalities of
the National Government. PAGCOR is a government owned
or controlled corporation with an original charter, PD 1869.
All of its shares of stock are owned by the National
Government. . . .
PAGCOR has a dual role, to operate and regulate gambling
casinos. The latter role is governmental, which places it in the
category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should
be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to
control by a mere Local government. cdtai
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into
execution the powers vested in the federal government
(McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made
reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland,
254 USA 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal
responsibilities, or even to seriously burden it in the
accomplishment of them." (Antieau, Modern Constitutional
Law, Vol. 2, p. 140)
Otherwise, mere creatures of the State can defeat National
policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v. Sanchez, 340
US 42). The power to tax which was called by Justice Marshall
as the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of
the very entity which has the inherent power to wield it.
(italics supplied)
It then concludes that the respondent Judge "cannot
therefore correctly say that the questioned provisions of the
Code do not contain any distinction between a government
corporation performing governmental functions as against
one performing merely proprietary ones such that the
exemption privilege withdrawn under the said Code would
apply to all government corporations." For it is clear from
Section 133, in relation to Section 234, of the LGC that the
legislature meant to exclude instrumentalities of the national
government from the taxing powers of the local government
units. cdasia
In its comment, respondent City of Cebu alleges that as a
local government unit and a political subdivision, it has the
power to impose, levy, assess, and collect taxes within its
jurisdiction. Such power is guaranteed by the Constitution 10
and enhanced further by the LGC. While it may be true that
under its Charter the petitioner was exempt from the
payment of realty taxes, 11 this exemption was withdrawn by
Section 234 of the LGC. In response to the petitioner's claim
that such exemption was not repealed because being an
instrumentality of the National Government, Section 133 of
the LGC prohibits local government units from imposing taxes,
fees, or charges of any kind on it, respondent City of Cebu
points out that the petitioner is likewise a governmentowned corporation, and Section 234 thereof does not
distinguish between government-owned or controlled
corporations performing governmental and purely
proprietary functions. Respondent City of Cebu urges this
Court to apply by analogy its ruling that the Manila
International Airport Authority is a government-owned
corporation, 12 and to reject the application of Basco
because it was "promulgated . . . before the enactment and
the signing into law of R.A. No. 7160," and was not, therefore,
decided "in the light of the spirit and intention of the framers
of" the said law.
units of their power to tax, the scope thereof or its
limitations, and the exemptions from taxation.
As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to
be found only in the responsibility of the legislature which
imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed
by the people through their Constitutions. 13 Our
Constitution, for instance, provides that the rule of taxation
shall be uniform and equitable and Congress shall evolve a
progressive system of taxation. 14 So potent indeed is the
power that it was once opined that "the power to tax
involves the power to destroy." 15 Verily, taxation is a
destructive power which interferes with the personal and
property rights of the people and takes from them a portion
of their property for the support of the government.
Accordingly, tax statutes must be construed strictly against
the government and liberally in favor of the taxpayer. 16 But
since taxes are what we pay for civilized society, 17 or are the
lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayer and liberally
in favor of the taxing authority. 18 A claim of exemption from
tax payments must be clearly shown and based on language
in the law too plain to be mistaken. 19 Elsewise stated,
taxation is the rule, exemption therefrom is the exception. 20
However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction
does not apply because the practical effect of the exemption
is merely to reduce the amount of money that has to be
handled by the government in the course of its operations.
Section 133 of the LGC prescribes the common limitations on
the taxing powers of local government units as follows:
The power to tax is primarily vested in the Congress; however,
in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section
5, Article X of the Constitution. 22 Under the latter, the
exercise of the power may be subject to such guidelines and
limitations as the Congress may provide which, however,
must be consistent with the basic policy of local autonomy.
(f) Taxes, fees or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen;
There can be no question that under Section 14 of R.A. No.
6958 the petitioner is exempt from the payment of realty
taxes imposed by the National Government or any of its
political subdivisions, agencies, and instrumentalities.
Nevertheless, since taxation is the rule and exemption
therefrom the exception, the exemption may thus be
withdrawn at the pleasure of the taxing authority. The only
exception to this rule is where the exemption was granted to
private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered
by the non-impairment clause of the Constitution. 23
The LGC, enacted pursuant to Section 3, Article X of the
Constitution, provides for the exercise by local government
SEC. 133. Common Limitations on the Taxing Power of Local
Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of
the following:
(a) Income tax, except when levied on banks and other
financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided
herein;
(d) Customs duties, registration fees of vessel and wharfage
on wharves, tonnage dues, and all other kinds of customs
fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit
concerned;
(e) Taxes, fees and charges and other impositions upon goods
carried into or out of, or passing through, the territorial
jurisdictions of local government units in the guise of charges
for wharfage, tolls for bridges or otherwise, or other taxes,
fees or charges in any form whatsoever upon such goods or
merchandise;
(g) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of six (6)
and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except
as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors
and persons engaged in the transportation of passengers or
freight by hire and common carriers by air, land or water,
except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or
retrocession;
(l) Taxes, fees or charges for the registration of motor
vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except, tricycles;
(m) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay
Business Enterprises and cooperatives duly registered under
R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred
thirty-eight (R.A. No. 6938) otherwise known as the
"Cooperatives Code of the 'Philippines' respectively; and
(o) TAXES, FEES OR CHARGES OF ANY KIND ON THE
NATIONAL
GOVERNMENT,
ITS
AGENCIES
AND
INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS.
(italics supplied)
Needless to say, the last item (item o) is pertinent to this case.
The "taxes, fees or charges" referred to are "of any kind";
hence, they include all of these, unless otherwise provided by
the LGC. The term "taxes" is well understood so as to need
no further elaboration, especially in light of the above
enumeration. The term "fees" means charges fixed by law or
ordinance for the regulation or inspection of business or
activity, 24 while "charges" are pecuniary liabilities such as
rents or fees against persons or property. 25
Among the "taxes" enumerated in the LGC is real property
tax, which is governed by Section 232. It reads as follows:
SEC. 232. Power to Levy Real Property Tax. — A province or
city or a municipality within the Metropolitan Manila Area
may levy an annual ad valorem tax on real property such as
land, building, machinery, and other improvements not
hereafter specifically exempted.
Section 234 of the LGC provides for the exemptions from
payment of real property taxes and withdraws previous
exemptions therefrom granted to natural and juridical
persons, including government-owned and controlled
corporations, except as provided therein. It provides:
SEC. 234. Exemptions from Real Property Tax. — The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial
use thereof had been granted, for consideration or otherwise,
to a taxable person;
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings and improvements
actually, directly, and exclusively used for religious, charitable
or educational purposes;
(c) All machineries and equipment that are actually, directly
and exclusively used by local water districts and government-
owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of
electric power;
(d) All real property owned by duly registered cooperatives as
provided for under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and
environmental protection.
Except as provided herein, any exemption from payment of
real property tax previously granted to, or presently enjoyed
by, all persons, whether natural or juridical, including all
government-owned or controlled corporations are hereby
withdrawn upon the effectivity of this Code.
These exemptions are based on the ownership, character,
and use of the property. Thus:
(a) Ownership Exemptions. Exemptions from real property
taxes on the basis of ownership are real properties owned by:
(i) the Republic, (ii) a province, (iii) a city, (iv) a municipality,
(v) a barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real property taxes
on the basis of their character are: (i) charitable institutions,
(ii) houses and temples of prayer like churches, parsonages or
convents appurtenant thereto, mosques, and (iii) non-profit
or religious cemeteries.
(c) Usage exemptions. Exempted from real property taxes on
the basis of the actual, direct and exclusive use to which they
are devoted are: (i) all lands, buildings and improvements
which are actually directly and exclusively used for religious,
charitable or educational purposes; (ii) all machineries and
equipment actually, directly and exclusively used by local
water districts or by government-owned or controlled
corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; and (iii)
all machinery and equipment used for pollution control and
environmental protection.
To help provide a healthy environment in the midst of the
modernization of the country, all machinery and equipment
for pollution control and environmental protection may not
be taxed by local governments.
2. Other Exemptions Withdrawn. All other exemptions
previously granted to natural or juridical persons including
government-owned or controlled corporations are
withdrawn upon the effectivity of the Code. 26
Section 193 of the LGC is the general provision on withdrawal
of tax exemption privileges. It provides:
SEC. 193. Withdrawal of Tax Exemption Privileges. — Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned or
controlled corporations, except local water districts,
cooperatives duly registered under R.A. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code.
On the other hand, the LGC authorizes local government
units to grant tax exemption privileges. Thus, Section 192
thereof provides:
SEC. 192. Authority to Grant Tax Exemption Privileges. —
Local government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under
such terms and conditions as they may deem necessary.
The foregoing sections of the LGC speak of: (a) the limitations
on the taxing powers of local government units and the
exceptions to such limitations; and (b) the rule on tax
exemptions and the exceptions thereto. The use of
exceptions or provisos in these sections, as shown by the
following clauses:
(1) "unless otherwise provided herein" in the opening
paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in Section 193;
(3) "not hereafter specifically exempted" in Section 232; and
(4) "Except as provided herein" in the last paragraph of
Section 234
initially hampers a ready understanding of the sections. Note,
too, that the aforementioned clause in Section 133 seems to
be inaccurately worded. Instead of the clause "unless
otherwise provided herein," with the "herein" to mean, of
course, the section, it should have used the clause "unless
otherwise provided in this Code." The former results in
absurdity since the section itself enumerates what are
beyond the taxing powers of local government units and,
where exceptions were intended, the exceptions are
explicitly indicated in the next. For instance, in item (a) which
excepts income taxes "when levied on banks and other
financial institutions"; item (d) which excepts "wharfage on
wharves constructed and maintained by the local
government unit concerned"; and item (1) which excepts
taxes, fees and charges for the registration and issuance of
licenses or permits for the driving of "tricycles." It may also
be observed that within the body itself of the section, there
are exceptions which can be found only in other parts of the
LGC, but the section interchangeably uses therein the clause,
"except as otherwise provided herein" as in items (c) and (i),
or the clause "except as provided in this Code" in item (j).
These clauses would be obviously unnecessary or mere
surplusages if the opening clause of the section were "Unless
otherwise provided in this Code" instead of "Unless
otherwise provided herein." In any event, even if the latter is
used, since under Section 232 local government units have
the power to levy real property tax, except those exempted
therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Sections 133, 232, and 234 of the LGC,
we conclude that as a general rule, as laid down in Section
133, the taxing powers of local government units cannot
extend to the levy of, inter alia, "taxes, fees and charges of
any kind on the National Government, its agencies and
instrumentalities, and local government units"; however,
pursuant to Section 232, provinces, cities, and municipalities
in the Metropolitan Manila Area may impose the real
property tax except on, inter alia, "real property owned by
the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person,"
as provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently
enjoyed by natural or judicial persons, including governmentowned and controlled corporations, Section 193 of the LGC
prescribes the general rule, viz., they are withdrawn upon the
effectivity of the LGC, except those granted to local water
districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational
institutions, and unless otherwise provided in the LGC. The
latter proviso could refer to Section 234 which enumerates
the properties exempt from real property tax. But the last
paragraph of Section 234 further qualifies the retention of
the exemption insofar as real property taxes are concerned
by limiting the retention only to those enumerated therein;
all others not included in the enumeration lost the privilege
upon the effectivity of the LGC. Moreover, even as to real
property owned by the Republic of the Philippines or any of
its political subdivisions covered by item (a) of the first
paragraph of Section 234, the exemption is withdrawn if the
beneficial use of such property has been granted to a taxable
person for consideration or otherwise.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled
corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation,
it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has been
withdrawn. Any claim to the contrary can only be justified if
the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now
asserts, since, as shown above, the said section is qualified by
Sections 232 and 234. LLphil
In short, the petitioner can no longer invoke the general rule
in Section 133 that the taxing powers of the local government
units cannot extend to the levy of:
(o) taxes, fees or charges of any kind on the National
Government, its agencies or instrumentalities, and local
government units.
It must show that the parcels of land in question, which are
real property, are any one of those enumerated in Section
234, either by virtue of ownership, character, or use of the
property. Most likely, it could only be the first, but not under
any explicit provision of the said section, for none exists. In
light of the petitioner's theory that it is an "instrumentality of
the Government," it could only be within the first item of the
first paragraph of the section by expanding the scope of the
term "Republic of the Philippines" to embrace its
"instrumentalities" and "agencies." For expediency, we quote:
(a) real property owned by the Republic of the Philippines, or
any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise,
to a taxable person.
This view does not persuade us. In the first place, the
petitioner's claim that it is an instrumentality of the
Government is based on Section 133(o), which expressly
mentions the word "instrumentalities"; and, in the second
place, it fails to consider the fact that the legislature used the
phrase "National Government, its agencies and
instrumentalities" in Section 133(o), but only the phrase
"Republic of the Philippines or any of its political
subdivisions" in Section 234(a).
The terms "Republic of the Philippines" and "National
Government" are not interchangeable. The former is broader
and synonymous with "Government of the Republic of the
Philippines" which the Administrative Code of 1987 defines
as the "corporate governmental entity through which the
functions of government are exercised throughout the
Philippines, including, save as the contrary appears from the
context, the various arms through which political authority is
made effective in the Philippines, whether pertaining to the
autonomous regions, the provincial, city, municipal or
barangay subdivisions or other forms of local government."
27 These "autonomous regions, provincial, city, municipal or
barangay subdivisions" are the political subdivisions. 28
On the other hand, "National Government" refers "to the
entire machinery of the central government, as distinguished
from the different forms of local governments." 29 The
National Government then is composed of the three great
departments: the executive, the legislative and the judicial.
An "agency" of the Government refers to "any of the various
units of the Government, including a department, bureau,
office, instrumentality, or government-owned or controlled
corporation, or a local government or a distinct unit therein;"
31 while an "instrumentality" refers to "any agency of the
National Government, not integrated within the department
framework, vested with special functions or jurisdiction by
law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational
autonomy, usually through a charter. This term includes
regulatory agencies, chartered institutions and governmentowned and controlled corporations." 32
If Section 234(a) intended to extend the exception therein to
the withdrawal of the exemption from payment of real
property taxes under the last sentence of the said section to
the agencies and instrumentalities of the National
Government mentioned in Section 133(o), then it should
have restated the wording of the latter. Yet, it did not.
Moreover, that Congress did not wish to expand the scope of
the exemption in Section 234(a) to include real property
owned by other instrumentalities or agencies of the
government including government-owned and controlled
corporations is further borne out by the fact that the source
of this exemption is Section 40(a) of P.D. No. 464, otherwise
known as The Real Property Tax Code, which reads:
SEC. 40. Exemptions from Real Property Tax. — The
exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or
any of its political subdivisions and any government-owned
or controlled corporation so exempt by its charter: Provided,
however, That this exemption shall not apply to real property
of the above-mentioned entities the beneficial use of which
has been granted, for consideration or otherwise, to a
taxable person.
Note that as reproduced in Section 234(a), the phrase "and
any government-owned or controlled corporation so exempt
by its charter" was excluded. The justification for this
restricted exemption in Section 234(a) seems obvious: to
limit further tax exemption privileges, especially in light of
the general provision on withdrawal of tax exemption
privileges in Section 193 and the special provision on
withdrawal of exemption from payment of real property
taxes in the last paragraph of Section 234. These policy
considerations are consistent with the State policy to ensure
autonomy to local governments 33 and the objective of the
LGC that they enjoy genuine and meaningful local autonomy
to enable them to attain their fullest development as selfreliant communities and make them effective partners in the
attainment of national goals. 34 The power to tax is the most
effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the
delivery of basic services essential to the promotion of the
general welfare and the enhancement of peace, progress,
and prosperity of the people. It may also be relevant to recall
that the original reasons for the withdrawal of tax exemption
privileges granted to government-owned and controlled
corporations and all other units of government were that
such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated
enterprises, and there was a need for these entities to share
in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them. 35
The crucial issues then to be addressed are: (a) whether the
parcels of land in question belong to the Republic of the
Philippines whose beneficial use has been granted to the
petitioner, and (b) whether the petitioner is a "taxable
person."
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. —
All existing public airport facilities, runways, lands, buildings
and other properties, movable or immovable, belonging to or
presently administered by the airports, and all assets, powers,
rights, interests and privileges relating on airport works or air
operations, including all equipment which are necessary for
the operations of air navigation, aerodrome control towers,
crash, fire, and rescue facilities are hereby transferred to the
Authority: Provided, however, that the operations control of
all equipment necessary for the operation of radio aids to air
navigation, airways communication, the approach control
office, and the area control center shall be retained by the Air
Transportation Office. No equipment, however, shall be
removed by the Air Transportation Office from Mactan
without the concurrence of the Authority. The Authority may
assist in the maintenance of the Air Transportation Office
equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu
City and the "Mactan International Airport in the Province of
Cebu," 36 which belonged to the Republic of the Philippines,
then under the Air Transportation Office (ATO). 37
It may be reasonable to assume that the term "lands" refer to
"lands" in Cebu City then administered by the Lahug Air Port
and included the parcels of land the respondent City of Cebu
seeks to levy on for real property taxes. This section involves
a "transfer" of the "lands," among other things, to the
petitioner and not just the transfer of the beneficial use
thereof, with the ownership being retained by the Republic
of the Philippines.
This "transfer" is actually an absolute conveyance of the
ownership thereof because the petitioner's authorized
capital stock consists of, inter alia, "the value of such real
estate owned and/or administered by the airports." 38 Hence,
the petitioner is now the owner of the land in question and
the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a
"taxable person" under its Charter. It was only exempted
from the payment of real property taxes. The grant of the
privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all
taxes, except real property tax.
Finally, even if the petitioner was originally not a taxable
person for purposes of real property tax, in light of the
foregoing disquisitions, it had already become, even if it be
conceded to be an "agency" or "instrumentality" of the
Government, a taxable person for such purpose in view of
the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which,
as earlier adverted to, applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable.
Reliance on Basco vs. Philippine Amusement and Gaming
Corporation 39 is unavailing since it was decided before the
effectivity of the LGC. Besides, nothing can prevent Congress
from decreeing that even instrumentalities or agencies of the
Government performing governmental functions may be
subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt
its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged
decision and order of the Regional Trial Court of Cebu,
Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.
No pronouncement as to costs. SO ORDERED.
[G.R. No. L-60126. September 25, 1985.]
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Quasha, De Guzman, Makalintal & Barot for petitioner.
DECISION
AQUINO, J p:
This is about the liability of petitioner Cagayan Electric Power
& Light Co., Inc. for income tax amounting to P75,149.73 for
the more than seven-month period of the year 1969 in
addition to franchise tax.
The petitioner is the holder of a legislative franchise, Republic
Act No. 3247, under which its payment of 3% tax on its gross
earnings from the sale of electric current is "in lieu of all taxes
and assessments of whatever authority upon privileges,
earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted" (Sec.
3).
On June 27, 1968, Republic Act No. 5431 amended section 24
of the Tax Code by making liable for income tax all corporate
taxpayers not specifically exempt under paragraph (c) (1) of
said section and section 27 of the Tax Code notwithstanding
the "provisions of existing special or general laws to the
contrary". Thus, franchise companies were subjected to
income tax in addition to franchise tax.
However, in petitioner's case, its franchise was amended by
Republic Act No. 6020, effective August 4, 1969, by
authorizing the petitioner to furnish electricity to the
municipalities of Villanueva and Jasaan, Misamis Oriental in
addition to Cagayan de Oro City and the municipalities of
Tagoloan and Opol. The amendment reenacted the tax
exemption in its original charter or neutralized the
modification made by Republic Act No. 5431 more than a
year before. prcd
By reason of the amendment to section 24 of the Tax Code,
the Commissioner of Internal Revenue in a demand letter
dated February 15, 1973 required the petitioner to pay
deficiency income taxes for 1968 to 1971. The petitioner
contested the assessments. The Commissioner cancelled the
assessments for 1970 and 1971 but insisted on those for
1968 and 1969.
The petitioner filed a petition for review with the Tax Court,
which on February 26, 1982 held the petitioner liable only for
the income tax for the period from January 1 to August 3,
1969 or before the passage of Republic Act No. 6020 which
reiterated its tax exemption. The petitioner appealed to this
Court.
It contends that the Tax Court erred (1) in not holding that
the franchise tax paid by the petitioner is a commutative tax
which already includes the income tax; (2) in holding that
Republic Act No. 5431 as amended, altered or repealed
petitioner's franchise; (3) in holding that petitioner's
franchise is a contract which can be impaired by an implied
repeal and (4) in not holding that section 24(d) of the Tax
Code should be construed strictly against the Government.
We hold that Congress could impair petitioner's legislative
franchise by making it liable for income tax from which
heretofore it was exempted by virtue of the exemption
provided for in section 3 of its franchise.
The Constitution provides that a franchise is subject to
amendment, alteration or repeal by the Congress when the
public interest so requires (Sec. 8, Art. XIV, 1935 Constitution;
Sec. 5, Art. XIV, 1973 Constitution).
Section 1 of petitioner's franchise, Republic Act No. 3247,
provides that it is subject to the provisions of the
Constitution and to the terms and conditions established in
Act No. 3636 whose section 12 provides that the franchise is
subject to amendment, alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax
Code by subjecting to income tax all corporate taxpayers not
expressly exempted therein and in section 27 of the Code,
had the effect of withdrawing petitioner's exemption from
income tax.
The Tax Court acted correctly in holding that the exemption
was restored by the subsequent enactment on August 4,
1969 of Republic Act No. 6020 which reenacted the said tax
exemption. Hence, the petitioner is liable only for the income
tax for the period from January 1 to August 3, 1969 when its
tax exemption was modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the
Philippine Long Distance Telephone Company, have been
paying income tax in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment
appears to be highly controversial. The Commissioner at the
outset was not certain as to petitioner's income tax liability.
It had reason not to pay income tax because of the tax
exemption in its franchise. cdll
For this reason, it should be liable only for tax proper and
should not be held liable for the surcharge and interest.
(Advertising Associates, Inc. vs. Commissioner of Internal
Revenue and Court of Tax Appeals, G. R. No. 59758,
December 26, 1984, 133 SCRA 765; Imus Electric Co., Inc. vs.
Commissioner of Internal Revenue, 125 Phil. 1024; C.M.
Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L28383, June 22, 1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with
the modification that the petitioner is liable only for the tax
proper and that it should not pay the delinquency penalties.
No costs. SO ORDERED.
[G.R. No. 131359. May 5, 1999.]
MANILA ELECTRIC COMPANY, petitioner, vs. PROVINCE OF
LAGUNA and BENITO R. BALAZO, in his capacity as
Provincial Treasurer of Laguna, respondents.
Quiason, Makalintal, Barot, Torres and Ibarra for petitioner.
The Provincial Legal Officer for respondents.
SYNOPSIS
Certain municipalities of the province of Laguna issued
resolution through their respective municipal councils
granting franchise in favor of petitioner Manila Electric
Company (MERALCO) for the supply of electric light, heat and
power within the concerned areas. On 12 September 1991,
Republic Act No. 7160, otherwise known as the "Local
Government Code of 1991," was enacted to take effect on 01
January 1992 enjoining local government units to create their
own sources of revenue and to levy taxes, fees and charges,
subject to the limitations expressed therein, consistent with
the basic policy of local autonomy. Pursuant to the provisions
of the Code, franchise tax ordinance was enacted. On the
basis of this ordinance, respondent Provincial Treasurer sent
a demand letter to MERALCO for the corresponding tax
payment. MERALCO paid the tax under protest. A formal
claim for refund was thereafter sent by MERALCO to the
Provincial Treasurer of Laguna claiming that the franchise tax
it had paid and continued to pay to the National Government
pursuant to P.D. 551 already included the franchise tax
imposed by the Provincial Tax Ordinance. The claim for
refund of petitioner was denied. In denying the claim,
respondents relied on a more recent law, i.e., Republic Act
No. 7160 or the Local Government Code of 1991, than the old
decree invoked by petitioner. Petitioner MERALCO filed with
the Regional Trial Court of Sta. Cruz, Laguna, a complaint for
refund. The trial court dismissed the complaint. In the instant
petition, MERALCO assailed the trial court's ruling contending
that the franchise tax ordinance is violative of the nonimpairment clause of the Constitution. cdasia
The petition was dismissed by the Supreme Court. Truly, tax
exemptions of this kind may not be revoked without
impairing the obligations of contracts. These contractual tax
exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes of
the nature of a grant which is beyond the purview of the nonimpairment clause of the Constitution. While the Court has
referred to tax exemptions contained in special franchises as
being in the nature of contracts and a part of the inducement
for carrying on the franchise, these exemptions are far from
being strictly contractual in nature.
SYLLABUS
1. POLITICAL LAW; LOCAL GOVERNMENT UNITS; POWER TO
TAX; DEEMED TO EXIST ALTHOUGH CONGRESS MAY PROVIDE
STATUTORY LIMITATIONS AND GUIDELINES; RATIONALE. —
Prefatorily, it might be well to recall that local governments
do not have the inherent power to tax except to the extent
that such power might be delegated to them either by the
basic law or by statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power has been
given in favor of local government units. The 1987
Constitution has a counterpart provision in the 1973
Constitution, which did come out with a similar delegation of
revenue making powers to local governments. Under the
regime of the 1935 Constitution no similar delegation of tax
powers was provided, and local government units instead
derived their tax powers under a limited statutory authority.
Whereas, then, the delegation of tax powers granted at that
time by statute to local governments was confined and
defined (outside of which the power was deemed withheld),
the present constitutional rule (starting with the 1973
Constitution), however, would broadly confer such tax
powers subject only to specific exceptions that the law might
prescribe. Under the now prevailing Constitution, where
there is neither a grant nor a prohibition by statute, the tax
power must be deemed to exist although Congress may
provide statutory limitations and guidelines. The basic
rationale for the current rule is to safeguard the viability and
self-sufficiency of local government units by directly granting
them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute
and unconditional; the constitutional objective obviously is to
ensure that, while the local government units are being
strengthened and made more autonomous, the legislature
must still see to it that (a) the taxpayer will not be overburdened or saddled with multiple and unreasonable
impositions; (b) each local government unit will have its fair
share of available resources, (c) the resources of the national
government will not be unduly disturbed; and (d) local
taxation will be fair, uniform, and just.
2. ID.; ID.; ID.; CONTRACTUAL TAX EXEMPTIONS;
DISTINGUISHED FROM TAX EXEMPTIONS GRANTED UNDER
FRANCHISES; CASE AT BAR. — The Court has viewed its
previous rulings as laying stress more on the legislative intent
of the amendatory law — whether the tax exemption
privilege is to be withdrawn or not — rather than on whether
the law can withdraw, without violating the Constitution, the
tax exemption or not. While the Court has, not too
infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of
the inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly
contractual in nature. Contractual tax exemptions, in the real
sense of the term and where the non-impairment clause of
the Constitution can rightly be invoked, are those agreed to
by the taxing authority in contracts, such as those contained
in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in
its private capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind
may not be revoked without impairing the obligations of
contracts. These contractual tax exemptions, however, are
not to be confused with tax exemptions granted under
franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the
Constitution. Indeed, Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the 1935 and the
1973 Constitutions, is explicit that no franchise for the
operation of a public utility shall be granted except under the
condition that such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the common
good so requires. IaHSCc
DECISION
VITUG, J p:
On various dates, certain municipalities of the Province of
Laguna, including, Biñan, Sta. Rosa, San Pedro, Luisiana,
Calauan and Cabuyao, by virtue of existing laws then in effect,
issued resolutions through their respective municipal councils
granting franchise in favor of petitioner Manila Electric
Company ("MERALCO") for the supply of electric light, heat
and power within their concerned areas. On 19 January 1983,
MERALCO was likewise granted a franchise by the National
Electrification Administration to operate an electric light and
power service in the Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise
known as the "Local Government Code of 1991," was enacted
to take effect on 01 January 1992 enjoining local government
units to create their own sources of revenue and to levy taxes,
fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy. Pursuant
to the provisions of the Code, respondent province enacted
Laguna Provincial Ordinance No. 01-92, effective 01 January
1993, providing, in part, as follows:
"SECTION 2.09. Franchise Tax. — There is hereby imposed a
tax on businesses enjoying a franchise, at a rate of fifty
percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on
account realized during the preceding calendar year within
this province, including the territorial limits on any city
located in the province." 1
On the basis of the above ordinance, respondent Provincial
Treasurer sent a demand letter to MERALCO for the
corresponding tax payment. Petitioner MERALCO paid the tax,
which then amounted to P19,520,628.42, under protest. A
formal claim for refund was thereafter sent by MERALCO to
the Provincial Treasurer of Laguna claiming that the franchise
tax it had paid and continued to pay to the National
Government pursuant to P.D. 551 already included the
franchise tax imposed by the Provincial Tax Ordinance.
MERALCO contended that the imposition of a franchise tax
under Section 2.09 of Laguna Provincial Ordinance No. 01-92,
insofar as it concerned MERALCO, contravened the provisions
of Section 1 of P.D. 551 which read:
"Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of
franchises to generate, distribute and sell electric current for
light, heat and power shall be two per cent (2%) of their gross
receipts received from the sale of electric current and from
transactions incident to the generation, distribution and sale
of electric current.
"Such franchise tax shall be payable to the Commissioner of
Internal Revenue or his duly authorized representative on or
before the twentieth day of the month following the end of
each calendar quarter or month, as may be provided in the
respective franchise or pertinent municipal regulation and
shall, any provision of the Local Tax Code or any other law to
the contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed by any national or
local authority on earnings, receipts, income and privilege of
generation, distribution and sale of electric current."
On 28 August 1995, the claim for refund of petitioner was
denied in a letter signed by Governor Jose D. Lina. In denying
the claim, respondents relied on a more recent law, i.e.,
Republic Act No. 7160 or the Local Government Code of 1991,
than the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the
Regional Trial Court of Sta. Cruz, Laguna, a complaint for
refund, with a prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order, against the
Province of Laguna and also Benito R. Balazo in his capacity
as the Provincial Treasurer of Laguna. Aside from the amount
of P19,520,628.42 for which petitioner MERALCO had priorly
made a formal request for refund, petitioner thereafter
likewise made additional payments under protest on various
dates totaling P27,669,566.91. cdasia
The trial court, in its assailed decision of 30 September 1997,
dismissed the complaint and concluded:
"WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING
CONSIDERATIONS, JUDGMENT is hereby rendered in favor of
the defendants and against the plaintiff, by:
"1. Ordering the dismissal of the Complaint; and
"2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as
valid, binding, reasonable and enforceable." 2
In the instant petition, MERALCO assails the above ruling and
brings up the following issues; viz:
"1. Whether the imposition of a franchise tax under Section
2.09 of Laguna Provincial Ordinance No. 01-92, insofar as
petitioner is concerned, is violative of the non-impairment
clause of the Constitution and Section 1 of Presidential
Decree No. 551.
"2. Whether Republic Act No. 7160, otherwise known as the
Local Government Code of 1991, has repealed, amended or
modified Presidential Decree No. 551.
"3. Whether the doctrine of exhaustion of administrative
remedies is applicable in this case." 3
The petition lacks merit.
Prefatorily, it might be well to recall that local governments
do not have the inherent power to tax 4 except to the extent
that such power might be delegated to them either by the
basic law or by statute. Presently, under Article X of the 1987
Constitution, a general delegation of that power has been
given in favor of local government units. Thus:
"SECTION 3. The Congress shall enact a local government
code which shall provide for a more responsive and
accountable local government structure instituted through a
system of decentralization with effective mechanisms of
recall, initiative, and referendum, allocate among the
different local government units their powers, responsibilities,
and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and
functions, and duties of local officials, and all other matters
relating to the organization and operation of the local units.
"xxx xxx xxx
"SECTION 5. Each local government unit shall have the power
to create its own sources of revenues and to levy taxes, fees,
and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments."
The 1987 Constitution has a counterpart provision in the
1973 Constitution which did come out with a similar
delegation of revenue making powers to local governments.
Under the regime of the 1935 Constitution no similar
delegation of tax powers was provided, and local government
units instead derived their tax powers under a limited
statutory authority. Whereas, then, the delegation of tax
powers granted at that time by statute to local governments
was confined and defined (outside of which the power was
deemed withheld), the present constitutional rule (starting
with the 1973 Constitution), however, would broadly confer
such tax powers subject only to specific exceptions that the
law might prescribe.
Under the now prevailing Constitution, where there is neither
a grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and
broad tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the
local government units are being strengthened and made
more autonomous, 6 the legislature must still see to it that (a)
the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions; (b) each local
government unit will have its fair share of available resources;
(c) the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair, uniform,
and just.
The Local Government Code of 1991 has incorporated and
adopted, by and large, the provisions of the now repealed
Local Tax Code, which had been in effect since 01 July 1973,
promulgated into law by Presidential Decree No. 231 7
pursuant to the then provisions of Section 2, Article XI, of the
1973 Constitution. The 1991 Code explicitly authorizes
provincial governments, notwithstanding "any exemption
granted by any law or other special law, . . . (to) impose a tax
on businesses enjoying a franchise. Section 137 thereof
provides:
"SECTION 137. Franchise Tax. — Notwithstanding any
exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise,
at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized, within its
territorial jurisdiction. In the case of a newly started business,
the tax shall not exceed one-twentieth (1/20) of one percent
(1%) of the capital investment. In the succeeding calendar
year, regardless of when the business started to operate, the
tax shall be based on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein.
(Italics supplied for emphasis)"
Indicative of the legislative intent to carry out the
Constitutional mandate of vesting broad tax powers to local
government units, the Local Government Code has effectively
withdrawn, under Section 193 thereof, tax exemptions or
incentives theretofore enjoyed by certain entities. This law
states:
"SECTION 193. Withdrawal of Tax Exemption Privileges. —
Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or
controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code. (Italics
supplied for emphasis)
The Code, in addition, contains a general repealing clause in
its Section 534; thus:
"SECTION 534. Repealing Clause. — . . .
"(f) All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed
or modified accordingly. (Italics supplied for emphasis)" 8
To exemplify, in Mactan Cebu International Airport Authority
vs. Marcos, 9 the Court upheld the withdrawal of the real
estate tax exemption previously enjoyed by Mactan Cebu
International Airport Authority. The Court ratiocinated:
". . . These policy considerations are consistent with the State
policy to ensure autonomy to local governments and the
objective of the LGC that they enjoy genuine and meaningful
local autonomy to enable them to attain their fullest
development as self-reliant communities and make them
effective partners in the attainment of national goals. The
power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of local
government units for the delivery of basic services essential
to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the
people. It may also be relevant to recall that the original
reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations
and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, and there was a
need for these entities to share in the requirements of
development, fiscal or otherwise, by paying the taxes and
other charges due from them." 10
Petitioner in its complaint before the Regional Trial Court
cited the ruling of this Court in Province of Misamis Oriental
vs. Cagayan Electric Power and Light Company, Inc.; 11 thus:
"In an earlier case, the phrase 'shall be in lieu of all taxes and
at any time levied, established by, or collected by any
authority' found in the franchise of the Visayan Electric
Company was held to exempt the company from payment of
the 5% tax on corporate franchise provided in Section 259 of
the Internal Revenue Code (Visayan Electric Co. vs. David, 49
O.G. [No. 4] 1385).
"Similarly, we ruled that the provision: 'shall be in lieu of all
taxes of every name and nature' in the franchise of the
Manila Railroad (Subsection 12, Section 1, Act No. 1510)
exempts the Manila Railroad from payment of internal
revenue tax for its importations of coal and oil under Act No.
2432 and the Amendatory Acts of the Philippine Legislature
(Manila Railroad vs. Rafferty, 40 Phil. 224).
"The same phrase found in the franchise of the Philippine
Railway Co. (Sec. 13, Act No. 1497) justified the exemption of
the Philippine Railway Company from payment of the tax on
its corporate franchise under Section 259 of the Internal
Revenue Code, as amended by R.A. No. 39 (Philippine
Railway Co. vs. Collector of Internal Revenue, 91 Phil. 35).
the nature of a grant which is beyond the purview of the nonimpairment clause of the Constitution. 15 Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall be
granted except under the condition that such privilege shall
be subject to amendment, alteration or repeal by Congress as
and when the common good so requires. cdasia
WHEREFORE, the instant petition is hereby DISMISSED. No
costs. SO ORDERED.
"Those magic words, 'shall be in lieu of all taxes' also excused
the Cotabato Light and Ice Plant Company from the payment
of the tax imposed by Ordinance No. 7 of the City of Cotabato
(Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA
231).
[G.R. No. 155491. September 16, 2008.]
SMART COMMUNICATIONS, INC., petitioner,vs.THE CITY OF
DAVAO, represented herein by its Mayor HON. RODRIGO R.
DUTERTE, and the SANGGUNIANG PANLUNGSOD OF DAVAO
CITY, respondents.
"So was the exemption upheld in favor of the Carcar Electric
and Ice Plant Company when it was required to pay the
corporate franchise tax under Section 259 of the Internal
Revenue Code, as amended by R.A. No. 39 (Carcar Electric &
Ice Plant vs. Collector of Internal Revenue, 53 O.G. [No. 4]
1068). This Court pointed out that such exemption is part of
the inducement for the acceptance of the franchise and the
rendition of public service by the grantee." 12
DECISION
NACHURA, J p:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court filed by Smart Communications, Inc. (Smart)
against the City of Davao, represented by its Mayor, Hon.
Rodrigo R. Duterte, and the Sangguniang Panlungsod of
Davao City, to annul the Decision 1 dated July 19, 2002 of the
Regional Trial Court (RTC) and its Order 2 dated September
26, 2002 in Sp. Civil Case No. 28,976-2002. CTAIHc
In the recent case of the City Government of San Pablo, etc.,
et al. vs. Hon. Bienvenido V. Reyes, et al., 13 the Court has
held that the phrase in lieu of all taxes "have to give way to
the peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions,
privileges," and that "upon the effectivity of the Local
Government Code all exemptions except only as provided
therein can no longer be invoked by MERALCO to disclaim
liability for the local tax." In fine, the Court has viewed its
previous rulings as laying stress more on the legislative intent
of the amendatory law — whether the tax exemption
privilege is to be withdrawn or not — rather than on whether
the law can withdraw, without violating the Constitution, the
tax exemption or not.
While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying
on the franchise, these exemptions, nevertheless are far from
being strictly contractual in nature. Contractual tax
exemptions, in the real sense of the term and where the nonimpairment clause of the Constitution can rightly be invoked,
are those agreed to by the taxing authority in contracts, such
as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which
the government, acting in its private capacity, sheds its cloak
of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without
impairing the obligations of contracts. 14 These contractual
tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes
The Facts
On February 18, 2002, Smart filed a special civil action for
declaratory relief 3 under Rule 63 of the Rules of Court, for
the ascertainment of its rights and obligations under the Tax
Code of the City of Davao, 4 particularly Section 1, Article 10
thereof, the pertinent portion of which reads:
Notwithstanding any exemption granted by any law or other
special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of seventy-five percent (75%)
of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the income or receipts
realized within the territorial jurisdiction of Davao City.
Smart contends that its telecenter in Davao City is exempt
from payment of franchise tax to the City, on the following
grounds: (a) the issuance of its franchise under Republic Act
(R.A.) No. 7294 5 subsequent to R.A. No. 7160 shows the
clear legislative intent to exempt it from the provisions of R.A.
7160; 6 (b) Section 137 of R.A. No. 7160 can only apply to
exemptions already existing at the time of its effectivity and
not to future exemptions; (c) the power of the City of Davao
to impose a franchise tax is subject to statutory limitations
such as the "in lieu of all taxes" clause found in Section 9 of
R.A. No. 7294; and (d) the imposition of franchise tax by the
City of Davao would amount to a violation of the
constitutional provision against impairment of contracts. 7
On March 2, 2002, respondents filed their Answer 8 in which
they contested the tax exemption claimed by Smart. They
invoked the power granted by the Constitution to local
government units to create their own sources of revenue. 9
REFER ONLY TO EXEMPTIONS ALREADY EXISTING AT THE
TIME OF ITS ENACTMENT BUT NOT TO FUTURE EXEMPTIONS.
On May 17, 2002, a pre-trial conference was held. Inasmuch
as only legal issues were involved in the case, the RTC issued
an order requiring the parties to submit their respective
memoranda and, thereafter, the case would be deemed
submitted for resolution. 10 AcTHCE
[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF
STATUTORY CONSTRUCTION THAT TAX EXEMPTIONS ARE
CONSTRUED STRICTLY AGAINST THE TAXPAYER.
On July 19, 2002, the RTC rendered its Decision 11 denying
the petition. The trial court noted that the ambiguity of the
"in lieu of all taxes" provision in R.A. No. 7294, on whether it
covers both national and local taxes, must be resolved
against the taxpayer. 12 The RTC ratiocinated that tax
exemptions are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority and,
thus, those who assert a tax exemption must justify it with
words too plain to be mistaken and too categorical not to be
misinterpreted. 13 On the issue of violation of the nonimpairment clause of the Constitution, the trial court cited
Mactan Cebu International Airport Authority v. Marcos, 14
and declared that the city's power to tax is based not merely
on a valid delegation of legislative power but on the direct
authority granted to it by the fundamental law. It added that
while such power may be subject to restrictions or conditions
imposed by Congress, any such legislated limitation must be
consistent with the basic policy of local autonomy. 15
Smart filed a motion for reconsideration which was denied by
the trial court in an Order 16 dated September 26, 2002.
Thus, the instant case.
[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT
PETITIONER'S FRANCHISE (REPUBLIC ACT NO. 7294) HAS
BEEN AMENDED AND EXPANDED BY SECTION 23 OF
REPUBLIC
ACT
NO.
7925,
"THE
PUBLIC
TELECOMMUNICATIONS POLICY ACT", TAKING INTO
ACCOUNT THE FRANCHISE OF GLOBE TELECOM, INC. (GLOBE)
(REPUBLIC ACT NO. 7229), WHICH ARE SPECIAL PROVISIONS
AND WERE ENACTED SUBSEQUENT TO THE LOCAL
GOVERNMENT CODE, THEREBY PROVIDING AN ADDITIONAL
GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON
PETITIONER BY RESPONDENT CITY.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE
RULING OF THE DEPARTMENT OF FINANCE, THROUGH ITS
BUREAU OF LOCAL GOVERNMENT FINANCE, THAT
PETITIONER IS EXEMPT FROM THE PAYMENT OF THE
FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT UNITS
UNDER THE LOCAL GOVERNMENT CODE.
[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE
IMPOSITION OF THE LOCAL FRANCHISE TAX ON PETITIONER
WOULD VIOLATE THE CONSTITUTIONAL PROHIBITION
AGAINST IMPAIRMENT OF CONTRACTS.
[i.] THE LOWER COURT ERRED IN DENYING THE PETITION
BELOW. 17 ITDSAE
Smart assigns the following errors:
The Issue
[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT
UNDER PETITIONER'S FRANCHISE (REPUBLIC ACT NO. 7294),
WHICH CONTAINS THE "IN LIEU OF ALL TAXES" CLAUSE, AND
WHICH IS A SPECIAL LAW ENACTED SUBSEQUENT TO THE
LOCAL GOVERNMENT CODE, NO FRANCHISE TAX MAY BE
IMPOSED ON PETITIONER BY RESPONDENT CITY.
In sum, the pivotal issue in this case is whether Smart is liable
to pay the franchise tax imposed by the City of Davao.
The Ruling of the Court
We rule in the affirmative.
[b.] THE LOWER COURT ERRED IN HOLDING THAT
PETITIONER'S FRANCHISE IS A GENERAL LAW AND DID NOT
REPEAL RELEVANT PROVISIONS REGARDING FRANCHISE TAX
OF THE LOCAL GOVERNMENT CODE, WHICH ACCORDING TO
THE COURT IS A SPECIAL LAW.
[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT
SECTION 137 OF THE LOCAL GOVERNMENT CODE, WHICH, IN
RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT
CITY TO IMPOSE THE FRANCHISE TAX, AND SECTION 193 OF
THE CODE, WHICH PROVIDES FOR WITHDRAWAL OF TAX
EXEMPTION PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.
IcHTCS
[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT
SECTIONS 137 AND 193 OF THE LOCAL GOVERNMENT CODE
I. Prospective Effect of R.A. No. 7160
On March 27, 1992, Smart's legislative franchise (R.A. No.
7294) took effect. Section 9 thereof, quoted hereunder, is at
the heart of the present controversy:
Section 9. Tax provisions.— The grantee, its successors or
assigns shall be liable to pay the same taxes on their real
estate buildings and personal property, exclusive of this
franchise, as other persons or corporations which are now or
hereafter may be required by law to pay. In addition thereto,
the grantee, its successors or assigns shall pay a franchise tax
equivalent to three percent (3%) of all gross receipts of the
business transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu
of all taxes on this franchise or earnings thereof: Provided,
That the grantee, its successors or assigns shall continue to
be liable for income taxes payable under Title II of the
National Internal Revenue Code pursuant to Section 2 of
Executive Order No. 72 unless the latter enactment is
amended or repealed, in which case the amendment or
repeal shall be applicable thereto. HCSAIa
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or
controlled corporations, except local water districts,
cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.
(Emphasis supplied.)
The grantee shall file the return with and pay the tax due
thereon to the Commissioner of Internal Revenue or his duly
authorized representative in accordance with the National
Internal Revenue Code and the return shall be subject to
audit by the Bureau of Internal Revenue. (Emphasis supplied.)
Smart argues that it is not covered by Section 137, in relation
to Section 151 of R.A. No. 7160, because its franchise was
granted after the effectivity of the said law. We agree with
Smart's contention on this matter. The withdrawal of tax
exemptions or incentives provided in R.A. No. 7160 can only
affect those franchises granted prior to the effectivity of the
law. The intention of the legislature to remove all tax
exemptions or incentives granted prior to the said law is very
evident in the language of Section 193 of R.A. No. 7160. No
interpretation is necessary.
Smart alleges that the "in lieu of all taxes" clause in Section 9
of its franchise exempts it from all taxes, both local and
national, except the national franchise tax (now VAT), income
tax, and real property tax. 18
On January 1, 1992, two months ahead of Smart's franchise,
the Local Government Code (R.A. No. 7160) took effect.
Section 137, in relation to Section 151 of R.A. No. 7160,
allowed the imposition of franchise tax by the local
government units; while Section 193 thereof provided for the
withdrawal of tax exemption privileges granted prior to the
issuance of R.A. No. 7160 except for those expressly
mentioned therein, viz.:
Section 137. Franchise Tax. — Notwithstanding any
exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise,
at the rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized, within its
territorial jurisdiction.
In the case of a newly started business, the tax shall not
exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year,
regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding
calendar year, or any fraction thereon, as provided herein.
Section 151. Scope of Taxing Powers. — Except as otherwise
provided in this Code, the city may levy the taxes, fees, and
charges which the province or municipality may impose:
Provided, however, That the taxes, fees and charges levied
and collected by highly urbanized and independent
component cities shall accrue to them and distributed in
accordance with the provisions of this Code. DASEac
The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province or municipality by
not more than fifty percent (50%) except the rates of
professional and amusement taxes.
Section 193. Withdrawal of Tax Exemption Privileges. —
Unless otherwise provided in this Code, tax exemptions or
II. The "in lieu of all taxes" Clause in R.A. No. 7294
The "in lieu of all taxes" clause in Smart's franchise is put in
issue before the Court. In order to ascertain its meaning,
consistent with fundamentals of statutory construction, all
the words in the statute must be considered. The grant of tax
exemption by R.A. No. 7294 is not to be interpreted from a
consideration of a single portion or of isolated words or
clauses, but from a general view of the act as a whole. Every
part of the statute must be construed with reference to the
context. 19
Smart is of the view that the only taxes it may be made to
bear under its franchise are the national franchise tax (now
VAT), income tax, and real property tax. 20 It claims
exemption from the local franchise tax because the "in lieu of
taxes" clause in its franchise does not distinguish between
national and local taxes. 21
We pay heed that R.A. No. 7294 is not definite in granting
exemption to Smart from local taxation. Section 9 of R.A. No.
7294 imposes on Smart a franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted
under the franchise and the said percentage shall be in lieu of
all taxes on the franchise or earnings thereof. R.A. No 7294
does not expressly provide what kind of taxes Smart is
exempted from. It is not clear whether the "in lieu of all
taxes" provision in the franchise of Smart would include
exemption from local or national taxation. What is clear is
that Smart shall pay franchise tax equivalent to three percent
(3%) of all gross receipts of the business transacted under its
franchise. But whether the franchise tax exemption would
include exemption from exactions by both the local and the
national government is not unequivocal. DIcTEC
The uncertainty in the "in lieu of all taxes" clause in R.A. No.
7294 on whether Smart is exempted from both local and
national franchise tax is construed strictly against Smart who
is claiming the exemption. Smart has the burden of proving
that, aside from the imposed 3% franchise tax, Congress
intended it to be exempt from all kinds of franchise taxes —
whether local or national. However, Smart failed in this
regard.
Tax exemptions are never presumed and are strictly
construed against the taxpayer and liberally in favor of the
taxing authority. 22 They can only be given force when the
grant is clear and categorical. 23 The surrender of the power
to tax, when claimed, must be clearly shown by a language
that will admit of no reasonable construction consistent with
the reservation of the power. If the intention of the
legislature is open to doubt, then the intention of the
legislature must be resolved in favor of the State. 24
In this case, the doubt must be resolved in favor of the City of
Davao. The "in lieu of all taxes" clause applies only to national
internal revenue taxes and not to local taxes. As
appropriately pointed out in the separate opinion of Justice
Antonio T. Carpio in a similar case 25 involving a demand for
exemption from local franchise taxes:
[T]he "in lieu of all taxes" clause in Smart's franchise refers
only to taxes, other than income tax, imposed under the
National Internal Revenue Code. The "in lieu of all taxes"
clause does not apply to local taxes. The proviso in the first
paragraph of Section 9 of Smart's franchise states that the
grantee shall "continue to be liable for income taxes payable
under Title II of the National Internal Revenue Code." Also,
the second paragraph of Section 9 speaks of tax returns filed
and taxes paid to the "Commissioner of Internal Revenue or
his duly authorized representative in accordance with the
National Internal Revenue Code." Moreover, the same
paragraph declares that the tax returns "shall be subject to
audit by the Bureau of Internal Revenue." Nothing is
mentioned in Section 9 about local taxes. The clear intent is
for the "in lieu of all taxes" clause to apply only to taxes
under the National Internal Revenue Code and not to local
taxes. Even with respect to national internal revenue taxes,
the "in lieu of all taxes" clause does not apply to income tax.
CHTAIc
If Congress intended the "in lieu of all taxes" clause in Smart's
franchise to also apply to local taxes, Congress would have
expressly mentioned the exemption from municipal and
provincial taxes. Congress could have used the language in
Section 9(b) of Clavecilla's old franchise, as follows:
...in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever,
municipal, provincial or national, from which the grantee is
hereby expressly exempted, ....(Emphasis supplied).
However, Congress did not expressly exempt Smart from
local taxes. Congress used the "in lieu of all taxes" clause only
in reference to national internal revenue taxes. The only
interpretation, under the rule on strict construction of tax
exemptions, is that the "in lieu of all taxes" clause in Smart's
franchise refers only to national and not to local taxes.
It should be noted that the "in lieu of all taxes" clause in R.A.
No. 7294 has become functus officio with the abolition of the
franchise tax on telecommunications companies. 26 As
admitted by Smart in its pleadings, it is no longer paying the 3%
franchise tax mandated in its franchise. Currently, Smart
along with other telecommunications companies pays the
uniform 10% value-added tax. 27
The VAT on sale of services of telephone franchise grantees is
equivalent to 10% of gross receipts derived from the sale or
exchange of services. 28 R.A. No. 7716, as amended by the
Expanded Value Added Tax Law (R.A. No. 8241), the
pertinent portion of which is hereunder quoted, amended
Section 9 of R.A. No. 7294: SCIacA
SEC. 102. Value-added tax on sale of services and use or lease
of properties. — (a) Rate and base of tax. — There shall be
levied assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from the sale
or exchange of services, including the use or lease of
properties.
The phrase "sale or exchange of services" 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, air, and water relative to their
transport of goods or cargoes; services of franchise grantees
of telephone and telegraph, radio and television broadcasting
and all other franchise grantees except those under Section
117 of this Code;services of banks, non-bank financial
intermediaries and finance companies; 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. .... 29
R.A. No. 7716, specifically Section 20 thereof, expressly
repealed the provisions of all special laws relative to the rate
of franchise taxes. It also repealed, amended, or modified all
other laws, orders, issuances, rules and regulations, or parts
thereof which are inconsistent with it. 30 In effect, the "in
lieu of all taxes" clause in R.A. No. 7294 was rendered
ineffective by the advent of the VAT Law. 31
However, the franchise tax that the City of Davao may
impose must comply with Sections 137 and 151 of R.A. No.
7160. Thus, the local franchise tax that may be imposed by
the City must not exceed 50% of 1% of the gross annual
receipts for the preceding calendar year based on the income
on receipts realized within the territorial jurisdiction of Davao.
TAHIED
III. Opinion of the Bureau of Local Government Finance (BLGF)
In support of its argument that the "in lieu of all taxes" clause
is to be construed as an exemption from local franchise taxes,
Smart submits the opinion of the Department of Finance,
through the BLGF, dated August 13, 1998 and February 24,
1998, regarding the franchises of Smart and Globe,
respectively. 32 Smart presents the same arguments as the
Philippine Long Distance Telephone Company in the previous
cases already decided by this Court. 33 As previously held by
the Court, the findings of the BLGF are not conclusive on the
courts:
[T]he BLGF opined that §23 of R.A. No. 7925 amended the
franchise of petitioner and in effect restored its exemptions
from local taxes. Petitioner contends that courts should not
set aside conclusions reached by the BLGF because its
function is precisely the study of local tax problems and it has
necessarily developed an expertise on the subject.
To be sure, the BLGF is not an administrative agency whose
findings on questions of fact are given weight and deference
in the courts. The authorities cited by petitioner pertain to
the Court of Tax Appeals, a highly specialized court which
performs judicial functions as it was created for the review of
tax cases. In contrast, the BLGF was created merely to
provide consultative services and technical assistance to local
governments and the general public on local taxation, real
property assessment, and other related matters, among
others. The question raised by petitioner is a legal question,
to wit, the interpretation of §23 of R.A. No. 7925. There is,
therefore, no basis for claiming expertise for the BLGF that
administrative agencies are said to possess in their respective
fields.
Petitioner likewise argues that the BLGF enjoys the
presumption of regularity in the performance of its duty. It
does enjoy this presumption, but this has nothing to do with
the question in this case. This case does not concern the
regularity of performance of the BLGF in the exercise of its
duties, but the correctness of its interpretation of a provision
of law. 34
IV. Tax Exclusion/Tax Exemption
Smart gives another perspective of the "in lieu of all taxes"
clause in Section 9 of R.A. No. 7294 in order to avoid the
payment of local franchise tax. It says that, viewed from
another angle, the "in lieu of all taxes" clause partakes of the
nature of a tax exclusion and not a tax exemption. A tax
exemption means that the taxpayer does not pay any tax at
all. Smart pays VAT, income tax, and real property tax. Thus,
what it enjoys is more accurately a tax exclusion. 35 CScTED
However, as previously held by the Court, both in their
nature and effect, there is no essential difference between a
tax exemption and a tax exclusion. An exemption is an
immunity or a privilege; it is the freedom from a charge or
burden to which others are subjected. An exclusion, on the
other hand, is the removal of otherwise taxable items from
the reach of taxation, e.g.,exclusions from gross income and
allowable deductions. An exclusion is, thus, also an immunity
or privilege which frees a taxpayer from a charge to which
others are subjected. Consequently, the rule that a tax
exemption should be applied in strictissimi juris against the
taxpayer and liberally in favor of the government applies
equally to tax exclusions. 36
V. Section 23 of R.A. No. 7925
To further its claim, Smart invokes Section 23 of the Public
Telecommunications Policy Act (R.A. No. 7925):
SEC. 23. Equality of Treatment in the Telecommunications
Industry.— Any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may hereafter
be granted, shall ipso facto become part of previously
granted telecommunications franchise and shall be accorded
immediately and unconditionally to the grantees of such
franchises:Provided, however, That the foregoing shall
neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the
life span of the franchise, or the type of service authorized by
the franchise. (Emphasis supplied.)
In sum, Smart wants us to interpret anew Section 23 of R.A.
No. 7925, in connection with the franchise of Globe (R.A. No.
7227), 37 which was enacted on March 19, 1992.
Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise
known as the "most favored treatment clause" or the
"equality clause", the provision in the franchise of Globe
exempting it from local taxes is automatically incorporated in
the franchise of Smart. 38 Smart posits that, since the
franchise of Globe contains a provision exempting it from
municipal or local franchise tax, this provision should also
benefit Smart by virtue of Section 23 of R.A. No. 7925. The
provision in Globe's franchise invoked by Smart reads:
(b) The grantee shall further pay to the Treasurer of the
Philippines each year after the audit and approval of the
accounts as prescribed in this Act, one and one-half per
centum of all gross receipts from business transacted under
this franchise by the said grantee in the Philippines, in lieu of
any and all taxes of any kind, nature or description levied,
established or collected by any authority whatsoever,
municipal, provincial or national, from which the grantee is
hereby expressly exempted, effective from the date of the
approval of Republic Act Numbered Sixteen hundred
eighteen. 39
We find no reason to disturb the previous pronouncements
of this Court regarding the interpretation of Section 23 of R.A.
No. 7925. As aptly explained in the en banc decision of this
Court in Philippine Long Distance Telephone Company, Inc. v.
City of Davao, 40 and recently inDigital Telecommunications
Philippines, Inc. (Digitel) v. Province of Pangasinan, 41
Congress, in approving Section 23 of R.A. No. 7925, did not
intend it to operate as a blanket tax exemption to all
telecommunications entities. 42 The language of Section 23
of R.A. No. 7925 and the proceedings of both Houses of
Congress are bereft of anything that would signify the grant
of tax exemptions to all telecommunications entities,
including those whose exemptions had been withdrawn by
R.A. No. 7160. 43 The term "exemption" in Section 23 of R.A.
No. 7925 does not mean tax exemption. The term refers to
exemption from certain regulations and requirements
imposed by the National Telecommunications Commission.
44 ESTcIA
leave the Government with the burden of having to keep
track of all granted telecommunications franchises, lest some
companies be treated unequally. It is different if Congress
enacts a law specifically granting uniform advantages, favor,
privilege, exemption, or immunity to all telecommunications
entities. 46
VI. Non-impairment Clause of the Constitution
Another argument of Smart is that the imposition of the local
franchise tax by the City of Davao would violate the
constitutional prohibition against impairment of contracts.
The franchise, according to petitioner, is in the nature of a
contract between the government and Smart. 47
However, we find that there is no violation of Article III,
Section 10 of the 1987 Philippine Constitution. As previously
discussed, the franchise of Smart does not expressly provide
for exemption from local taxes. Absent the express provision
on such exemption under the franchise, we are constrained
to rule against it. The "in lieu of all taxes" clause in Section 9
of R.A. No. 7294 leaves much room for interpretation. Due to
this ambiguity in the law, the doubt must be resolved against
the grant of tax exemption.
Furthermore, in the franchise of Globe (R.A. No. 7229), the
legislature incontrovertibly stated that it will be liable for one
and one-half per centum of all gross receipts from business
transacted under the franchise, in lieu of any and all taxes of
any kind, nature, or description levied, established, or
collected by any authority whatsoever, municipal, provincial,
or national, from which the grantee is hereby expressly
exempted. 45 The grant of exemption from municipal,
provincial, or national is clear and categorical — that aside
from the franchise tax collected by virtue of R.A. No. 7229, no
other franchise tax may be collected from Globe regardless of
who the taxing power is. No such provision is found in the
franchise of Smart; the kind of tax from which it is exempted
is not clearly specified. CSDcTA
Moreover, Smart's franchise was granted with the express
condition that it is subject to amendment, alteration, or
repeal. 48 As held in Tolentino v. Secretary of Finance:
As previously explained by the Court, the stance of Smart
would lead to absurd consequences.
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation
save only where a tax exemption has been granted for a valid
consideration. ....
The acceptance of petitioner's theory would result in absurd
consequences. To illustrate: In its franchise, Globe is required
to pay a franchise tax of only one and one-half percentum (1
1/2%) of all gross receipts from its transactions while Smart is
required to pay a tax of three percent (3%) on all gross
receipts from business transacted. Petitioner's theory would
require that, to level the playing field, any "advantage, favor,
privilege, exemption, or immunity" granted to Globe must be
extended to all telecommunications companies, including
Smart. If, later, Congress again grants a franchise to another
telecommunications company imposing, say, one percent
(1%) franchise tax, then all other telecommunications
franchises will have to be adjusted to "level the playing field"
so to speak. This could not have been the intent of Congress
in enacting §23 of Rep. Act 7925. Petitioner's theory will
It is enough to say that the parties to a contract cannot,
through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations as
between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance
of a government which retains adequate authority to secure
the peace and good order of society.
WHEREFORE, the instant petition is DENIED for lack of merit.
Costs against petitioner. SO ORDERED.
[G.R. No. 115455. August 25, 1994.]
ARTURO M. TOLENTINO, petitioner, vs. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL REVENUE,
respondents.
[G.R. No. 115525. August 25, 1994.]
JUAN T. DAVID, petitioner, vs. TEOFISTO T. GUINGONA, JR.,
as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner
of Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
of Internal Revenue and HON. GUILLERMO PARAYNO, JR., in
his capacity as the Commissioner of Customs, respondents.
[G.R. No. 115543. August 25, 1994.]
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners, vs. THE SECRETARY OF THE
DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS,
respondents.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners
in G.R. No 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner
R.S. Roco.
Villaraza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in
G.R. No. 115754.
Salonga, Hernandez & Allado for Freedom from Debts
Coalition, Inc. & Phil. Bible Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices
for petitioners in G.R. No 115873.
R. B. Rodriguez & Associates for petitioners in G.R. No.
115931.
Rene A.V. Saguisag for MABINI.
[G.R. No. 115544. August 25, 1994.]
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO.,
INC.; KAMAHALAN PUBLISHING CORPORATION; PHILIPPINE
JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners, vs. HON. LIWAYWAY V. CHATO, in
her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive
Secretary; and HON. ROBERTO B. DE OCAMPO, in his
capacity as Secretary of Finance, respondents.
[G.R. No. 115754. August 25, 1994.]
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS,
INC., (CREBA), petitioner, vs. THE COMMISSIONER OF
INTERNAL REVENUE, respondent.
[G.R. No. 115781. August 25, 1994.]
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL,
MOVEMENT
OF
ATTORNEYS
FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC.,
PHILIPPINE BIBLE SOCIETY, INC., and WIGBERTO TAÑADA,
petitioners, vs. THE EXECUTIVE SECRETARY, THE SECRETARY
OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE
and THE COMMISSIONER OF CUSTOMS, respondents.
DECISION
MENDOZA, J p:
The value-added tax (VAT) is levied on the sale, barter or
exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross
selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the
sale or exchange of services. Republic Act No. 7716 seeks to
widen the tax base of the existing VAT system and enhance
its administration by amending the National Internal Revenue
Code. LexLib
These are various suits for certiorari and prohibition,
challenging the constitutionality of Republic Act No. 7716 on
various grounds summarized in the resolution of July 6, 1994
of this Court, as follows:
I. Procedural Issues:
[G.R. No. 115852. August 25, 1994.]
PHILIPPINE AIRLINES, INC., petitioner, vs. THE SECRETARY
OF FINANCE, and COMMISSIONER OF INTERNAL REVENUE,
respondents.
A. Does Republic Act No. 7716 violate Art. VI, § 24 of the
Constitution?
B. Does it violate Art. VI, § 26(2) of the Constitution?
[G.R. No. 115873. August 25, 1994.]
COOPERATIVE UNION OF THE PHILIPPINES, petitioners, vs.
HON. LIWAYWAY V. CHATO in her capacity as the
Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary, and
HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary
of Finance, respondents.
[G.R. No. 115931. August 25, 1994.]
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC.,
and ASSOCIATION OF PHILIPPINE BOOKSELLERS, petitioners,
vs. HON. ROBERTO B. DE OCAMPO, as the Secretary of
Finance; HON. LIWAYWAY V. CHATO, as the Commissioner
C. What is the extent of the power of the Bicameral
Conference Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of
Rights (Art. III)?
1. § 1
2. § 4
3. § 5
4. § 10
B. Does the law violate the following other provisions of the
Constitution?
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110
OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237 AND
238 OF TITLE IX, AND REPEALING SECTIONS 113 AND 114 OF
TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED.
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated
above. As will presently be explained not all of these
questions are judicially cognizable, because not all provisions
of the Constitution are self executing and, therefore,
judicially enforceable. The other departments of the
government are equally charged with the enforcement of the
Constitution, especially the provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act
No. 7716, or the Expanded Value-Added Tax Law, Congress
violated the Constitution because, although H. No. 11197 had
originated in the House of Representatives, it was not passed
by the Senate but was simply consolidated with the Senate
version (S. No. 1630) in the Conference Committee to
produce the bill which the President signed into law. The
following provisions of the Constitution are cited in support
of the proposition that because Republic Act No. 7716 was
passed in this manner, it did not originate in the House of
Representatives and it has not thereby become a law:
Art. VI, § 24: All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or
concur with amendments.
Id., § 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed
to its Members three days before its passage, except when
the President certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed,
and the vote thereon shall be taken immediately thereafter,
and the yeas and nays entered in the Journal.
It appears that on various dates between July 22, 1992 and
August 31, 1993, several bills 1 were introduced in the House
of Representatives seeking to amend certain provisions of
the National Internal Revenue Code relative to the valueadded tax or VAT. These bills were referred to the House
Ways and Means Committee which recommended for
approval a substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
The bill (H. No. 11197) was considered on second reading
starting November 6, 1993 and, on November 17, 1993, it
was approved by the House of Representatives after third
and final reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its
report recommending approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF
TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX,
AND REPEALING SECTIONS 113, 114 and 116 OF TITLE V, ALL
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED,
AND FOR OTHER PURPOSES.
It was stated that the bill was being submitted "in
substitution of Senate Bill No. 1129, taking into consideration
P. S. Res. No. 734 and H. B. No. 11197."
On February 8, 1994, the Senate began consideration of the
bill (S. No. 1630). It finished debates on the bill and approved
it on second reading on March 24, 1994. On the same day, it
approved the bill on third reading by the affirmative votes of
13 of its members, with one abstention.
H. No. 1197 and its Senate version (S. No. 1630) were then
referred to a conference committee which, after meeting
four times (April 13, 19, 21 and 25, 1994), recommended that
"House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of
the bill as reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES," was thereafter approved by the
House of Representatives on April 27, 1994 and by the
Senate on May 2, 1994. The enrolled bill was then presented
to the President of the Philippines who, on May 5, 1994,
signed it. It became Republic Act No. 7716. On May 12, 1994,
Republic Act No. 7716 was published in two newspapers of
general circulation and, on May 28, 1994, it took effect,
although its implementation was suspended until June 30,
1994 to allow time for the registration of business entities. It
would have been enforced on July 1, 1994 but its
enforcement was stopped because the Court, by the vote of
11 to 4 of its members, granted a temporary restraining
order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did
not "originate exclusively" in the House of Representatives as
required by Art. VI, § 24 of the Constitution, because it is in
fact the result of the consolidation of two distinct bills, H. No.
11197 and S. No. 1630. In this connection, petitioners point
out that although Art. VI, § 24 was adopted from the
American Federal Constitution, 2 it is notable in two respects:
the verb "shall originate" is qualified in the Philippine
Constitution by the word "exclusively" and the phrase "as on
other bills" in the American version is omitted. This means,
according to them, that to be considered as having originated
in the House, Republic Act No. 7716 must retain the essence
of H. No. 11197.
This argument will not bear analysis. To begin with, it is not
the law — but the revenue bill — which is required by the
Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a
bill originating in the House may undergo such extensive
changes in the Senate that the result may be a rewriting of
the whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is
important to note is that, as a result of the Senate action, a
distinct bill may be produced. To insist that a revenue statute
— and not only the bill which initiated the legislative process
culminating in the enactment of the law — must substantially
be the same as the House bill would be to deny the Senate's
power not only to "concur with amendments" but also to "
propose amendments." It would be to violate the coequality
of legislative power of the two houses of Congress and in fact
make the House superior to the Senate.
The contention that the constitutional design is to limit the
Senate's power in respect of revenue bills in order to
compensate for the grant to the Senate of the treaty-ratifying
power 3 and thereby equalize its powers and those of the
House overlooks the fact that the powers being compared
are different. We are dealing here with the legislative power.
which under the Constitution is vested not in any particular
chamber but in the Congress of the Philippines, consisting of
"a Senate and a House of Representatives." 4 The exercise of
the treaty-ratifying power is not the exercise of legislative
power. It is the exercise of a check on the executive power.
There is, therefore, no justification for comparing the
legislative powers of the House and of the Senate on the
basis of the possession of such nonlegislative power by the
Senate. The possession of a similar power by the U.S. Senate
5 has never been thought of as giving it more legislative
powers than the House of Representatives.
In the United States, the validity of a provision (sec. 37)
imposing an ad valorem tax based on the weight of vessels,
which the U.S. Senate had inserted in the Tariff Act of 1909,
was upheld against the claim that the provision was a
revenue bill which originated in the Senate in contravention
of Art. I, § 7 of the U.S. Constitution. 6 Nor is the power to
amend limited to adding a provision or two in a revenue bill
emanating from the House. The U.S. Senate has gone so far
as changing the whole of bills following the enacting clause
and substituting its own versions. In 1883, for example, it
struck out everything after the enacting clause of a tariff bill
and wrote in its place its own measure, and the House
subsequently accepted the amendment. The U.S. Senate
likewise added 847 amendments to what later became the
Payne-Aldrich Tariff Act of 1909; it dictated the schedules of
the Tariff Act of 1921; it rewrote an extensive tax revision bill
in the same year and recast most of the tariff bill of 1992. 7
Given, then, the power of the Senate to propose
amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to
originate in the House.
It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill (S. No.
1129) earlier filed and that what the Senate did was merely
to "take [H. No. 11197] into consideration" in enacting S. No.
1630. There is really no difference between the Senate
preserving H. No. 11197 up to the enacting clause and then
writing its own version following the enacting clause (which,
it would seem, petitioners admit is an amendment by
substitution), and, on the other hand, separately presenting a
bill of its own on the same subject matter. In either case the
result are two bills on the same subject.
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff, or tax bills, bills authorizing
an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on
the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive
to the local needs and problems. On the other hand, the
senators, who are elected at large, are expected to approach
the same problems from the national perspective. Both views
are thereby made to bear on the enactment of such laws.
Nor does the Constitution prohibit the filing in the Senate of
a substitute bill in anticipation of its receipt of the bill from
the House, so long as action by the Senate as a body is
withheld pending receipt of the House bill. The Court cannot,
therefore, understand the alarm expressed over the fact that
on March 1, 1993, eight months before the House passed H.
No. 11197, S. No. 1129 had been filed in the Senate. After all
it does not appear that the Senate ever considered it. It was
only after the Senate had received H. No. 11197 on
November 23, 1993 that the process of legislation in respect
of it began with the referral to the Senate Committee on
Ways and Means of H. No. 11197 and the submission by the
Committee on February 7, 1994 of S. No. 1630. For that
matter, if the question were simply the priority in the time of
filing of bills, the fact is that it was in the House that a bill (H.
No. 253) to amend the VAT law was first filed on July 22,
1992. Several other bills had been filed in the House before S.
No. 1129 was filed in the Senate, and H. No. 11197 was only a
substitute of those earlier bills. LLphil
Second. Enough has been said to show that it was within the
power of the Senate to propose S. No. 1630. We not pass to
the next argument of petitioners that S. No. 1630 did not
pass three readings on separate days as required by the
Constitution 8 because the second and third readings were
done on the same day, March 24, 1994. But this was because
on February 24, 1994 9 and again on March 22, 1994, 10 the
President had certified S. No. 1630 as urgent. The
presidential certification dispensed with the requirement not
only of printing but also that of reading the bill on separate
days. The phrase "except when the President certifies to the
necessity of its immediate enactment, etc." in Art. VI, § 26(2)
qualified the two stated conditions before a bill can become
a law: (i) the bill has passed three readings on separate days
and (ii) it has been printed in its final form and distributed
three days before it is finally approved.
In other words, the "unless" clause must be read in relation
to the "except" clause, because the two are really coordinate
clauses of the same sentence. To construe the "except"
clause as simply dispensing with the second requirement in
the "unless" clause (i.e., printing and distribution three days
before final approval) would not only violate the rules of
grammar. It would also negate the very premise of the
"except" clause: the necessity of securing the immediate
enactment of a bill which is certified in order to meet a public
calamity or emergency. For if it is only the printing that is
dispensed with by presidential certification, the time saved
would be so negligible as to be of any use in insuring
immediate enactment. It may well be doubted whether doing
away with the necessity of printing and distributing copies of
the bill three days before the third reading would insure
speedy enactment of a law in the face of an emergency
requiring the calling of a special election for President and
Vice-President. Under the Constitution such a law is required
to be made within seven days of the convening of Congress in
emergency session. 11
That upon the certification of a bill by the President the
requirement of three readings on separate days and of
printing and distribution can be dispensed with is supported
by the weight of legislative practice. For example, the bill
defining the certiorari jurisdiction of this Court which, in
consolidation with the Senate version, became Republic Act
No. 5440, was passed on second and third readings in the
House of Representatives on the same day (May 14, 1968)
after the bill had been certified by the President as urgent. 12
There is, therefore, no merit in the contention that
presidential certification dispenses only with the requirement
for the printing of the bill and its distribution three days
before its passage but not with the requirement of three
readings on separate days, also. cdasia
It is nonetheless urged that the certification of the bill in this
case was invalid because there was no emergency, the
condition stated in the certification of a "growing budget
deficit" not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to
controvert the reality of the factual basis of the certification.
To the contrary, by passing S. No. 1630 on second and third
readings on March 24, 1994, the Senate accepted the
President's certification. Should such certification be now
reviewed by this Court, especially when no evidence has
been shown that, because S. No. 1630 was taken up on
second and third readings on the same day, the members of
the Senate were deprived of the time needed for the study of
a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the
writ of habeas corpus or declaration of martial law under Art.
VII, § 18, or the existence of a national emergency justifying
the delegation of extraordinary powers to the President
under Art. VI, § 23(2), is subject to judicial review because
basic rights of individuals may be at hazard. But the factual
basis of presidential certification of bills, which involves doing
away with procedural requirements designed to insure that
bills are duly considered by members of Congress, certainly
should elicit a different standard of review.
Petitioners also invite attention to the fact that the President
certified S. No. 1630 and not H. No. 11197. That is because S.
No. 1630 was what the Senate was considering. When the
matter was before the House, the President likewise certified
H. No. 9210 then pending in the House.
Third. Finally it is contended that the bill which became
Republic Act No. 7716 is the bill which the Conference
Committee prepared by consolidating H. No. 11197 and S. No.
1630. It is claimed that the Conference Committee report
included provisions not found in either the House bill or the
Senate bill and that these provisions were "surreptitiously"
inserted by the Conference Committee. Much is made of the
fact that in the last two days of its session on April 21 and 25,
1994 the Committee met behind closed doors. We are not
told, however, whether the provisions were not the result of
the give and take that often mark the proceedings of
conference committees.
Nor is there anything unusual or extraordinary about the fact
that the Conference Committee met in executive sessions.
Often the only way to reach agreement on conflicting
provisions is to meet behind closed doors, with only the
conferees present. Otherwise, no compromise is likely to be
made. The Court is not about to take the suggestion of a
cabal or sinister motive attributed to the conferees on the
basis solely of their "secret meetings" on April 21 and 25,
1994, nor read anything into the incomplete remarks of the
members, marked in the transcript of stenographic notes by
ellipses. The incomplete sentences are probably due to the
stenographer's own limitations or to the incoherence that
sometimes characterize conversations. William Safire noted
some such lapses in recorded talks even by recent past
Presidents of the United States.
In any event, in the United States conference committees
had been customarily held in executive sessions with only the
conferees and their staffs in attendance. 13 Only in
November 1975 was a new rule adopted requiring open
sessions. Even then a majority of either chamber's conferees
may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emergency out of a
Conference Committee, it has been explained:
Under congressional rules of procedure, conference
committees are not expected to make any material change in
the measure at issue, either by deleting provisions to which
both houses have already agreed or by inserting new
provisions. But this is a difficult provision to enforce. Note
the problem when one house amends a proposal originating
in either house by striking out everything following the
enacting clause and substituting provisions which make it an
entirely new bill. The versions are now altogether different,
permitting a conference committee to draft essentially a new
bill . . . 15
The result is a third version, which is considered an
"amendment in the nature of a substitute," the only
requirement for which being that the third version be
germane to the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of
a conference committee to include in its report an entirely
new provision that is not found either in the House bill or in
the Senate bill. 17 If the committee can propose an
amendment consisting of one or two provisions, there is no
reason why it cannot propose several provisions, collectively
considered as an "amendment in the nature of a substitute,"
so long as such amendment is germane to the subject of the
bills before the committee. After all, its report was not final
but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The
charge that in this case the Conference Committee acted as a
third legislative chamber is thus without any basis. 18
Nonetheless, it is argued that under the respective Rules of
the Senate and the House of Representatives a conference
committee can only act on the differing provisions of a
Senate bill and a House bill, and that contrary to these Rules
the Conference Committee inserted provisions not found in
the bills submitted to it. The following provisions are cited in
support of this contention:
Rules of the Senate
§ Sec. 26. In the event that the Senate does not agree with
the House of Representatives on the provision of any bill or
joint resolution, the differences shall be settled by a
conference committee of both Houses which shall meet
within ten days after their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 3 of
Rule III.
Each Conference Committee Report shall contain a detailed
and sufficiently explicit statement of the changes in or
amendments to the subject measure, and shall be signed by
the conferees.
The consideration of such report shall not be in order unless
the report has been filed with the Secretary of the Senate
and copies thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ Sec. 85. Conference Committee Reports. — In the event
that the House does not agree with the Senate on the
amendments to any bill or joint resolution, the differences
may be settled by conference committees of both Chambers.
The consideration of conference committee reports shall
always be in order, except when the journal is being read,
while the roll is being called or the House is dividing on any
question. Each of the pages of such reports shall be signed by
the conferees. Each report shall contain a detailed,
sufficiently explicit statement of the changes in or
amendments to the subject measure.
The consideration of such report shall not be in order unless
copies thereof are distributed to the Members: Provided,
That in the last fifteen days of each session period it shall be
deemed sufficient that three copies of the report, signed as
above provided, are deposited in the office of the Secretary
General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference
committee to a consideration of conflicting provisions. But
Rule XLIV, § 112 of the Rules of the Senate is cited to the
effect that "If there is no Rule applicable to a specific case the
precedents of the Legislative Department of the Philippines
shall be resorted to, and as a supplement of these, the Rules
contained in Jefferson's Manual." The following is then
quoted from the Jefferson's Manual:
Rule XII:
The managers of a conference must confine themselves to
the differences committed to them . . . and may not include
subjects not within disagreements, even though germane to
a question in issue.
Note that, according to Rule XLIX, § 112, in case there is no
specific rule applicable, resort must be to the legislative
practice. The Jefferson's Manual is resorted to only as
supplement. It is common place in Congress that conference
committee reports include new matters which, though
germane, have not been committed to the committee. This
practice was admitted by Senator Raul S. Roco, petitioner in
G.R. No. 115543, during the oral argument in these cases.
Whatever, then, may be provided in the Jefferson's Manual
must be considered to have been modified by the legislative
practice. If a change is desired in the practice it must be
sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each
house. Thus, Art. VI, § 16(3) of the Constitution provides that
"Each House may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the
Rules of the two chambers were likewise disregarded in the
preparation of the Conference Committee Report because
the Report did not contain a "detailed and sufficiently explicit
statement of changes in, or amendments to, the subject
measure." The Report used brackets and capital letters to
indicate the changes. This is a standard practice in billdrafting. We cannot say that in using these marks and
symbols the Committee violated the Rules of the Senate and
the House. Moreover, this Court is not the proper forum for
the enforcement of these internal Rules. To the contrary, as
we have already ruled, "parliamentary rules are merely
procedural and with their observance the courts have no
concern." 19 Our concern is with the procedural
requirements of the Constitution for the enactment of laws.
As far as these requirements are concerned, we are satisfied
that they have been faithfully observed in these cases. cdphil
Nor is there any reason for requiring that the Committee's
Report in these cases must have undergone three readings in
each of the two houses. If that be the case, there would be
no end to negotiation since each house may seek
modifications of the compromise bill. The nature of the bill,
therefore, requires that it be acted upon by each house on a
"take it or leave it" basis, with the only alternative that if it is
not approved by both houses, another conference
committee must be appointed. But then again the result
would still be a compromise measure that may not be wholly
satisfying to both houses.
Art. VI, § 26(2) must, therefore, be construed as referring
only to bills introduced for the first time in either house of
Congress, not to the conference committee report. For if the
purpose of requiring three readings is to give members of
Congress time to study bills, it cannot be gainsaid that H. No.
11197 was passed in the House after three reading; that in
the Senate it was considered on first reading and then
referred to a committee of that body; that although the
Senate committee did not report out the House bill, it
submitted a version (S. No. 1630) which it had prepared by
"taking into consideration" the House bill; that for its part the
Conference Committee consolidated the two bills and
prepared a compromise version; that the Conference
Committee Report was thereafter approved by the House
and the Senate, presumably after appropriate study by their
members. We cannot say that, as a matter of fact, the
members of Congress were not fully informed of the
provisions of the bill. The allegation that the Conference
Committee usurped the legislative power of Congress is, in
our view, without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal
validity of Republic Act No. 7716 must be resolved in its favor.
Our cases 20 manifest firm adherence to the rule that an
enrolled copy of a bill is conclusive not only of its provisions
but also of its due enactment. Not even claims that a
proposed constitutional amendment was invalid because the
requisite votes for its approval had not been obtained 21 or
that certain provisions of a statute had been "smuggled" in
the printing of the bill 22 have moved or persuaded us to
look behind the proceedings of a coequal branch of the
government. There is no reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute.
In fact in one case 23 we "went behind" an enrolled bill and
consulted the Journal to determine whether certain
provisions of a statute had been approved by the Senate in
view of the fact that the President of the Senate himself, who
had signed the enrolled bill, admitted a mistake and
withdrew his signature, so that in effect there was no longer
an enrolled bill to consider. cda
But where allegations that the constitutional procedures for
the passage of bills have not been observed have no more
basis than another allegation that the Conference Committee
"surreptitiously" inserted provisions into a bill which it had
prepared, we should decline the invitation to go behind the
enrolled copy of the bill. To disregard the "enrolled bill" rule
in such cases would be to disregard the respect due the other
two departments of our government.
Fifth. An additional attack on the formal validity of Republic
Act No. 7716 is made by the Philippine Airlines, Inc.,
petitioner in G.R. No. 11582, namely, that it violates Art. VI, §
26(1) which provides that "Every bill passed by Congress shall
embrace only one subject which shall be expressed in the
title thereof." It is contended that neither H. No. 11197 nor S.
No. 1630 provided for removal of exemption of PAL
transactions from the payment of the VAT and that this was
made only in the Conference Committee bill which became
Republic Act No. 7716 without reflecting this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES.
general than the title of PAL's own franchise under P.D. No.
1590, and yet no mention is made of its tax exemption. The
title of P.D. No. 1590 is:
Among the provisions of the NIRC amended is sec. 103, which
originally read:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE
AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN AIRTRANSPORT SERVICES IN THE PHILIPPINES AND BETWEEN
THE PHILIPPINES AND OTHER COUNTRIES.
§ Sec. 103. Exempt transactions. — The following shall be
exempt from the value-added tax
...
(q) Transactions which are exempt under special laws or
international agreements to which the Philippines is a
signatory.
Among the transactions exempted from the VAT were those
of PAL because it was exempted under its franchise (P.D. No.
1590) from the payment of all "other taxes . . . now or in the
near future," in consideration of the payment by it either of
the corporate income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, § 103
of the NIRC now provides:
§ 103. Exempt transactions. — The following shall be exempt
from the value-added tax
...
(q) Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972,
1491, 1590. . . .
The effect of the amendment is to remove the exemption
granted to PAL, as far as the VAT is concerned.
The question is whether this amendment of § 103 of the NIRC
is fairly embraced in the title of Republic Act No. 7716,
although no mention is made therein of P.D. No. 1590 as
among those which the statute amends. We think it is, since
the title states that the purpose of the statute is to expand
the VAT system, and one way of doing this is to widen its
base by withdrawing some of the exemptions granted before.
To insist that P.D. No. 1590 be mentioned in the title of the
law, in addition to § 103 of the NIRC, in which it is specifically
referred to, would be to insist that the title of a bill should be
a complete index of its content.
The constitutional requirement that every bill passed by
Congress shall embrace only one subject which shall be
expressed in its title is intended to prevent surprise upon the
members of Congress and to inform the people of pending
legislation so that, if they wish to, they can be heard
regarding it. If, in the case at bar, petitioner did not know
before that its exemption had been withdrawn, it is not
because of any defect in the title but perhaps for the same
reason other statutes, although published, pass unnoticed
until some event somehow calls attention to their existence.
Indeed, the title of Republic Act No. 7716 is not any more
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly
interfere with the enactment of necessary legislation and to
consider it sufficient if the title expresses the general subject
of the statute and all its provisions are germane to the
general subject thus expressed. 24
It is further contended that amendment of petitioner's
franchise may only be made by special law, in view of sec. 24
of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision
hereof may only be modified, amended, or repealed
expressly by a special law or decree that shall specifically
modify, amend, or repeal this franchise or any section or
provision thereof. LexLib
This provision is evidently intended to prevent the
amendment of the franchise by mere implication resulting
from the enactment of a later inconsistent statute, in
consideration of the fact that a franchise is a contract which
can be altered only by consent of the parties. Thus in Manila
Railroad Co. v. Rafferty, 25 it was held that an Act of the U.S.
Congress, which provided for the payment of tax on certain
goods and articles imported into the Philippines, did not
amend the franchise of plaintiff, which exempted it from all
taxes except those mentioned in its franchise. It was held
that a special law cannot be amended by a general law.
In contrast, in the case at bar, Republic Act No. 7716
expressly amends PAL's franchise (P.D. No. 1590) by
specifically excepting from the grant of exemptions from the
VAT PAL's exemption under P.D. No. 1590. This is within the
power of Congress to do under Art. XII, § 11 of the
Constitution, which provides that the grant of a franchise for
the operation of a public utility is subject to amendment,
alteration or repeal by Congress when the common good so
requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom, Freedom of Thought
and Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No.
115544, is a nonprofit organization of newspaper publishers
established for the improvement of journalism in the
Philippines. On the other hand, petitioner in G.R. No. 115781,
the Philippine Bible Society (PBS), is a nonprofit organization
engaged in the printing and distribution of bibles and other
religious articles. Both petitioners claim violations of their
rights under § §4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.
The PPI question the law insofar as it has withdrawn the
exemption previously granted to the press under § 103 (f) of
the NIRC. Although the exemption was subsequently restored
by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of
the possibility that the exemption may still be removed by
mere revocation of the regulation of the Secretary of Finance.
On the other hand, the PBS goes so far as to question the
Secretary's power to grant exemption for two reasons: (1)
The Secretary of Finance has no power to grant tax
exemption because this is vested in Congress and requires for
its exercise the vote of a majority of all its members 26 and (2)
the Secretary's duty is to execute the law.
§ 103 of the NIRC contains a list of transactions exempted
from VAT. Among the transactions previously granted
exemption were:
(f) Printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale
and which is devoted principally to the publication of
advertisements.
Republic Act No. 7716 amended § 103 by deleting par. (f)
with the result that print media became subject to the VAT
with respect to all aspects of their operations. Later, however,
based on a memorandum of the Secretary of Justice,
respondent Secretary of Finance issued Revenue Regulations
No. 11-94, dated June 27, 1994, exempting the "circulation
income of print media pursuant to § 4 Article III of the 1987
Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of
"circulation income" has left income from advertisements
still subject to the VAT.
It is unnecessary to pass upon the contention that the
exemption granted is beyond the authority of the Secretary
of Finance to give, in view of PPI's contention that even with
the exemption of the circulation revenue of print media
there is still an unconstitutional abridgment of press freedom
because of the imposition of the VAT on the gross receipts of
newspapers from advertisements and on their acquisition of
paper, ink and services for publication. Even on the
assumption that no exemption has effectively been granted
to print media transactions, we find no violation of press
freedom in these cases.
To be sure, we are not dealing here with a statute that on its
face operates in the area of press freedom. The PPI's claim is
simply that, as applied to newspapers, the law abridges press
freedom. Even with due recognition of its high estate and its
importance in a democratic society, however, the press is not
immune from general regulation by the State. It has been
held:
The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to
invade the rights and liberties of others. He must answer for
libel. He may be punished for contempt of court. Like others,
he must pay equitable and nondiscriminatory taxes on his
business. . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption
previously granted to print media transactions involving
printing, publication, importation or sale of newspapers,
Republic Act No. 7716 has singled out the press for
discriminatory treatment and that within the class of mass
media the law discriminates against print media by giving
broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a
differential treatment of the press by the law, much less any
censorial motivation for its enactment. If the press is now
required to pay a value-added tax on its transactions, it is not
because it is being singled out, much less targeted, for special
treatment but only because of the removal of the exemption
previously granted to it by law. The withdrawal of exemption
is all that is involved in these cases. Other transactions,
likewise previously granted exemption, have been delisted as
part of the scheme to expand the base and the scope of the
VAT system. The law would perhaps be open to the charge of
discriminatory treatment if the only privilege withdrawn had
been that granted to the press. But that is not the case. prcd
The situation in the case at bar is indeed a far cry from those
cited by the PPI in support of its claim that Republic Act No.
7716 subjects the press to discriminatory taxation. In the
cases cited, the discriminatory purpose was clear either from
the background of the law or from its operation. For example,
in Grosjean v. American Press Co., 28 the law imposed a
license tax equivalent to 2% of the gross receipts derived
from advertisements only on newspapers which had a
circulation of more than 20,000 copies per week. Because the
tax was not based on the volume of advertisement alone but
was measured by the extent of its circulation as well, the law
applied only to the thirteen large newspapers in Louisiana,
leaving untaxed four papers with circulation of only slightly
less than 20,000 copies a week and 120 weekly newspapers
which were in serious competition with the thirteen
newspapers in question. It was well known that the thirteen
newspapers had been critical of Senator Huey Long, and the
Long-dominated legislature of Louisiana responded by taxing
what Long described as the "lying newspapers" by imposing
on them "a tax on lying." The effect of the tax was to curtail
both their revenue and their circulation. As the U.S. Supreme
Court noted, the tax was "a deliberate and calculated device
in the guise of a tax to limit the circulation of information to
which the public is entitled in virtue of the constitutional
guaranties." 29 The case is a classic illustration of the warning
that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also
found to have been singled out because everything was
exempt from the "use tax" on ink and paper, except the press.
Minnesota imposed a tax on the sales of goods in that state.
To protect the sales tax, it enacted a complementary tax on
the privilege of "using, storing or consuming in that state
tangible personal property" by eliminating the residents'
incentive to get goods from outside states where the sales
tax might be lower. The Minnesota Star Tribune was
exempted from both taxes from 1967 to 1971. In 1971,
however, the state legislature amended the tax scheme by
imposing the "use tax" on the cost of paper and ink used for
publication. The law was held to have singled out the press
because (1) there was no reason for imposing the "use tax"
since the press was exempt from the sales tax and (2) the
"use tax" was laid on an "intermediate transaction rather
than the ultimate retail sale." Minnesota had a heavy burden
of justifying the differential treatment and it failed to do so.
In addition, the U.S. Supreme Court found the law to be
discriminatory because the legislature, by again amending
the law so as to exempt the first $100,000 of paper and ink
used, further narrowed the coverage of the tax so that "only
a handful of publishers pay any tax at all and even fewer pay
any significant amount of tax." 31 The discriminatory purpose
was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland,
32 it was held that a law which taxed general interest
magazines but not newspapers and religious, professional,
trade and sports journals was discriminatory because while
the tax did not single out the press as a whole, it targeted a
small group within the press. What is more, by differentiating
on the basis of contents (i.e., between general interest and
special interests such as religion or sports) the law became
"entirely incompatible with the First Amendment's guarantee
of freedom of the press."
These cases come down to this: that unless justified, the
differential treatment of the press creates risks of
suppression of expression. In contrast, in the cases at bar, the
statute applies to a wide range of goods and services. The
argument that, by imposing the VAT only on print media
whose gross sales exceeds P480,000 but not more than
P750,000, the law discriminates 33 is without merit since it
has not been shown that as a result the class subject to tax
has been unreasonably narrowed. The fact is that this
limitation does not apply to the press alone but to all sales.
Nor is impermissible motive shown by the fact that print
media and broadcast media are treated differently. The press
is taxed on its transactions involving printing and publication,
which are different from the transactions of broadcast media.
There is thus a reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any
suggestion that "owners of newspapers are immune from
any forms of ordinary taxation." The license tax in the
Grosjean case was declared invalid because it was "one single
in kind, with a long history of hostile misuse against the
freedom of the press." 34 On the other hand, Minneapolis
Star acknowledged that "The First Amendment does not
prohibit all regulation of the press [and that] the States and
the Federal Government can subject newspapers to generally
applicable economic regulations without creating
constitutional problems." 35
What has been said above also disposes of the allegations of
the PBS that the removal of the exemption of printing,
publication or importation of books and religious articles, as
well as their printing and publication, likewise violates
freedom of thought and of conscience. For as the U.S.
Supreme Court unanimously held in Jimmy Swaggart
Ministries v. Board of Equalization, 36 the Free Exercise of
Religion Clause does not prohibit imposing a generally
applicable sales and use tax on the sale of religious material
by a religious organization.
This brings us to the question whether the registration
provision of the law, 337 although of general applicability,
nonetheless is invalid when applied to the press because it
lays a prior restraint on its essential freedom. The case of
American Bible Society v. City of Manila 38 is cited by both
the PBS and the PPI in support of their contention that the
law imposes censorship. There, this Court held that an
ordinance of the City of Manila, which imposed a license fee
on those engaged in the business of general merchandise,
could not be applied to the appellant's sale of bibles and
other religious literature. This Court relied on Murdock v.
Pennsylvania 39 in which it was held that, as a license fee is
fixed in amount and unrelated to the receipts of the taxpayer,
the license fee, when applied to a religious sect, was actually
being imposed as a condition for the exercise of the sect's
right under the Constitution. For that reason, it was held, the
license fee "restrains in advance those constitutional liberties
of press and religion and inevitably tends to suppress their
exercise." 40
But, in this case, the fee in § 107, although a fixed amount
(P1,000), is not imposed for the exercise of a privilege but
only for the purpose of defraying part of the cost of
registration. The registration requirement is a central feature
of the VAT system. It is designed to provide a record of tax
credits because any person who is subject to the payment of
the VAT pays an input tax, even as he collects an output tax
on sales made or services rendered. The registration fee is
thus a mere administrative fee, one not imposed on the
exercise of a privilege, much less a constitutional right. cdrep
For the foregoing reasons, we find the attack on Republic Act
No. 7716 on the ground that it offends the free speech, press
and freedom of religion guarantees of the Constitution to be
without merit. For the same reasons, we find the claim of the
Philippine Educational Publishers Association (PEPA) in G.R.
No. 115931 that the increase in the price of books and other
educational materials as a result of the VAT would violate the
constitutional mandate to the government to give priority to
education, science and technology (Art. II, sec. 17) to be
untenable.
B. Claims of Regressivity, Denial of Due Process, Equal
Protection,
and Impairment of Contracts
There is basis for passing upon claims that on its face the
statute violates the guarantees of freedom of speech, press
and religion. The possible "chilling effect" which it may have
on the essential freedom of the mind and conscience and the
need to assure that the channels of communication are open
and operating importunately demand the exercise of this
Court's power of review.
There is, however, no justification for passing upon the
claims that the law also violates the rule that taxation must
be progressive and that it denies petitioners' right to due
process and the equal protection of the laws. The reason for
this different treatment has been cogently stated by an
eminent authority on constitutional law thus: "[W]hen
freedom of the mind is imperiled by law, it is freedom that
commands a moments of respect; when property is imperiled
it is the lawmakers' judgment that commands respect. This
dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does
set up a hierarchy of values within the due process clause."
Indeed, the absence of threat of immediate harm makes the
need for judicial intervention less evident and underscores
the essential nature of petitioners' attack on the law on the
grounds of regressivity, denial of due process and equal
protection and impairment of contracts as a mere academic
discussion of the merits of the law. For the fact is that there
have even been no notices of assessments issued to
petitioners and no determinations at the administrative
levels of their claims so as to illuminate the actual operation
of the law and enable us to reach sound judgment regarding
so fundamental questions as those raised in these suits. cdlex
Thus, the broad argument against the VAT is that it is
regressive and that it violates the requirement that "The rule
of taxation shall be uniform and equitable [and] Congress
shall evolve a progressive system of taxation." 42 Petitioners
in G.R. No. 115781 quote from a paper, entitled "VAT Policy
Issues: Structure, Regressivity, Inflation and Exports" by Alan
A. Tait of the International Monetary Fund, that "VAT
payment by low-income households will be a higher
proportion of their incomes (and expenditures) than
payments by higher-income households. That is, the VAT will
be regressive." Petitioners contend that as a result of the
uniform 10% VAT, the tax on consumption goods of those
who are in the higher-income bracket, which before were
taxed at a rate higher than 10%, has been reduced, while
basic commodities, which before were taxed at rates ranging
from 3% to 5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law is regressive,
the opposite claim is pressed by respondents that in fact it
distributes the tax burden to as many goods and services as
possible particularly to those which are within the reach of
higher-income groups, even as the law exempts basic goods
and services. It is thus equitable. The goods and properties
subject to the VAT are those used or consumed by higherincome groups. These include real properties held primarily
for sale to customers or held for lease in the ordinary course
of business, the right or privilege to use industrial,
commercial or scientific equipment, hotels, restaurants and
similar places, tourist buses, and the like. On the other hand,
small business establishments, with annual gross sales of less
than P500,000, are exempted. This, according to respondents,
removes from the coverage of the law some 30,000 business
establishments. On the other hand, an occasional paper 43 of
the Center for Research and Communication cites a NEDA
study that the VAT has minimal impact on inflation and
income distribution and that while additional expenditure for
the lowest income class is only P301 or 1.49% a year, that for
a family earning P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the VAT
is regressive in the sense that it will hit the "poor" and
middle-income group in society harder than it will the "rich,"
as the Cooperative Union of the Philippines (CUP) claims in
G.R. No. 115873, is largely an academic exercise. On the
other hand, the CUP's contention that Congress' withdrawal
of exemption of producers cooperatives, marketing
cooperatives, and service cooperatives, while maintaining
that granted to electric cooperatives, not only goes against
the constitutional policy to promote cooperatives as
instruments of social justice (Art. XII, § 15) but also denies
such cooperatives the equal protection of the law is actually
a policy argument. The legislature is not required to adhere
to a policy of "all or none" in choosing the subject of taxation.
Nor is the contention of the Chamber of Real Estate and
Builders Association (CREBA), petitioner in G.R. 115754, that
the VAT will reduce the mark up of its members by as much
as 85% to 90% any more concrete. It is a mere allegation. On
the other hand, the claim of the Philippine Press Institute,
petitioner in G.R. No. 115544, that the VAT will drive some of
its members out of circulation because their profits from
advertisements will not be enough to pay for their tax liability,
while purporting to be based on the financial statements of
the newspapers in question, still falls short of the
establishment of facts by evidence so necessary for
adjudicating the question whether the tax is oppressive and
confiscatory.
Indeed, regressivity is not a negative standard for courts to
enforce. What Congress is required by the Constitution to do
is to "evolve a progressive system of taxation." This is a
directive to Congress, just like the directive to it to give
priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic and
political inequalities (Art. XIII, § 1), or for the promotion of
the right to "quality education" (Art. XIV, § 1). These
provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have
laid to rest the question now raised against the VAT. There
similar arguments made against the original VAT Law
(Executive Order No. 273) were held to be hypothetical, with
no more basis than newspaper articles which this Court
found to be "hearsay and [without] evidentiary value." As
Republic Act No. 7716 merely expands the base of the VAT
system and its coverage as provided in the original VAT Law,
further debate on the desirability and wisdom of the law
should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the
contention of CREBA that the imposition of the VAT on the
sales and leases of real estate by virtue of contracts entered
into prior to the effectivity of the law would violate the
constitutional provision that "No law impairing the obligation
of contracts shall be passed." It is enough to say that the
parties to a contract cannot, through the exercise of
prophetic discernment, fetter the exercise of the taxing
power of the State. For not only are existing laws read into
contracts in order to fix obligations as between parties, but
the reservation of essential attributes of sovereign power is
also read into contracts as a basic postulate of the legal order.
The policy of protecting contracts against impairment
presupposes the maintenance of a government which retains
adequate authority to secure the peace and good order of
society. 46
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation
save only where a tax exemption has been granted for a valid
consideration. 47 Such is not the case of PAL in G.R. No.
115852, and we do not understand it to make this claim.
Rather, its position, as discussed above, is that the removal of
its tax exemption cannot be made by a general, but only by a
specific, law. dctai
The substantive issues raised in some of the cases are
presented in abstract, hypothetical form because of the lack
of a concrete record. We accept that this Court does not only
adjudicate private cases; that public actions by "nonHohfeldian" 48 or ideological plaintiffs are now cognizable
provided they meet the standing requirement of the
Constitution; that under Art. VIII, § 1, par. 2 the Court has a
"special function" of vindicating constitutional rights.
Nonetheless the feeling cannot be escaped that we do not
have before us in these cases a fully developed factual record
that alone can impart to our adjudication the impact of
actuality 49 to insure that decision-making is informed and
well grounded. Needless to say, we do not have power to
render advisory opinions or even jurisdiction over petitions
for declaratory judgment. In effect we are being asked to do
what the Conference Committee is precisely accused of
having done in these cases — to sit as a third legislative
chamber to review legislation.
We are told, however, that the power of judicial review is not
so much power as it is duty imposed on this Court by the
Constitution and that we would be remiss in the performance
of that duty if we decline to look behind the barriers set by
the principle of separation of powers. Art. VIII, § 1, par. 2 is
cited in support of this view:
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. cdll
To view the judicial power of review as a duty is nothing new.
Chief Justice Marshall said so in 1803, to justify the assertion
of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial
department to say what the law is. Those who apply the rule
to particular cases must of necessity expound and interpret
that rule. If two laws conflict with each other, the courts
must decide on the operation of each. 50
Justice Laurel echoed this justification in 1936 in Angara v.
Electoral Commission:
And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act
of the legislature, but only asserts the solemn and sacred
obligation assigned to it by the Constitution to determine
conflicting claims of authority under the Constitution and to
establish for the parties in an actual controversy the rights
which that instrument secures and guarantees to them. 51
This conception of the judicial power has been affirmed in
several cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to
justify this Court's intervention in what is essentially a case
that at best is not ripe for adjudication. That duty must still
be performed in the context of a concrete case or
controversy, as Art. VIII, § 5(2) clearly defines our justification
in terms of "cases," and nothing but "cases." That the other
departments of the government may have committed a
grave abuse of discretion is not an independent ground for
exercising our power. Disregard of the essential limits
imposed by the case and controversy requirement can in the
long run only result in undermining our authority as a court
of law. For, as judges, what we are called upon to render is
judgment according to what may appear to be the opinion of
the day.
In the preceding pages we have endeavored to discuss,
within limits, the validity of Republic Act No. 7716 in its
formal and substantive aspects as this has been raised in the
various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution
have been complied with by Congress in the enactment of
the statute;
(2) That judicial inquiry whether the formal requirements for
the enactment of statutes — beyond those prescribed by the
Constitution — have been observed is precluded by the
principle of separation of powers;
(3) That the law does not abridge freedom of speech,
expression or the press, nor interfere with the free exercise
of religion, nor deny to any of the parties the right to an
education; and
(4) That, in view of the absence of a factual foundation of
record, claims that the law is regressive, oppressive and
confiscatory and that it violates vested rights protected
under the Contract Clause are prematurely raised and do not
justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED. SO
ORDERED.
[G.R. No. L-23771. August 4, 1988.]
THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT
OF TAX APPEALS, respondents.
Angel Sanchez for Lingayen Electric Power Co., Inc.
SYLLABUS
1. TAXATION; FRANCHISE TAX; LIMITED TO 2% OF GROSS
RECEIPTS; CASE AT BAR. — Republic Act No. 3843 granted the
private respondent a legislative franchise in June, 1963,
amending, altering, or even repealing the original municipal
franchises, and providing that the private-respondent should
pay only a 2% franchise tax on its gross receipts, "in lieu of
any and all taxes and/or licenses of any kind, nature or
description levied, established, or collected by any authority
whatsoever, municipal, provincial, or national, now or in the
future . . . and effective further upon the date the original
franchise was granted, no other tax and/or licenses other
than the franchise tax of two per centum on the gross
receipts . . . shall be collected, any provision of law to the
contrary notwithstanding." Thus, by virtue of R.A. No. 3843,
the private respondent was liable to pay only the 2%
franchise tax, effective from the date the original municipal
franchise was granted.
2. CONSTITUTIONAL LAW; POWER OF TAXATION; TAX
EXEMPTION; NOT VIOLATIVE OF THE EQUAL PROTECTION
CLAUSE. — A tax is uniform when it operates with the same
force and effect in every place where the subject of it is
found. Uniformity means that all property belonging to the
same class shall be taxed alike. The Legislature has the
inherent power not only to select the subjects of taxation but
to grant exemptions. Tax exemptions have never been
deemed violative of the equal protection clause.
3. TAXATION; REPUBLIC ACT NO. 3843; HELD AS
CONSTITUTIONAL. — Section 259 of the Tax Code expressly
allows the payment of taxes at rates lower than 5% when the
charter granting the franchise of a grantee, like the one
granted to the private respondent under Section 4 of R.A. No.
3843, precludes the imposition of a higher tax. R.A. No. 3843
did not only fix and specify a franchise tax of 2% on its gross
receipts, but made it "in lieu of any and all taxes, all laws to
the contrary notwithstanding," thus, leaving no room for
doubt regarding the legislative intent. "Charters or special
laws granted and enacted by the Legislature are in the nature
of private contracts. They do not constitute a part of the
machinery of the general government. They are usually
adopted after careful consideration of the private rights in
relation with resultant benefits to the State . . . in passing a
special charter the attention of the Legislature is directed to
the facts and circumstances which the act or charter is
intended to meet, The Legislature consider (sic) and make (sic)
provision for all the circumstances of a particular case." In
view of the foregoing, we find no reason to disturb the
respondent court's ruling upholding the constitutionality of
the law in question.
4. ID.; ID.; GIVEN RETROACTIVE EFFECT. — Act No. 3843
provides that "effective . . . upon the date the original
franchise was granted, no other tax and/or licenses other
than the franchise tax of two per centum on the gross
receipts . . . shall be collected, any provision to the contrary
notwithstanding." Republic Act No. 3843 therefore
specifically provided for the retroactive effect of the law.
DECISION
SARMIENTO, J p:
This is an appeal from the decision * of the Court of Tax
Appeals (C.T.A., for brevity) dated September 15, 1964 in
C.T.A. Cases Nos. 581 and 1302, which were jointly heard
upon agreement of the parties, absolving the respondent
taxpayer from liability for the deficiency percentage,
franchise, and fixed taxes and surcharge assessed against it in
the sums of P19,293.41 and P3,616.86 for the years 1946 to
1954 and 1959 to 1961, respectively. prLL
The respondent taxpayer, Lingayen Gulf Electric Power Co.,
Inc., operates an electric power plant serving the adjoining
municipalities of Lingayen and Binmaley, both in the province
of Pangasinan, pursuant to the municipal franchise granted it
by their respective municipal councils, under Resolutions Nos.
14 and 25 of June 29 and July 2, 1946, respectively. Section
10 of these franchises provide that:
. . . The said grantee in consideration of the franchise hereby
granted, shall pay quarterly into the Provincial Treasury of
Pangasinan, one per centum of the gross earnings obtained
thru this privilege during the first twenty years and two per
centum during the remaining fifteen years of the life of said
franchise.
On February 24, 1948, the President of the Philippines
approved the franchises granted to the private respondent.
On November 21, 1955, the Bureau of Internal Revenue (BIR)
assessed against and demanded from the private respondent
the total amount of P19,293.41 representing deficiency
franchise taxes and surcharges for the years 1946 to 1954
applying the franchise tax rate of 5% on gross receipts from
March 1, 1948 to December 31, 1954 as prescribed in Section
259 of the National Internal Revenue Code, instead of the
lower rates as provided in the municipal franchises. On
September 29, 1956, the private respondent requested for a
reinvestigation of the case on the ground that instead of
incurring a deficiency liability, it made an overpayment of the
franchise tax. On April 30, 1957, the BIR through its regional
director, denied the private respondent's request for
reinvestigation and reiterated the demand for payment of
the same. In its letters dated July 2, and August 9, 1958 to the
petitioner Commissioner, the private respondent protested
the said assessment and requested for a conference with a
view to settling the liability amicably. In his letters dated July
25 and August 28, 1958, the Commissioner denied the
request of the private respondent. Thus, the appeal to the
respondent Court of Tax Appeals on September 19, 1958,
docketed as C.T.A. Case No. 581. LexLib
In a letter dated August 21, 1962, the Commissioner
demanded from the private respondent the payment of
P3,616.86 representing deficiency franchise tax and
surcharges for the years 1959 to 1961 again applying the
franchise tax rate of 5% on gross receipts as prescribed in
Section 259 of the National Internal Revenue Code. In a letter
dated October 5, 1962, the private respondent protested the
assessment and requested reconsideration thereof. The
same was denied on November 9, 1962. Thus, the appeal to
the respondent Court of Appeals on November 29, 1962,
docketed as C.T.A. No. 1302.
Pending the hearing of the said cases, Republic Act (R.A.) No.
3843 was passed on June 22, 1963, granting to the private
respondent a legislative franchise for the operation of the
electric light, heat, and power system in the same
municipalities of Pangasinan. Section 4 thereof provides that:
In consideration of the franchise and rights hereby granted,
the grantee shall pay into the Internal Revenue office of each
Municipality in which it is supplying electric current to the
public under this franchise, a tax equal to two per centum of
the gross receipts from electric current sold or supplied
under this franchise. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes and/or
licenses of any kind, nature or description levied, established,
or collected by any authority whatsoever, municipal,
provincial or national, now or in the future, on its poles, wires,
insulator . . . and on its franchise, rights, privileges, receipts,
revenues and profits, from which taxes and/or licenses, the
grantee is hereby expressly exempted and effective further
upon the date the original franchise was granted, no other
tax and/or licenses other than the franchise tax of two per
centum on the gross receipts as provided for in the original
franchise shall be collected, any provision of law to the
contrary notwithstanding.
On September 15, 1964, the respondent court ruled that the
provisions of R.A. No. 3843 should apply and accordingly
dismissed the claim of the Commissioner of Internal Revenue.
The said ruling is now the subject of the petition at bar.
The issues raised for resolution are:
1. Whether or not the 5% franchise tax prescribed in Section
259 of the National Internal Revenue Code assessed against
the private respondent on its gross receipts realized before
the effectivity of R.A No. 3843 is collectible.
2. Whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity and
equality of taxation" clause of the Constitution.
3. If the abovementioned Section 4 of R.A No. 3843 is valid,
whether or not it could be given retroactive effect so as to
render uncollectible the taxes in question which were
assessed before its enactment. llcd
4. Whether or not the respondent taxpayer is liable for the
fixed and deficiency percentage taxes in the amount of
P3,025.96 for the period from January 1, 1946 to February 29,
1948, the period before the approval of its municipal
franchises.
The first issue raised by the petitioner before us is whether or
not the five percent (5%) franchise tax prescribed in Section
259 of the National Internal Revenue Code (Commonwealth
Act No. 466 as amended by R.A. No. 39) assessed against the
private-respondent on its gross receipts realized before the
effectivity of R.A. No. 3843 is collectible. It is the contention
of the petitioner Commissioner of Internal Revenue that the
private respondent should have been held liable for the 5%
franchise tax on gross receipts prescribed in Section 259 of
the Tax Code, instead of the lower franchise tax rates
provided in the municipal franchises (1% of gross earnings for
the first twenty years and 2% for the remaining fifteen years
of the life of the franchises) because Section 259 of the Tax
Code, as amended by R.A. No. 39 of October 1, 1946, applied
to existing and future franchises. The franchises of the
private respondent were already in existence at the time of
the adoption of the said amendment, since the franchises
were accepted on March 1, 1948 after approval by the
President of the Philippines on February 24, 1948. The
private respondent's original franchises did not contain the
proviso that the tax provided therein "shall be in lieu of all
taxes;" moreover, the franchises contained a reservation
clause that they shall be subject to amendment, alteration, or
repeal, but even in the absence of such clause, the power of
the Legislature to alter, amend, or repeal any franchise is
always deemed reserved. The franchises of the private
respondent have been modified or amended by Section 259
of the Tax Code, the petitioner submits.
We find no merit in petitioner's contention. R.A. No. 3843
granted the private respondent a legislative franchise in June,
1963, amending, altering, or even repealing the original
municipal franchises, and providing that the privaterespondent should pay only a 2% franchise tax on its gross
receipts, "in lieu of any and all taxes and/or licenses of any
kind, nature or description levied, established, or collected by
any authority whatsoever, municipal, provincial, or national,
now or in the future . . . and effective further upon the date
the original franchise was granted, no other tax and/or
licenses other than the franchise tax of two per centum on
the gross receipts . . . shall be collected, any provision of law
to the contrary notwithstanding." Thus, by virtue of R.A. No.
3843, the private respondent was liable to pay only the 2%
franchise tax, effective from the date the original municipal
franchise was granted. Cdpr
On the question as to whether or not Section 4 of R.A. No.
3843 is unconstitutional for being violative of the "uniformity
and equality of taxation" clause of the Constitution, and, if
adjudged valid, whether or not it should be given retroactive
effect, the petitioner submits that the said law is
unconstitutional insofar as it provides for the payment by the
private respondent of a franchise tax of 2% of its gross
receipts, while other taxpayers similarly situated were
subject to the 5% franchise tax imposed in Section 259 of the
Tax Code, thereby discriminatory and violative of the rule on
uniformity and equality of taxation.
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.
Uniformity means that all property belonging to the same
class shall be taxed alike. The Legislature has the inherent
power not only to select the subjects of taxation but to grant
exemptions. Tax exemptions have never been deemed
violative of the equal protection clause. 1 It is true that the
private respondent's municipal franchises were obtained
under Act No. 667 2 of the Philippine Commission, but these
original franchises have been replaced by a new legislative
franchise, i.e. R.A. No. 3843. As correctly held by the
respondent court, the latter was granted subject to the terms
and conditions established in Act No. 3636, 3 as amended by
C.A No. 132. These conditions identify the private
respondent's power plant as falling within that class of power
plants created by Act No. 3636, as amended. The benefits of
the tax reduction provided by law (Act No. 3636 as amended
by C.A. No. 132 and R.A. No. 3843) apply to the respondent's
power plant and others circumscribed within this class R.A.
No. 3843 merely transferred the petitioner's power plant
from that class provided for in Act No. 667, as amended, to
which it belonged until the approval of R.A. No. 3843, and
placed it within the class falling under Act No. 3636, as
amended. Thus, it only effected the transfer of a taxable
property from one class to another.
We do not have the authority to inquire into the wisdom of
such act. Furthermore, the 5% franchise tax rate provided in
Section 259 of the Tax Code was never intended to have a
universal application. 4 We note that the said Section 259 of
the Tax Code expressly allows the payment of taxes at rates
lower than 5% when the charter granting the franchise of a
grantee, like the one granted to the private respondent
under Section 4 of R.A. No. 3843, precludes the imposition of
a higher tax. R.A. No. 3843 did not only fix and specify a
franchise tax of 2% on its gross receipts, but made it "in lieu
of any and all taxes, all laws to the contrary
notwithstanding," thus, leaving no room for doubt regarding
the legislative intent. "Charters or special laws granted and
enacted by the Legislature are in the nature of private
contracts. They do not constitute a part of the machinery of
the general government. They are usually adopted after
careful consideration of the private rights in relation with
resultant benefits to the State . . . in passing a special charter
the attention of the Legislature is directed to the facts and
circumstances which the act or charter is intended to meet.
The Legislature consider (sic) and make (sic) provision for all
the circumstances of a particular case." 5 In view of the
foregoing, we find no reason to disturb the respondent
court's ruling upholding the constitutionality of the law in
question. LibLex
Given its validity, should the said law be applied retroactively
so as to render uncollectible the taxes in question which
were assessed before its enactment? The question of
whether a statute operates retrospectively or only
prospectively depends on the legislative intent. In the instant
case, Act No. 3843 provides that "effective . . . upon the date
the original franchise was granted, no other tax and/or
licenses other than the franchise tax of two per centum on
the gross receipts . . . shall be collected, any provision to the
contrary notwithstanding." Republic Act No. 3843 therefore
specifically provided for the retroactive effect of the law.
The last issue to be resolved is whether or not the privaterespondent is liable for the fixed and deficiency percentage
taxes in the amount of P3,025.96 (i.e. for the period from
January 1, 1946 to February 29, 1948) before the approval of
its municipal franchises. As aforestated, the franchises were
approved by the President only on February 24, 1948.
Therefore, before the said date, the private respondent was
liable for the payment of percentage and fixed taxes as seller
of light, heat, and power — which, as the petitioner claims,
amounted to P3,025.96. The legislative franchise (R.A. No.
3843) exempted the grantee from all kinds of taxes other
than the 2% tax from the date the original franchise was
granted. The exemption, therefore, did not cover the period
before the franchise was granted, i.e. before February 24,
1948. However, as pointed out by the respondent court in its
findings, during the period covered by the instant case, that
is from January 1, 1946 to December 31, 1961, the private
respondent paid the amount of P34,184.36, which was very
much more than the amount rightfully due from it. Hence,
the private respondent should no longer be made to pay for
the deficiency tax in the amount of P3,025.98 for the period
from January 1, 1946 to February 29, 1948. LexLib
WHEREFORE, the appealed decision of the respondent Court
of Tax Appeals is hereby AFFIRMED. No pronouncement as to
costs. SO ORDERED.
[G.R. No. L-22814. August 28, 1968.]
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC.,
plaintiff-appellant, vs. CITY OF BUTUAN, MEMBERS OF THE
MUNICIPAL BOARD, THE CITY MAYOR and THE CITY
TREASURER, all of the CITY OF BUTUAN, defendantsappellees.
Sabido, Sabido & Associates for plaintiff-appellant.
The City Attorney of Butuan City for defendants-appellees.
SYLLABUS
1. TAXATION; MUNICIPAL TAXATION; ORDINANCE 110 OF
THE CITY OF BUTUAN, INVALID. — Ordinance 110 of the City
of Butuan, as amended by Ordinance No. 122, imposes a tax
of P0.10 per case of 24 bottles of soft drinks or carbonated
drinks only upon "any agent and/or consignee of any person,
association, partnership, company or corporation engaged in
selling . . . soft drinks or carbonated drinks." Viewed from this
angle, the tax partakes of the nature of an import duty which
is beyond defendant's authority to impose by express
provision of law. For, as a consequence of such measure,
merchants engaged in the sale thereof are not subject to the
tax unless they are agents and/or consignees of another
dealer, who, in the very nature of things, must be one
engaged in business outside the City. Besides, the tax would
not be applicable to such agent and/or consignee, if less than
1,000 cases of soft drinks are consigned or shipped to him
every month. When we consider, also that the tax "shall be
based and computed from the cargo manifest or bill of
lading . . . showing the number of cases" — not sold — but
received by the taxpayer, the intention to limit the
application of the ordinance to soft drinks brought into the
city from outside thereof becomes apparent.
2. ID.; ID.; ID.; SAID ORDINANCE VIOLATES THE RULE ON
UNIFORMITY OF TAXATION. — Even if Ordinance 110 of the
City of Butuan were regarded as a tax on the sale of the
beverages, it would still be invalid, as discriminatory, and
hence, violative of the uniformity required by the
Constitution and the law therefor, since only sales by "agents
or consignees" of outside dealers would be subject to the tax.
Sales by local dealers, not acting for or on behalf of other
merchants, regardless of the volume of their sales, and even
if the same exceeded those made by said agents or
consignees of producers or merchants established outside
the City of Butuan, would be exempt from the disputed tax.
3. ID.; ID.; ID.; CONDITIONS FOR VALID CLASSIFICATION NOT
MET BY QUESTIONED ORDINANCE. — The uniformity
essential to the valid exercise of the power of taxation does
not require identity or equality under all circumstances, or
negate the authority to classify the objects of taxation. The
classification made in the exercise of this authority, to be
valid, must, however, be reasonable and this requirement is
not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are
germane to the purpose of the legislation or ordinance; (3)
the classification applies, not only to present conditions, but,
also, to future conditions substantially identical to those of
the present; and (4) the classification applies equally to all
those who belong to the same class. These conditions are not
fully met by the ordinance in question. Indeed, if its purpose
were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof
by dealers other than agents are consignees of producers or
merchants established outside the City of Butuan should be
exempt from the tax.
DECISION
CONCEPCION, C.J p:
Direct appeal to this Court, from a decision of the Court of
First Instance of Agusan, dismissing plaintiff's complaint, with
costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a
domestic corporation with offices and principal place of
business in Quezon City. The defendants are the City of
Butuan, its City Mayor, the members of its municipal board
and its City Treasurer. Plaintiff seeks to recover the sums paid
by it to the City of Butuan — hereinafter referred to as the
City — and collected by the latter, pursuant to its Municipal
Ordinance No. 110, as amended by Municipal Ordinance No.
122, both series of 1960, which plaintiff assails as null and
void, and to prevent the enforcement thereof. Both parties
submitted the case for decision in the lower court upon a
stipulation to the effect:
"1. That plaintiff's warehouse in the City of Butuan serves as
a storage for its products the "Pepsi-Cola" soft drinks for sale
to customers in the City of Butuan and all the municipalities
in the Province of Agusan. These "Pepsi-Cola" soft drinks are
bottled in Cebu City and shipped to the Butuan City
warehouse of plaintiff for distribution and sale in the City of
Butuan and all municipalities of Agusan.
"2. That on August 16, 1960, the City of Butuan enacted
Ordinance No. 110 which was subsequently amended by
Ordinance No. 122 and effective November 28, 1960. A copy
of Ordinance No. 110, Series of 1960 and Ordinance No. 122
are incorporated herein as Exhibits "A" and "B", respectively.
"3. That Ordinance No. 110 as amended, imposes a tax on
any person, association, etc., of P0.10 per case of 24 bottles
of Pepsi- Cola and the plaintiff paid under protest the amount
of P4,926.63 from August 16 to December 31, 1960 and the
amount of P9,250.40 from January 1 to July 30, 1961.
"4. That the plaintiff filed the foregoing complaint for the
recovery of the total amount of P14,177.03 paid under
protest and those that it may later on pay until the
termination of this case on the ground that Ordinance No.
110 as amended of the City of Butuan is illegal, that the tax
imposed is excessive and that it is unconstitutional.
"5. That pursuant to Ordinance No. 110 as amended, the City
Treasurer of Butuan City, has prepared a form to be
accomplished by the plaintiff for the computation of the tax.
A cop(y) of the form is enclosed herewith as Exhibit "C".
"6. That the Profit and Loss Statement of the plaintiff for the
period from January 1, 1961 to July 30, 1961 of its warehouse
in Butuan City is incorporated herein as Exhibits "D" to "D-1"
to "D-5". In this Profit and Loss Statement, the defendants
claim that the plaintiff is not entitled to a depreciation of
P3,052.63 but only P1,202.55 in which case the profit of
plaintiff will be increased from P1,254.44 to P3,104.52. The
plaintiff differs only on the claim of depreciation which the
company claims to be P3,052.62. This is in accordance with
the findings of the representative of the undersigned City
Attorney who verified the records of the plaintiff.
the period prescribed and the penalties imposable for
"deliberate and willful refusal to pay the tax mentioned in
Sections 2 and 3" or for failure "to furnish the office of the
City Treasurer a copy of the bill of lading or cargo manifest or
record of soft drinks, liquors or carbonated drinks for sale in
the City." Section 9 makes the ordinance applicable to soft
drinks, liquors or carbonated drinks "received outside" but
"sold within" the City. Section 10 of the ordinance provides
that the revenue derived therefrom "shall be allotted as
follows: 40% for Roads and Bridges Fund; 40% for the
General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and
void because: (1) it partakes of the nature of an import tax; (2)
it amounts to double taxation; (3) it is excessive, oppressive
and confiscatory; (4) it is highly unjust and discriminatory;
and (5) Section 2 of Republic Act No. 2264, upon the
authority of which it was enacted, is an unconstitutional
delegation of legislative powers.
"7. That beginning November 21, 1960, the price of PepsiCola per case of 24 bottles was increased to P1.92 which
price is uniform throughout the Philippines. Said increase was
made due to the increase in the production cost of its
manufacture.
The second and last objections are manifestly devoid of merit.
Indeed — independently of whether or not the tax in
question, when considered in relation to the sales tax
prescribed by Acts of Congress, amounts to double taxation,
on which we need not and do not express any opinion —
double taxation, in general, is not forbidden by our
fundamental law. We have not adopted, as part thereof, the
injunction against double taxation found in the Constitution
of the United States and of some States of the Union. 1 Then,
again, the general principle against delegation of legislative
powers, in consequence of the theory of separation of
powers 2 is subject to one well-established exception,
namely: legislative powers may be delegated to local
governments — to which said theory does not apply 3 — in
respect of matters of local concern.
"8. That the parties reserve the right to submit arguments on
the constitutionality and illegality of Ordinance No. 110, as
amended of the City of Butuan in their respective
memoranda.
"xxx xxx xxx"
The third objection is, likewise, untenable. The tax of "P0.10
per case of 24 bottles" of soft drinks or carbonated drinks —
in the production and sale of which plaintiff is engaged — or
less than P0.0042 per bottle, is manifestly too small to be
excessive, oppressive, or confiscatory.
Section 1 of said Ordinance No. 110, as amended, states what
products are "liquors", within the purview thereof. Section 2
provides for the payment by "any agent and/or consignee" of
any dealer "engaged in selling liquors, imported or local, in
the City," of taxes at specified rates. Section 3 prescribes a
tax of P0.10 per 24 bottles of the soft drinks and carbonated
beverages therein named, and "all other soft drinks or
carbonated drinks." Section 3-A, defines the meaning of the
term "consignee or agent" for purposes of the ordinance.
Section 4 provides that said taxes "shall be paid at the end of
every calendar month." Pursuant to Section 5, the taxes
"shall be based and computed from the cargo manifest or bill
of lading or any other record showing the number of cases of
soft drinks, liquors or all other soft drinks or carbonated
drinks received within the month." Sections 6, 7 and 8 specify
the surcharge to be added for failure to pay the taxes within
The first and the fourth objections merit, however, serious
consideration. In this connection, it is noteworthy that the
tax prescribed in Section 3 of Ordinance No. 110, as originally
approved, was imposed upon dealers "engaged in selling"
soft drinks or carbonated drinks. Thus, it would seem that the
intent was then to levy a tax upon the sale of said
merchandise. As amended by Ordinance No. 122, the tax is,
however, imposed only upon "any agent and/or consignee of
any person, association, partnership, company or corporation
engaged in selling . . . soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said
Ordinance No. 122:
". . . — Definition of the Term Consignee or Agent. — For
purposes of this Ordinance, a consignee or agent shall mean
any person, association, partnership, company or corporation
who acts in the place of another by authority from him or
one entrusted with the business of another or to whom is
consigned or shipped no less than 1,000 cases of hard liquors
or soft drinks every month for resale, either retail or
wholesale."
As a consequence, merchants engaged in the sale of soft
drinks or carbonated drinks, are not subject to the tax, unless
they are agents and/or consignees of another dealer, who, in
the very nature of things, must be one engaged in business
outside the City. Besides, the tax would not be applicable to
such agent and/or consignee, if less than 1,000 cases of soft
drinks are consigned or shipped to him every month. When
we consider, also, that the tax "shall be based and computed
from the cargo manifest or bill of lading . . . showing the
number of cases" — not sold — but "received" by the
taxpayer, the intention to limit the application of the
ordinance to soft drinks and carbonated drinks brought into
the City from outside thereof becomes apparent. Viewed
from this angle, the tax partakes of the nature of an import
duty, which is beyond defendant's authority to impose by
express provision of law. 4
Even, however, if the burden in question were regarded as a
tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity
required by the Constitution and the law therefor, since only
sales by "agents or consignees" of outside dealers would be
subject to the tax. Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the volume of their
sales, and even if the same exceeded those made by said
agents or consignees of producers or merchants established
outside the City of Butuan, would be exempt from the
disputed tax.
It is true that the uniformity essential to the valid exercise of
the power of taxation does not require identity or equality
under all circumstances, or negate the authority to classify
the objects of taxation. 5 The classification made in the
exercise of this authority, to be valid, must, however, be
reasonable 6 and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which
make real differences; (2) these are germane to the purpose
of the legislation or ordinance; (3) the classification applies,
not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the
classification applies equally to all those who belong to the
same class. 7
These conditions are not fully met by the ordinance in
question. 8 Indeed, if its purpose were merely to levy a
burden upon the sale of soft drinks or carbonated beverages,
there is no reason why sales thereof by dealers other than
agents or consignees of producers or merchants established
outside the City of Butuan should be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed,
and another one shall be entered annulling Ordinance No.
110, as amended by Ordinance 122, and sentencing the City
of Butuan to refund to plaintiff herein the amounts collected
from and paid under protest by the latter, with interest
thereon at the legal rate from the date of the promulgation
of this decision, in addition to the costs, and defendants
herein are, accordingly, restrained and prohibited
permanently from enforcing said Ordinance, as amended. It
is so ordered.
[G.R. No. L-21064. February 18, 1970.]
J. M. TUASON & CO, INC., petitioner-appellee, vs. THE LAND
TENURE ADMINISTRATION, THE SOLICITOR GENERAL and
THE AUDITOR GENERAL, respondents-appellants.
Araneta, Mendoza & Papa for petitioner-appellee.
Office of the Solicitor General and M. B. Pablo for
respondents-appellants.
SYLLABUS
1. POLITICAL LAW; CONSTITUTIONAL LAW; POWER OF
JUDICIAL REVIEW; EXPRESS OR IMPLIED FROM THE
PROVISIONS OF THE CONSTITUTION. — The power of judicial
review is granted, if not expressly, at least by clear
implication from the relevant provisions of the Constitution.
It is exercised when the party adversely affected by either a
legislative or executive act, or a municipal ordinance for that
matter, files the appropriate suit to test its validity.
2. ID.; ID.; FUNDAMENTAL PRINCIPLE OF CONSTITUTIONAL
CONSTRUCTION. — The words in which constitutional
provisions are couched express the objective sought to be
attained. They are to be given their ordinary meaning except
where technical terms are employed in which case the
significance thus attached to them prevails. The Constitution
is not to be construed narrowly or pedantically, for the
prescriptions therein contained, to paraphrase Justice
Holmes, are not mathematical formulas having their essence
in their form, but are organic living institutions, the
significance of which is vital nor formal. There must be an
awareness, as with Justice Brandeis, not only of what has
been, but of what may be. The words employed by it are not
to be construed to yield fixed and rigid answers but as
impressed with the necessary attributes of flexibility and
accommodation to enable them to meet adequately
whatever problems the future has in store. It is not, in brief, a
printed finality but a dynamic process.
3. ID.; ID.; EMINENT DOMAIN; CONGRESSIONAL POWER TO
EXPROPRIATE LANDS FOR RESALE, BROAD AND FAR FROM
LIMITED. — It does not admit of doubt that the congressional
power to expropriate lands for resale conferred by the
constitution is far from limited. It has been left to the
legislative will to determine what lands may be expropriated
so that they could be subdivided for resale to those in need
of them. Nor can it be doubted either that as to when such
authority may be exercised is purely for Congress to decide.
Its discretion on the matter is not to be interfered with. The
language employed is not swathed in obscurity. The
recognition of the broad congressional competence is
undeniable. The judiciary in the discharge of its task to
enforce constitutional commands and prohibitions is denied
the prerogative of curtailing its well-nigh all-embracing
sweep.
4. ID.; ID.; PERMANENCY OF CONSTITUTION, ITS
DISTINGUISHING MARK. — The character of permanency is
the distinguishing mark of a constitution. It was the view of
Pres. Manuel A. Roxas, one of the chief architects of the
fundamental law, that the constitution to be adopted by the
Constitutional Convention of 1934 would "have an indefinite
life, will be permanent, subject of course, to revisions,
amendments and other changes that may be adopted
constitutionally." That would be an assurance that
constitutional guarantees "will be maintained, property rights
will be safeguarded and individual rights maintained
immaculate and sanctified. . . .." Another prominent delegate,
Gregorio Perfecto, later a member of this Tribunal, aptly
noted that the transitory character is essentially incompatible
with the nature of laws, and necessarily so of a constitution,
which is the supreme law of a people and therefore must be
impressed with such attribute of permanency, much more
than ordinary statutes passed under its authority. It could
thus be said of our Constitution as of the U. S. Constitution,
to borrow from Chief Justice Marshall's pronouncement in
M'Culloch v. Maryland (4 Wheat 316 [1819]), that it is
"intended to endure for ages to come and consequently, to
be adapted to the various crisis of human affairs." In the
language of another American jurist, Chief Justice Stone, it is
"a continuing instrument of government." Its framers were
not visionaries, toying with speculations or theories, but men
of affairs, at home in statecraft, laying down the foundations
of a government which can make effective and operative all
the powers conferred or assumed, with the corresponding
restrictions to secure individual rights and, anticipating,
subject to the limitations of human foresight, the problems
that events to come in the distant days ahead will bring. Thus
a constitution, to quote from Justice Cardozo, "states or
ought to state not rules for the passing hour, but principles
for an expanding future."
5. ID.; ID.; EMINENT DOMAIN, FLEXIBLE CONCEPT APPLIED TO
CASE AT BAR. — The conclusion is difficult to resist that the
text of the constitutional provision in question, its historical
background as noted in pronouncements in the
Constitutional Convention and the inexonerable need for the
Constitution to have the capacity for growth and ever be
adaptable to changing social and economic conditions all
argue against its restrictive construction. Such an approach
was reflected succinctly in the dissenting opinion of Justice
J.B.L Reyes, concurred in by the present Chief Justice, in the
Baylosis case which reads as follows: "The reasons set forth
by it against the validity of the proposed expropriation are
arguments against the expropriation policies adopted by the
government rather than reasons against the existence and
application of the condemnation power in the present case.
The propriety of exercising the power of eminent domain
under Article XIII, section 4 of our Constitution can not be
determined on a purely quantitative or area basis. Not only
does the constitutional provision speak of lands instead of
landed estates, but I see no cogent reason why the
government, in its quest for social justice and peace, should
exclusively devote attention to conflicts of large proportions,
involving a considerable number of individuals, and eschew
small controversies and wait until they grow into a major
problem before taking remedial action. The Constitution
considered the small individual land tenure to be so
important to the maintenance of peace and order and to the
promotion of progress and the general welfare that it not
only provided for the expropriation and subdivision of lands
but also opened the way for the limitation of private land
holdings. It is not for this Court to judge the worth of these
and other social and economic policies expressed by the
Constitution; our duty is to conform to such policies and not
to block their realization."
6. ID.; ID.; POWER OF EMINENT DOMAIN; NOT WITHOUT
LIMIT; JUST COMPENSATION, STANDARD. — There need be
no fear that such constitutional grant of power to expropriate
lands is without limit. There is the explicit requirement of the
payment of just compensation. It is well-settled that just
compensation means the equivalent for the value of the
property at the time of its taking. Anything beyond that is
more, and anything short of that is less, than just
compensation. It means a fair and full equivalent for the loss
sustained, which is the measure of the indemnity, not
whatever gain would accrue to the expropriating entity. The
market value of the land taken is the just compensation to
which the owner of condemned property is entitled, the
market value being that sum of money which a person
desirous, but not compelled to buy, and an owner, willing,
but not compelled to sell, would agree on as a price to be
given and received for such property.
7. ID.; ID.; EMINENT DOMAIN; TAKING MUST BE FOR PUBLIC
USE. — Public use must be shown to exist before such power
may be validly exercised. In the language of Justice Tuason in
the Guido decision, "the assertion of the right on the part of
the legislature to take the property of one citizen and
transfer it to another, even for a full compensation, when the
public interest is not promoted thereby, is claiming a
despotic power, and one inconsistent with every just
principle and fundamental maxim of a free government."
8. ID.; ID.; DUE PROCESS, LIMITATION ON POWER OF
EMINENT DOMAIN. — The requirement of due process is
likewise a limitation on the power of eminent domain. A
landowner is covered by the mantle of its protection. It is a
mandate of reason. It frowns on arbitrariness, it is the
antithesis of any governmental act that smacks of whim or
caprice. It negates state power to act in an oppressive
manner. It is, as had been stressed so often, the embodiment
of the sporting idea of fair play. In that sense, it stands as a
guaranty of justice. That is the standard that must be met by
any governmental agency in the exercise of whatever
competence is entrusted to it. As was so emphatically
stressed by the present Chief Justice, "acts of Congress, as
well as those of the Executive, can deny due process only
under pain of nullity, . . . ."
9. ID.; ID.; EQUAL PROTECTION CLAUSE LIKEWISE LIMITS
POWER OF EMINENT DOMAIN. — The equal protection
guarantee must be satisfied for the exercise of eminent
domain to be valid. The Constitution requires that no person
be denied "the equal protection of the laws." The assumption
underlying such a guaranty is that a legal norm, whether
embodied in a rule, principle, or standard, constitutes a
defense against one extreme and tyranny at the other.
Thereby, people living together in a community with its
myriad and complex problems can minimize the friction and
reduce the conflicts, to assure, at the very least, a peaceful
ordering of existence. The ideal situation is for the law's
benefits to be available to all, that none be placed outside
the sphere of its coverage. Only thus could chance and favor
be excluded and the affairs of men governed by that serene
and impartial uniformity, which is of the very essence of the
idea of law. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that
all persons must be treated in the same manner, the
conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal
protection and security shall be given to every person under
circumstances, which if not identical are analogous. If law be
looked upon in terms of burden or charges, those that fall
within a class should be treated in the same fashion,
whatever restrictions cast on some in the group equally
binding on the rest. With due recognition then of the power
of Congress to designate the particular property to be taken
and how much thereof may be condemned in the exercise of
the power of expropriation, it is still a judicial question
whether in the exercise of such competence, the party
adversely affected is the victim of partiality and prejudice.
That the equal protection clause will not allow.
10. ID.; ID.; EQUAL PROTECTION; CONGRESS AUTHORIZED BY
CONSTITUTION TO ESTABLISH A SYSTEM OF PRIORITIES. —
There is nothing to prevent Congress in view of the public
funds at its disposal to follow a system of priorities. It could
thus determine what lands would first be the subject of
expropriation. This it did under the challenged legislative act.
As already noted, Congress was moved to act in view of what
it considered a serious social and economic problem. The
solution which for it was the most acceptable was the
authorization of the expropriation of the Tatalon Estate. So it
provided under the statute in question. It was confronted
with a situation that called for correction, and the legislation
that was the result of its deliberation sought to apply the
necessary palliative. That it stopped short of possibly
attaining the cure of other analogous ills certainly does not
stigmatize its effort as a denial of equal protection. We have
given our sanction to the principle underlying the exercise of
police power and taxation, but certainly not excluding
eminent domain, that "the legislature is not required by the
Constitution to adhere to the policy of 'all or none'."
11. ID.; ID.; JUDICIAL REVIEW; ROLE OF THE COURTS IN THE
CONSTRUCTION OF SOCIO-ECONOMIC LEGISLATION. — In
the appraisal of government measures with social and
economic implications the courts should test the validity of
the challenged statute in the light of the broad congressional
power so apparent from the text of the constitutional
provision, the historical background and the cardinal
postulate underlying constitutional construction that its
provisions are not to be interpreted to preclude their being
responsive to future needs. In no other sphere of judicial
activity are judges called upon to transcend personal
predilections and private notions of policy, lest legislation
intended to bring to fruition the hope of a better life for the
great masses of our people, as embodied in the social justice
principle of which this constitutional provision under scrutiny
is a manifestation, be unjustifiably stricken down.
TEEHANKEE, J., concurring and dissenting:
1. CONSTITUTIONAL LAW; FACTS THAT NEED BE ESTABLISHED
TO BRING ACT WITHIN CONSTITUTIONAL LIMITS. — Before
the vital issues of: (a) necessity of the taking and (b) whether
it is for the public use, may be resolved, the factual questions
regarding the area of the Tatalon Estate covered by the act
and the bona fide occupants of the property who shall be the
beneficiaries thereof should first be determined to bring the
questioned Act within confines of constitutional limits.
2. ID.; POWER OF CONGRESS TO EXPROPRIATE,
CONCEPTUALIZED, UNANSWERED QUESTIONS. — Dissent is
hereby made to the observation that the constitutional
power of Congress to expropriate lands is well nigh all
embracing and forecloses the courts from inquiring into the
necessity for the taking of the property. Does not the need
for a more serious scrutiny as to the power of Congress to
single out a particular piece of property for expropriation,
acknowledged in the main opinion, call for judicial scrutiny,
with all the facts in, as to the need for the expropriation for
full opportunity to dispute the legislative appraisal of the
matter? Who should bear the burden of demonstrating that
the equal protection guarantee had been observed, the State
or the owner whose property has been singled out?
3. ID.; CONTRACTUAL RIGHTS RECONCILED WITH POWER OF
EMINENT DOMAIN. — The main opinion acknowledges that
existing contractual rights that have been acquired by vendor
and purchasers of subdivided lots of the property shall be
accorded the appropriate constitutional protection of nonimpairment at the expropriation proceedings. In view of the
cardinal principle of eminent domain that just compensation
of the market value of the land must be paid as well as of the
constitutional limitation that the land be conveyed at cost to
the individuals concerned, respondents may well consider
that the objectives of the Act may be accomplished more
expeditiously by a direct purchase of the available unsold lots
for resale at cost to the remaining bona fide occupants in
accordance with the Act's provisions or by extending financial
assistance to enable them to purchase directly the unsold
lots from petitioner. Nothing can be gained by respondents
from the institution of expropriation proceedings, when
petitioner-owner is actually selling the property in subdivided
lots.
occasion to delineate the contours of the above
constitutional provision, reconciling the undoubtedly broad
grant of constitutional authority to Congress with the right of
property that might be adversely affected by its exercise.
BARREDO, J., concurring:
1.
CONSTITUTIONAL
LAW;
EMINENT
DOMAIN;
CONGRESSIONAL POWER TO EXPROPRIATE LANDS FOR
RESALE, UNLIMITED; JUST COMPENSATION, A PART OF THE
POWER GRANTED TO CONGRESS. — The power granted to
Congress by the Constitution to "authorize, upon payment of
just compensation, the expropriation of lands to be
subdivided into small lots and conveyed at cost to
individuals" is unlimited by any other provision of said
Constitution. Just compensation is in reality a part of the
power granted rather than a limitation thereto, just as just
compensation is of the essence in any exercise of the power
of eminent domain, as, otherwise, it would be plain
commandeering.
The prevailing opinion in the later case Republic v. Baylosis 5
tilted the balance in favor of property. In deciding this suit,
filed with the Court of First Instance of Quezon City, the
lower court, as was understandable, bowed to what it
considered the compulsion such an opinion carries and being
unable to perceive any relevant ground for distinction,
declared the challenged statute invalid. The respondents, the
Land Tenure Administration, the Solicitor General and the
Auditor General in this prohibition proceeding, appealed. We
are possessed undoubtedly of greater discretion on the
matter. Nor is it to be lost sight of, as abovementioned, that
this is the first controversy where the expropriation of a
particular property authorized by Congress under the above
constitutional provision is assailed as beyond its power. The
opportunity is thus here present of making more definite the
boundaries of such congressional competence.
2. ID.; ID.; INHERENT POWER OF GOVERNMENT. — The
power of eminent domain, in general, is an inherent power of
any government, as, otherwise, it would be extremely
difficult, if not impossible, for the government to adequately
respond to the demands of public need and interest.
As will hereafter be explained with some measure of fullness,
we cannot affix the stamp of approval to the judgment of the
lower court; we reach a different conclusion. There is to our
mind no sufficient showing of the unconstitutionality of the
challenged act. We reverse.
3. ID.; ID.; CONGRESSIONAL POWER TO EXPROPRIATE LANDS
FOR RESALE; PUBLIC USE; GOVERNMENT NOT REQUIRED TO
PRESENT PROOF OF PUBLIC USE. — As a statement of
principle, it is right to reiterate as the main opinion does, that
"for the valid exercise of such (the) congressional power, (to
expropriate lands for the purpose indicated) that the taking
be for public use", but it is entirely a different matter to imply
that in the judicial proceeding instituted towards such end,
the Government is still required to present evidence of such
public use as a fact.
On August 3, 1959, Republic Act No. 2616 took effect without
executive approval. It is therein provided: "The expropriation
of the Tatalon Estate in Quezon City jointly owned by the J. M.
Tuason and Company, Inc., Gregorio Araneta and Company,
Inc., and Florencio Deudor, et al., is hereby authorized." 6 As
noted in the appealed decision: "The lands involved in this
action, to which Republic Act No. 2616 refer and which
constitute a certain portion of the Sta. Mesa Heights
Subdivision, have a total area of about 109 hectares and are
covered by Transfer Certificates of Title Nos. 42774 and
49235 of the Registry of Deeds of Rizal (Quezon City)
registered in the name of petitioner." 7
DECISION
FERNANDO, J p:
In this special civil action for prohibition to nullify a legislative
act directing the expropriation of the Tatalon Estate, Quezon
City, 1 this Court is called upon to inquire further into how far
the power of Congress under the Constitution to authorize
upon payment of just compensation the expropriation of
lands to be subdivided into small lots and conveyed at cost to
individuals 2 may extend, the more so as this is the first time
the judiciary is confronted with such a challenge addressed to
the validity of a statute specifically made applicable to a
particular piece of land, owned by petitioner J. M. Tuason &
Co. In the leading case of Guido v. Rural Progress, 3 decided
in 1949, this Court in passing upon the scope of the power of
the President conferred by statute "to acquire private lands
or any interest therein, through purchase or expropriation,
and to subdivide the same into home lots or small farms for
resale at reasonable prices and under such conditions as he
may fix to their bona fide tenants or occupants" 4 had
Thereafter, on November 15, 1960, respondent Land Tenure
Administration was directed by the then Executive Secretary
to institute the proceeding for the expropriation of the
Tatalon Estate. Not losing any time, petitioner J.M. Tuason &
Co., Inc. filed before the lower court on November 17, 1960 a
special action for prohibition with preliminary injunction
against respondents praying that the above act be declared
unconstitutional, seeking in the meanwhile a preliminary
injunction to restrain respondents from instituting such
expropriation proceeding, thereafter to be made permanent
after trial. The next day, on November 18, 1960, the lower
court granted the prayer for the preliminary injunction upon
the filing of a P20,000.00 bond. After trial, the lower court
promulgated its decision on January 10, 1963 holding that
Republic Act No. 2616 as amended is unconstitutional and
granting the writ of prohibition prayed for.
Hence this appeal by respondents, one we find meritorious.
With the problem thus laid bare and with an exposition of
the constitutional principles that compel a result different
from that arrived at by the lower court, we cannot accept its
holding that the statute thus assailed should be annulled.
1. Respondents would interpose two procedural bars
sufficient in their opinion to preclude the lower court from
passing on the question of validity. 8 The first is the allegation
that in effect this special proceeding for prohibition is
"actually a suit against the State, which is not allowed
without its consent." 9 The second would require, on the
assumption that the suit could proceed, that the Executive
Secretary, as the real party in interest, ought to have been
impleaded. Neither objection suffices to preclude the lower
court from passing upon the question of validity of the
statute in question.
As was held by this Court in the leading case of Angara v.
Electoral Commission, 10 speaking through Justice Laurel, the
power of judicial review is granted, if not expressly, at least
by clear implication from the relevant provisions of the
Constitution. 11 This power may be exercised when the party
adversely affected by either a legislative or executive act, or a
municipal ordinance for that matter, files the appropriate suit
to test its validity. The special civil action of prohibition has
been relied upon precisely to restrain the enforcement of
what is alleged to be an unconstitutional statute. 12 As it is a
fundamental postulate that the Constitution as the supreme
law is binding on all governmental agencies, failure to
observe the limitations found therein furnishes a sufficient
ground for a declaration of the nullity of the governmental
measure challenged. The argument then that the
government is the adverse party and that therefore must
consent to its being sued certainly is far from persuasive.
Moreover, it is equally well-settled that for the purpose of
thus obtaining a judicial declaration of nullity, it is enough if
the respondents or defendants named be the government
officials who would give operation and effect to official action
allegedly hinted with unconstitutionality. As it cannot be
denied that in 1959 the then Land Tenure Administration as
well as the Solicitor General were called upon to enforce the
statute now assailed, it would appear clear that the
insistence on the Executive Secretary being made a party
lacks support in law.
It would be then to set aside and disregard doctrines of
unimpeachable authority if the plea of respondents on these
procedural points raised were to meet an affirmative
response. That we are not disposed to do.
2. Thus we reach the merits. It would appear, at noted at the
outset, that for the purpose of deciding the question of
validity squarely raised, a further inquiry into the scope of the
constitutional power of Congress to authorize the
expropriation of lands to be subdivided into small lots and
conveyed at cost to individuals 13 is indicated, if for no other
purpose than to attain a greater degree of clarity. The
question is one then of constitutional construction. It well to
recall fundamentals. The primary task is one of ascertaining
and thereafter assuring the realization of the purpose of the
framers and of the people in the adoption of the Constitution.
We look to the language of the document itself in our search
for its meaning. We do not of course stop there, but that is
where we begin. It is to be assumed that the words in which
constitutional provisions are couched express the objective
sought to be attained. They are to be given their ordinary
meaning except where technical terms are employed in
which case the significance thus attached to them prevails. As
the Constitution is not primarily a lawyer's document, it being
essential for the rule of law to obtain that it should ever be
present in the people's consciousness, its language as much
as possible should be understood in the sense they have in
common use. What it says according to the text of the
provision to be construed compels acceptance and negates
the power of the courts to alter it, based on the postulate
that the framers and the people mean what they say. Thus
there are cases where the need for construction is reduced to
a minimum.
This is one of them. It does not admit of doubt that the
congressional power thus conferred is far from limited. It is
left to the legislative will to determine what lands may be
expropriated so that they could be subdivided for resale to
those in need of them. Nor can it be doubted either that as to
when such authority may be exercised is purely for Congress
to decide. Its discretion on the matter is not to be interfered
with. The language employed is not swathed in obscurity. The
recognition of the broad congressional competence is
undeniable. The judiciary in the discharge of its task to
enforce constitutional commands and prohibitions is denied
the prerogative of curtailing its well-nigh all-embracing
sweep.
Reference to the historical basis of this provision as reflected
in the proceedings of the Constitutional Convention, two of
the extrinsic aids to construction along with the
contemporaneous understanding and the consideration of
the consequences that flow from the interpretation under
consideration, yields additional light on the matter. The
opinion of Justice Tuason, in the Guido case did precisely that.
It cited the speech of delegate Miguel Cuaderno, who, in
speaking of large estates and trusts in perpetuity, stated:
"`There has been an impairment of public tranquillity, and to
be sure a continuous impairment of it, because of the
existence of these conflicts. In our folklore the oppression
and exploitation of the tenants are vividly referred to; their
sufferings at the hand of the landlords are emotionally
pictured in our drama; and even in the native movies and
talkies of today, this theme of economic slavery has been
touched upon. In official documents these same conflicts are
narrated and exhaustively explained as a threat to social
order and stability.'" 15 He invoked likewise what happened
to the family of our national hero Jose Rizal: "`But we should
go to Rizal for inspiration and illumination in this problem of
the conflicts between landlords and tenants. The national
hero and his family were persecuted because of these same
conflicts in Calamba, and Rizal himself met a martyr's death
because of his exposal of the cause of the tenant class,
because he would not close his eyes to oppression and
persecution with his own people as victims.'" 16 Delegate
Cuaderno closed with this appeal: "`If we are to be true to
our trust, if it is our purpose in drafting our constitution to
insure domestic tranquillity and to provide for the well-being
of our people, we cannot, we must not fail to prohibit the
ownership of large estates, to make it the duty of the
government to break up existing large estates, and to provide
for their acquisition by purchase or through expropriation
and sale to their occupants, as has been provided in the
Constitutions of Mexico and Jugoslavia." 17
The above address was delivered during the early days of the
convention on August 21, 1984. 18 Subsequently, the day
before the above constitutional provision was voted on
January 29, 1935 he reiterated what was said by him in the
above address. Thus: "Mr. President, this will be my last
speech in the Convention. And I just want to remind the
Convention of the first speech that I delivered — the first
speech I delivered before this Assembly. I believe, Mr.
President, that one of the best provisions that this draft of
the Constitution contains is this provision that will prevent
the repetition of the history of misery, of trials and
tribulations of the poor tenants throughout the length and
breadth of the Philippine Islands." 19
This is not to say that such an appeal to history as disclosed
by what could be accepted as the pronouncement that did
influence the delegates to vote for such a grant of power
could be utilized to restrict the scope thereof, considering the
language employed. For what could be expropriated are
"lands," not "landed estates." It is well to recall what Justice
Laurel would impress on us, "historical discussion while
valuable is not necessarily decisive." 20 It is easy to
understand why.
The social and economic conditions are not static. They
change with the times. To identify the text of a written
constitution with the circumstances that inspired its inclusion
may render it incapable of being responsive to future needs.
Precisely, it is assumed to be one of the virtues of a written
constitution that it suffices to govern the life of the people
not only at the time of its framing but far into the indefinite
future. It is not to be considered as so lacking in flexibility and
suppleness that it may be a bar to measures, novel and
unorthodox, as they may appear to some, but nonetheless
imperatively called for. Otherwise, it might expose itself to
the risk of inability to survive in the face of complexities that
time may bring in its wake.
It would thus be devoid of the character of permanency,
which is the distinguishing mark of a constitution. Such was
the conclusion deliberately arrived at after extensive
discussion in the Constitutional Convention that the
Constitution as adopted in 1935 would be good not only for
the Commonwealth but for the Republic, with all the
vicissitudes that time and circumstance would bring. Our
people in signifying their adherence to the Constitution at the
plebiscite thereafter held were of a similar persuasion.
The continuing life of a constitution was stressed by one of
the chief architects of the Constitution, Manuel A. Roxas,
later to be the first President of the Republic. For him it is
"the essence [of such an] instrument." 21 It was his view that
the constitution to be adopted by the Constitutional
Convention of 1934 would "have an indefinite life, will be
permanent, subject of course, to revisions, amendments and
other changes that may be adopted constitutionally." 22 That
would be an assurance that constitutional guarantees "will be
maintained, property rights will be safeguarded and
individual rights maintained immaculate and sanctified. . . .."
23 Another prominent delegate, Gregorio Perfecto, later a
member of this Tribunal, aptly noted that the transitory
character is essentially incompatible with the nature of laws,
and necessarily so of a constitution, which is the supreme law
of a people and therefore must be impressed with such
attribute of permanency, much more than ordinary statutes
passed under its authority. 24
It could thus be said of our Constitution as of the United
States Constitution, to borrow from Chief Justice Marshall's
pronouncement in M'Culloch v. Maryland 25 that it is
"intended to endure for ages to come and consequently, to
be adapted to the various crisis of human affairs." It cannot
be looked upon as other than, in the language of another
American jurist, Chief Justice Stone, "a continuing instrument
of government." 26 Its framers were not visionaries, toying
with speculations or theories, but men of affairs, at home in
statecraft, laying down the foundations of a government
which can make effective and operative all the powers
conferred or assumed, with the corresponding restrictions to
secure individual rights and, anticipating, subject to the
limitations of human foresight, the problems that events to
come in the distant days ahead will bring. Thus a constitution,
to quote from Justice Cardozo, "states or ought to state not
rules for the passing hour, but principles for an expanding
future." 27
To that primordial intent, all else is subordinated. Our
Constitution, any constitution, is not to be construed
narrowly or pedantically, for the prescriptions therein
contained, to paraphrase Justice Holmes, are not
mathematical formulas having their essence in their form,
but are organic living institutions, the significance of which is
vital nor formal. There must be an awareness, as with Justice
Brandeis, not only of what has been, but of what may be. The
words employed by it are not to be construed to yield fixed
and rigid answers but as impressed with the necessary
attributes of flexibility and accommodation to enable them
to meet adequately whatever problems the future has in
store. It is not, in brief, a printed finality but a dynamic
process.
3. The conclusion is difficult to resist that the text of the
constitutional provision in question, its historical background
as noted in pronouncements in the Constitutional
Convention and the inexonerable need for the Constitution
to have the capacity for growth and ever be adaptable to
changing social and economic conditions all argue against its
restrictive construction. Such an approach was reflected
succinctly in the dissenting opinion of Justice J.B.L Reyes,
concurred in by the present Chief Justice, in the Baylosis case.
We find it persuasive.
His dissenting opinion opens thus: "I am constrained to
dissent from the opinion of the majority. The reasons set
forth by it against the validity of the proposed expropriation
strike me as arguments against the expropriation policies
adopted by the government rather than reasons against the
existence and application of the condemnation power in the
present case." 28 Then he stated: "The propriety of exercising
the power of eminent domain under Article XIII, section 4 of
our Constitution can not be determined on a purely
quantitative or area basis. Not only does the constitutional
provision speak of lands instead of landed estates, but I see
no cogent reason why the government, in its quest for social
justice and peace, should exclusively devote attention to
conflicts of large proportions, involving a considerable
number of individuals, and eschew small controversies and
wait until they grow into a major problem before taking
remedial action." 29
As to the role of the courts in the appraisal of the
congressional implementation of such a power, he had this to
say: "The Constitution considered the small individual land
tenure to be so important to the maintenance of peace and
order and to the promotion of progress and the general
welfare that it not only provided for the expropriation and
subdivision of lands but also opened the way for the
limitation of private landholdings (Art. XIII, section 3). It is not
for this Court to judge the worth of these and other social
and economic policies expressed by the Constitution; our
duty is to conform to such policies and not to block their
realization." 30
differentiate the present situation from that found in the
Baylosis case. Thus Justice Montemayor noted: "The
evidence shows that both Sinclair and Cirilo P. Baylosis at one
time were willing to sell to some of the tenants and
occupants herein involved under certain conditions and
provided that they buy in groups, presumably to avoid
subdivisions and the problem of dealing with many individual
buyers, but the tenants failed to buy. Naturally, they may not
now compel Sinclair and Cirilo P. Baylosis to sell to them
through the Government by means of expropriation. Besides,
the bulk of the lands that Sinclair and Cirilo P. Baylosis had
formerly offered to them for sale which offer they failed to
take advantage of, has now been sold to others, the other codefendants herein, in small lots." 31 Likewise, it was noted by
him: "There is another point that merits consideration. The
defendants claim and correctly that many of the tenants and
occupants now insisting on expropriation have lands of their
own." 32
The more fundamental reason though why we find ourselves
unable to yield deference to such opinion of Justice
Montemayor, well-written and tightly-reasoned as it is, is its
undue stress on property rights. It thus appears then that it
failed to take into account the greater awareness exhibited
by the framers of our Constitution of the social forces at work
when they drafted the fundamental law. To be more specific,
they were seriously concerned with the grave problems of
inequality of wealth, with its highly divisive tendency,
resulting in the generous scope accorded the police power
and eminent domain prerogatives of the state, even if the
exercise thereof would cover terrain previously thought of as
beyond state control, to promote social justice and the
general welfare.
The above dissent, as well as that penned by the then Chief
Justice Paras with whom the then Justice Pablo was in
agreement, with Justice Alex Reyes writing a concurring
opinion, resulted in that the main opinion of Justice
Montemayor, while prevailing, failed to elicit the necessary
majority vote of six. If for that reason alone its reexamination would not appear to be inappropriate.
Moreover, it could not be considered as controlling the
present suit, in view of the fact that the exercise of the
congressional authority to expropriate land was not direct as
in this case but carried out in pursuance of the statutory
authority conferred on the President under Commonwealth
Act No. 539.
This is not to say of course that property rights are
disregarded. This is merely to emphasize that the philosophy
of our Constitution embodying as it does what Justice Laurel
referred to as its "nationalistic and socialist traits
discoverable upon even a sudden dip into a variety of [its]
provisions" although not extending as far as the "destruction
or annihilation" of the rights to property, 33 negates the
postulate which at one time reigned supreme in American
constitutional law as to their well-nigh inviolable character.
This is not so under our Constitution, which rejects the
doctrine of laissez faire with its abhorrence for the least
interference with the autonomy supposed to be enjoyed by
the property owner. Laissez faire, as Justice Malcolm pointed
out as far back as 1919, did not take too firm a foothold in
our jurisprudence. 34 Our Constitution is much more explicit.
There is no room for it for laissez faire. So Justice Laurel
affirmed not only in the above opinion but in another
concurring opinion quoted with approval in at least two of
our subsequent decisions. 35 We had occasion to reiterate
such a view in the ACCFA case, decided barely two months
ago. 36
The absence of any controlling force of such prevailing
opinion can likewise be predicated on facts which would
This particular grant of authority to Congress authorizing the
expropriation of land is a clear manifestation of such a policy
that finds expression in our fundamental law. So is the social
justice principle enshrined in the Constitution of which it is an
expression, as so clearly pointed out in the respective
dissenting opinions of Justice J.B.L. Reyes and Chief Justice
Paras in the Baylosis case. Why it should be thus is so
plausibly set forth in the ACCFA decision, the opinion being
penned by Justice Makalintal. We quote: "The growing
complexities of modern society, however, have rendered this
traditional classification of the functions of government quite
unrealistic, not to say obsolete. The areas which used to be
left to private enterprise and initiative and which the
government was called upon to enter optionally, and only
`because it was better equipped to administer for the public
welfare than is any private individual or group of individuals,'
continue to lose their well-defined boundaries and to be
absorbed within activities that the government must
undertake in its sovereign capacity if it is to meet the
increasing social challenges of the times. Here as almost
everywhere else the tendency is undoubtedly towards a
greater socialization of economic forces. Here of course this
development was envisioned, indeed adopted as a national
policy, by the Constitution itself in its declaration of principle
concerning the promotion of social justice."
It would thus appear that the prevailing opinion in the
Baylosis case is far from compelling. To the extent that the
conclusion reached by us in this suit proceeds from a
different reading of the constitutional provision in question,
it must be deemed as being possessed of less than decisive
weight.
4. There need be no fear that such constitutional grant of
power to expropriate lands is without limit. As in the case of
the more general provision on eminent domain, there is the
explicit requirement of the payment of just compensation. It
is well-settled that just compensation means the equivalent
for the value of the property at the time of its taking.
Anything beyond that is more, and anything short of that is
less, than just compensation. It means a fair and full
equivalent for the loss sustained, which is the measure of the
indemnity, not whatever gain would accrue to the
expropriating entity. The market value of the land taken is
the just compensation to which the owner of condemned
property is entitled, the market value being that sum of
money which a person desirous, but not compelled to buy,
and an owner, willing, but not compelled to sell, would agree
on as a price to be given and received for such property.
There must be a consideration then of all the facts which
make it commercially valuable. The question is what would
be obtained for it on the market from parties who want to
buy and would give full value. Testimonies as to real estate
transactions in the vicinity are admissible. It must be shown
though that the property as to use must be of similar
character to the one sought to be condemned. The
transaction must likewise be coeval as to time. To the market
value must be added the consequential damages, if any,
minus the consequential benefits. The assessed value of real
property while constituting prima facie evidence of its value
in case of condemnation proceedings is not conclusive. 37
Then, too, it is a prerequisite for the valid exercise of such a
congressional power that the taking be for the public use. To
quote from the Guido decision: "It has been truly said that
the assertion of the right on the part of the legislature to take
the property of one citizen and transfer it to another, even
for a full compensation, when the public interest is not
promoted thereby, is claiming a despotic power, and one
inconsistent with every just principle and fundamental maxim
of a free government." 38 It is on that account that we
granted prohibition to restrain respondent Rural Progress
Administration from proceeding with the expropriation of
petitioner's land, two adjoining lots, part commercial with a
combined area of slightly more than two hectares. As was
stressed by Justice Tuason in his opinion: "No fixed line of
demarcation between what taking is for public use and what
is not can be made; each case has to be judged according to
its peculiar circumstances. It suffices to say for the purpose of
this decision that the case under consideration is far wanting
in those elements which make for public convenience or
public use." 39 Such is not the situation before us now. Nor
are we disposed to dispute the legislative appraisal of the
matter.
5. The failure to meet the exacting standard of due process
would likewise constitute a valid objection to the exercise of
this congressional power. That was so intimated in the above
leading Guido case. There was an earlier pronouncement to
that effect in a decision rendered long before the adoption of
the Constitution under the previous organic law then in force,
while the Philippines was still an unincorporated territory of
the United States. 40
It is obvious then that a landowner is covered by the mantle
of protection due process affords. It is a mandate of reason.
It frowns on arbitrariness, it is the antithesis of any
governmental act that smacks of whim or caprice. It negates
state power to act in an oppressive manner. It is, as had been
stressed so often, the embodiment of the sporting idea of fair
play. In that sense, it stands as a guaranty of justice. That is
the standard that must be met by any governmental agency
in the exercise of whatever competence is entrusted to it. 41
As was so emphatically stressed by the present Chief Justice,
"acts of Congress, as well as those of the Executive, can deny
due process only under pain of nullity, . . .." 42
It is easily understandable then why the expropriation of lots
less than one hectare in City of Manila v. Arellano Law
College, 43 Lee Tay v. Choco 44 and Republic vs. Samia 45
and of lots less than two hectares in Commonwealth v. De
Borja 46 and Republic v. Prieto 47 was not given the sanction
of approval by this Court, the failure to meet the due process
requirement being quite evident.
6. It is primarily the equal protection guaranty though that
petitioner's case is made to rest. The Constitution requires
that no person be denied "the equal protection of the laws."
48 A juridical being is included within its terms.
The assumption underlying such a guaranty is that a legal
norm, whether embodied in a rule, principle, or standard,
constitutes a defense against anarchy at one extreme and
tyranny at the other. Thereby, people living together in a
community with its myriad and complex problems can
minimize the friction and reduce the conflicts, to assure, at
the very least, a peaceful ordering of existence. The ideal
situation is for the law's benefits to be available to all, that
none be placed outside the sphere of its coverage. Only thus
could chance and favor be excluded and the affairs of men
governed by that serene and impartial uniformity, which is of
the very essence of the idea of law.
The actual, given things as they are and likely to continue to
be; cannot approximate the ideal. Nor is the law susceptible
to the reproach that it does not take into account the
realities of the situation. The constitutional guaranty then is
not to be given a meaning that disregards what is, what does
in fact exist. 49 To assure that the general welfare be
promoted, which is the end of law, a regulatory measure may
cut into the rights to liberty and property. Those adversely
affected may under such circumstances invoke the equal
protection clause only if they can show that the
governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit
of hostility, or at the very least, discrimination that finds no
support in reason.
It suffices then that the laws operate equally and uniformly
on all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the
liabilities imposed. Favoritism and undue preference cannot
be allowed. For the principle is that equal protection and
security shall be given to every person under circumstances,
which if not identical are analogous. If law be looked upon in
terms of burden or charges, those that fall within a class
should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding on the rest.
It is precisely because the challenged statute applies only to
petitioner that he could assert a denial of equal protection.
As set forth in its brief: "Republic Act No. 2616 is directed
solely against appellee and for this reason violates the equal
protection clause of the Constitution. Unlike other laws
which confer authority to expropriate landed estates in
general, it singles out the Tatalon Estate. It cannot be said,
therefore, that it deals equally with other lands in Quezon
City or elsewhere." 50 With due recognition then of the
power of Congress to designate the particular property to be
taken and how much thereof may be condemned in the
exercise of the power of expropriation, it is still a judicial
question whether in the exercise of such competence, the
party adversely affected is the victim of partiality and
prejudice. That the equal protection clause will not allow.
The judiciary can look into the facts then, no conclusiveness
being attached to a determination of such character when
reliance is had either to the due process clause which is a
barrier against arbitrariness and oppressiveness and the
equal protection guaranty which is an obstacle to invidious
discrimination.
We start of course with the presumption of validity, the
doubts being resolved in favor of the challenged enactment.
51 As this is the first statute of its kind assailed, we should
not stop our inquiry here. The occasion that called for such
legislation, if known, goes far in meeting any serious
constitutional objection raised. We turn to the Explanatory
Note of the bill, 52 which was enacted into the challenged
statute. It started with the declaration that it provides for the
"expropriation of the Tatalon Estate, Quezon City, and for the
sale at cost of the lots therein to their present bona fide
occupants, authorizing therefor the appropriation of ten
million pesos." Then it continued: "The Tatalon Estate has an
area of more than ninety-six hectares and the lots therein are
at present occupied by no less than one thousand five
hundred heads of families, most of whom are veterans of
World War II. It is the earnest desire of this group of patriotic
and loyal citizens to purchase the lots at a minimum cost."
Why there was such a need for expropriation was next taken
up: "The population of Quezon City has considerably
increased. This increase in population is posing a serious
housing problem to city residents. This bill will not only solve
the problem but will also implement the land-for-the-landless
program of the present Administration."
What other facts are there which would remove the alleged
infirmity of the statute on equal protection grounds? The
brief for respondents invited our attention to "the social
problem which this legislation was intended to remedy. Thus:
"There is a vital point which should have great weight in the
decision of this case. The petitioner led the occupants of
Tatalon Estate to believe that they were dealing with the
representatives of the real owners, the Veterans Subdivision,
in the purchase of their lots. The occupants believed in good
faith that they were dealing with the representatives of the
owners of the lots. This belief was bolstered by the fact that
the petitioners herein even entered into a compromise
agreement on March 16, 1953 with the Deudors, agreeing to
give the latter millions of pesos in settlement of their claim
over the Tatalon Estate. The occupants, therefore, purchased
their respective portions from the Veterans Subdivision in
good faith. The petitioner allowed the Veterans Subdivision
to construct roads in the Tatalon Estate; it allowed said firm
to establish an office in the Tatalon Estate and to advertise
the sale of the lots inside the Tatalon Estate. Petitioner
admits having full knowledge of the activities of the Veterans
Subdivision and yet did not lift a finger to stop said acts. The
occupants paid good money for their lots and spent fortunes
to build their homes. It was after the place has been
improved with the building of the roads and the erection of
substantial residential homes that petitioner stepped into the
picture, claiming for the first time that it is the owner of the
Tatalon Estate. Some of the occupants had erected their
houses as early as 1947 and 1948 . . ." 53
The cutting edge of the above assertions could have been
blunted by the brief for petitioner. This is all it did say on the
matter though: "Appellants alleged that appellee `led the
occupants of Tatalon Estate to believe that they were dealing
with the representatives of the real owners, the Veterans
Subdivision, in the purchase at their lots' . . . . There is
absolutely no evidence on record to establish this ludicrous
allegation. 54 "Only the alleged duplicity of petitioner was
denied, leaving unanswered the rather persuasive recital of
conditions that could rightly motivate Congress to act as it
did. Clearly, there is no sufficient refutation of the
seriousness of the problem thus underscored by respondents,
the solution of which is the aim of the statute now under
attack.
This is not to deny that whenever Congress points to a
particular piece of property to be expropriated, it is faced
with a more serious scrutiny as to its power to act in the
premises. It would require though a clear and palpable
showing of its having singled out a party to bear the brunt of
governmental authority that may be legitimately exerted,
induced, it would appear by a feeling of disapproval or ill-will
to make out a case of this guaranty having been disregarded.
If such were the case, then in the language of Justice Laurel,
it "will be the time to make the [judicial] hammer fall and
heavily. But not until then." 55 The most careful study of the
matter before us however yields the conclusion that
petitioner was unable to sustain the burden of demonstrating
a denial of equal protection.
Moreover, there is nothing to prevent Congress in view of the
public funds at its disposal to follow a system of priorities. It
could thus determine what lands would first be the subject of
expropriation. This it did under the challenged legislative act.
As already noted, Congress was moved to act in view of what
it considered a serious social and economic problem. The
solution which for it was the most acceptable was the
authorization of the expropriation of the Tatalon Estate. So it
provided under the statute in question. It was confronted
with a situation that called for correction, and the legislation
that was the result of its deliberation sought to apply the
necessary palliative. That it stopped short of possibly
attaining the cure of other analogous ills certainly does not
stigmatize its effort as a denial of equal protection. We have
given our sanction to the principle underlying the exercise of
police power and taxation, but certainly not excluding
eminent domain, that "the legislature is not required by the
Constitution to adhere to the policy of `all or none'." 56 Thus,
to reiterate, the invocation by petitioner of equal protection
clause is not attended with success.
7. The other points raised may be briefly disposed of. Much is
made of what the lower court considered to be the
inaccuracy apparent on the face of the challenged statute as
to the ownership of the Tatalon Estate. It could very well be
that Congress ought to have taken greater pains to avoid
such imprecision. At any rate, the lower court, unduly
alarmed, would consider it a deprivation of property without
due process of law. 57 Such a fear is unwarranted. In the
course of the expropriation proceedings, there undoubtedly
would be a judicial determination as to the party entitled to
the just compensation. As of now then, such a question
would appear at the very least to be premature. Reference is
likewise made as to the effect of the authorized
expropriation on those purchasers of lots located in the
Tatalon Estate. Again, on the occasion of the expropriation,
whatever contractual rights might be possessed by vendors
and vendees could be asserted and accorded the appropriate
constitutional protection.
8. What appears undeniable is that in the light of the broad
grant of congressional power so apparent from the text of
the constitutional provision, the historical background as
made clear during the deliberation for the Constitutional
Convention, and the cardinal postulate underlying
constitutional construction that its provisions are not to be
interpreted to preclude their being responsive to future
needs, the fundamental law being intended to govern the life
of a nation as it unfolds through the ages, the challenged
statute can survive the test of validity. If it were otherwise,
then the judiciary may lend itself susceptible to the charge
that in its appraisal of governmental measures with social
and economic implications, its decisions are characterized by
the narrow, unyielding insistence on the primacy of property
rights, contrary to what the Constitution ordains. In no other
sphere of judicial activity are judges called upon to transcend
personal predilections and private notions of policy, lest
legislation intended to bring to fruition the hope of a better
life for the great masses of our people, as embodied in the
social justice principle of which this constitutional provision
under scrutiny is a manifestation, be unjustifiably stricken
down. The appealed decision cannot stand.
WHEREFORE, the decision of the lower court of January 10,
1963 holding that Republic Act No. 2616 as amended by
Republic Act No. 3453 is unconstitutional is reversed. The
writ of prohibition suit is denied, and the preliminary
injunction issued by the lower court set aside. With costs
against petitioner.
[G.R. No. L-15270. September 30, 1961.]
JOSE V. HERRERA and ESTER OCHANGCO HERRERA,
petitioners, vs. THE QUEZON CITY BOARD OF ASSESSMENT
APPEALS, respondent.
Angel A. Sison for petitioners.
Jaime Agloro for respondent.
SYLLABUS
1. TAXATION; REAL ESTATE TAXES; CHARITABLE HOSPITALS
AND EDUCATIONAL INSTITUTIONS; WHEN BENEVOLENT
CHARACTER OF HOSPITAL NOT DETRACTED BY ADMISSION
OF PAY PATIENTS. — The admission of pay-patients does not
detract from the charitable character of a hospital, if all of its
funds are devoted "exclusively to the maintenance of the
institution as a public charity" (84 C.J.S., 617; see also, 51 Am.
Jur., 607; Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R.,
1489-1492). In other words, "where rendering charity is its
primary object, and the funds derived from payments made
by patients able to pay are devoted to the benevolent
purposes of the institution, the mere fact that a profit has
been made will not deprive the hospital of its benevolent
character" (Prairie Du Chian Sanitarium Co. vs. City of Prairie
Du Chian, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R., 1480). The
fact, therefore, that in the case at bar, St. Catherine's
Hospital, which is a charitable institution, admits pay-patients,
does not bar it from claiming that it is devoted exclusively to
benevolent purposes, it being admitted that the income
derived from pay-patients is devoted to the improvement of
the charity wards, which represent almost two-thirds (2/3) of
the bed capacity of the hospital, aside from "out-charity
patients" who come only for consultation.
2. ID.; ID.; ID.; EXTENT OF EXEMPTION. — The exemption in
favor of property used exclusively for charitable or
educational purposes is "not limited to property actually
indispensable" therefor (Cooley on Taxation, Vol. 2, p. 1430),
but extends to facilities which are "incidental to and
reasonably necessary for" the accomplishment of said
purposes, such as in the case of hospitals, "a school for
training nurses, a nurses' home, property used to provide
housing
facilities
for
interns,
resident
doctors,
superintendents, and other members of the hospital staff,
and recreational facilities for student nurses, interns and
residents" (84 C.J.S., 621), such as "athletic fields," including
"a farm used for the inmates of the institution" (Cooley on
Taxation, Vol. 2, p. 1430).
3. ID.; ID.; ID.; ID.; LANDS BUILDING AND IMPROVEMENTS
BEYOND THE TAXING POWER IRRESPECTIVE OF PROFITS. —
The existence of "St. Catherine's School of Midwifery," with
an enrollment of about 200 students, who practice partly in
St. Catherine's Hospital and partly in St. Mary's Hospital,
which, likewise, belongs to petitioners, does not, and cannot,
effect the exemption to which St. Catherine's Hospital is
entitled under the Constitution. The fact that the size of the
enrollment and the students, aside from the amount they
paid for board and lodging, warrant the belief that a
substantial profit is derived from the operation of the said
school, is immaterial to the issue of whether or not real
estate taxes should be paid, because "all lands, buildings and
improvements used exclusively for religious, charitable or
educational purposes shall be exempt from taxation,"
pursuant to the Constitution, regardless of whether or not
material profit are derived from the operation of the
institutions in question. In other words, Congress may, if it
deems fit to do so, impose taxes upon such "profits," but said
"lands, building and improvements" are beyond its taxing
power.
4. ID.; ID.; ID.; ID.; FACTORS THAT DO NOT AFFECT THE
CHARITABLE CHARACTER OF A HOSPITAL. — The fact that a
garage located in the hospital was being used in the
operation of the school of midwifery because the students
enrolled therein were entitled to transportation, and that the
hospital directress, who received no compensation, and her
family, resided in the building, were incidental to the
operation of the hospital, and, accordingly, did not affect the
charitable character of the hospital and the educational
nature of the school.
DECISION
CONCEPCION, J p:
Appeal, by petitioners Jose V. Herrera and Ester Ochangco
Herrera, from a decision of the Court of Tax Appeals affirming
that of the Board of Assessment Appeals of Quezon City,
which held that certain properties of said petitioners are
subject to assessment for purposes of real estate tax.
The facts and the issue are set forth in the aforementioned
decision of the Court of Tax Appeals, from which we quote:
"On July 24, 1952, the Director of the Bureau of Hospitals
authorized the petitioners to establish and operate the 'St.
Catherine's Hospital,' located at 58 D. Tuazon, Sta. Mesa
Heights. Quezon City (Exhibit 'F-1', p. 7, BIR rec.). On or about
January 3, 1953, the petitioners sent a letter to the Quezon
City Assessor requesting exemption from payment of real
estate tax on the lot, building and other improvements
comprising the hospital stating that the same was established
for charitable and humanitarian purposes and not for
commercial gain (Exhibit 'F-2', pp. 8-9, BIR rec.). After an
inspection of the premises in question and after a careful
study of the case, the exemption from real property taxes
was granted effective the years 1953, 1954 and 1955.
"Subsequently, however, in a letter dated August 10, 1955
(Exhibit 'E', p. 65, CTA rec.) the Quezon City Assessor notified
the petitioners that the aforesaid properties were reclassified from 'exempt' to 'taxable' and thus assessed for
real property taxes effective 1956, enclosing therewith copies
of Tax Declaration Nos. 19321 to 19322 covering the said
properties. The petitioners appealed the assessment to the
Quezon City Board of Assessment Appeals, which, in a
decision dated March 31, 1956 and received by the former
on May 17, 1956, affirmed the decision of the City Assessor.
A motion for reconsideration thereof was denied on March 8,
1957. From this decision, the petitioners instituted the
instant appeal.
"The building involved in this case is principally used as a
hospital. It is mainly a surgical and orthopedic hospital with
emphasis on obstetrical cases, the latter constituting 90% of
the total number of cases registered therein. The hospital has
thirty-two (32) beds, of which twenty (20) are for charitypatients and twelve (12) for pay-patients. From the evidence
presented by petitioners, it is made to appear that there are
two kinds of charity-patients — (a) those who come for
consultation only ('out-charity patients'); and (b) those who
remain in the hospital for treatment ('lying-in-patients'). The
out-charity patients are given free consultation and
prescription, although sometimes they are furnished with
free medicines which are not costly like aspirin, sulfatiazole,
etc. The charity lying-in-patients are given free medical
service and medicine although the food served to the paypatients is very much better than that given to the former.
Although no condition is imposed by the hospital on the
admission of charity lying-in-patients, they however, usually
give donations to the hospital. On the other hand, the paypatients are required to pay for hospital services ranging
from the minimum charge of P5.00 to the maximum of
P40.00 for each day of stay in the hospital. The income
realized from pay-patients is spent for the improvement of
the charity wards. The hospital personnel is composed of
three nurses, two graduate midwives, a resident physician
receiving a salary of P170.00 a month and the petitioner, Dr.
Ester Ochangco Herrera, as directress. As such directress, the
latter does not receive any salary.
"Petitioners also operate within the premises of the hospital
the 'St. Catherine's School of Midwifery' which was granted
government recognition by the Secretary of Education on
February 1, 1955 (Exhibit 'F-3', p. 10, BIR rec.). This school has
an enrollment of about two hundred students. The students
are charge a matriculation fee of P300.00 for 1-1/2 years,
plus P50.00 a month for board and lodging, which includes
transportation to the St. Mary Hospital. The students practice
in the St. Catherine's Hospital, as well as in the St. Mary's
Hospital, which is also owned by the petitioners. A separate
set of accounting books is maintained by the school for
midwifery distinct from that kept by the hospital. The
petitioners alleged that the accounts of the school are not
included in Exhibits 'A', 'A-1', 'A-2', 'B', 'B-1', 'B'-2', 'C', 'C-1'
and 'C-2' which relate to the hospital only. However, the
petitioners have refused to submit a separate statement of
accounts of the school. A brief tabulation indicating the
amount of income of the hospital for the years 1954, 1955
and 1956, and its operational expenses, is as follows:
1954
Income
Expenses
Deficit
Charity Ward
Pay Ward
P14,779.50
(Exhibits 'A', 'A-1' and 'A-2')
1955
Income
Charity Ward
Pay Ward
P17,433.30
(Exhibits 'B', 'B-1' and 'B-2')
1956
Income
P5,280.04 P1,303.80
10,803.26
—————
P16,083.30
Expenses
P21,467.40
P5,559.89
16,249.04
—————
P21,808.93
P341.53
(Exhibits 'C', 'C-1' and 'C-2)
"Aside from the St. Catherine and St. Mary hospitals, the
petitioners declared that they also own lands and coconut
plantations in Quezon Province, and other real estate in the
City of Manila consisting of apartments for rent. The
petitioner, Jose V. Herrera, is an architect, actively engaged in
the practice of his profession, with office at Tuason Building,
Escolta, Manila. He was formerly Chairman, Board of
Examiners for Architects and Chairman, Board of Architects
connected with the United Nations. He was also connected
with the Allied Technologists which constructed the Veterans
Hospital in Quezon City.
"The only issue raised, is whether or not the lot, building and
other improvements occupied by the St. Catherine Hospital
are exempt from the real property tax. The resolution of this
question boils down to the corollary issue as to whether or
not the said properties are used exclusively for charitable or
educational purposes." (Petitioners' brief, pp. 24-29).
The Court of Tax Appeals decided the issue in the negative,
upon the ground that the St. Catherine's Hospital "has a pay
ward for . . . pay-patients, who are charged for the use of the
private rooms, operating room, laboratory room, delivery
room, etc., like other hospitals operated for profit" and that
"petitioners and their family occupy a portion of the building
for their residence." With respect to petitioners' claim for
exemption based upon the operation of the school of
midwifery, the Court conceded that "the proposition might
be proper if the property used for the school of midwifery
were separate and distinct from the hospital." It added,
however, that, "in the instant case, the portions of the
building used for classrooms of the school of midwifery have
not been shown to be exclusively for school purposes"; that
said portions "rather . . . have a dual use, i.e., for classroom
and for hospital use, the latter not being a purpose that
renders the property tax exempt," that part of the building
and lot in question "is used as hospital, part as residence of
the petitioners, part as garage, part as dormitory and part as
school"; and that "the portion dedicated to educational and
charitable purposes can not be identified from those
destined to other uses; and the building is itself an indivisible
unit of property."
Deficit
P6,859.32
14,038.92 P3,464.94
—————
P20,898.24
Expenses
Charity Ward
Pay Ward
Deficit
It should be noted, however, that, according to the very
statement of facts made in the decision appealed from, of
the thirty- two (32) beds in the hospital, twenty (20) are for
charity-patients; that "the income realized from pay-patients
is spent for improvement of the charity wards"; and that
"petitioner, Dr. Ester Ochangco Herrera, as directress" of said
hospital, "does not receive any salary," although its resident
physician gets a monthly salary of P170.00. It is well settled,
in this connection, that the admission of pay-patients does
not detract from the charitable character of a hospital, if all
of its funds are devoted "exclusively to the maintenance of
the institution" as a "public charity" (84 C.J.S., 617; see, also,
51 Am. Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144
A.L.R., 1489-1492). In other words, "where rendering charity
is its primary object, and the funds derived from payments
made by patients able to pay are devoted to the benevolent
purposes of the institution, the mere fact that a profit has
been made will not deprive the hospital of its benevolent
character" (Prairie Du Chien Sanitarium Co. vs. City of Prairie
Du Chien, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480).
Thus, we have held that the U.S.T. Hospital was not
established for profit-making purposes, although it had 140
paying beds maintained only to partly finance the expenses
of the free wards, containing 203 beds for charity patients
(U.S.T. Hospital Employees Association vs. Sto. Tomas
University Hospital, L-6988, May 24, 1954), that the St. Paul's
Hospital of Iloilo, a corporation organized for "charitable
educational and religious purposes" can not be considered as
engaged in business merely because its pharmacy
department charges paying patients the cost of their
medicine, plus 10% thereof, to partly offset the cost of
medicines supplied free of charge to charity patients
(Collector of Internal Revenue vs. St. Paul's Hospital of Iloilo,
L-12127, May 25, 1959), and that the amendment of the
original articles of incorporation of the University of Visayas
to convert it from a non-stock to a stock corporation and the
increase of its assets from P9,000 to P50,000, distributed
among the members of the original non-stock corporation in
terms of shares of stock, as well as the subsequent move of
its board of trustees to double the stock dividends of the
corporation, in view of a gain of P200,000.00 in property,
besides good-will, which was not carried out, does not justify
the inference that the corporation has become one for
business and profit, none of its profits having inured to the
benefit of any stockholder or individual (Collector of Internal
Revenue vs. University of Visayas, L-13554, February 28,
1961).
Moreover, the exemption in favor of property used
exclusively for charitable or educational purposes is "not
limited to property actually indispensable" therefore (Cooley
on Taxation, Vol. 2, p. 1430), but extends to facilities which
are "incidental to and reasonably necessary for" the
accomplishment of said purposes, such as, in the case of
hospitals, "a school for training nurses, a nurses' home,
property use to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital
staff, and recreational facilities for student nurses, interns
and residents" (84 C.J.S., 621), such as "athletic fields,"
including "a farm used for the inmates of the institution"
(Cooley on Taxation, Vol. 2, p. 1430).
Within the purview of the Constitutional exemption from
taxation, the St. Catherine's Hospital is, therefore, a
charitable institution, and the fact that it admits pay-patients
does not bar it from claiming that it is devoted exclusively to
benevolent purposes, it being admitted that the income
derived from pay-patients is devoted to the improvement of
the charity wards, which represent almost two-thirds (2/3) of
the bed capacity of the hospital, aside from "out-charity
patients" who come only for consultation.
Again, the existence of "St. Catherine's School of Midwifery",
with an enrollment of about 200 students, who practice
partly in St. Catherine's Hospital and partly in St. Mary's
Hospital, which, likewise, belongs to petitioners herein, does
not, and cannot, affect the exemption to which St.
Catherine's Hospital is entitled under our fundamental law.
On the contrary, it furnishes another ground for exemption.
Seemingly, the Court of Tax Appeals was impressed by the
fact that the size of said enrollment and the matriculation fee
charged from the students of midwifery, aside from the
amount they paid for board and lodging, including
transportation to St. Mary's Hospital, warrants the belief that
petitioners derive a substantial profit from the operation of
the school aforementioned. Such factor is, however,
immaterial to the issue in the case at bar, for "all lands,
building and improvements used exclusively for religious,
charitable or educational purposes shall be exempt from
taxation," pursuant to the Constitution, regardless of
whether or not material profits are derived from the
operation of the institutions in question. In other words,
Congress may, if it deems fit to do so, impose taxes upon
such "profits", but said "lands, buildings and improvements"
are beyond its taxing power.
Similarly, the garage in the building above referred to —
which was obviously essential to the operation of the school
of midwifery, for the students therein enrolled practiced, not
only in St. Catherine's Hospital, but, also, in St. Mary's
Hospital, and were entitled to transportation thereto — for
Mrs. Herrera received no compensation as directress of St.
Catherine's Hospital — were incidental to the operation of
the latter and of said school, and, accordingly, did not affect
the charitable character of said hospital and the educational
nature of said school.
WHEREFORE, the decision of the Court of Tax Appeals, as
well as that of the Assessment Board of Appeals of Quezon
City, are hereby reversed and set aside, and another one shall
be entered declaring that the lot, building and improvements
constituting the St. Catherine's Hospital are exempt from
taxation under the provisions of the Constitution, without
special pronouncement as to cost. It is so ordered.
[G.R. No. L-19201. June 16, 1965.]
REV. FR. CASIMIRO LLADOC, petitioner, vs. THE
COMMISSIONER OF INTERNAL REVENUE and THE COURT OF
TAX APPEALS, respondents.
Hilado & Hilado for petitioner.
Solicitor General for respondents.
SYLLABUS
1. TAXATION; CONSTITUTIONAL EXEMPTION FOR RELIGIOUS
PURPOSES REFERS ONLY TO PROPERTY TAXES. — Section 22
(3), Art. VI of the Constitution of the Philippines, exempts
from taxation cemeteries, churches and personages or
convents, appurtenants thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on
such properties enumerated, as property taxes, as contradistinguished from excise taxes.
2. ID.; ID.; GIFT TAX ON PROPERTY USED FOR RELIGIOUS
PURPOSES NOT VIOLATION OF CONSTITUTION. — A gift tax is
not an assessment on the properties themselves. It did not
rest upon general ownership. Rather it is an excise upon the
use made of the properties and upon the privilege of
receiving them. It is not, therefore a property tax, but an
excise tax imposed on the transfer of property by way of gift
inter vivos, the imposition of which a property used
exclusively for religious purposes, does not constitute an
impairment of the Constitution.
3. ID.; ID.; HEAD OF DIOCESE: REAL PARTY IN INTEREST IN
GIFT ON CHURCH PROPERTY. — The head of the diocese and
not the parish priest is the real party in interest in the
imposition of a donee's tax on property donated to the
church for religious purposes.
DECISION
PAREDES, J p:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City,
donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz then
parish priest of Victorias, Negros Occidental, and predecessor
of herein petitioner, for the construction of a new Catholic
Church in the locality. The total amount was actually spent
for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the
donor's gift tax return. Under date of April 29, 1960, the
respondent Commissioner of Internal Revenue issued as
assessment for donee's gift tax against the Catholic Parish of
Victorias, Negros Occidental, of which petitioner was the
priest. The tax amounted to P1,370.00 including surcharges,
interest of 1% monthly from May 15, 1958 to June 15, 1960,
and the compromise for the late filing of the return.
Petitioner lodged a protest to the assessment and requested
the withdrawal thereof. The protest and the motion for
reconsideration presented to the Commissioner of Internal
Revenue were denied. The petitioner appealed to the Court
of Tax Appeals on November 2, 1960. In the petition for
Review, the Rev. Fr. Casimiro Lladoc, claimed among others,
that at the time of the donation, he was not the parish priest
in Victorias; that there is no legal entity or juridical person
known as the "Catholic Parish Priest of Victorias," and
therefore, he should not be liable for the donee's gift tax. It
was also asserted that the assessment of the gift tax, even
against the Roman Catholic Church, would not be valid, for
such would be a clear violation of the provisions of the
Constitution.
After hearing, the CTA rendered judgment, the pertinent
portions of which are quoted below:
". . . Parish priests of the Roman Catholic Church under canon
laws are similarly situated as its Archbishops and Bishops
with respect to the properties of the church within their
parish. They are the guardians, superintendents or
administrators of these properties, with the right of
succession and may sue and be sued.
xxx xxx xxx
"The petitioner impugns the fairness of the assessment with
the argument that he should not be held liable for gift taxes
on donation which he did not receive personally since he was
not yet the parish priest of Victorias in the year 1957 when
said donation was given. It is intimated that if someone has
to pay at all, it should be petitioner's predecessor, the Rev. Fr.
Crispin Ruiz, who received the donation in behalf of the
Catholic parish of Victorias or the Roman Catholic Church.
Following petitioner's line of thinking, we would be equally
unfair to hold that the assessment now in question should
have been addressed to, and collected from the Rev. Fr.
Crispin Ruiz to be paid from income derived from his present
parish wherever it may be. It does not seem right to
indirectly burden the present parishioners of Rev. Fr. Ruiz for
donee's gift tax on a donation to which they were not
benefited.
xxx xxx xxx
"We saw no legal basis then as we see none now, to include
within the Constitutional exemption, taxes which partake of
the nature of an excise upon the use made of the properties
or upon the exercise of the privilege of receiving the
properties. (Phipps vs. Commissioner of Internal Revenue, 91
F [2d] 627; 1938, 302 U.S. 742.)
"It is a cardinal rule in taxation that exemptions from
payment thereof are highly disfavored by law, and the party
claiming exemption must justify his claim by a clear, positive,
or express grant of such privilege by law. (Collector vs. Manila
Jockey Club, G.R. No. L-8755, March 23, 1956; 98 Phil., 670;
53 Off. Gaz., 3762.)
"The phrase `exempt from taxation' as employed in Section
22(3), Article VI of the Constitution of the Philippines, should
not be interpreted to mean exemption from all kinds of taxes.
Statutes exempting charitable and religious property from
taxation should be construed fairly though strictly and in such
manner as to give effect to the main intent of the
lawmakers." (Roman Catholic Church vs. Hastrings, 5 Phil.,
701.)
xxx xxx xxx
"WHEREFORE, in view of the foregoing considerations, the
decision of the respondent Commissioner of Internal
Revenue appealed from, is hereby affirmed except with
regard to the imposition of the compromise penalty in the
amount of P20.00 (Collector of Internal Revenue vs. U.S.T., G.
R. No. L-11274, Nov. 28, 1958; . . ., and the petitioner, the
Rev. Fr. Casimiro Lladoc is hereby ordered to pay to the
respondent the amount of P900.00 as donee's gift tax, plus
the surcharge of five per centum (5%) as ad valorem penalty
under Section 119 (c) of the Tax Code, and one per centum
(1%) monthly interest from May 15, 1958 to the date of
actual payment. The surcharge of 25% provided in Section
120 for failure to file a return may not be imposed as the
failure to file a return was not due to willful neglect. (. . .) No
costs."
Commissioner of Internal Revenue, interposed no objection
to such a substitution. Counsel for the petitioner did not also
offer objection thereto.
The above judgment is now before Us on appeal, petitioner
assigning two (2) errors allegedly committed by the Tax Court,
all of which converge on the singular issue of whether or not
petitioner should be liable for the assessed donee's gift tax
on the P10,000.00 donated for the construction of the
Victorias Parish Church.
In view hereof and considering that, as heretofore stated, the
assessment at bar had been properly made and the
imposition of the tax is not a violation of the constitutional
provision exempting churches, personages or convents, etc.
(Art. VI, sec. 22[3], Constitution), the Head of the Diocese, to
which the parish of Victorias pertains is liable for the
payment thereof.
Section 22(3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and personages
or convents, appurtenant thereto, and all lands, buildings,
and improvements used exclusively for religious purposes.
The exemption is only from the payment of taxes assessed on
such properties enumerated, as property taxes, as contradistinguished from excise taxes. In the present case, what the
Collector assessed was a donee's gift tax; the assessment was
not on the properties themselves. It did not rest upon
general ownership; it was an excise upon the use made of the
properties, upon the exercise of the privilege of receiving the
properties (Phipps vs. Com. of Int. Rev., 91 F [2d] 627.)
Manifestly, gift tax is not within the exempting provisions of
the section just mentioned. A gift tax is not a property tax,
but an excise tax imposed on the transfer of property by way
of gift inter vivos, the imposition of which on property used
exclusively for religious purposes, do not constitute an
impairment of the Constitution. As well observed by the
learned respondent Court, the phrase "exempt from
taxation," as employed in the Constitution supra should not
be interpreted to mean exemption from all kinds of taxes.
And there being no clear, positive or express grant of such
privilege by law, in favor of the petitioner, the exemption
herein must be denied.
The next issue which readily present itself, in view of
petitioner's thesis, and Our finding that a tax liability exists, is,
who should be called upon to pay the gift tax? Petitioner
postulates that he should not be liable, because at the time
of the donation he was not the priest of Victorias. We note
the merit of the above claim, and in order to put things in
their proper light, this Court, in its Resolution of March 15,
1965, ordered the parties to show cause why the Head of the
Diocese to which the parish of Victorias pertains, should not
be substituted in lieu of petitioner Rev. Fr. Casimiro Lladoc, it
appearing that the Head of such Diocese is the real party in
interest. The Solicitor General, in representation of the
On April 30, 1965, in a resolution, We ordered the Head of
the Diocese to present whatever legal issues and/or defenses
he might wish to raise, to which resolution counsel for
petitioner, who also appeared as counsel for the Head of the
Diocese, the Roman Catholic Bishop of Bacolod, manifested
that it was submitting itself to the jurisdiction and orders of
this Court and that it was presenting, by reference, the brief
of petitioner Rev. Fr. Casimiro Lladoc, as its own and for all
purposes.
The decision appealed from should be, as it is hereby
affirmed, insofar as tax liability is concerned; it is modified, in
the sense that petitioner herein is not personally liable for
the said gift tax, and that the Head of the Diocese, herein
substitute petitioner, should pay, as he is presently ordered
to pay, the said gift tax, without special pronouncement as to
costs.
[G.R. No. L-19371. February 28, 1966.]
HOSPITAL DE SAN JUAN DE DIOS, INC., plaintiff-appellant, vs.
PASAY CITY, PABLO CUNETA, R. N. ASCAÑO and G. C.
FUENTES, defendants-appellees.
Teodoro Padilla for the plaintiff and appellant.
R. N. Ascaño & G. C. Fuentes for the defendants and
appellees.
SYLLABUS
1. CHARITABLE INSTITUTIONS; BURDEN OF PROOF TO SHOW
THAT CHARITABLE INSTITUTION IS OPERATING OTHERWISE.
— It not being disputed that appellant was organized as a
charitable institution, the presumption is that it is operating
as such, the burden of proof being on appellees to show that
it is operating otherwise. The record does not show that they
have satisfactorily discharged this burden.
2. ID.; ID.; EXEMPTION FROM PAYMENT OF FEES AND TAXES;
CASE AT BAR. — The Articles of Incorporation of the Hospital
de San Juan de Dios, Inc. show that it has no capital stock and
that no part of its net income, if any, could inure to the
benefit of any private individual. There is also the ruling of
the Workmen's Compensation Commission and the
Undersecretary of Labor that said hospital is a charitable
institution, exempt from the scope of the Workmen's
Compensation Act. The hospital's cashier also issued a
statement to the effect that the hospital maintains two free
wards of sixty beds each. Appellees admit that in addition to
the said free wards the hospital also maintains six free beds
in the Pediatric Section. There is, therefore, sufficient
evidence that the hospital doles out charity, and, hence,
should be exempted from the payment of the inspection fees
provided in Section 5, Ordinance No. 7, series of 1945; as
amended by Ordinance No. 22, series of 1947, and further
amended by Ordinance No. 54, series of 1955, of the City of
Pasay.
3. ID.; ID.; ID.; MAKING OF PROFIT, EFFECT ON TAX
EXEMPTION. — The making of profit does not destroy the tax
exemption of a charitable, benevolent or educational
institution. (Jesus Sacred Heart College vs. Collector, L-6807,
May 20, 1954)
4. ID.; ID.; ID.; CHARGING FEES FOR PAYING BEDS. — The fact
that a hospital charges fees for paying beds does not make it
lose its character as a charitable institution if the same were
used to partly finance the expenses of the free wards
maintained by the hospital. (U.S.T. Hospital Employees
Association vs. Sto. Tomas University Hospital, L-6988, May
24, 1952; Collector of Internal Revenue vs. St. Paul's Hospital
in Iloilo, L-12127, May 25, 1959; San Juan de Dios Hospital vs.
Metropolitan Water District, 54 Phil. 174.)
5. ID.; ID.; ID.; CHARGING MEDICAL AND HOSPITAL FEES. —
The mere charging of medical and hospital fees from those
who can afford to pay does not make the institution one
established for profit or gain (Manila Sanitarium and Hospital
vs. Gabuco, 117 Phil. 12, January 31, 1963.)
DECISION
DIZON, J p:
Appeal taken by the Hospital de San Juan de Dios, Inc. from
the decision of the Court of First Instance of Rizal in Civil Case
No. 1775-P dismissing, its complaint against the City of Pasay
— hereinafter referred to as the City — Pablo Cuneta, R. N.
Ascaño and Ceferino Fuentes, in their capacities as Mayor,
City Engineer and City Treasurer, respectively, of said city.
It is admitted that on July 24, 1954 and May 27, 1957,
appellant paid, under protest, to the City the amounts of
P829.60 and P879.90, respectively, representing electrical
inspection fees allegedly due it from appellant under Section
5, Ordinance No. 7, series of 1945, as amended by Ordinance
No, 22 series of 1947, and further amended by Ordinance No.
54, series of 1955, which reads as follows:
"That the City Electrician shall inspect all electric wires, poles,
and other apparatus whether electric crude oil charcoal or
gasoline installed or used for generating, containing,
conducting or measuring electricity or telephone service,
issue to the owner or user thereof a statement of the result
of such inspection . . . However, residential houses with
outlets not exceeding (8) in number shall be exempted from
the payment of the corresponding inspection fees. For the
purpose of this ordinance, any accessoria, irrespective of the
number of doors or rooms it contains, is considered one
buildings. Churches and such other religious institutions and
buildings housing charitable organizations, are likewise
subject to annual inspection but exempted from the payment
of inspection fees."
Although appellant claimed that, as a charitable institution, it
was exempted from the payment of the inspection fees
provided for in the above-quoted section, it found itself
compelled to pay the amounts mentioned heretofore by
reason of the refusal of appellees Pablo Cuneta, as Mayor,
and R.N. Ascaño, as City Engineer, to issue a building permit
to make additional construction applied for by appellant until
after the full payment of the electrical inspection fees
assessed against it by appellee Ascaño. As a result, appellant
commenced the present action in the Court of First Instance
of Rizal ( Civil Case No. 1775-P) to recover from appellees the
above-mentioned amounts it had paid as electrical inspection
fees as well as the sum of P500.00 as attorney's fees and the
costs of suit.
After due trial the court rendered the appealed judgment.
The issue determinative of the present appeal is whether or
not appellant is a charitable institution and, as such exempt,
under the provisions of the last sentence of Section 5 of the
ordinance in question, from the payment of the inspection
fees provided for therein.
The trial court, while admitting that appellant was organized
for charitable purposes, held that it "is not actually being
managed and operated as a charitable institution but one for
profit" and, as such, "is not entitled to the relief sought in the
present action." This, We believe, is not correct.
It not being disputed that appellant was organized as a
charitable institution, the presumption is that it is operating
as such, the burden of proof being on appellees to show that
it is operating otherwise. The record does not show that they
have satisfactorily discharged this burden.
But the lower court, disregarding the presumption
mentioned above, claims that "plaintiff failed to prove that it
is actually engaged in charitable work" and that "No evidence
whatsoever was presented to show how it doles out charity,
etc." This is also erroneous. Aside from the appellant's
Articles of Incorporation showing that it had no capital stock
and that no part of its net income, if any, could inure to the
benefit of any private individual, there is Exhibit D, a ruling of
June 20, 1957 of the Workmen's Compensation
Commissioner and the Undersecretary of Labor to the effect
that appellant is a charitable institution exempted from the
scope of the Workmen's Compensation Act; a written
statement of appellant's cashier that the latter maintains two
free wards of Sixty beds each; an admission by appellees to
the effect that, in addition to the free wards just mentioned,
appellant also maintains six free beds in the Pediatrics
Section (transcript of June 16, 1960, pp. 2-4).
It is not therefore correct to say that there is no evidence
whatsoever showing how appellant doles out charity.
Moreover, the question of whether or not appellant and
other institutions similarly situated and operated are
charitable institutions has been decided both here and in the
United States. The American rule is summarized in 51
American Jurisprudence, p. 607 as follows:
"636. Effect of Receipt of Pay from Patients.
The general rule that a charitable institution does not lose its
charitable character and its consequent exemption from
taxation merely because recipients of its benefits who are
able to pay are required to do so, where funds derived in this
manner are devoted to the charitable purposes of the
institution, applies to hospitals. A hospital owned and
conducted by a charitable organization, devoted for the most
part to the gratuitous care of charity patients, is exempted
from taxation as a building used for 'purposes purely
charitable', notwithstanding it receives and cares for pay
patients, where any profit thus derived is applied to the
purposes of the institution. An institution, established,
maintained, and operated for the purpose of taking care of
the sick, without any profit or view to profit, but at a loss,
which is made up by benevolent contributions, the benefits
of which are open to the public generally, is a purely public
charity within the meaning of a statute exempting the
property of institutions of purely public charity from taxation;
the fact that patients who are able to pay are charged for
services rendered, according to their ability, being of no
importance upon the question of the character of the
institution."
On the other hand, in Jesus Sacred Heart College vs. Collector,
etc. G.R. No. L-6807, May 20, 1954, We overruled the
contention of the Collector of Internal Revenue to the effect
that the fact that the appellant therein had a profit or net
income was sufficient to show that it was an institution "for
profit and gain" and therefore no longer exempt from income
tax as follows:
"To hold that an educational institution is subject to income
tax whenever it is so administered as to reasonably assure
that it will not incur a deficit, is to nullify and defeat the
aforementioned exemption. Indeed, the effect in general, of
the interpretation advocated by appellant would be to deny
the exemption whenever there is a net income, contrary to
the tenor of said Section 27(e)which positively exempts from
taxation those corporations or associations which, otherwise,
would be subject thereto, because of the existence of said
net income."
Explaining our view that the making of profit does not
destroy the tax exemption of a charitable, benevolent or
educational institution, We said:
"Needless to say, every responsible organization must be so
run as to, at least, insure its existence, by operating within
the limits of its own resources, especially its regular income.
In other words, it should always strive, whenever possible, to
have a surplus. Upon the other hand, appellant's pretense,
would limit the benefits of the exemption, under said Section
27(e) to institutions which do not hope or propose, to have
such surplus. Under this view, the exemption would apply
only to schools which are on the verge of bankruptcy, for —
unlike the United States, where a substantial number of
institutions of learning are dependent upon voluntary
contributions and still enjoy economic stability, such as
Harvard, the trust fund of which has been steadily increasing
with the years — there are, and there have always been very
few educational enterprises in the Philippines which are
supported by donations, and those organizations usually
have a very precarious existence. The final result of
appellant's contention, if adopted, would be to discourage
the establishment of colleges in the Philippines, which is
precisely the opposite of the objective consistently sought by
our laws."
In U.S.T. Hospital Employees Association vs. Sto. Tomas
University Hospital, G.R. No. L-6988 (May 24, 1952), it was
argued that the fact that the aforesaid hospital charged fees
for 140 paying beds made it lose its character of a charitable
institution. We likewise rejected this view because the paying
beds aforesaid were maintained to partly finance the
expenses of the free wards maintained by the hospital. We
express the same view in Collector of Internal Revenue vs. St.
Paul's Hospital in Iloilo, G.R. No. L-12127 (May 25, 1959)
where We said the following:
"In this connection, it should be noted that respondent
therein is a corporation organized for 'charitable, educational
and religious purposes; that no part of its net income inures
to the benefit of any private individual; that it is exempted
from paying income tax; that it operates a hospital in which
medical assistance is given to destitute persons free of
charge; that it maintains a pharmacy department within the
premises of said hospital, to supply drugs and medicines only
to charity and paying patients confined therein; and that only
the paying patients are required to pay the medicines
supplied to them, for which they are charged the cost of
medicines, plus an additional 10% thereof, to partly offset
the cost of medicines supplied free of charge to charity
patients. Under these facts, we are of the opinion, and so
hold, that the Hospital may not be regarded as engaged in
'business' by reason of said sale of medicines to its paying
patients.
"xxx xxx xxx
"In line with the foregoing, in U.S.T. Hospital Employees
Association vs. Santo Tomas University Hospital (G.R. No. L-
6988, decided May 24, 1954), we held that the U.S.T. Hospital
was not established for profit-making purposes, despite the
fact that it had 140 paying beds, because the same were
maintained only to 'partly finance the expenses of the free
wards, containing 203 beds for charity patients. Although
said case involved the interpretation of Republic Act No. 772,
it is patent from our decision therein that said institution was
not considered engaged in 'business.'
This is a petition for review on certiorari of the decision ** of
the defunct Court of First Instance of Abra, Branch I, dated
June 14, 1974, rendered in Civil Case No. 656, entitled "Abra
Valley Junior College, Inc., represented by Pedro V. Borgonia,
plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra,
Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra
and Paterno Millare, defendants," the decretal portion of
which reads:
"It is trite to say that a tax on the limited revenue of
charitable institutions of this kind tends to hamper its
operation, and accordingly, to discourage the establishment
and maintenance thereof. In the absence of a clear legal
provision thereon, we must not so construe our laws as to
lead to such result. In other words, the second, third and
fourth assignments of error are untenable."
"IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
In San Juan de Dios Hospital (the same party appellant herein)
vs. Metropolitan Water District, 54 Phil. 174, this Court
considered said hospital is a charitable institution in spite of
the fact that it maintained paying beds. From the decision in
said case, We quote the following:
"That since the school is not exempt from paying taxes, it
should therefore pay all back taxes in the amount of
P5,140.31 and back taxes and penalties from the
promulgation of this decision;
"A hospital (referring to the San Juan de Dios Hospital) is
generally considered to be a charitable institution. It is good
public policy to encourage works of charity. What Carriedo
did in his will was to make a beneficent grant not to a
hospital thought of as a building, but to a hospital thought of
as an institution. The free water was for the good of the
hospital in this larger sense. Should the hospital be enlarged
or rebuilt, the water concession would continue just the
same. But a hospital cannot function without personnel. And
such personnel must have a place to live, which is the reason
why a home devoted exclusively to the needs of the nurses
was founded. Free water for a nurses home as an adjunct to
a hospital is as beneficial to the charitable purposes of the
hospital as is free water for the hospital proper."
Finally, in Manila Sanitarium and Hospital vs. Gabuco, G.R. No.
L-14331, January 31, 1963, We held that the mere charging of
medical and hospital fees from those who could afford to pay,
did not make the institution one established for profit or gain.
Upon all the foregoing, the appealed decision is reversed,
and another is hereby rendered ordering appellees to pay
appellant the amount of P1,709.50, with interest thereon at
the legal rate from the date of the filing of complaint in this
case. With costs.
[G.R. No. L-39086. June 15, 1988.]
ABRA VALLEY COLLEGE, INC. represented by PEDRO V.
BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge,
Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial
Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer,
Bangued, Abra; HEIRS CF PATERNO MILLARE, respondents.
DECISION
PARAS, J p:
"That the distraint seizure and sale by the Municipal
Treasurer of Bangued, Abra, the Provincial Treasurer of said
province against the lot and building of the Abra Valley Junior
College, Inc., represented by Director Pedro Borgonia located
at Bangued, Abra, is valid;
"That the amount deposited by the plaintiff in the sum of
P6,000.00 before the trial, be confiscated to apply for the
payment of the back taxes and for the redemption of the
property in question, if the amount is less than P6,000.00,
the remainder must be returned to the Director of Pedro
Borgonia, who represents the plaintiff herein;
"That the deposit of the Municipal Treasurer in the amount
of P6,000.00 also before the trial must be returned to said
Municipal Treasurer of Bangued, Abra;
"And finally the case is hereby ordered dismissed with costs
against the plaintiff.
"SO ORDERED." (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of
higher learning duly incorporated with the Securities and
Exchange Commission in 1948, filed a complaint (Annex "1"
of Answer by the respondents Heirs of Paterno Millare; Rollo,
pp. 95-97) on July 10, 1972 in the court a quo to annul and
declare void the "Notice of Seizure" and the "Notice of Sale"
of its lot and building located at Bangued, Abra, for nonpayment of real estate taxes and penalties amounting to
P5,140.31. Said "Notice of Seizure" of the college lot and
building covered by Original Certificate of Title No. Q-83 duly
registered in the name of petitioner, plaintiff below, on July 6,
1972, by respondents Municipal Treasurer and Provincial
Treasurer, defendants below, was issued for the satisfaction
of the said taxes thereon. The "Notice of Sale" was caused to
be served upon the petitioner by the respondent treasurers
on July 8, 1972 for the sale at public auction of said college
lot and building, which sale was held on the same date. Dr.
Paterno Millare, then Municipal Mayor of Bangued, Abra,
offered the highest bid of P6,000.00 which was duly accepted.
The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now
deceased) filed through counsel a motion to dismiss the
complaint.
"5. That all other matters not particularly and specially
covered by this stipulation of facts will be the subject of
evidence by the parties.
On August 23, 1972, the respondent Provincial Treasurer and
Municipal Treasurer, through then Provincial Fiscal Loreto C.
Roldan, filed their answer (Annex "2" of Answer by the
respondents Heirs of Paterno Millare; Rollo, pp. 98-100) to
the complaint this was followed by an amended answer
(Annex "3," ibid; Rollo, pp. 101-103) on August 31, 1972.
WHEREFORE, it is respectfully prayed of the Honorable Court
to consider and admit this stipulation of facts on the point
agreed upon by the parties.
On September 1, 1972, the respondent Paterno Millare filed
his answer (Annex "5," ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school
premises at public auction, the respondent Judge, Hon. Juan
P. Aquino of the Court of First Instance of Abra, Branch I,
ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents
provincial and municipal treasurers to deliver to the Clerk of
Court the proceeds of the auction sale. Hence, on December
14, 1972, petitioner, through Director Borgonia, deposited
with the trial court the sum of P6,000.00 evidenced by PNB
Check No. 904369. LLpr
On April 12, 1973, the parties entered into a stipulation of
facts adopted and embodied by the trial court in its
questioned decision. Said Stipulations reads:
"STIPULATION OF FACTS
"COME NOW the parties, assisted by counsels, and to this
Honorable Court respectfully enter into the following agreed
stipulation of facts:
"1. That the personal circumstances of the parties as stated
in paragraph 1 of the complaint is admitted; but the
particular person of Mr. Armin M. Cariaga is to be substituted,
however, by anyone who is actually holding the position of
Provincial Treasurer of the Province of Abra;
"2. That the plaintiff Abra Valley Junior College, Inc. is the
owner of the lot and buildings thereon located in Bangued,
Abra under Original Certificate of Title No. 0-83;
"3. That the defendant Gaspar V. Bosque, as Municipal
Treasurer of Bangued, Abra caused to be served upon the
Abra Valley Junior College, Inc. a Notice of Seizure on the
property of said school under Original Certificate of title No.
0-83 for the satisfaction of real property taxes thereon,
amounting to P5,140.31; the Notice of Seizure being the one
attached to the complaint as Exhibit A;
"4. That on June 8, 1972 the above properties of the Abra
Valley Junior College, Inc. was sold at public auction for the
satisfaction of the unpaid real property taxes thereon and the
same was sold to defendant Paterno Millare who offered the
highest bid of P6,000.00 and a Certificate of Sale in his favor
was issued by the defendant Municipal Treasurer.
Bangued, Abra, April 12, 1973.
Sgd. Agripino Brillantes
Typ. AGRIPINO BRILLANTES
Attorney for Plaintiff
Sgd. Loreto Roldan
Typ. LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra
Sgd. Demetrio V. Pre
Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare"
(Rollo, pp. 17-18)
Aside from the Stipulation of Facts, the trial court among
others, found the following: (a) that the school is recognized
by the government and is offering Primary, High School and
College Courses, and has a school population of more than
one thousand students all in all; (b) that it is located right in
the heart of the town of Bangued, a few meters from the
plaza and about 120 meters from the Court of First Instance
building; (c) that the elementary pupils are housed in a twostorey building across the street; (d) that the high school and
college students are housed in the main building; (e) that the
Director with his family is in the second floor of the main
building; and (f) that the annual gross income of the school
reaches more than one hundred thousand pesos. LLphil
From all the foregoing, the only issue left for the Court to
determine and as agreed by the parties, is whether or not the
lot and building in question are used exclusively for
educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and
his Assistant, Hon. Eustaquio Z. Montero, filed a
Memorandum for the Government on March 25, 1974, and a
Supplemental Memorandum on May 7, 1974, wherein they
opined "that based on the evidence, the laws applicable,
court decisions and jurisprudence, the school building and
school lot used for educational purposes of the Abra Valley
College, Inc., are exempted from the payment of taxes."
(Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the use of
the second floor by the Director of petitioner school for
residential purposes. He thus ruled for the government and
rendered the assailed decision.
After having been granted by the trial court ten (10) days
from August 6, 1974 within which to perfect its appeal (Per
Order dated August 6, 1974; Annex "G" of Petition; Rollo, p.
57) petitioner instead availed of the instant petition for
review on certiorari with prayer for preliminary injunction
before this Court, which petition was filed on August 17,
1974 (Rollo, p. 2).
Due to its time frame, the constitutional provision which
finds application in the case at bar is Section 22, paragraph 3,
Article VI, of the then 1935 Philippine Constitution, which
expressly grants exemption from realty taxes for "Cemeteries,
churches and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively
for religious, charitable or educational purposes . . . ."
In the resolution dated August 16, 1974, this Court resolved
to give DUE COURSE to the petition (Rollo, p. 58).
Respondents were required to answer said petition (Rollo, p.
74).
Relative thereto, Section 54, paragraph c, Commonwealth
Act No. 470 as amended by Republic Act No. 409, otherwise
known as the Assessment Law, provides:
Petitioner raised the following assignments of error:
I. THE COURT A QUO ERRED IN SUSTAINING AS VALID THE
SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING
USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.
II. THE COURT A QUO ERRED IN DECLARING THAT THE
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT
USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY
BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM
OF THE COLLEGE BUILDING.
III. THE COURT A QUO ERRED IN DECLARING THAT THE
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT
EXEMPT FROM PROPERTY TAXES AND IN ORDERING
PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV. THE COURT A QUO ERRED IN ORDERING THE
CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE
COURT BY PETITIONER AS PAYMENT OF THE P5,140.31
REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the
phrase "used exclusively for educational purposes."
Petitioner contends that the primary use of the lot and
building for educational purposes, and not the incidental use
thereof, determines the exemption from property taxes
under Section 22 (3), Article VI of the 1935 Constitution.
Hence, the seizure and sale of subject college lot and building,
which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the
Assessment Law, are without legal basis and therefore void.
On the other hand, private respondents maintain that the
college lot and building in question which were subjected to
seizure and sale to answer for the unpaid tax are used: (1) for
the educational purposes of the college; (2) as the
permanent residence of the President and Director thereof,
Mr. Pedro V. Borgonia, and his family including the in-laws
and grandchildren; and (3) for commercial purposes because
the ground floor of the college building is being used and
rented by a commercial establishment, the Northern
Marketing Corporation (See photograph attached as Annex
"8" [Comment; Rollo, p. 90]).
"The following are exempted from real property tax under
the Assessment Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable, scientific or educational
purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the
school lot and building is the basic and controlling guide,
norm and standard to determine tax exemption, and not the
mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of Internal
Revenue, 33 Phil. 217 [1916], this Court ruled that while it
may be true that the YMCA keeps a lodging and a boarding
house and maintains a restaurant for its members, still these
do not constitute business in the ordinary acceptance of the
word, but an institution used exclusively for religious,
charitable and educational purposes, and as such, it is
entitled to be exempted from taxation. LLpr
In the case of Bishop of Nueva Segovia v. Provincial Board of
Ilocos Norte, 51 Phil. 352 [1972], this Court included in the
exemption a vegetable garden in an adjacent lot and another
lot formerly used as a cemetery. It was clarified that the term
"used exclusively" considers incidental use also. Thus, the
exemption from payment of land tax in favor of the convent
includes, not only the land actually occupied by the building
but also the adjacent garden devoted to the incidental use of
the parish priest. The lot which is not used for commercial
purposes but serves solely as a sort of lodging place, also
qualifies for exemption because this constitutes incidental
use in religious functions.
The phrase "exclusively used for educational purposes" was
further clarified by this Court in the cases of Herrera vs.
Quezon City Board of Assessment Appeals, 3 SCRA 186 [1961]
and Commissioner of Internal Revenue vs. Bishop of the
Missionary District, 14 SCRA 991 [1965], thus —
"Moreover, the exemption in favor of property used
exclusively for charitable or educational purposes is 'not
limited to property actually indispensable' therefor (Cooley
on Taxation, Vol. 2, p. 1430), but extends to facilities which
are incidental to and reasonably necessary for the
accomplishment of said purposes, such as in the case of
hospitals, 'a school for training nurses, a nurses' home,
property used to provide housing facilities for interns,
resident doctors, superintendents, and other members of the
hospital staff, and recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such as 'athletic fields'
including 'a farm used for the inmates of the institution.'"
(Cooley on Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the
property for purposes mentioned in the Constitution
(Apostolic Prefect v. City Treasurer of Baguio, 71 Phil. 547
[1941]). prcd
It must be stressed however, that while this Court allows a
more liberal and non-restrictive interpretation of the phrase
"exclusively used for educational purposes" as provided for in
Article VI, Section 22, paragraph 3 of the 1935 Philippine
Constitution, reasonable emphasis has always been made
that exemption extends to facilities which are incidental to
and reasonably necessary for the accomplishment of the
main purposes. Otherwise stated, the use of the school
building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. Thus, while the
use of the second floor of the main building in the case at bar
for residential purposes of the Director and his family, may
find justification under the concept of incidental use, which is
complimentary to the main or primary purpose —
educational, the lease of the first floor thereof to the
Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of
education.
It will be noted however that the aforementioned lease
appears to have been raised for the first time in this Court.
That the matter was not taken up in the trial court is really
apparent in the decision of respondent Judge. No mention
thereof was made in the stipulation of facts, not even in the
description of the school building by the trial judge, both
embodied in the decision nor as one of the issues to resolve
in order to determine whether or not said property may be
exempted from payment of real estate taxes (Rollo, pp. 1723). On the other hand, it is noteworthy that such fact was
not disputed even after it was raised in this Court.
Indeed it is axiomatic that facts not raised in the lower court
cannot be taken up for the first time on appeal. Nonetheless,
as an exception to the rule, this Court has held that although
a factual issue is not squarely raised below, still in the
interest of substantial justice, this Court is not prevented
from considering a pivotal factual matter. "The Supreme
Court is clothed with ample authority to review palpable
errors not assigned as such if it finds that their consideration
is necessary in arriving at a just decision." (Perez vs. Court of
Appeals, 127 SCRA 645 [1984]). cdrep
Under the 1935 Constitution, the trial court correctly arrived
at the conclusion that the school building as well as the lot
where it is built, should be taxed, not because the second
floor of the same is being used by the Director and his family
for residential purposes, but because the first floor thereof is
being used for commercial purposes. However, since only a
portion is used for purposes of commerce, it is only fair that
half of the assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First
Instance of Abra, Branch I, is hereby AFFIRMED subject to the
modification that half of the assessed tax be returned to the
petitioner. SO ORDERED.
[G.R. No. 124043. October 14, 1998.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG
MEN'S CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC.,
respondents.
SYLLABUS
1. TAXATION; COURT OF TAX APPEALS; FACTUAL FINDINGS,
WHEN SUPPORTED BY SUBSTANTIAL EVIDENCE, WILL NOT BE
DISTURBED ON APPEAL; CASE AT BAR. — It is a basic rule in
taxation that the factual findings of the CTA, when supported
by substantial evidence, will not be disturbed on appeal
unless it is shown that the said court committed gross error
in the appreciation of facts. In the present case, this Court
finds that the February 16, 1994 Decision of the CA did not
deviate from this rule. The latter merely applied the law to
the facts as found by the CTA and ruled on the issue raised by
the CIR: "Whether or not the collection or earnings of rental
income from the lease of certain premises and income
earned from parking fees shall fall under the last paragraph
of Section 27 of the National Internal Revenue Code of 1977,
as amended." Clearly, the CA did not alter any fact or
evidence. It merely resolved the aforementioned issue, as
indeed it was expected to. That it did so in a manner different
from that of the CTA did not necessarily imply a reversal of
factual findings. cdasia
2. ID.; APPEAL; QUESTION OF LAW AND QUESTION OF FACT,
DISTINGUISHED. — The distinction between a question of law
and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain state of
facts; there is a question of fact when the doubt or difference
arises as to the truth or falsehood of alleged facts." In the
present case, the CA did not doubt, much less change, the
facts narrated by the CTA. It merely applied the law to the
facts. That its interpretation or conclusion is different from
that of the CTA is not irregular or abnormal.
3. ID.; TAX EXEMPTION; COURT HAS ALWAYS APPLIED THE
DOCTRINE OF STRICT INTERPRETATION IN CONSTRUING
THEREOF; APPLICATION IN CASE AT BAR. — Because taxes
are the lifeblood of the nation, the Court has always applied
the doctrine of strict interpretation in construing tax
exemptions. Furthermore, a claim of statutory exemption
from taxation should be manifest and unmistakable from the
language of the law on which it is based. Thus, the claimed
exemption "must expressly be granted in a statute stated in a
language too clear to be mistaken." In the instant case, the
exemption claimed by the YMCA is expressly disallowed by
the very wording of the last paragraph of then Section 27 of
the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties,
real or personal, be subject to the tax imposed by the same
Code. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA
from its real property, the Court is duty-bound to abide
strictly by its literal meaning and to refrain from resorting to
any convoluted attempt at construction. It is axiomatic that
where the language of the law is clear and unambiguous, its
express terms must be applied. Parenthetically, a
consideration of the question of construction must not even
begin, particularly when such question is on whether to apply
a strict construction or a liberal one on statutes that grant tax
exemptions to "religious, charitable and educational
propert[ies] or institutions." The phrase "any of their
activities conducted for profit" does not qualify the word
"properties." This makes income from the property of the
organization taxable, regardless of how that income is used
— whether for profit or for lofty non-profit purposes. Verba
legis non est recedendum. Hence, Respondent Court of
Appeals committed reversible error when it allowed, on
reconsideration, the tax exemption claimed by YMCA on
income it derived from renting out its real property, on the
solitary but unconvincing ground that the said income is not
collected for profit but is merely incidental to its operation.
The law does not make a distinction. The rental income is
taxable regardless of whence such income is derived and how
it is used or disposed of. Where the law does not
distinguished, neither should we.
4. ID.; ID.; WHEN GRANTED; REQUISITES. — Private
respondent is exempt from the payment of property tax, but
not income tax on the rentals from its property. The bare
allegation alone that it is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the
payment of income tax. For the YMCA to be granted the
exemption it claims under the aforecited provision, it must
prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution;
and (2) the income it seeks to be exempted from taxation is
used actually, directly, and exclusively for educational
purposes. However, the Court notes that not a scintilla of
evidence was submitted by private respondent to prove that
it met the said requisites.
5. ID.; ID.; EDUCATIONAL INSTITUTION, CONSTRUED; WHEN
NOT APPLICABLE; CASE AT BAR. — Is the YMCA and
educational institution within the purview of Article XIV,
Section 4, par. 3 of the Constitution? We rule that it is not.
The term "educational institution" or "institution of learning"
has acquired a well-known technical meaning, of which the
members of the Constitutional Commission are deemed
cognizant. Under the Education Act of 1982, such term refers
to schools. The school system is synonymous with formal
education, which "refers to the hierarchically structured and
chronologically graded learnings organized and provided by
the formal school system and for which certification is
required in order for the learner to progress through the
grades or move to the higher levels." The Court has examined
the "Amended Articles of Incorporation" and "By-Laws" of
the YMCA, but found nothing in them that even hints that it
is a school or an educational institution. Furthermore, under
the Education Act of 1982, even non-formal education is
understood to be school-based and "private auspices such as
foundations and civic-spirited organizations" are ruled out. It
is settled that the term "educational institution," when used
in laws granting tax exemptions, refers to a ". . . school
seminary, college or educational establishment . . . ."
Therefore, the private respondent cannot be deemed one of
the educational institutions covered by the constitutional
provision under consideration. ". . . Words used in the
Constitution are to be taken in their ordinary acceptation.
While in its broadest and best sense education embraces all
forms and phases of instruction, improvement and
development of mind and body, and as well of religious and
moral sentiments, yet in the common understanding and
application it means a place where systematic institution in
any or all of the useful branches of learning is given by
methods common to schools and instruction of learning. That
we conceive to be the true intent and scope of the term
[educational institutions] as used in the Constitution."
BELLOSILLO, J., dissenting opinion:
1. TAXATION; COURT OF TAX APPEALS; FINDINGS OF FACTS,
WHEN SUPPORTED BY SUBSTANTIAL EVIDENCE, WILL NOT BE
DISTURBED ON APPEAL; EXCEPTION; NOT APPLICABLE IN
CASE AT BAR. — The basic rule is that the factual findings of
the Court of Tax Appeals when supported by substantial
evidence will not be disturbed on appeal unless it is shown
that the court committed grave error in the appreciation of
facts. In the instant case, there is no dispute as to the validity
of the findings of the Court of Tax Appeals that private
respondent Young Men's Christian Association (YMCA) is an
association organized and operated exclusively for the
promotion of social welfare and other non-profitable
purposes, particularly the physical and character
development of the youth. cHAaEC
2. ID.; TAX EXEMPTION; WHEN INCOME DERIVED FROM ITS
PROPERTY BY A TAX EXEMPT ORGANIZATION IS NOT
ABSOLUTELY TAXABLE; CASE AT BAR. — Respondent YMCA is
undoubtedly exempt from corporate income tax under the
provisions of Sec. 27, pars. (g) and (h), of the National
Internal Revenue Code, to wit: Sec. 27. Exemptions from tax
on corporations. — The following organizations shall not be
taxed under this Title in respect to income received by them
as such — . . . (g) civic league or organization not organized
for profit but operated exclusively for the promotion of social
welfare; (h) club organized and operated exclusively for
pleasure, recreation and other non-profitable purposes, no
part of the net income of which inures to the benefit of any
private stockholder or member . . . Notwithstanding the
provisions in the preceding paragraphs, the income of
whatever kind and character of the foregoing organizations
from any of their properties, real or personal, or from any of
their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax
imposed under this Code. Income derived from its property
by a tax exempt organization is not absolutely taxable. Taken
in solitude, a word or phrase such as, in this case, "the
income of whatever kind and character . . . from any of their
properties" might easily convey a meaning quite different
from the one actually intended and evident when a word or
phrase is considered with those with which it is associated. It
is a rule in statutory construction that every part of the
statute must be interpreted with reference to the context,
that every part of the statute must be considered together
with the other parts and kept subservient to the general
intent of the whole enactment. A close reading of the last
paragraph of Sec. 27 of the National Internal Revenue Code,
in relation to the whole section on tax exemption of the
organizations enumerated therein, shows that the phrase
"conducted for profit" in the last paragraph of Sec. 27
qualifies, limits and describes "the income of whatever kind
and character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities" in order to make such income taxable. It is the
exception to Sec. 27, pars. (g) and (h) providing for the tax
exemptions of the income of said organizations. Hence, if
such income from property or any other property is not
conducted for profit, then it is not taxable. Even taken alone
and understood according to its plain, simple and literal
meaning, the word "income" which is derived from property,
real or personal, provided in the last paragraph of Sec. 27
means the amount of money coming to a person or
corporation within a specified time as profit from investment;
the return in money from one's business or capital invested.
Income from property also means gains and profits derived
from the sale or other disposition of capital assets; the
money which any person or corporation periodically receives
either as profits from business, or as returns from
investments. The word "income" as used in tax statutes is to
be taken in its ordinary sense as gain or profit. Clearly,
therefore, income derived from property whether real or
personal connotes profit from business or from investment of
the same. If we are to apply the ordinary meaning of income
from property as profit to the language of the last paragraph
of Sec. 27 of the NIRC, then only those profits arising from
business and investment involving property are taxable. In
the instant case, there is no question that in leasing its
facilities to small shop owners and in operating parking
spaces, YMCA does not engage in any profit-making business.
Both the Court of Tax Appeals, and the Court of Appeals in its
resolution of 25 September 1995, categorically found that
these activities conducted on YMCA's property were aimed
not only at fulfilling the needs and requirements of its
members as part of YMCA'S youth program but, more
importantly, at raising funds to finance the multifarious
projects of the Association.
3. ID.; ID.; THE MERE REALIZATION OF PROFITS OUT OF ITS
OPERATION DOES NOT AUTOMATICALLY RESULT IN THE LOSS
THEREOF, AS LONG AS NO PART OF THE PROFITS OF AN
EDUCATIONAL INSTITUTION INURES TO THE BENEFIT OF ANY
STOCKHOLDER OR INDIVIDUAL; CASE AT BAR. — As the Court
has ruled in one case, the fact that an educational institution
charges tuition fees and other fees for the different services
it renders to the students does not in itself make the school a
profit-making enterprise that would place it beyond the
purview of the law exempting it from taxation. The mere
realization of profits out of its operation does not
automatically result in the loss of an educational institution's
exemption from income tax as long as no part of its profits
inures to the benefit of any stockholder or individual. In order
to claim exemption from income tax, a corporation or
association must show that it is organized and operated
exclusively for religious, charitable, scientific, athletic,
cultural or educational purposes or for the rehabilitation of
veterans, and that no part of its income inures to the benefit
of any private stockholder or individual. The main evidence of
the purpose of a corporation should be its articles of
incorporation and by-laws, for such purpose is required by
statute to be stated in the articles of incorporation, and the
by-laws outline the administrative organization of the
corporation which, in turn, is supposed to insure or facilitate
the accomplishment of said purpose. The foregoing principle
applies to income derived by tax exempt corporations from
their property. The criterion or test in order to make such
income taxable is when it arises from purely profit-making
business. Otherwise, when the income derived from use of
property is reasonable and incidental to the charitable,
benevolent, educational or religious purpose for which the
corporation or association is created, such income should be
tax-exempt. The majority, if not all, of the income of the
organizations covered by the exemption provided in Sec. 27,
pars. (g) and (h), of the NIRC are derived from their
properties, real or personal. If we are to interpret the last
paragraph of Sec. 27 to the effect that all income of whatever
kind from the properties of said organization, real or personal,
are taxable, even if not conducted for profit, then Sec. 27,
pars. (g) and (h), would be rendered ineffective and nugatory.
As this Court elucidated in Jesus Sacred Heart College v.
Collector of Internal Revenue, (95 Phil. 16 [1954]) every
responsible organization must be so run as to at least insure
its existence by operating within the limits of its own
resources, especially its regular income. It should always
strive whenever possible to have a surplus. If the benefits of
the exemption would be limited to institutions which do not
hope or propose to have such surplus, then the exemption
would apply only to schools which are on the verge of
bankruptcy. Unlike the United States where a substantial
number of institutions of learning are dependent upon
voluntary contributions and still enjoy economic stability,
such as Harvard, the trust fund of which has been steadily
increasing with the years, there are and there have always
been very few educational enterprises in the Philippines
which are supported by donations, and these organizations
usually have a very precarious existence. ESAHca
DECISION
PANGANIBAN, J p:
Is the income derived from rentals of real property owned by
the Young Men's Christian Association of the Philippines, Inc.
(YMCA) — established as "a welfare, educational and
charitable non-profit corporation" — subject to income tax
under the National Internal Revenue Code (NIRC) and the
Constitution? cdphil
The Case
This is the main question raised before us in this petition for
review on certiorari challenging two Resolutions issued by
the Court of Appeals 1 on September 28, 1995 2 and
February 29, 1996 3 in CA-GR SP No. 32007. Both Resolutions
affirmed the Decision of the Court of Tax Appeals (CTA)
allowing the YMCA to claim tax exemption on the latter's
income from the lease of its real property.
The Facts
The facts are undisputed. 4 Private Respondent YMCA is a
non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious,
educational and charitable objectives. cda
In 1980, private respondent earned, among others, an
income of P676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and canteen
operators, and P44,259.00 from parking fees collected from
non-members. On July 2, 1984, the commissioner of internal
revenue (CIR) issued an assessment to private respondent, in
the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. Private respondent
formally protested the assessment and, as a supplement to
its basic protest, filed a letter dated October 8, 1985. In reply,
the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition
for review at the Court of Tax Appeals (CTA) on March 14,
1989. In due course, the CTA issued this ruling in favor of the
YMCA: cdtai
reasonably necessary for the accomplishment of the
objectives of the [private respondents]. It appears from the
testimonies of the witnesses for the [private respondent]
particularly Mr. James C. Delote, former accountant of YMCA,
that these facilities were leased to members and that they
have to service the needs of its members and their guests.
The rentals were minimal as for example, the barbershop was
only charged P300 per month. He also testified that there
was actually no lot devoted for parking space but the parking
was done at the sides of the building. The parking was
primarily for members with stickers on the windshields of
their cars and they charged P.50 for non-members. The
rentals and parking fees were just enough to cover the costs
of operation and maintenance only. The earning[s] from
these rentals and parking charges including those from
lodging and other charges for the use of the recreational
facilities constitute [the] bulk of its income which [is]
channeled to support its many activities and attainment of its
objectives. As pointed out earlier, the membership dues are
very insufficient to support its program. We find it reasonably
necessary therefore for [private respondent] to make [the]
most out [of] its existing facilities to earn some income. It
would have been different if under the circumstances,
[private respondent] will purchase a lot and convert it to a
parking lot to cater to the needs of the general public for a
fee, or construct a building and lease it out to the highest
bidder or at the market rate for commercial purposes, or
should it invest its funds in the buy and sell of properties, real
or personal. Under these circumstances, we could conclude
that the activities are already profit oriented, not incidental
and reasonably necessary to the pursuit of the objectives of
the association and therefore, will fall under the last
paragraph of Section 27 of the Tax Code and any income
derived therefrom shall be taxable. LLpr
"Considering our findings that [private respondent] was not
engaged in the business of operating or contracting [a]
parking lot, we find no legal basis also for the imposition of [a]
deficiency fixed tax and [a] contractor's tax in the amount[s]
of P353.15 and P3,129.73, respectively.
xxx xxx xxx
"WHEREFORE, in view of all the foregoing, the following
assessments are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax — P353.15;
1980 Deficiency Contractor's Tax — P3,129.23;
1980 Deficiency Income Tax — P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax — P1,798.93;
". . . [T]he leasing of [private respondent's] facilities to small
shop owners, to restaurant and canteen operators and the
operation of the parking lot are reasonably incidental to and
1980 Deficiency Withholding Tax on Wages — P33,058.82
plus 10% surcharge and 20% interest per annum from July 2,
1984 until fully paid but not to exceed three (3) years
pursuant to Section 51(e)(2) & (3) of the National Internal
Revenue Code effective as of 1984." 5
Dissatisfied with the CTA ruling, the CIR elevated the case to
the Court of Appeals (CA). In its Decision of February 16, 1994,
the CA 6 initially decided in favor of the CIR and disposed of
the appeal in the following manner:
"Following the ruling in the aforecited cases of Province of
Abra vs. Hernando and Abra Valley College Inc. vs. Aquino,
the ruling of the respondent Court of Tax Appeals that 'the
leasing of petitioner's (herein respondent's) facilities to small
shop owners, to restaurant and canteen operators and the
operation of the parking lot are reasonably incidental to and
reasonably necessary for the accomplishment of the
objectives of the petitioners,' and the income derived
therefrom are tax exempt, must be reversed. cda
"WHEREFORE, the appealed decision is hereby REVERSED in
so far as it dismissed the assessment for:
"The second ground raised is that the respondent CTA did not
err in saying that the rental from small shops and parking
fees do not result in the loss of the exemption. Not even the
petitioner would hazard the suggestion that YMCA is
designed for profit. Consequently, the little income from
small shops and parking fees help[s] to keep its head above
the water, so to speak, and allow it to continue with its
laudable work.
"The Court, therefore, finds the second ground of the motion
to be meritorious and in accord with law and jurisprudence.
"WHEREFORE, the motion for reconsideration is GRANTED;
the respondent CTA's decision is AFFIRMED in toto." 9
The internal revenue commissioner's own Motion for
Reconsideration was denied by Respondent Court in its
second assailed Resolution of February 29, 1996. Hence, this
petition for review under Rule 45 of the Rules of Court. 10
The Issues
1980 Deficiency Income Tax P353.15
Before us, petitioner imputes to the Court of Appeals the
following errors:
1980 Deficiency Contractor's Tax P3,129.23, &
I
1980 Deficiency Income Tax P372,578.20,
"In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its
Decision dated February 16, 1994, and llcd
but the same is AFFIRMED in all other respect." 7
Aggrieved, the YMCA asked for reconsideration based on the
following grounds: cdll
I
"The findings of facts of the Public Respondent Court of Tax
Appeals being supported by substantial evidence [are] final
and conclusive.
II
"In affirming the conclusion of Respondent Court of Tax
Appeals that the income of private respondent from rentals
of small shops and parking fees [is] exempt from taxation."
11
This Court's Ruling
II
The petition is meritorious.
"The conclusions of law of [p]ublic [r]espondent exempting
[p]rivate [r]espondent from the income on rentals of small
shops and parking fees [are] in accord with the applicable law
and jurisprudence." 8
First Issue:
Finding merit in the Motion for Reconsideration filed by the
YMCA, the CA reversed itself and promulgated on September
28, 1995 its first assailed Resolution which, in part, reads:
"The Court cannot depart from the CTA's findings of fact, as
they are supported by evidence beyond what is considered as
substantial. Cdpr
xxx xxx xxx
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA
Decision reversed the factual findings of the CTA. On the
other hand, petitioner argues that the CA merely reversed
the "ruling of the CTA that the leasing of private respondent's
facilities to small shop owners, to restaurant and canteen
operators and the operation of parking lots are reasonably
incidental to and reasonably necessary for the
accomplishment of the objectives of the private respondent
and that the income derived therefrom are tax exempt." 12
Petitioner insists that what the appellate court reversed was
the legal conclusion, not the factual finding of the CTA. 13
The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of
the CTA, when supported by substantial evidence, will not be
disturbed on appeal unless it is shown that the said court
committed gross error in the appreciation of facts. 14 In the
present case, this Court finds that the February 16, 1994
Decision of the CA did not deviate from this rule. The latter
merely applied the law to the facts as found by the CTA and
ruled on the issue raised by the CIR: "Whether or not the
collection or earnings of rental income from the lease of
certain premises and income earned from parking fees shall
fall under the last paragraph of Section 27 of the National
Internal Revenue Code of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely
resolved the aforementioned issue, as indeed it was expected
to. That it did so in a manner different from that of the CTA
did not necessarily imply a reversal of factual findings. cdll
The distinction between a question of law and a question of
fact is clear-cut. It has been held that "[t]here is a question of
law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question
of fact when the doubt or difference arises as to the truth or
falsehood of alleged facts." 16 In the present case, the CA did
not doubt, much less change, the facts narrated by the CTA.
It merely applied the law to the facts. That its interpretation
or conclusion is different from that of the CTA is not irregular
or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the
YMCA from its real estate subject to tax? At the outset, we
set forth the relevant provision of the NIRC: prLL
"SEC. 27. Exemptions from tax on corporations. — The
following organizations shall not be taxed under this Title in
respect to income received by them as such —
xxx xxx xxx
(g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure,
recreation, and other non-profitable purposes, no part of the
net income of which inures to the benefit of any private
stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs,
the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal,
or from any of their activities conducted for profit, regardless
of the disposition made of such income, shall be subject to
the tax imposed under this Code. (as amended by Pres.
Decree No. 1457)" Cdpr
Petitioner argues that while the income received by the
organizations enumerated in Section 27 (now Section 26) of
the NIRC is, as a rule, exempted from the payment of tax "in
respect to income received by them as such," the exemption
does not apply to income derived ". . . from any of their
properties, real or personal, or from any of their activities
conducted for profit, regardless of the disposition made of
such income . . ."
Petitioner adds that "rental income derived by a tax-exempt
organization from the lease of its properties, real or personal,
[is] not, therefore, exempt from income taxation, even if such
income [is] exclusively used for the accomplishment of its
objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict interpretation in
construing tax exemptions. 18Furthermore, a claim of
statutory exemption from taxation should be manifest and
unmistakable from the language of the law on which it is
based. Thus, the claimed exemption "must expressly be
granted in a statute stated in a language too clear to be
mistaken." 19
In the instant case, the exemption claimed by the YMCA is
expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates
that the income of exempt organizations (such as the YMCA)
from any of their properties, real or personal, be subject to
the tax imposed by the same Code. Because the last
paragraph of said section unequivocally subjects to tax the
rent income of the YMCA from its real property, 20 the Court
is duty-bound to abide strictly by its literal meaning and to
refrain from resorting to any convoluted attempt at
construction. LLpr
It is axiomatic that where the language of the law is clear and
unambiguous, its express terms must be applied.
21Parenthetically, a consideration of the question of
construction must not even begin, particularly when such
question is on whether to apply a strict construction or a
liberal one on statutes that grant tax exemptions to "religious,
charitable and educational propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues, should be
"subject to the qualification that the income from the
properties must arise from activities 'conducted for profit'
before it may be considered taxable." 23 This argument is
erroneous. As previously stated, a reading of said paragraph
ineludibly shows that the income from any property of
exempt organizations, as well as that arising from any activity
it conducts for profit, is taxable. The phrase "any of their
activities conducted for profit" does not qualify the word
"properties." This makes income from the property of the
organization taxable, regardless of how that income is used
— whether for profit or for lofty non-profit purposes. cdrep
Verba legis non est recedendum. Hence, Respondent Court of
Appeals committed reversible error when it allowed, on
reconsideration, the tax exemption claimed by YMCA on
income it derived from renting out its real property, on the
solitary but unconvincing ground that the said income is not
collected for profit but is merely incidental to its operation.
The law does not make a distinction. The rental income is
taxable regardless of whence such income is derived and how
it is used or disposed of. Where the law does not distinguish,
neither should we.
Constitutional Provisions
on Taxation
Invoking not only the NIRC but also the fundamental law,
private respondent submits that Article VI, Section 28 of par.
3 of the 1987 Constitution, 24 exempts "charitable
institutions" from the payment not only of property taxes but
also of income tax from any source. 25 In support of its novel
theory, it compares the use of the words "charitable
institutions," "actually" and "directly" in the 1973 and the
1987 Constitutions, on the one hand; and in Article VI,
Section 22, par. 3 of the 1935 Constitution, on the other hand.
26
Private respondent enunciates three points. First, the present
provision is divisible into two categories: (1) "[c]haritable
institutions, churches and parsonages or convents
appurtenant thereto, mosques and non-profit cemeteries,"
the incomes of which are, from whatever source, all taxexempt; 27 and (2) "[a]ll lands, buildings and improvements
actually and directly used for religious, charitable or
educational purposes," which are exempt only from property
taxes. 28 Second, Lladoc v. Commissioner of Internal Revenue,
29 which limited the exemption only to the payment of
property taxes, referred to the provision of the 1935
Constitution and not to its counterparts in the 1973 and the
1987 Constitutions. 30 Third, the phrase "actually, directly
and exclusively used for religious, charitable or educational
purposes" refers not only to "all lands, buildings and
improvements," but also to the above-quoted first category
which includes charitable institutions like the private
respondent. 31
The Court is not persuaded. The debates, interpellations and
expressions of opinion of the framers of the Constitution
reveal their intent which, in turn, may have guided the
people in ratifying the Charter. 32 Such intent must be
effectuated. dctai
Accordingly, Justice Hilario G. Davide, Jr., a former
constitutional commissioner, who is now a member of this
Court, stressed during the Concom debates that ". . . what is
exempted is not the institution itself . . .; those exempted
from real estate taxes are lands, buildings and improvements
actually, directly and exclusively used for religious, charitable
or educational purposes." 33 Father Joaquin G. Bernas, an
eminent authority on the Constitution and also a member of
the Concom, adhered to the same view that the exemption
created by said provision pertained only to property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs,
stating that "[t]he tax exemption covers property taxes only."
35 Indeed, the income tax exemption claimed by private
respondent finds no basis in Article VI, Section 28, par. 3 of
the Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3
of the Charter, 36 claiming that the YMCA "is a non-stock,
non-profit educational institution whose revenues and assets
are used actually, directly and exclusively for educational
purposes so it is exempt from taxes on its properties and
income." 37 We reiterate that private respondent is exempt
from the payment of property tax, but not income tax on the
rentals from its property. The bare allegation alone that it is a
non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax. cdtai
As previously discussed, laws allowing tax exemption are
construed strictissimi juris. Hence, for the YMCA to be
granted the exemption it claims under the aforecited
provision, it must prove with substantial evidence that (1) it
falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and
exclusively for educational purposes. However, the Court
notes that not a scintilla of evidence was submitted by
private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of
Article XIV, Section 4, par. 3 of the Constitution? We rule that
it is not. The term "educational institution " or "institution of
learning" has acquired a well-known technical meaning, of
which the members of the Constitutional Commission are
deemed cognizant. 38 Under the Education Act of 1982, such
term refers to schools. 39 The school system is synonymous
with formal education, 40 which "refers to the hierarchically
structured and chronologically graded learnings organized
and provided by the formal school system and for which
certification is required in order for the learner to progress
through the grades or move to the higher levels." 41 The
Court has examined the "Amended Articles of Incorporation"
42 and "By-Laws" 43 of the YMCA, but found nothing in them
that even hints that it is a school or an educational institution.
44
Furthermore, under the Education Act of 1982, even nonformal education is understood to be school-based and
"private auspices such as foundations and civic-spirited
organizations" are ruled out. 45 It is settled that the term
"educational institution," when used in laws granting tax
exemptions, refers to a ". . . school seminary, college or
educational establishment . . ." 46 Therefore, the private
respondent cannot be deemed one of the educational
institutions covered by the constitutional provision under
consideration. cdphil
". . . Words used in the Constitution are to be taken in their
ordinary acceptation. While in its broadest and best sense
education embraces all forms and phases of instruction,
improvement and development of mind and body, and as
well of religious and moral sentiments, yet in the common
understanding and application it means a place where
systematic instruction in any or all of the useful branches of
learning is given by methods common to schools and
institutions of learning. That we conceive to be the true
intent and scope of the term [educational institutions,] as
used in the Constitution ." 47
Moreover, without conceding that Private Respondent YMCA
is an educational institution, the Court also notes that the
former did not submit proof of the proportionate amount of
the subject income that was actually, directly and exclusively
used for educational purposes. Article XIII, Section 5 of the
YMCA by-laws, which formed part of the evidence submitted,
is patently insufficient, since the same merely signified that
"[t]he net income derived from the rentals of the commercial
buildings shall be apportioned to the Federation and Member
Associations as the National Board may decide." 48 In sum,
we find no basis for granting the YMCA exemption from
income tax under the constitutional provision invoked. LLphil
In deliberating on this petition, the Court expresses its
sympathy with private respondent. It appreciates the nobility
of its cause. However, the Court's power and function are
limited merely to applying the law fairly and objectively. It
cannot change the law or bend it to suit its sympathies and
appreciations. Otherwise, it would be overspilling its role and
invading the realm of legislation.
We concede that private respondent deserves the help and
the encouragement of the government. It needs laws that
can facilitate, and not frustrate, its humanitarian tasks. But
the Court regrets that, given its limited constitutional
authority, it cannot rule on the wisdom or propriety of
legislation. That prerogative belongs to the political
departments of government. Indeed, some of the members
of the Court may even believe in the wisdom and prudence
of granting more tax exemptions to private respondent. But
such belief, however well-meaning and sincere, cannot
bestow upon the Court the power to change or amend the
law.
WHEREFORE, the petition is GRANTED. The Resolutions of the
Court of Appeals dated September 28, 1995 and February 29,
1996 are hereby REVERSED and SET ASIDE. The Decision of
the Court of Appeals dated February 16, 1995 is REINSTATED,
insofar as it ruled that the income derived by petitioner from
rentals of its real property is subject to income tax. No
pronouncement as to costs. SO ORDERED.
[G.R. No. 144104. June 29, 2004.]
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not support
its cause. YMCA of Manila v. Collector of Internal Revenue 50
and Abra Valley College, Inc. v. Aquino 51 are not applicable,
because the controversy in both cases involved exemption
from the payment of property tax, not income tax. Hospital
de San Juan de Dios, Inc. v. Pasay City 52 is not in point either,
because it involves a claim for exemption from the payment
of regulatory fees, specifically electrical inspection fees,
imposed by an ordinance of Pasay City — an issue not at all
related to that involved in a claimed exemption from the
payment of income taxes imposed on property leases. In
Jesus Sacred Heart College v. Com. of Internal Revenue, 53
the party therein, which claimed an exemption from the
payment of income tax, was an educational institution which
submitted substantial evidence that the income subject of
the controversy had been devoted or used solely for
educational purposes. On the other hand, the private
respondent in the present case has not given any proof that it
is an educational institution, or that part of its rent income is
actually directly and exclusively used for educational
purposes. prLL
Epilogue
LUNG CENTER OF THE PHILIPPINES, petitioner, vs. QUEZON
CITY and CONSTANTINO P. ROSAS, in his capacity as City
Assessor of Quezon City, respondents.
DECISION
CALLEJO, SR., J p:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, as amended, of the Decision 1 dated July 17,
2000 of the Court of Appeals in CA-G.R. SP No. 57014 which
affirmed the decision of the Central Board of Assessment
Appeals holding that the lot owned by the petitioner and its
hospital building constructed thereon are subject to
assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock
and non-profit entity established on January 16, 1981 by
virtue of Presidential Decree No. 1823. 2 It is the registered
owner of a parcel of land, particularly described as Lot No.
RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue
corner Elliptical Road, Central District, Quezon City. The lot
has an area of 121,463 square meters and is covered by
Transfer Certificate of Title (TCT) No. 261320 of the Registry
of Deeds of Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the Lung Center of the
Philippines. A big space at the ground floor is being leased to
private parties, for canteen and small store spaces, and to
medical or professional practitioners who use the same as
their private clinics for their patients whom they charge for
their professional services. Almost one-half of the entire area
on the left side of the building along Quezon Avenue is
vacant and idle, while a big portion on the right side, at the
corner of Quezon Avenue and Elliptical Road, is being leased
for commercial purposes to a private enterprise known as the
Elliptical Orchids and Garden Center.
The petitioner accepts paying and non-paying patients. It also
renders medical services to out-patients, both paying and
non-paying. Aside from its income from paying patients, the
petitioner receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of
the petitioner were assessed for real property taxes in the
amount of P4,554,860 by the City Assessor of Quezon City. 3
Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and
C-021-01231 (15-2518-A) were issued for the land and the
hospital building, respectively. 4 On August 25, 1993, the
petitioner filed a Claim for Exemption 5 from real property
taxes with the City Assessor, predicated on its claim that it is
a charitable institution. The petitioner's request was denied,
and a petition was, thereafter, filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA, for brevity) for
the reversal of the resolution of the City Assessor. The
petitioner alleged that under Section 28, paragraph 3 of the
1987 Constitution, the property is exempt from real property
taxes. It averred that a minimum of 60% of its hospital beds
are exclusively used for charity patients and that the major
thrust of its hospital operation is to serve charity patients.
The petitioner contends that it is a charitable institution and,
as such, is exempt from real property taxes. The QC-LBAA
rendered judgment dismissing the petition and holding the
petitioner liable for real property taxes. 6
The QC-LBAA's decision was, likewise, affirmed on appeal by
the Central Board of Assessment Appeals of Quezon City
(CBAA, for brevity) 7 which ruled that the petitioner was not
a charitable institution and that its real properties were not
actually, directly and exclusively used for charitable purposes;
hence, it was not entitled to real property tax exemption
under the constitution and the law. The petitioner sought
relief from the Court of Appeals, which rendered judgment
affirming the decision of the CBAA. 8
Undaunted, the petitioner filed its petition in this Court
contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS
NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE
GROUND THAT ITS LAND, BUILDING AND IMPROVEMENTS,
SUBJECT OF ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY
AND EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY
TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID
EXEMPTION MAY NEVERTHELESS BE EXTENDED UPON
PROPER APPLICATION.
The petitioner avers that it is a charitable institution within
the context of Section 28(3), Article VI of the 1987
Constitution. It asserts that its character as a charitable
institution is not altered by the fact that it admits paying
patients and renders medical services to them, leases
portions of the land to private parties, and rents out portions
of the hospital to private medical practitioners from which it
derives income to be used for operational expenses. The
petitioner points out that for the years 1995 to 1999, 100% of
its out-patients were charity patients and of the hospital's
282-bed capacity, 60% thereof, or 170 beds, is allotted to
charity patients. It asserts that the fact that it receives
subsidies from the government attests to its character as a
charitable institution. It contends that the "exclusivity"
required in the Constitution does not necessarily mean
"solely." Hence, even if a portion of its real estate is leased
out to private individuals from whom it derives income, it
does not lose its character as a charitable institution, and its
exemption from the payment of real estate taxes on its real
property. The petitioner cited our ruling in Herrera v. QC-BAA
9 to bolster its pose. The petitioner further contends that
even if P.D. No. 1823 does not exempt it from the payment of
real estate taxes, it is not precluded from seeking tax
exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that
the petitioner is not a charitable entity. The petitioner's real
property is not exempt from the payment of real estate taxes
under P.D. No. 1823 and even under the 1987 Constitution
because it failed to prove that it is a charitable institution and
that the said property is actually, directly and exclusively
used for charitable purposes. The respondents noted that in
a newspaper report, it appears that graft charges were filed
with the Sandiganbayan against the director of the petitioner,
its administrative officer, and Zenaida Rivera, the
proprietress of the Elliptical Orchids and Garden Center, for
entering into a lease contract over 7,663.13 square meters of
the property in 1990 for only P20,000 a month, when the
monthly rental should be P357,000 a month as determined
by the Commission on Audit; and that instead of complying
with the directive of the COA for the cancellation of the
contract for being grossly prejudicial to the government, the
petitioner renewed the same on March 13, 1995 for a
monthly rental of only P24,000. They assert that the
petitioner uses the subsidies granted by the government for
charity patients and uses the rest of its income from the
property for the benefit of paying patients, among other
purposes. They aver that the petitioner failed to adduce
substantial evidence that 100% of its out-patients and 170
beds in the hospital are reserved for indigent patients. The
respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not
speak well of its record of service. That before a patient is
admitted for treatment in the Center, first impression is that
it is pay-patient and required to pay a certain amount as
deposit. That even if a patient is living below the poverty line,
he is charged with high hospital bills. And, without these bills
being first settled, the poor patient cannot be allowed to
leave the hospital or be discharged without first paying the
hospital bills or issue a promissory note guaranteed and
indorsed by an influential agency or person known only to
the Center; that even the remains of deceased poor patients
suffered the same fate. Moreover, before a patient is
admitted for treatment as free or charity patient, one must
undergo a series of interviews and must submit all the
requirements needed by the Center, usually accompanied by
endorsement by an influential agency or person known only
to the Center. These facts were heard and admitted by the
Petitioner LCP during the hearings before the Honorable QCBAA and Honorable CBAA. These are the reasons of indigent
patients, instead of seeking treatment with the Center, they
prefer to be treated at the Quezon Institute. Can such
practice by the Center be called charitable? 10
The Issues
The issues for resolution are the following: (a) whether the
petitioner is a charitable institution within the context of
Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No. 7160;
and (b) whether the real properties of the petitioner are
exempt from real property taxes.
The Court's Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable
institution within the context of the 1973 and 1987
Constitutions. To determine whether an enterprise is a
charitable institution/entity or not, the elements which
should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and bylaws, the methods of administration, the nature of the actual
work performed, the character of the services rendered, the
indefiniteness of the beneficiaries, and the use and
occupation of the properties. 11
In the legal sense, a charity may be fully defined as a gift, to
be applied consistently with existing laws, for the benefit of
an indefinite number of persons, either by bringing their
minds and hearts under the influence of education or religion,
by assisting them to establish themselves in life or otherwise
lessening the burden of government. 12 It may be applied to
almost anything that tend to promote the well-doing and
well-being of social man. It embraces the improvement and
promotion of the happiness of man. 13 The word "charitable"
is not restricted to relief of the poor or sick. 14 The test of a
charity and a charitable organization are in law the same. The
test whether an enterprise is charitable or not is whether it
exists to carry out a purpose reorganized in law as charitable
or whether it is maintained for gain, profit, or private
advantage. TDCcAE
Under P.D. No. 1823, the petitioner is a non-profit and nonstock corporation which, subject to the provisions of the
decree, is to be administered by the Office of the President of
the Philippines with the Ministry of Health and the Ministry
of Human Settlements. It was organized for the welfare and
benefit of the Filipino people principally to help combat the
high incidence of lung and pulmonary diseases in the
Philippines. The raison d'etre for the creation of the
petitioner is stated in the decree, viz:
Whereas, for decades, respiratory diseases have been a
priority concern, having been the leading cause of illness and
death in the Philippines, comprising more than 45% of the
total annual deaths from all causes, thus, exacting a
tremendous toll on human resources, which ailments are
likely to increase and degenerate into serious lung diseases
on account of unabated pollution, industrialization and
unchecked cigarette smoking in the country;
Whereas, the more common lung diseases are, to a great
extent, preventable, and curable with early and adequate
medical care, immunization and through prompt and
intensive prevention and health education programs;
Whereas, there is an urgent need to consolidate and
reinforce existing programs, strategies and efforts at
preventing, treating and rehabilitating people affected by
lung diseases, and to undertake research and training on the
cure and prevention of lung diseases, through a Lung Center
which will house and nurture the above and related activities
and provide tertiary-level care for more difficult and
problematical cases;
Whereas, to achieve this purpose, the Government intends
to provide material and financial support towards the
establishment and maintenance of a Lung Center for the
welfare and benefit of the Filipino people. 15
The purposes for which the petitioner was created are
spelled out in its Articles of Incorporation, thus:
SECOND: That the purposes for which such corporation is
formed are as follows:
1. To construct, establish, equip, maintain, administer and
conduct an integrated medical institution which shall
specialize in the treatment, care, rehabilitation and/or relief
of lung and allied diseases in line with the concern of the
government to assist and provide material and financial
support in the establishment and maintenance of a lung
center primarily to benefit the people of the Philippines and
in pursuance of the policy of the State to secure the wellbeing of the people by providing them specialized health and
medical services and by minimizing the incidence of lung
diseases in the country and elsewhere.
2. To promote the noble undertaking of scientific research
related to the prevention of lung or pulmonary ailments and
the care of lung patients, including the holding of a series of
relevant congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific
researches on the biological, demographic, social, economic,
eugenic and physiological aspects of lung or pulmonary
diseases and their control; and to collect and publish the
findings of such research for public consumption;
4. To facilitate the dissemination of ideas and public
acceptance of information on lung consciousness or
awareness, and the development of fact-finding, information
and reporting facilities for and in aid of the general purposes
or objects aforesaid, especially in human lung requirements,
general health and physical fitness, and other relevant or
related fields;
5. To encourage the training of physicians, nurses, health
officers, social workers and medical and technical personnel
in the practical and scientific implementation of services to
lung patients;
6. To assist universities and research institutions in their
studies about lung diseases, to encourage advanced training
in matters of the lung and related fields and to support
educational programs of value to general health;
7. To encourage the formation of other organizations on the
national, provincial and/or city and local levels; and to
coordinate their various efforts and activities for the purpose
of achieving a more effective programmatic approach on the
common problems relative to the objectives enumerated
herein;
8. To seek and obtain assistance in any form from both
international and local foundations and organizations; and to
administer grants and funds that may be given to the
organization;
9. To extend, whenever possible and expedient, medical
services to the public and, in general, to promote and protect
the health of the masses of our people, which has long been
recognized as an economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or
pulmonary afflictions and maladies of the people in any and
all walks of life, including those who are poor and needy, all
without regard to or discrimination, because of race, creed,
color or political belief of the persons helped; and to enable
them to obtain treatment when such disorders occur;
11. To participate, as circumstances may warrant, in any
activity designed and carried on to promote the general
health of the community;
12. To acquire and/or borrow funds and to own all funds or
equipment, educational materials and supplies by purchase,
donation, or otherwise and to dispose of and distribute the
same in such manner, and, on such basis as the Center shall,
from time to time, deem proper and best, under the
particular circumstances, to serve its general and non-profit
purposes and objectives;
13. To buy, purchase, acquire, own, lease, hold, sell,
exchange, transfer and dispose of properties, whether real or
personal, for purposes herein mentioned; and
14. To do everything necessary, proper, advisable or
convenient for the accomplishment of any of the powers
herein set forth and to do every other act and thing
incidental thereto or connected therewith. 16
Hence, the medical services of the petitioner are to be
rendered to the public in general in any and all walks of life
including those who are poor and the needy without
discrimination. After all, any person, the rich as well as the
poor, may fall sick or be injured or wounded and become a
subject of charity. 17
As a general principle, a charitable institution does not lose
its character as such and its exemption from taxes simply
because it derives income from paying patients, whether outpatient, or confined in the hospital, or receives subsidies
from the government, so long as the money received is
devoted or used altogether to the charitable object which it
is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.
18 In Congregational Sunday School, etc. v. Board of Review,
19 the State Supreme Court of Illinois held, thus:
. . . [A]n institution does not lose its charitable character, and
consequent exemption from taxation, by reason of the fact
that those recipients of its benefits who are able to pay are
required to do so, where no profit is made by the institution
and the amounts so received are applied in furthering its
charitable purposes, and those benefits are refused to none
on account of inability to pay therefor. The fundamental
ground upon which all exemptions in favor of charitable
institutions are based is the benefit conferred upon the
public by them, and a consequent relief, to some extent, of
the burden upon the state to care for and advance the
interests of its citizens. 20
As aptly stated by the State Supreme Court of South Dakota
in Lutheran Hospital Association of South Dakota v. Baker: 21
. . . [T]he fact that paying patients are taken, the profits
derived from attendance upon these patients being
exclusively devoted to the maintenance of the charity, seems
rather to enhance the usefulness of the institution to the
poor; for it is a matter of common observation amongst
those who have gone about at all amongst the suffering
classes, that the deserving poor can with difficulty be
persuaded to enter an asylum of any kind confined to the
reception of objects of charity; and that their honest pride is
much less wounded by being placed in an institution in which
paying patients are also received. The fact of receiving money
from some of the patients does not, we think, at all impair
the character of the charity, so long as the money thus
received is devoted altogether to the charitable object which
the institution is intended to further. 22
The money received by the petitioner becomes a part of the
trust fund and must be devoted to public trust purposes and
cannot be diverted to private profit or benefit. 23
Under P.D. No. 1823, the petitioner is entitled to receive
donations. The petitioner does not lose its character as a
charitable institution simply because the gift or donation is in
the form of subsidies granted by the government. As held by
the State Supreme Court of Utah in Yorgason v. County Board
of Equalization of Salt Lake County: 24
Second, the . . . government subsidy payments are provided
to the project. Thus, those payments are like a gift or
donation of any other kind except they come from the
government. In both Intermountain Health Care and the
present case, the crux is the presence or absence of material
reciprocity. It is entirely irrelevant to this analysis that the
government, rather than a private benefactor, chose to make
up the deficit resulting from the exchange between St.
Mark's Tower and the tenants by making a contribution to
the landlord, just as it would have been irrelevant in
Intermountain Health Care if the patients' income
supplements had come from private individuals rather than
the government.
Therefore, the fact that subsidization of part of the cost of
furnishing such housing is by the government rather than
private charitable contributions does not dictate the denial of
a charitable exemption if the facts otherwise support such an
exemption, as they do here. 25
In this case, the petitioner adduced substantial evidence that
it spent its income, including the subsidies from the
government for 1991 and 1992 for its patients and for the
operation of the hospital. It even incurred a net loss in 1991
and 1992 from its operations.
Even as we find that the petitioner is a charitable institution,
we hold, anent the second issue, that those portions of its
real property that are leased to private entities are not
exempt from real property taxes as these are not actually,
directly and exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting
exemption from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The
effect of an exemption is equivalent to an appropriation.
Hence, a claim for exemption from tax payments must be
clearly shown and based on language in the law too plain to
be mistaken. 26 As held in Salvation Army v. Hoehn: 27
An intention on the part of the legislature to grant an
exemption from the taxing power of the state will never be
implied from language which will admit of any other
reasonable construction. Such an intention must be
expressed in clear and unmistakable terms, or must appear
by necessary implication from the language used, for it is a
well settled principle that, when a special privilege or
exemption is claimed under a statute, charter or act of
incorporation, it is to be construed strictly against the
property owner and in favor of the public. This principle
applies with peculiar force to a claim of exemption from
taxation. . . . 28
Section 2 of Presidential Decree No. 1823, relied upon by the
petitioner, specifically provides that the petitioner shall enjoy
the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. — Being a nonprofit, non-stock corporation organized primarily to help
combat the high incidence of lung and pulmonary diseases in
the Philippines, all donations, contributions, endowments
and equipment and supplies to be imported by authorized
entities or persons and by the Board of Trustees of the Lung
Center of the Philippines, Inc., for the actual use and benefit
of the Lung Center, shall be exempt from income and gift
taxes, the same further deductible in full for the purpose of
determining the maximum deductible amount under Section
30, paragraph (h), of the National Internal Revenue Code, as
amended.
The Lung Center of the Philippines shall be exempt from the
payment of taxes, charges and fees imposed by the
Government or any political subdivision or instrumentality
thereof with respect to equipment purchases made by, or for
the Lung Center. 29
It is plain as day that under the decree, the petitioner does
not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon. If the
intentions were otherwise, the same should have been
among the enumeration of tax exempt privileges under
Section 2:
It is a settled rule of statutory construction that the express
mention of one person, thing, or consequence implies the
exclusion of all others. The rule is expressed in the familiar
maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated
in a number of ways. One variation of the rule is the principle
that what is expressed puts an end to that which is implied.
Expressium facit cessare tacitum. Thus, where a statute, by
its terms, is expressly limited to certain matters, it may not,
by interpretation or construction, be extended to other
matters.
xxx xxx xxx
The rule of expressio unius est exclusio alterius and its
variations are canons of restrictive interpretation. They are
based on the rules of logic and the natural workings of the
human mind. They are predicated upon one's own voluntary
act and not upon that of others. They proceed from the
premise that the legislature would not have made specified
enumeration in a statute had the intention been not to
restrict its meaning and confine its terms to those expressly
mentioned. 30
The exemption must not be so enlarged by construction since
the reasonable presumption is that the State has granted in
express terms all it intended to grant at all, and that unless
the privilege is limited to the very terms of the statute the
favor would be intended beyond what was meant. 31
Section 28(3), Article VI of the 1987 Philippine Constitution
provides, thus:
(3) Charitable institutions, churches and parsonages or
convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements,
actually, directly and exclusively used for religious, charitable
or educational purposes shall be exempt from taxation. 32
The tax exemption under this constitutional provision covers
property taxes only. 33 As Chief Justice Hilario G. Davide, Jr.,
then a member of the 1986 Constitutional Commission,
explained: ". . . what is exempted is not the institution
itself . . .; those exempted from real estate taxes are lands,
buildings and improvements actually, directly and exclusively
used for religious, charitable or educational purposes." 34
Consequently, the constitutional provision is implemented by
Section 234(b) of Republic Act No. 7160 (otherwise known as
the Local Government Code of 1991) as follows:
SECTION 234. Exemptions from Real Property Tax. — The
following are exempted from payment of the real property
tax:
xxx xxx xxx
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious
cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious, charitable
or educational purposes. 35
We note that under the 1935 Constitution, ". . . all lands,
buildings, and improvements used 'exclusively' for …
charitable . . . purposes shall be exempt from taxation." 36
However, under the 1973 and the present Constitutions, for
"lands, buildings, and improvements" of the charitable
institution to be considered exempt, the same should not
only be "exclusively" used for charitable purposes; it is
required that such property be used "actually" and "directly"
for such purposes. 37
In light of the foregoing substantial changes in the
Constitution, the petitioner cannot rely on our ruling in
Herrera v. Quezon City Board of Assessment Appeals which
was promulgated on September 30, 1961 before the 1973
and 1987 Constitutions took effect. 38 As this Court held in
Province of Abra v. Hernando: 39
. . . Under the 1935 Constitution: "Cemeteries, churches, and
parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from
taxation." The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and
required that for the exemption of "lands, buildings, and
improvements," they should not only be "exclusively" but
also "actually" and "directly" used for religious or charitable
purposes. The Constitution is worded differently. The change
should not be ignored. It must be duly taken into
consideration. Reliance on past decisions would have sufficed
were the words "actually" as well as "directly" not added.
There must be proof therefore of the actual and direct use of
the lands, buildings, and improvements for religious or
charitable purposes to be exempt from taxation . . .
Under the 1973 and 1987 Constitutions and Rep. Act No.
7160 in order to be entitled to the exemption,the petitioner
is burdened to prove, by clear and unequivocal proof, that (a)
it is a charitable institution; and (b) its real properties are
ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes. "Exclusive" is defined as possessed and enjoyed to
the exclusion of others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively." 40 If real
property is used for one or more commercial purposes, it is
not exclusively used for the exempted purposes but is subject
to taxation. 41 The words "dominant use" or "principal use"
cannot be substituted for the words "used exclusively"
without doing violence to the Constitutions and the law. 42
Solely is synonymous with exclusively. 43
What is meant by actual, direct and exclusive use of the
property for charitable purposes is the direct and immediate
and actual application of the property itself to the purposes
for which the charitable institution is organized. It is not the
use of the income from the real property that is
determinative of whether the property is used for taxexempt purposes. 44
The petitioner failed to discharge its burden to prove that the
entirety of its real property is actually, directly and
exclusively used for charitable purposes. While portions of
the hospital are used for the treatment of patients and the
dispensation of medical services to them, whether paying or
non-paying, other portions thereof are being leased to
private individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for
her business enterprise under the business name "Elliptical
Orchids and Garden Center." Indeed, the petitioner's
evidence shows that it collected P1,136,483.45 as rentals in
1991 and P1,679,999.28 for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to
private entities as well as those parts of the hospital leased to
private individuals are not exempt from such taxes. 45 On the
other hand, the portions of the land occupied by the hospital
and portions of the hospital used for its patients, whether
paying or non-paying, are exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The respondent Quezon City Assessor is hereby
DIRECTED to determine, after due hearing, the precise
portions of the land and the area thereof which are leased to
private persons, and to compute the real property taxes due
thereon as provided for by law. SO ORDERED.
[G.R. No. 119775. October 24, 2003.]
JOHN HAY PEOPLES ALTERNATIVE COALITION, MATEO
CARIÑO FOUNDATION INC., CENTER FOR ALTERNATIVE
SYSTEMS FOUNDATION INC., REGINA VICTORIA A. BENAFIN
REPRESENTED AND JOINED BY HER MOTHER MRS. ELISA
BENAFIN, IZABEL M. LUYK REPRESENTED AND JOINED BY HER
MOTHER MRS. REBECCA MOLINA LUYK, KATHERINE PE
REPRESENTED AND JOINED BY HER MOTHER ROSEMARIE G.
PE, SOLEDAD S. CAMILO, ALICIA C. PACALSO ALIAS "KEVAB,"
BETTY I. STRASSER, RUBY C. GIRON, URSULA C. PEREZ ALIAS
"BA-YAY," EDILBERTO T. CLARAVALL, CARMEN CAROMINA,
LILIA G. YARANON, DIANE MONDOC, petitioners, vs. VICTOR
LIM, PRESIDENT, BASES CONVERSION DEVELOPMENT
AUTHORITY; JOHN HAY PORO POINT DEVELOPMENT
CORPORATION, CITY OF BAGUIO, TUNTEX (B.V.I.) CO. LTD.,
ASIAWORLD INTERNATIONALE GROUP, INC., DEPARTMENT
OF ENVIRONMENT AND NATURAL RESOURCES, respondents.
Marivic M.V.F. Leonen Edgar DL. Brnal Ma. Fracelyn G.
Begonia Ingrid Rosalie L. Gorre Emily L. Manuel for
petitioners.
Office of the Government Corporate Counsel for public
respondent.
SYNOPSIS
The controversy stemmed from the issuance of Proclamation
No. 420 by then President Ramos declaring a portion of Camp
John Hay as a Special Economic Zone (SEZ) and creating a
regime of tax exemption within the John Hay Special
Economic Zone. In the present petition, petitioners assailed
the constitutionality of the aforementioned proclamation.
The Supreme Court ruled that when questions of
constitutional significance are raised, the court can exercise
its power of judicial review only if the following requisites are
present: (1) the existence of an actual and appropriate case:
(2) a personal and substantial interest of the party raising the
constitutional question; (3) the exercise of judicial review is
pleaded at the earliest opportunity; and (4) the constitutional
question is the lis mota of the case. These requisites of
judicial inquiry were complied with in the case at bar.
The Court also held that it is the legislature, unless limited by
a provision of the Constitution, that has the full power to
exempt any person or corporation or class of property from
taxation, its power to exempt being as broad as its power to
tax. The challenged grant of tax exemption would circumvent
the Constitution's imposition that a law granting any tax
exemption must have the concurrence of a majority of all the
members of Congress. Moreover, the claimed statutory
exemption of the John Hay SEZ from taxation should be
manifest and unmistakable from the language of the law on
which it is based. Thus, the Court declared that the grant by
Proclamation No. 420 of tax exemption and other privileges
to the John Hay SEZ was void for being violative of the
Constitution. However, the entire assailed proclamation
cannot be declared unconstitutional, the other parts thereof
not being repugnant to the law or the Constitution. The
delineation and declaration of a portion of the area covered
by Camp John Hay as a SEZ was well within the powers of the
President to do so by means of a proclamation. Where part
of a statute is void as contrary to the Constitution, while
another part is valid, the valid portion, if separable from the
invalid, as in the case at bar, may stand and be enforced.
SYLLABUS
1. POLITICAL LAW; CONSTITUTIONAL LAW; JUDICIAL REVIEW;
REQUISITES. — [W]hen questions of constitutional
significance are raised, the court can exercise its power of
judicial review only if the following requisites are present: (1)
the existence of an actual and appropriate case; (2) a
personal and substantial interest of the party raising the
constitutional question; (3) the exercise of judicial review is
pleaded at the earliest opportunity; and (4) the constitutional
question is the lis mota of the case.
2. ID,; ID.; ID.; ID.; ACTUAL CASE OR CONTROVERSY, DEFINED;
PRESENT IN CASE AT BAR. — An actual case or controversy
refers to an existing case or controversy that is appropriate
or ripe for determination, not conjectural or anticipatory. The
controversy needs to be definite and concrete, bearing upon
the legal relations of parties who are pitted against each
other due to their adverse legal interests. There is in the
present case a real clash of interests and rights between
petitioners and respondents arising from the issuance of a
presidential proclamation that converts a portion of the area
covered by Camp John Hay into a SEZ, the former insisting
that such proclamation contains unconstitutional provisions,
the latter claiming otherwise.
language of the law on which it is based; it must be expressly
granted in a statute stated in a language too clear to be
mistaken. Tax exemption cannot be implied as it must be
categorically and unmistakably expressed. If it were the
intent of the legislature to grant to the John Hay SEZ the
same tax exemption and incentives given to the Subic SEZ, it
would have so expressly provided in the R.A. No. 7227.
3. ID.; ID.; ID.; ID.; PERSONAL AND SUBSTANTIAL INTEREST OF
THE PARTY RAISING THE CONSTITUTIONAL QUESTION;
PRESENT IN CASE AT BAR — R.A. No. 7227 expressly requires
the concurrence of the affected local government units to
the creation of SEZs out of all the base areas in the country.
The grant by the law on local government units of the right of
concurrence on the bases' conversion is equivalent to vesting
a legal standing on them, for it is in effect a recognition of the
real interests that communities nearby or surrounding a
particular base area have in its utilization. Thus, the interest
of petitioners, being inhabitants of Baguio, in assailing the
legality of Proclamation No. 420, is personal and substantial
such that they have sustained or will sustain direct injury as a
result of the government act being challenged. Theirs is a
material interest, an interest in issue affected by the
proclamation and not merely an interest in the question
involved or an incidental interest, for what is at stake in the
enforcement of Proclamation No. 420 is the very economic
and social existence of the people of Baguio City. ...
Moreover, petitioners Edilberto T. Claravall and Lilia G.
Yaranon were duly elected councilors of Baguio at the time,
engaged in the local governance of Baguio City and whose
duties included deciding for and on behalf of their
constituents the question of whether to concur with the
declaration of a portion of the area covered by Camp John
Hay as a SEZ. Certainly then, petitioners Claravall and
Yaranon, as city officials who voted against the sanggunian
Resolution No. 255 (Series of 1994) supporting the issuance
of the now challenged Proclamation No. 420, have legal
standing to bring the present petition.
6. POLITICAL LAW; CONSTITUTIONAL LAW; JUDICIARY;
SUPREME COURT; CAN VOID AN ACT OR POLICY OF THE
POLITICAL DEPARTMENTS OF THE GOVERNMENT; GROUNDS;
CASE AT BAR. — This Court no doubt can void an act or policy
of the political departments of the government on either of
two grounds-infringement of the Constitution or grave abuse
of discretion. This Court then declares that the grant by
Proclamation No. 420 of tax exemption and other privileges
to the John Hay SEZ is void for being violative of the
Constitution.
4. ID.; ID.; LEGISLATIVE DEPARTMENT; HAS THE FULL POWER
TO EXEMPT ANY PERSON OR CORPORATION OR CLASS OF
PROPERTY FROM TAXATION, UNLESS LIMITED BY A
PROVISION OF THE CONSTITUTION. — It is the legislature,
unless limited by a provision of the state constitution, that
has full power to exempt any person or corporation or class
of property from taxation, its power to exempt being as
broad as its power to tax. Other than Congress, the
Constitution may itself provide for specific tax exemptions, or
local governments may pass ordinances on exemption only
from local taxes. The challenged grant of tax exemption
would circumvent the Constitution's imposition that a law
granting any tax exemption must have the concurrence of a
majority of all the members of Congress.
5. TAXATION; TAX EXEMPTION; CANNOT BE IMPLIED AS IT
MUST BE CATEGORICALLY AND UNMISTAKABLY EXPRESSED.
— [T]he claimed statutory exemption of the John Hay SEZ
from taxation should be manifest and unmistakable from the
7. ID.; STATUTES; VALIDITY; WHERE PART OF A STATUTE IS
VOID AS CONTRARY TO THE CONSTITUTION, WHILE
ANOTHER PART IS VALID, THE VALID PORTION, IF SEPARABLE
FROM THE INVALID, MAY STAND AND BE ENFORCED; CASE
AT BAR. — The unconstitutionality of the grant of tax
immunity and financial incentives as contained in the second
sentence of Section 3 of Proclamation No. 420
notwithstanding, the entire assailed proclamation cannot be
declared unconstitutional, the other parts thereof not being
repugnant to law or the Constitution. The delineation and
declaration of a portion of the area covered by Camp John
Hay as a SEZ was well within the powers of the President to
do so by means of a proclamation. The requisite prior
concurrence by the Baguio City government to such
proclamation appears to have been given in the form of a
duly enacted resolution by the sanggunian. The other
provisions of the proclamation had been proven to be
consistent with R.A. No. 7227. Where part of a statute is void
as contrary to the Constitution, while another part is valid,
the valid portion, if separable from the invalid, may stand and
be enforced. This Court finds that the other provisions in
Proclamation No. 420 converting a delineated portion of
Camp John Hay into the John Hay SEZ are separable from the
invalid second sentence of Section 3 thereof, hence they
stand.
DECISION
CARPIO-MORALES, J p:
By the present petition for prohibition, mandamus and
declaratory relief with prayer for a temporary restraining
order (TRO) and/or writ of preliminary injunction, petitioners
assail, in the main, the constitutionality of Presidential
Proclamation No. 420, Series of 1994, "CREATING AND
DESIGNATING A PORTION OF THE AREA COVERED BY THE
FORMER CAMP JOHN [HAY] AS THE JOHN HAY SPECIAL
ECONOMIC ZONE PURSUANT TO REPUBLIC ACT NO. 7227."
Republic Act No. 7227, AN ACT ACCELERATING THE
CONVERSION OF MILITARY RESERVATIONS INTO OTHER
PRODUCTIVE USES, CREATING THE BASES CONVERSION AND
DEVELOPMENT AUTHORITY FOR THIS PURPOSE, PROVIDING
FUNDS THEREFOR AND FOR OTHER PURPOSES, otherwise
known as the "Bases Conversion and Development Act of
1992," which was enacted on March 13, 1992, set out the
policy of the government to accelerate the sound and
balanced conversion into alternative productive uses of the
former military bases under the 1947 Philippines-United
States of America Military Bases Agreement, namely, the
Clark and Subic military reservations as well as their
extensions including the John Hay Station (Camp John Hay or
the camp) in the City of Baguio. 1
As noted in its title, R.A. No. 7227 created public respondent
Bases Conversion and Development Authority 2 (BCDA),
vesting it with powers pertaining to the multifarious aspects
of carrying out the ultimate objective of utilizing the base
areas in accordance with the declared government policy.
R.A. No. 7227 likewise created the Subic Special Economic
[and Free Port] Zone (Subic SEZ) the metes and bounds of
which were to be delineated in a proclamation to be issued
by the President of the Philippines. 3
R.A. No. 7227 granted the Subic SEZ incentives ranging from
tax and duty-free importations, exemption of businesses
therein from local and national taxes, to other hallmarks of a
liberalized financial and business climate. 4
And R.A. No. 7227 expressly gave authority to the President
to create through executive proclamation, subject to the
concurrence of the local government units directly affected,
other Special Economic Zones (SEZ) in the areas covered
respectively by the Clark military reservation, the Wallace Air
Station in San Fernando, La Union, and Camp John Hay. 5
On August 16, 1993, BCDA entered into a Memorandum of
Agreement and Escrow Agreement with private respondents
Tuntex (B.V.I.) Co., Ltd. (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD), private corporations
registered under the laws of the British Virgin Islands,
preparatory to the formation of a joint venture for the
development of Poro Point in La Union and Camp John Hay as
premier tourist destinations and recreation centers. Four
months later or on December 16, 1993, BCDA, TUNTEX and
ASIAWORLD executed a Joint Venture Agreement 6 whereby
they bound themselves to put up a joint venture company
known as the Baguio International Development and
Management Corporation which would lease areas within
Camp John Hay and Poro Point for the purpose of turning
such places into principal tourist and recreation spots, as
originally envisioned by the parties under their Memorandum
of Agreement. CaATDE
The Baguio City government meanwhile passed a number of
resolutions in response to the actions taken by BCDA as
owner and administrator of Camp John Hay.
By Resolution 7 of September 29, 1993, the Sangguniang
Panlungsod of Baguio City (the sanggunian) officially asked
BCDA to exclude all the barangays partly or totally located
within Camp John Hay from the reach or coverage of any plan
or program for its development.
By a subsequent Resolution 8 dated January 19, 1994, the
sanggunian sought from BCDA an abdication, waiver or
quitclaim of its ownership over the home lots being occupied
by residents of nine (9) barangays surrounding the military
reservation.
Still by another resolution passed on February 21, 1994, the
sanggunian adopted and submitted to BCDA a 15-point
concept for the development of Camp John Hay. 9 The
sanggunian's vision expressed, among other things, a kind of
development that affords protection to the environment, the
making of a family-oriented type of tourist destination,
priority in employment opportunities for Baguio residents
and free access to the base area, guaranteed participation of
the city government in the management and operation of the
camp, exclusion of the previously named nine barangays
from the area for development, and liability for local taxes of
businesses to be established within the camp. 10
BCDA, TUNTEX and ASIAWORLD agreed to some, but rejected
or modified the other proposals of the sanggunian. 11 They
stressed the need to declare Camp John Hay a SEZ as a
condition precedent to its full development in accordance
with the mandate of R.A. No. 7227. 12
On May 11, 1994, the sanggunian passed a resolution
requesting the Mayor to order the determination of realty
taxes which may otherwise be collected from real properties
of Camp John Hay. 13 The resolution was intended to
intelligently guide the sanggunian in determining its position
on whether Camp John Hay be declared a SEZ, it (the
sanggunian) being of the view that such declaration would
exempt the camp's property and the economic activity
therein from local or national taxation.
More than a month later, however, the sanggunian passed
Resolution No. 255, (Series of 1994), 14 seeking and
supporting, subject to its concurrence, the issuance by then
President Ramos of a presidential proclamation declaring an
area of 288.1 hectares of the camp as a SEZ in accordance
with the provisions of R.A. No. 7227. Together with this
resolution was submitted a draft of the proposed
proclamation for consideration by the President. 15
On July 5, 1994 then President Ramos issued Proclamation
No. 420, 16 the title of which was earlier indicated, which
established a SEZ on a portion of Camp John Hay and which
reads as follows:
xxx xxx xxx
Pursuant to the powers vested in me by the law and the
resolution of concurrence by the City Council of Baguio, I,
FIDEL V. RAMOS, President of the Philippines, do hereby
create and designate a portion of the area covered by the
former John Hay reservation as embraced, covered, and
defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America, as amended, as
the John Hay Special Economic Zone, and accordingly order:
aDcHIC
SECTION 1. Coverage of John Hay Special Economic Zone. —
The John Hay Special Economic Zone shall cover the area
consisting of Two Hundred Eighty Eight and one/tenth (288.1)
hectares, more or less, of the total of Six Hundred SeventySeven (677) hectares of the John Hay Reservation, more or
less, which have been surveyed and verified by the
Department of Environment and Natural Resources (DENR)
as defined by the following technical description:
A parcel of land, situated in the City of Baguio, Province of
Benguet, Island of Luzon, and particularly described in survey
plans Psd-131102-002639 and Ccs-131102-000030 as
approved on 16 August 1993 and 26 August 1993,
respectively, by the Department of Environment and Natural
Resources, in detail containing:
Lot 1, Lot 2, Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 13, Lot 14, Lot
15, and Lot 20 of Ccs-131102-000030
-and
Lot 3, Lot 4, Lot 5, Lot 6, Lot 7, Lot 8, Lot 9, Lot 10, Lot 11, Lot
14, Lot 15, Lot 16, Lot 17, and Lot 18 of Psd-131102-002639
being portions of TCT No. T-3812, LRC Rec. No. 87.
With a combined area of TWO HUNDRED EIGHTY EIGHT AND
ONE/TENTH HECTARES (288.1 hectares); Provided that the
area consisting of approximately Six and two/tenth (6.2)
hectares, more or less, presently occupied by the VOA and
the residence of the Ambassador of the United States, shall
be considered as part of the SEZ only upon turnover of the
properties to the government of the Republic of the
Philippines.
Sec. 2. Governing Body of the John Hay Special Economic
Zone. — Pursuant to Section 15 of Republic Act No. 7227, the
Bases Conversion and Development Authority is hereby
established as the governing body of the John Hay Special
Economic Zone and, as such, authorized to determine the
utilization and disposition of the lands comprising it, subject
to private rights, if any, and in consultation and coordination
with the City Government of Baguio after consultation with
its inhabitants, and to promulgate the necessary policies,
rules, and regulations to govern and regulate the zone thru
the John Hay Poro Point Development Corporation, which is
its implementing arm for its economic development and
optimum utilization.
Sec. 3. Investment Climate in John Hay Special Economic
Zone. — Pursuant to Section 5(m) and Section 15 of Republic
Act No. 7227, the John Hay Poro Point Development
Corporation shall implement all necessary policies, rules, and
regulations governing the zone, including investment
incentives, in consultation with pertinent government
departments. Among others, the zone shall have all the
applicable incentives of the Special Economic Zone under
Section 12 of Republic Act No. 7227 and those applicable
incentives granted in the Export Processing Zones, the
Omnibus Investments Code of 1987, the Foreign Investment
Act of 1991, and new investment laws that may hereinafter
be enacted.
Sec. 4. Role of Departments, Bureaus, Offices, Agencies and
Instrumentalities. — All Heads of departments, bureaus,
offices, agencies, and instrumentalities of the government
are hereby directed to give full support to Bases Conversion
and Development Authority and/or its implementing
subsidiary or joint venture to facilitate the necessary
approvals to expedite the implementation of various projects
of the conversion program. IHEaAc
Sec. 5. Local Authority. — Except as herein provided, the
affected local government units shall retain their basic
autonomy and identity.
Sec. 6. Repealing Clause. — All orders, rules, and regulations,
or parts thereof, which are inconsistent with the provisions of
this Proclamation, are hereby repealed, amended, or
modified accordingly.
Sec. 7. Effectivity. — This proclamation shall take effect
immediately.
Done in the City of Manila, this 5th day of July, in the year of
Our Lord, nineteen hundred and ninety-four.
The issuance of Proclamation No. 420 spawned the present
petition 17 for prohibition, mandamus and declaratory relief
which was filed on April 25, 1995 challenging, in the main, its
constitutionality or validity as well as the legality of the
Memorandum of Agreement and Joint Venture Agreement
between public respondent BCDA and private respondents
TUNTEX and ASIAWORLD.
Petitioners allege as grounds for the allowance of the petition
the following:
I. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1990
(sic) IN SO FAR AS IT GRANTS TAX EXEMPTIONS IS INVALID
AND ILLEGAL AS IT IS AN UNCONSTITUTIONAL EXERCISE BY
THE PRESIDENT OF A POWER GRANTED ONLY TO THE
LEGISLATURE.
II. PRESIDENTIAL PROCLAMATION NO. 420, IN SO FAR AS IT
LIMITS THE POWERS AND INTERFERES WITH THE AUTONOMY
OF THE CITY OF BAGUIO IS INVALID, ILLEGAL AND
UNCONSTITUTIONAL.
III. PRESIDENTIAL PROCLAMATION NO. 420, SERIES OF 1994
IS UNCONSTITUTIONAL IN THAT IT VIOLATES THE RULE THAT
ALL TAXES SHOULD BE UNIFORM AND EQUITABLE.
IV. THE MEMORANDUM OF AGREEMENT ENTERED INTO BY
AND BETWEEN PRIVATE AND PUBLIC RESPONDENTS BASES
CONVERSION DEVELOPMENT AUTHORITY HAVING BEEN
ENTERED INTO ONLY BY DIRECT NEGOTIATION IS ILLEGAL.
HSEcTC
V. THE TERMS AND CONDITIONS OF THE MEMORANDUM OF
AGREEMENT ENTERED INTO BY AND BETWEEN PRIVATE AND
PUBLIC RESPONDENT BASES CONVERSION DEVELOPMENT
AUTHORITY IS sic ILLEGAL.
VI. THE CONCEPTUAL DEVELOPMENT PLAN OF RESPONDENTS
NOT HAVING UNDERGONE ENVIRONMENTAL IMPACT
ASSESSMENT IS BEING ILLEGALLY CONSIDERED WITHOUT A
VALID ENVIRONMENTAL IMPACT ASSESSMENT .
A temporary restraining order and/or writ of preliminary
injunction was prayed for to enjoin BCDA, John Hay Poro
Point Development Corporation and the city government
from implementing Proclamation No. 420, and TUNTEX and
ASIAWORLD from proceeding with their plan respecting
Camp John Hay's development pursuant to their Joint
Venture Agreement with BCDA. 18
Public respondents, by their separate Comments, allege as
moot and academic the issues raised by the petition, the
questioned Memorandum of Agreement and Joint Venture
Agreement having already been deemed abandoned by the
inaction of the parties thereto prior to the filing of the
petition as in fact, by letter of November 21, 1995, BCDA
formally notified TUNTEX and ASIAWORLD of the revocation
of their said agreements. 19
In maintaining the validity of Proclamation No. 420,
respondents contend that by extending to the John Hay SEZ
economic incentives similar to those enjoyed by the Subic
SEZ which was established under R.A. No. 7227, the
proclamation is merely implementing the legislative intent of
said law to turn the US military bases into hubs of business
activity or investment. They underscore the point that the
government's policy of bases conversion can not be achieved
without extending the same tax exemptions granted by R.A.
No. 7227 to Subic SEZ to other SEZs.
Denying that Proclamation No. 420 is in derogation of the
local autonomy of Baguio City or that it is violative of the
constitutional guarantee of equal protection, respondents
assail petitioners' lack of standing to bring the present suit
even as taxpayers and in the absence of any actual case or
controversy to warrant this Court's exercise of its power of
judicial review over the proclamation.
Finally, respondents seek the outright dismissal of the
petition for having been filed in disregard of the hierarchy of
courts and of the doctrine of exhaustion of administrative
remedies.
Replying, 20 petitioners aver that the doctrine of exhaustion
of administrative remedies finds no application herein since
they are invoking the exclusive authority of this Court under
Section 21 of R.A. No. 7227 to enjoin or restrain
implementation of projects for conversion of the base areas;
that the established exceptions to the aforesaid doctrine
obtain in the present petition; and that they possess the
standing to bring the petition which is a taxpayer's suit.
Public respondents have filed their Rejoinder 21 and the
parties have filed their respective memoranda.
Before dwelling on the core issues, this Court shall first
address the preliminary procedural questions confronting the
petition.
The judicial policy is and has always been that this Court will
not entertain direct resort to it except when the redress
sought cannot be obtained in the proper courts, or when
exceptional and compelling circumstances warrant availment
of a remedy within and calling for the exercise of this Court's
primary jurisdiction. 22 Neither will it entertain an action for
declaratory relief, which is partly the nature of this petition,
over which it has no original jurisdiction.
Nonetheless, as it is only this Court which has the power
under Section 21 23 of R.A. No. 7227 to enjoin
implementation of projects for the development of the
former US military reservations, the issuance of which
injunction petitioners pray for, petitioners' direct filing of the
present petition with it is allowed. Over and above this
procedural objection to the present suit, this Court retains
full discretionary power to take cognizance of a petition filed
directly to it if compelling reasons, or the nature and
importance of the issues raised, warrant. 24 Besides,
remanding the case to the lower courts now would just
unduly prolong adjudication of the issues.
The transformation of a portion of the area covered by Camp
John Hay into a SEZ is not simply a re-classification of an area,
a mere ascription of a status to a place. It involves turning the
former US military reservation into a focal point for
investments by both local and foreign entities. It is to be
made a site of vigorous business activity, ultimately serving
as a spur to the country's long awaited economic growth. For,
as R.A. No. 7227 unequivocally declares, it is the
government's policy to enhance the benefits to be derived
from the base areas in order to promote the economic and
social development of Central Luzon in particular and the
country in general. 25 Like the Subic SEZ, the John Hay SEZ
should also be turned into a "self-sustaining, industrial,
commercial, financial and investment center." 26
earliest opportunity; and (4) the constitutional question is the
lis mota of the case. 29
More than the economic interests at stake, the development
of Camp John Hay as well as of the other base areas
unquestionably has critical links to a host of environmental
and social concerns. Whatever use to which these lands will
be devoted will set a chain of events that can affect one way
or another the social and economic way of life of the
communities where the bases are located, and ultimately the
nation in general. AECDHS
An actual case or controversy refers to an existing case or
controversy that is appropriate or ripe for determination, not
conjectural or anticipatory. 30 The controversy needs to be
definite and concrete, bearing upon the legal relations of
parties who are pitted against each other due to their
adverse legal interests. 31 There is in the present case a real
clash of interests and rights between petitioners and
respondents arising from the issuance of a presidential
proclamation that converts a portion of the area covered by
Camp John Hay into a SEZ, the former insisting that such
proclamation contains unconstitutional provisions, the latter
claiming otherwise.
Underscoring the fragility of Baguio City's ecology with its
problem on the scarcity of its water supply, petitioners point
out that the local and national government are faced with
the challenge of how to provide for an ecologically
sustainable, environmentally sound, equitable transition for
the city in the wake of Camp John Hay's reversion to the mass
of government property. 27 But that is why R.A. No. 7227
emphasizes the "sound and balanced conversion of the Clark
and Subic military reservations and their extensions
consistent with ecological and environmental standards." 28
It cannot thus be gainsaid that the matter of conversion of
the US bases into SEZs, in this case Camp John Hay, assumes
importance of a national magnitude.
Convinced then that the present petition embodies crucial
issues, this Court assumes jurisdiction over the petition.
As far as the questioned agreements between BCDA and
TUNTEX and ASIAWORLD are concerned, the legal questions
being raised thereon by petitioners have indeed been
rendered moot and academic by the revocation of such
agreements. There are, however, other issues posed by the
petition, those which center on the constitutionality of
Proclamation No. 420, which have not been mooted by the
said supervening event upon application of the rules for the
judicial scrutiny of constitutional cases. The issues boil down
to:
(1) Whether the present petition complies with the
requirements for this Court's exercise of jurisdiction over
constitutional issues;
(2) Whether Proclamation No. 420 is constitutional by
providing for national and local tax exemption within and
granting other economic incentives to the John Hay Special
Economic Zone; and
(3) Whether Proclamation No. 420 is constitutional for
limiting or interfering with the local autonomy of Baguio City;
It is settled that when questions of constitutional significance
are raised, the court can exercise its power of judicial review
only if the following requisites are present: (1) the existence
of an actual and appropriate case; (2) a personal and
substantial interest of the party raising the constitutional
question; (3) the exercise of judicial review is pleaded at the
R.A. No. 7227 expressly requires the concurrence of the
affected local government units to the creation of SEZs out of
all the base areas in the country. 32 The grant by the law on
local government units of the right of concurrence on the
bases' conversion is equivalent to vesting a legal standing on
them, for it is in effect a recognition of the real interests that
communities nearby or surrounding a particular base area
have in its utilization. Thus, the interest of petitioners, being
inhabitants of Baguio, in assailing the legality of Proclamation
No. 420, is personal and substantial such that they have
sustained or will sustain direct injury as a result of the
government act being challenged. 33 Theirs is a material
interest, an interest in issue affected by the proclamation and
not merely an interest in the question involved or an
incidental interest, 34 for what is at stake in the enforcement
of Proclamation No. 420 is the very economic and social
existence of the people of Baguio City.
Petitioners' locus standi parallels that of the petitioner and
other residents of Bataan, specially of the town of Limay, in
Garcia v. Board of Investments 35 where this Court
characterized their interest in the establishment of a
petrochemical plant in their place as actual, real, vital and
legal, for it would affect not only their economic life but even
the air they breathe.
Moreover, petitioners Edilberto T. Claravall and Lilia G.
Yaranon were duly elected councilors of Baguio at the time,
engaged in the local governance of Baguio City and whose
duties included deciding for and on behalf of their
constituents the question of whether to concur with the
declaration of a portion of the area covered by Camp John
Hay as a SEZ. Certainly then, petitioners Claravall and
Yaranon, as city officials who voted against 36 the sanggunian
Resolution No. 255 (Series of 1994) supporting the issuance
of the now challenged Proclamation No. 420, have legal
standing to bring the present petition.
That there is herein a dispute on legal rights and interests is
thus beyond doubt. The mootness of the issues concerning
the questioned agreements between public and private
respondents is of no moment.
"By the mere enactment of the questioned law or the
approval of the challenged act, the dispute is deemed to have
ripened into a judicial controversy even without any other
overt act. Indeed, even a singular violation of the
Constitution and/or the law is enough to awaken judicial
duty." 37
As to the third and fourth requisites of a judicial inquiry,
there is likewise no question that they have been complied
with in the case at bar. This is an action filed purposely to
bring forth constitutional issues, ruling on which this Court
must take up. Besides, respondents never raised issues with
respect to these requisites, hence, they are deemed waived.
Having cleared the way for judicial review, the
constitutionality of Proclamation No. 420, as framed in the
second and third issues above, must now be addressed
squarely. TCaADS
The second issue refers to petitioners' objection against the
creation by Proclamation No. 420 of a regime of tax
exemption within the John Hay SEZ. Petitioners argue that
nowhere in R.A. No. 7227 is there a grant of tax exemption to
SEZs yet to be established in base areas, unlike the grant
under Section 12 thereof of tax exemption and investment
incentives to the therein established Subic SEZ. The grant of
tax exemption to the John Hay SEZ, petitioners conclude,
thus contravenes Article VI, Section 28(4) of the Constitution
which provides that "No law granting any tax exemption shall
be passed without the concurrence of a majority of all the
members of Congress."
Section 3 of Proclamation No. 420, the challenged provision,
reads:
Sec. 3. Investment Climate in John Hay Special Economic
Zone. — Pursuant to Section 5(m) and Section 15 of Republic
Act No. 7227, the John Hay Poro Point Development
Corporation shall implement all necessary policies, rules, and
regulations governing the zone, including investment
incentives, in consultation with pertinent government
departments. Among others, the zone shall have all the
applicable incentives of the Special Economic Zone under
Section 12 of Republic Act No. 7227 and those applicable
incentives granted in the Export Processing Zones, the
Omnibus Investments Code of 1987, the Foreign Investment
Act of 1991, and new investment laws that may hereinafter
be enacted. (Emphasis and italics supplied)
Upon the other hand, Section 12 of R.A. No. 7227 provides:
xxx xxx xxx
(a) Within the framework and subject to the mandate and
limitations of the Constitution and the pertinent provisions of
the Local Government Code, the Subic Special Economic Zone
shall be developed into a self-sustaining, industrial,
commercial, financial and investment center to generate
employment opportunities in and around the zone and to
attract and promote productive foreign investments;
(b) The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow
or movement of goods and capital within, into and exported
out of the Subic Special Economic Zone, as well as provide
incentives such as tax and duty free importations of raw
materials, capital and equipment. However, exportation or
removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory
shall be subject to customs duties and taxes under the
Customs and Tariff Code and other relevant tax laws of the
Philippines;
(c) The provisions of existing laws, rules and regulations to
the contrary notwithstanding, no taxes, local and national,
shall be imposed within the Subic Special Economic Zone. In
lieu of paying taxes, three percent (3%) of the gross income
earned by all businesses and enterprises within the Subic
Special Economic Zone shall be remitted to the National
Government, one percent (1%) each to the local government
units affected by the declaration of the zone in proportion to
their population area, and other factors. In addition, there is
hereby established a development fund of one percent (1%)
of the gross income earned by all businesses and enterprises
within the Subic Special Economic Zone to be utilized for the
Municipality of Subic, and other municipalities contiguous to
be base areas. In case of conflict between national and local
laws with respect to tax exemption privileges in the Subic
Special Economic Zone, the same shall be resolved in favor of
the latter;
(d) No exchange control policy shall be applied and free
markets for foreign exchange, gold, securities and futures
shall be allowed and maintained in the Subic Special
Economic Zone;
(e) The Central Bank, through the Monetary Board, shall
supervise and regulate the operations of banks and other
financial institutions within the Subic Special Economic Zone;
(f) Banking and Finance shall be liberalized with the
establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign
banks with minimum Central Bank regulation;
(g) Any investor within the Subic Special Economic Zone
whose continuing investment shall not be less than Two
hundred fifty thousand dollars ($250,000), his/her spouse
and dependent children under twenty-one (21) years of age,
shall be granted permanent resident status within the Subic
Special Economic Zone. They shall have freedom of ingress
and egress to and from the Subic Special Economic Zone
without any need of special authorization from the Bureau of
Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue
working visas renewable every two (2) years to foreign
executives and other aliens possessing highly-technical skills
which no Filipino within the Subic Special Economic Zone
possesses, as certified by the Department of Labor and
Employment. The names of aliens granted permanent
residence status and working visas by the Subic Bay
Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after
issuance thereof; SACTIH
xxx xxx xxx (Emphasis supplied)
It is clear that under Section 12 of R.A. No. 7227 it is only the
Subic SEZ which was granted by Congress with tax exemption,
investment incentives and the like. There is no express
extension of the aforesaid benefits to other SEZs still to be
created at the time via presidential proclamation.
Senator Paterno is recognized.
Senator Paterno:
I take it that the amendment suggested by Senator Angara
would then prevent the establishment of other special
economic zones observing these policies.
Senator Angara:
No, Mr. President, because during our short caucus, Senator
Laurel raised the point that if we give this delegation to the
President to establish other economic zones, that may be an
unwarranted delegation. IHTASa
So we agreed that we will simply limit the definition of
powers and description of the zone to Subic, but that does
not exclude the possibility of creating other economic zones
within the baselands.
The deliberations of the Senate confirm the exclusivity to
Subic SEZ of the tax and investment privileges accorded it
under the law, as the following exchanges between our
lawmakers show during the second reading of the precursor
bill of R.A. No. 7227 with respect to the investment policies
that would govern Subic SEZ which are now embodied in the
aforesaid Section 12 thereof:
Senator Paterno:
xxx xxx xxx
Under this specific provision, yes, Mr. President. This
provision now will be confined only to Subic. 38
But if that amendment is followed, no other special
economic zone may be created under authority of this
particular bill. Is that correct, Mr. President?
Senator Angara:
Senator Maceda:
xxx xxx xxx (Emphasis supplied.)
This is what I was talking about. We get into problems here
because all of these following policies are centered around
the concept of free port. And in the main paragraph above,
we have declared both Clark and Subic as special economic
zones, subject to these policies which are, in effect, a freeport arrangement.
Senator Angara:
The Gentleman is absolutely correct, Mr. President. So we
must confine these policies only to Subic.
May I withdraw then my amendment, and instead provide
that "THE SPECIAL ECONOMIC ZONE OF SUBIC SHALL BE
ESTABLISHED IN ACCORDANCE WITH THE FOLLOWING
POLICIES." Subject to style, Mr. President.
As gathered from the earlier-quoted Section 12 of R.A. No.
7227, the privileges given to Subic SEZ consist principally of
exemption from tariff or customs duties, national and local
taxes of business entities therein (paragraphs (b) and (c)),
free market and trade of specified goods or properties
(paragraph d), liberalized banking and finance (paragraph f),
and relaxed immigration rules for foreign investors
(paragraph g). Yet, apart from these, Proclamation No. 420
also makes available to the John Hay SEZ benefits existing in
other laws such as the privilege of export processing zonebased businesses of importing capital equipment and raw
materials free from taxes, duties and other restrictions; 39
tax and duty exemptions, tax holiday, tax credit, and other
incentives under the Omnibus Investments Code of 1987; 40
and the applicability to the subject zone of rules governing
foreign investments in the Philippines. 41
Thus, it is very clear that these principles and policies are
applicable only to Subic as a free port.
Senator Paterno:
Mr. President.
The President:
While the grant of economic incentives may be essential to
the creation and success of SEZs, free trade zones and the
like, the grant thereof to the John Hay SEZ cannot be
sustained. The incentives under R.A. No. 7227 are exclusive
only to the Subic SEZ, hence, the extension of the same to
the John Hay SEZ finds no support therein. Neither does the
same grant of privileges to the John Hay SEZ find support in
the other laws specified under Section 3 of Proclamation No.
420, which laws were already extant before the issuance of
the proclamation or the enactment of R.A. No. 7227.
More importantly, the nature of most of the assailed
privileges is one of tax exemption. It is the legislature, unless
limited by a provision of the state constitution, that has full
power to exempt any person or corporation or class of
property from taxation, its power to exempt being as broad
as its power to tax. 42 Other than Congress, the Constitution
may itself provide for specific tax exemptions, 43 or local
governments may pass ordinances on exemption only from
local taxes. 44
Petitioners' arguments are bereft of merit. Under R.A. No.
7227, the BCDA is entrusted with, among other things, the
following purpose: 50
xxx xxx xxx
(a) To own, hold and/or administer the military reservations
of John Hay Air Station, Wallace Air Station, O'Donnell
Transmitter Station, San Miguel Naval Communications
Station, Mt. Sta. Rita Station (Hermosa, Bataan) and those
portions of Metro Manila Camps which may be transferred to
it by the President; cIHCST
xxx xxx xxx (Emphasis supplied)
The challenged grant of tax exemption would circumvent the
Constitution's imposition that a law granting any tax
exemption must have the concurrence of a majority of all the
members of Congress. 45 In the same vein, the other kinds of
privileges extended to the John Hay SEZ are by tradition and
usage for Congress to legislate upon.
Contrary to public respondents' suggestions, the claimed
statutory exemption of the John Hay SEZ from taxation
should be manifest and unmistakable from the language of
the law on which it is based; it must be expressly granted in a
statute stated in a language too clear to be mistaken. 46 Tax
exemption cannot be implied as it must be categorically and
unmistakably expressed. 47
If it were the intent of the legislature to grant to the John Hay
SEZ the same tax exemption and incentives given to the Subic
SEZ, it would have so expressly provided in the R.A. No. 7227.
This Court no doubt can void an act or policy of the political
departments of the government on either of two groundsinfringement of the Constitution or grave abuse of discretion.
48
With such broad rights of ownership and administration
vested in BCDA over Camp John Hay, BCDA virtually has
control over it, subject to certain limitations provided for by
law. By designating BCDA as the governing agency of the John
Hay SEZ, the law merely emphasizes or reiterates the
statutory role or functions it has been granted.
The unconstitutionality of the grant of tax immunity and
financial incentives as contained in the second sentence of
Section 3 of Proclamation No. 420 notwithstanding, the
entire assailed proclamation cannot be declared
unconstitutional, the other parts thereof not being repugnant
to law or the Constitution. The delineation and declaration of
a portion of the area covered by Camp John Hay as a SEZ was
well within the powers of the President to do so by means of
a proclamation. 51 The requisite prior concurrence by the
Baguio City government to such proclamation appears to
have been given in the form of a duly enacted resolution by
the sanggunian. The other provisions of the proclamation had
been proven to be consistent with R.A. No. 7227.
This Court then declares that the grant by Proclamation No.
420 of tax exemption and other privileges to the John Hay
SEZ is void for being violative of the Constitution. This
renders it unnecessary to still dwell on petitioners' claim that
the same grant violates the equal protection guarantee.
Where part of a statute is void as contrary to the Constitution,
while another part is valid, the valid portion, if separable
from the invalid, may stand and be enforced. 52 This Court
finds that the other provisions in Proclamation No. 420
converting a delineated portion of Camp John Hay into the
John Hay SEZ are separable from the invalid second sentence
of Section 3 thereof, hence they stand.
With respect to the final issue raised by petitioners — that
Proclamation No. 420 is unconstitutional for being in
derogation of Baguio City's local autonomy, objection is
specifically mounted against Section 2 thereof in which BCDA
is set up as the governing body of the John Hay SEZ. 49
WHEREFORE, the second sentence of Section 3 of
Proclamation No. 420 is hereby declared NULL AND VOID and
is accordingly declared of no legal force and effect. Public
respondents are hereby enjoined from implementing the
aforesaid void provision.
Petitioners argue that there is no authority of the President
to subject the John Hay SEZ to the governance of BCDA which
has just oversight functions over SEZ; and that to do so is to
diminish the city government's power over an area within its
jurisdiction, hence, Proclamation No. 420 unlawfully gives the
President power of control over the local government instead
of just mere supervision.
Proclamation No. 420, without the invalidated portion,
remains valid and effective. SO ORDERED.
[G.R. No. 196596. November 9, 2016.]
COMMISSIONER OF INTERNAL REVENUE,petitioner, vs. DE LA
SALLE UNIVERSITY, INC.,respondent.
[G.R. No. 198841. November 9, 2016.]
DE LA SALLE UNIVERSITY, INC.,petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE,respondent.
inclusive of surcharge, interest and penalty for taxable years
2001, 2002 and 2003. 7
DLSU protested the assessment. The Commissioner failed to
act on the protest; thus, DLSU filed on August 3, 2005 a
petition for review with the CTA Division. 8
[G.R. No. 198941. November 9, 2016.]
COMMISSIONER OF INTERNAL REVENUE,petitioner, vs. DE LA
SALLE UNIVERSITY, INC.,respondent.
DECISION
BRION, J p:
Before the Court are consolidated petitions for review on
certiorari:1
1. G.R. No. 196596 filed by the Commissioner of Internal
Revenue (Commissioner) to assail the December 10, 2010
decision and March 29, 2011 resolution of the Court of Tax
Appeals (CTA) in En Banc Case No. 622; 2
2. G.R. No. 198841 filed by De La Salle University, Inc. (DLSU)
to assail the June 8, 2011 decision and October 4, 2011
resolution in CTA En Banc Case No. 671; 3 and
3. G.R. No. 198941 filed by the Commissioner to assail the
June 8, 2011 decision and October 4, 2011 resolution in CTA
En Banc Case No. 671. 4
G.R. Nos. 196596, 198841 and 198941 all originated from
CTA Special First Division (CTA Division) Case No. 7303. G.R.
No. 196596 stemmed from CTA En Banc Case No. 622 filed by
the Commissioner to challenge CTA Case No. 7303. G.R. Nos.
198841 and 198941 both stemmed from CTA En Banc Case
No. 671 filed by DLSU to also challenge CTA Case No. 7303.
CAIHTE
The Factual Antecedents
Sometime in 2004, the Bureau of Internal Revenue (BIR)
issued to DLSU Letter of Authority (LOA) No. 2794 authorizing
its revenue officers to examine the latter's books of accounts
and other accounting records for all internal revenue taxes
for the period Fiscal Year Ending 2003 and Unverified Prior
Years. 5
On May 19, 2004, BIR issued a Preliminary Assessment Notice
to DLSU. 6
Subsequently on August 18, 2004, the BIR through a Formal
Letter of Demand assessed DLSU the following deficiency
taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within the
campus; (2) value-added tax (VAT) on business income; and
(3) documentary stamp tax (DST) on loans and lease
contracts. The BIR demanded the payment of P17,303,001.12,
DLSU,
a
non-stock,
non-profit
educational
institution,principally anchored its petition on Article XIV,
Section 4 (3) of the Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from
taxes and duties. ....
On January 5, 2010, the CTA Division partially granted DLSU's
petition for review. The dispositive portion of the decision
reads:
WHEREFORE,the Petition for Review is PARTIALLY GRANTED.
The DST assessment on the loan transactions of [DLSU] in the
amount of P1,1681,774.00 n is hereby CANCELLED.However,
[DLSU] is ORDERED TO PAY deficiency income tax, VAT and
DST on its lease contracts, plus 25% surcharge for the fiscal
years 2001, 2002 and 2003 in the total amount of
P18,421,363.53.....
In addition, [DLSU] is hereby held liable to pay 20%
delinquency interest on the total amount due computed
from September 30, 2004 until full payment thereof pursuant
to Section 249(C)(3) of the [National Internal Revenue Code].
Further, the compromise penalties imposed by [the
Commissioner] were excluded, there being no compromise
agreement between the parties.
SO ORDERED. 9
Both the Commissioner and DLSU moved for the
reconsideration of the January 5, 2010 decision. 10 On April 6,
2010, the CTA Division denied the Commissioner's motion for
reconsideration while it held in abeyance the resolution on
DLSU's motion for reconsideration. 11
On May 13, 2010, the Commissioner appealed to the CTA En
Banc (CTA En Banc Case No. 622) arguing that DLSU's use of
its revenues and assets for non-educational or commercial
purposes removed these items from the exemption coverage
under the Constitution. 12
On May 18, 2010, DLSU formally offered to the CTA Division
supplemental pieces of documentary evidence to prove that
its rental income was used actually, directly and exclusively
for educational purposes. 13 The Commissioner did not
promptly object to the formal offer of supplemental evidence
despite notice. 14
On July 29, 2010, the CTA Division, in view of the
supplemental evidence submitted, reduced the amount of
DLSU's tax deficiencies. The dispositive portion of the
amended decision reads:
WHEREFORE,[DLSU]'s Motion for Partial Reconsideration is
hereby PARTIALLY GRANTED. [DLSU] is hereby ORDERED TO
PAY for deficiency income tax, VAT and DST plus 25%
surcharge for the fiscal years 2001, 2002 and 2003 in the
total adjusted amount of P5,506,456.71.....
In addition, [DLSU] is hereby held liable to pay 20% per
annum deficiency interest on the . . . basic deficiency taxes . . .
until full payment thereof pursuant to Section 249(B) of the
[National Internal Revenue Code]. . . . .
Further, [DLSU] is hereby held liable to pay 20% per annum
delinquency interest on the deficiency taxes, surcharge and
deficiency interest which have accrued ...from September 30,
2004 until fully paid. 15
build the university's Physical Education — Sports Complex.
21
Parenthetically, DLSU's unsubstantiated claim for exemption,
i.e.,the part of its income that was not shown by supporting
documents to have been actually, directly and exclusively
used for educational purposes, must be subjected to income
tax and VAT. 22
DST on loan and mortgage transactions
Contrary to the Commissioner's contention, DLSU proved its
remittance of the DST due on its loan and mortgage
documents.23 The CTA En Banc found that DLSU's DST
payments had been remitted to the BIR, evidenced by the
stamp on the documents made by a DST imprinting machine,
which is allowed under Section 200 (D) of the National
Internal Revenue Code (Tax Code) 24 and Section 2 of
Revenue Regulations (RR) No. 15-2001. 25
Admissibility of DLSU s supplemental evidence
Consequently, the Commissioner supplemented its petition
with the CTA En Banc and argued that the CTA Division erred
in admitting DLSU's additional evidence. 16
Dissatisfied with the partial reduction of its tax liabilities,
DLSU filed a separate petition for review with the CTA En
Banc (CTA En Banc Case No. 671) on the following grounds: (1)
the entire assessment should have been cancelled because it
was based on an invalid LOA; (2) assuming the LOA was valid,
the CTA Division should still have cancelled the entire
assessment because DLSU submitted evidence similar to
those submitted by Ateneo De Manila University (Ateneo) in
a separate case where the CTA cancelled Ateneo's tax
assessment; 17 and (3) the CTA Division erred in finding that
a portion of DLSU's rental income was not proved to have
been used actually, directly and exclusively for educational
purposes. 18
The CTA En Banc held that the supplemental pieces of
documentary evidence were admissible even if DLSU formally
offered them only when it moved for reconsideration of the
CTA Division's original decision. Notably, the law creating the
CTA provides that proceedings before it shall not be
governed strictly by the technical rules of evidence. 26
The Commissioner moved but failed to obtain a
reconsideration of the CTA En Banc's December 10, 2010
decision. 27 Thus, she came to this court for relief through a
petition for review on certiorari (G.R. No. 196596).
CTA En Banc Case No. 671
The CTA En Banc partially granted DLSU's petition for review
and further reduced its tax liabilities to P2,554,825.47
inclusive of surcharge. 28
The CTA En Banc Rulings
On the validity of the Letter of Authority
CTA En Banc Case No. 622
The CTA En Banc dismissed the Commissioner's petition for
review and sustained the findings of the CTA Division. 19
DETACa
Tax on rental income
Relying on the findings of the court-commissioned
Independent Certified Public Accountant (Independent
CPA),the CTA En Banc found that DLSU was able to prove that
a portion of the assessed rental income was used actually,
directly and exclusively for educational purposes; hence,
exempt from tax. 20 The CTA En Banc was satisfied with
DLSU's supporting evidence confirming that part of its rental
income had indeed been used to pay the loan it obtained to
The issue of the LOA's validity was raised during trial; 29
hence, the issue was deemed properly submitted for decision
and reviewable on appeal.
Citing jurisprudence, the CTA En Banc held that a LOA should
cover only one taxable period and that the practice of issuing
a LOA covering audit of unverified prior years is prohibited.
30 The prohibition is consistent with Revenue Memorandum
Order (RMO) No. 43-90, which provides that if the audit
includes more than one taxable period, the other periods or
years shall be specifically indicated in the LOA. 31
In the present case, the LOA issued to DLSU is for Fiscal Year
Ending 2003 and Unverified Prior Years. Hence, the
assessments for deficiency income tax, VAT and DST for
taxable years 2001 and 2002 are void, but the assessment for
taxable year 2003 is valid. 32
On the applicability of the Ateneo case
The CTA En Banc held that the Ateneo case is not a valid
precedent because it involved different parties, factual
settings, bases of assessments, sets of evidence, and
defenses. 33
On the CTA Division's appreciation of the evidence
The CTA En Banc affirmed the CTA Division's appreciation of
DLSU's evidence. It held that while DLSU successfully proved
that a portion of its rental income was transmitted and used
to pay the loan obtained to fund the construction of the
Sports Complex, the rental income from other sources were
not shown to have been actually, directly and exclusively
used for educational purposes. 34
Not pleased with the CTA En Banc's ruling, both DLSU (G.R.
No. 198841) and the Commissioner (G.R. No. 198941) came
to this Court for relief.
The Consolidated Petitions
G.R. No. 196596
The Commissioner submits the following arguments:
First,DLSU's rental income is taxable regardless of how such
income is derived, used or disposed of. 35 DLSU's operations
of canteens and bookstores within its campus even though
exclusively serving the university community do not negate
income tax liability. 36
The Commissioner contends that Article XIV, Section 4 (3) of
the Constitution must be harmonized with Section 30 (H) of
the Tax Code, which states among others, that the income of
whatever kind and character of [a non-stock and non-profit
educational institution] from any of [its] properties, real or
personal, or from any of [its] activities conducted for profit
regardless of the disposition made of such income, shall be
subject to tax imposed by this Code. 37
The Commissioner argues that the CTA En Banc misread and
misapplied the case of Commissioner of Internal Revenue v.
YMCA 38 to support its conclusion that revenues however
generated are covered by the constitutional exemption,
provided that, the revenues will be used for educational
purposes or will be held in reserve for such purposes. 39
On the contrary, the Commissioner posits that a tax-exempt
organization like DLSU is exempt only from property tax but
not from income tax on the rentals earned from property. 40
Thus, DLSU's income from the leases of its real properties is
not exempt from taxation even if the income would be used
for educational purposes. 41 aDSIHc
Second,the Commissioner insists that DLSU did not prove the
fact of DST payment 42 and that it is not qualified to use the
On-Line Electronic DST Imprinting Machine, which is available
only to certain classes of taxpayers under RR No. 9-2000. 43
Finally,the Commissioner objects to the admission of DLSU's
supplemental offer of evidence. The belated submission of
supplemental evidence reopened the case for trial, and
worse, DLSU offered the supplemental evidence only after it
received the unfavorable CTA Division's original decision. 44
In any case, DLSU's submission of supplemental documentary
evidence was unnecessary since its rental income was taxable
regardless of its disposition. 45
G.R. No. 198841
DLSU argues as that:
First, RMO No. 43-90 prohibits the practice of issuing a LOA
with any indication of unverified prior years. A LOA issued
contrary to RMO No. 43-90 is void, thus, an assessment
issued based on such defective LOA must also be void. 46
DLSU points out that the LOA issued to it covered the Fiscal
Year Ending 2003 and Unverified Prior Years. On the basis of
this defective LOA, the Commissioner assessed DLSU for
deficiency income tax, VAT and DST for taxable years 2001,
2002 and 2003. 47 DLSU objects to the CTA En Banc's
conclusion that the LOA is valid for taxable year 2003.
According to DLSU, when RMO No. 43-90 provides that:
The practice of issuing [LOAs] covering audit of 'unverified
prior years' is hereby prohibited.
it refers to the LOA which has the format "Base Year +
Unverified Prior Years." Since the LOA issued to DLSU follows
this format, then any assessment arising from it must be
entirely voided.n 48
Second,DLSU invokes the principle of uniformity in
taxation,which mandates that for similarly situated parties,
the same set of evidence should be appreciated and weighed
in the same manner. 49 The CTA En Banc erred when it did
not similarly appreciate DLSU's evidence as it did to the
pieces of evidence submitted by Ateneo, also a non-stock,
non-profit educational institution. 50
G.R. No. 198941
The issues and arguments raised by the Commissioner in G.R.
No. 198941 petition are exactly the same as those she raised
in her: (1) petition docketed as G.R. No. 196596 and (2)
comment on DLSU's petition docketed as G.R. No. 198841. 51
Counter-arguments
DLSU's Comment on G.R. No. 196596
First,DLSU questions the defective verification attached to
the petition. 52
Second,DLSU stresses that Article XIV, Section 4 (3) of the
Constitution is clear that all assets and revenues of non-stock,
non-profit educational institutions used actually, directly and
exclusively for educational purposes are exempt from taxes
and duties. 53
On this point, DLSU explains that: (1) the tax exemption of
non-stock, non-profit educational institutions is novel to the
1987 Constitution and that Section 30 (H) of the 1997 Tax
Code cannot amend the 1987 Constitution;54 (2) Section 30
of the 1997 Tax Code is almost an exact replica of Section 26
of the 1977 Tax Code — with the addition of non-stock, nonprofit educational institutions to the list of tax-exempt
entities; and (3) that the 1977 Tax Code was promulgated
when the 1973 Constitution was still in place.
DLSU elaborates that the tax exemption granted to a private
educational institution under the 1973 Constitution was only
for real property tax. Back then, the special tax treatment on
income of private educational institutions only emanates
from statute, i.e., the 1977 Tax Code. Only under the 1987
Constitution that exemption from tax of all the assets and
revenues of non-stock, non-profit educational institutions
used actually, directly and exclusively for educational
purposes, was expressly and categorically enshrined. 55
DLSU thus invokes the doctrine of constitutional supremacy,
which renders any subsequent law that is contrary to the
Constitution void and without any force and effect. 56
Section 30 (H) of the 1997 Tax Code insofar as it subjects to
tax the income of whatever kind and character of a non-stock
and non-profit educational institution from any of its
properties, real or personal, or from any of its activities
conducted for profit regardless of the disposition made of
such income,should be declared without force and effect in
view of the constitutionally granted tax exemption on "all
revenues and assets of non-stock, non-profit educational
institutions used actually, directly, and exclusively for
educational purposes." 57
DLSU further submits that it complies with the requirements
enunciated in the YMCA case, that for an exemption to be
granted under Article XIV, Section 4 (3) of the Constitution,
the taxpayer must prove that: (1) it falls under the
classification non-stock, non-profit educational institution;
and (2) the income it seeks to be exempted from taxation is
used actually, directly and exclusively for educational
purposes. 58 Unlike YMCA, which is not an educational
institution, DLSU is undisputedly a non-stock, non-profit
educational institution. It had also submitted evidence to
prove that it actually, directly and exclusively used its income
for educational purposes. 59 ETHIDa
DLSU also cites the deliberations of the 1986 Constitutional
Commission where they recognized that the tax exemption
was granted "to incentivize private educational institutions to
share with the State the responsibility of educating the
youth." 60
Third,DLSU highlights that both the CTA En Banc and Division
found that the bank that handled DLSU's loan and mortgage
transactions had remitted to the BIR the DST through an
imprinting machine, a method allowed under RR No. 15-2001.
61 In any case, DLSU argues that it cannot be held liable for
DST owing to the exemption granted under the Constitution.
62
Finally,DLSU underscores that the Commissioner, despite
notice, did not oppose the formal offer of supplemental
evidence. Because of the Commissioner's failure to timely
object, she became bound by the results of the submission of
such supplemental evidence. 63
The CIR's Comment on G.R. No. 198841
The Commissioner submits that DLSU is estopped from
questioning the LOA's validity because it failed to raise this
issue in both the administrative and judicial proceedings. 64
That it was asked on cross-examination during the trial does
not make it an issue that the CTA could resolve. 65 The
Commissioner also maintains that DLSU's rental income is not
tax-exempt because an educational institution is only exempt
from property tax but not from tax on the income earned
from the property. 66
DLSU's Comment on G.R. No. 198941
DLSU puts forward the same counter-arguments discussed
above. 67 In addition, DLSU prays that the Court award
attorney's fees in its favor because it was constrained to
unnecessarily retain the services of counsel in this separate
petition. 68
Issues
Although the parties raised a number of issues, the Court
shall decide only the pivotal issues, which we summarize as
follows:
I. Whether DLSU's income and revenues proved to have been
used actually, directly and exclusively for educational
purposes are exempt from duties and taxes;
II. Whether the entire assessment should be voided because
of the defective LOA;
III. Whether the CTA correctly admitted DLSU's supplemental
pieces of evidence; and
IV. Whether the CTA's appreciation of the sufficiency of
DLSU's evidence may be disturbed by the Court.
Our Ruling
First,the constitutional provision refers to two kinds of
educational institutions: (1) non-stock, non-profit educational
institutions and (2) proprietary educational institutions. 69
As we explain in full below, we rule that:
I. The income, revenues and assets of non-stock, non-profit
educational institutions proved to have been used actually,
directly and exclusively for educational purposes are exempt
from duties and taxes.
II. The LOA issued to DLSU is not entirely void. The
assessment for taxable year 2003 is valid.
III. The CTA correctly admitted DLSU's formal offer of
supplemental evidence; and
IV. The CTA's appreciation of evidence is conclusive unless
the CTA is shown to have manifestly overlooked certain
relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion.
The parties failed to convince the Court that the CTA
overlooked or failed to consider relevant facts. We thus
sustain the CTA En Banc's findings that:
a. DLSU proved that a portion of its rental income was used
actually, directly and exclusively for educational purposes;
and
b. DLSU proved the payment of the DST through its bank's
on-line imprinting machine.
I. The revenues and assets of non-stock,
non-profit educational institutions
proved to have been used actually,
directly, and exclusively for educational
purposes are exempt from duties and
taxes.
DLSU rests it case on Article XIV, Section 4 (3) of the 1987
Constitution, which reads:
Second,DLSU falls under the first category. Even the
Commissioner admits the status of DLSU as a non-stock, nonprofit educational institution. 70
Third,while DLSU's claim for tax exemption arises from and is
based on the Constitution, the Constitution, in the same
provision, also imposes certain conditions to avail of the
exemption. We discuss below the import of the
constitutional text vis-à-vis the Commissioner's counterarguments.
Fourth,there is a marked distinction between the treatment
of non-stock, non-profit educational institutions and
proprietary educational institutions. The tax exemption
granted to non-stock, non-profit educational institutions is
conditioned only on the actual, direct and exclusive use of
their revenues and assets for educational purposes. While tax
exemptions may also be granted to proprietary educational
institutions, these exemptions may be subject to limitations
imposed by Congress.
As we explain below, the marked distinction between a nonstock, non-profit and a proprietary educational institution is
crucial in determining the nature and extent of the tax
exemption granted to non-stock, non-profit educational
institutions.
The Commissioner opposes DLSU's claim for tax exemption
on the basis of Section 30 (H) of the Tax Code. The relevant
text reads:
The following organizations shall not be taxed under this Title
[Tax on Income] in respect to income received by them as
such:
xxx xxx xxx
(H) A non-stock and non-profit educational institution
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt from
taxes and duties.Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law.
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such
exemptions subject to the limitations provided by law
including restrictions on dividends and provisions for
reinvestment. [underscoring and emphasis supplied] cSEDTC
Before fully discussing the merits of the case, we observe
that:
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs,
the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal,
or from any of their activities conducted for profit regardless
of the disposition made of such income shall be subject to tax
imposed under this Code. [underscoring and emphasis
supplied]
The Commissioner posits that the 1997 Tax Code qualified
the tax exemption granted to non-stock, non-profit
educational institutions such that the revenues and income
they derived from their assets, or from any of their activities
conducted for profit, are taxable even if these revenues and
income are used for educational purposes.
Did the 1997 Tax Code qualify the tax exemption
constitutionally-granted to non-stock, non-profit educational
institutions?
We answer in the negative.
While the present petition appears to be a case of first
impression, 71 the Court in the YMCA case had in fact already
analyzed and explained the meaning of Article XIV, Section 4
(3) of the Constitution. The Court in that case made doctrinal
pronouncements that are relevant to the present case.
The issue in YMCA was whether the income derived from
rentals of real property owned by the YMCA, established as a
"welfare, educational and charitable non-profit corporation,"
was subject to income tax under the Tax Code and the
Constitution. 72
The Court denied YMCA's claim for exemption on the ground
that as a charitable institution falling under Article VI, Section
28 (3) of the Constitution, 73 the YMCA is not tax-exempt per
se;" what is exempted is not the institution itself ...those
exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for
religious, charitable or educational purposes." 74
The Court held that the exemption claimed by the YMCA is
expressly disallowed by the last paragraph of then Section 27
(now Section 30) of the Tax Code, which mandates that the
income of exempt organizations from any of their properties,
real or personal, are subject to the same tax imposed by the
Tax Code, regardless of how that income is used. The Court
ruled that the last paragraph of Section 27 unequivocally
subjects to tax the rent income of the YMCA from its
property. 75
In short, the YMCA is exempt only from property tax but not
from income tax.
As a last ditch effort to avoid paying the taxes on its rental
income, the YMCA invoked the tax privilege granted under
Article XIV, Section 4 (3) of the Constitution.
The Court denied YMCA's claim that it falls under Article XIV,
Section 4 (3) of the Constitution holding that the term
educational institution,when used in laws granting tax
exemptions, refers to the school system (synonymous with
formal education);it includes a college or an educational
establishment; it refers to the hierarchically structured and
chronologically graded learnings organized and provided by
the formal school system. 76
The Court then significantly laid down the requisites for
availing the tax exemption under Article XIV, Section 4
(3),namely: (1) the taxpayer falls under the classification non-
stock, non-profit educational institution; and (2) the income
it seeks to be exempted from taxation is used actually,
directly and exclusively for educational purposes. 77 SDAaTC
We now adopt YMCA as precedent and hold that:
1. The last paragraph of Section 30 of the Tax Code is without
force and effect with respect to non-stock, non-profit
educational institutions, provided,that the non-stock, nonprofit educational institutions prove that its assets and
revenues are used actually, directly and exclusively for
educational purposes.
2. The tax-exemption constitutionally-granted to non-stock,
non-profit educational institutions, is not subject to
limitations imposed by law.
The tax exemption granted by the
Constitution to non-stock, non-profit
educational institutions is conditioned
only on the actual, direct and exclusive
use of their assets, revenues and income 78
for educational purposes.
We find that unlike Article VI, Section 28 (3) of the
Constitution (pertaining to charitable institutions, churches,
parsonages or convents, mosques, and non-profit
cemeteries),which exempts from tax only the assets,i.e.,"all
lands, buildings, and improvements,actually, directly, and
exclusively used for religious, charitable, or educational
purposes ...," Article XIV, Section 4 (3) categorically states
that "[a]ll revenues and assets ...used actually, directly, and
exclusively for educational purposes shall be exempt from
taxes and duties."
The addition and express use of the word revenues in Article
XIV, Section 4 (3) of the Constitution is not without
significance.
We find that the text demonstrates the policy of the 1987
Constitution, discernible from the records of the 1986
Constitutional Commission 79 to provide broader tax
privilege to non-stock, non-profit educational institutions as
recognition of their role in assisting the State provide a public
good. The tax exemption was seen as beneficial to students
who may otherwise be charged unreasonable tuition fees if
not for the tax exemption extended to all revenues and
assets of non-stock, non-profit educational institutions. 80
Further, a plain reading of the Constitution would show that
Article XIV, Section 4 (3) does not require that the revenues
and income must have also been sourced from educational
activities or activities related to the purposes of an
educational institution. The phrase all revenues is unqualified
by any reference to the source of revenues. Thus, so long as
the revenues and income are used actually, directly and
exclusively for educational purposes, then said revenues and
income shall be exempt from taxes and duties. 81
We find it helpful to discuss at this point the taxation of
revenues versus the taxation of assets.
Revenues consist of the amounts earned by a person or
entity from the conduct of business operations. 82 It may
refer to the sale of goods, rendition of services, or the return
of an investment. Revenue is a component of the tax base in
income tax, 83 VAT, 84 and local business tax (LBT).85
Assets,on the other hand, are the tangible and intangible
properties owned by a person or entity. 86 It may refer to
real estate, cash deposit in a bank, investment in the stocks
of a corporation, inventory of goods, or any property from
which the person or entity may derive income or use to
generate the same. In Philippine taxation, the fair market
value of real property is a component of the tax base in real
property tax (RPT).87 Also, the landed cost of imported
goods is a component of the tax base in VAT on importation
88 and tariff duties. 89
Thus, when a non-stock, non-profit educational institution
proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted
from income tax, VAT, and LBT. On the other hand, when it
also shows that it uses its assets in the form of real property
for educational purposes, it shall be exempted from RPT.
To be clear, proving the actual use of the taxable item will
result in an exemption, but the specific tax from which the
entity shall be exempted from shall depend on whether the
item is an item of revenue or asset.
To illustrate, if a university leases a portion of its school
building to a bookstore or cafeteria, the leased portion is not
actually, directly and exclusively used for educational
purposes, even if the bookstore or canteen caters only to
university students, faculty and staff.
The leased portion of the building may be subject to real
property tax,as held in Abra Valley College, Inc. v. Aquino.90
We ruled in that case that the test of exemption from
taxation is the use of the property for purposes mentioned in
the Constitution. We also held that the exemption extends to
facilities which are incidental to and reasonably necessary for
the accomplishment of the main purposes.
In concrete terms, the lease of a portion of a school building
for commercial purposes, removes such asset from the
property tax exemption granted under the Constitution. 91
There is no exemption because the asset is not used actually,
directly and exclusively for educational purposes. The
commercial use of the property is also not incidental to and
reasonably necessary for the accomplishment of the main
purpose of a university, which is to educate its students.
However, if the university actually, directly and exclusively
uses for educational purposes the revenues earned from the
lease of its school building, such revenues shall be exempt
from taxes and duties. The tax exemption no longer hinges
on the use of the asset from which the revenues were earned,
but on the actual, direct and exclusive use of the revenues for
educational purposes. acEHCD
Parenthetically, income and revenues of non-stock, nonprofit educational institution not used actually, directly and
exclusively for educational purposes are not exempt from
duties and taxes. To avail of the exemption, the taxpayer
must factually prove that it used actually, directly and
exclusively for educational purposes the revenues or income
sought to be exempted.
The crucial point of inquiry then is on the use of the assets or
on the use of the revenues. These are two things that must
be viewed and treated separately. But so long as the assets
or revenues are used actually, directly and exclusively for
educational purposes,they are exempt from duties and taxes.
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
the BIR and the CTA's findings of tax deficiency for taxable
year 2003?
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 non-profit and (2)
its gross income from unrelated trade, business or activity
does not exceed 50% of its total gross income.
We answer in the negative.
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 duty 93 to uphold the primacy of the
Constitution. 94
Finally, we stress that our holding here pertains only to nonstock, 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.
II. The LOA issued to DLSU is
not entirely void. The
assessment for taxable year
2003 is valid.
DLSU objects to the CTA En Banc's conclusion that the LOA is
valid for taxable year 2003 and insists that the entire LOA
should be voided for being contrary to RMO No. 43-90, which
provides that if tax audit includes more than one taxable
period, the other periods or years shall be specifically
indicated in the LOA.
A LOA is the authority given to the appropriate revenue
officer to examine the books of account and other accounting
records of the taxpayer in order to determine the taxpayer's
correct internal revenue liabilities 95 and for the purpose of
collecting the correct amount of tax, 96 in accordance with
Section 5 of the Tax Code, which gives the CIR the power to
obtain information, to summon/examine, and take testimony
of persons. The LOA commences the audit process 97 and
informs the taxpayer that it is under audit for possible
deficiency tax assessment.
Given the purposes of a LOA, is there basis to completely
nullify the LOA issued to DLSU, and consequently, disregard
The relevant provision is Section C of RMO No. 43-90, the
pertinent portion of which reads: SDHTEC
3. A Letter of Authority [LOA] should cover a taxable period
not exceeding one taxable year. The practice of issuing [LOAs]
covering audit of unverified prior years is hereby prohibited.
If the audit of a taxpayer shall include more than one taxable
period, the other periods or years shall be specifically
indicated in the [LOA].98
What this provision clearly prohibits is the practice of issuing
LOAs covering audit of unverified prior years. RMO 43-90
does not say that a LOA which contains unverified prior years
is void. It merely prescribes that if the audit includes more
than one taxable period, the other periods or years must be
specified. The provision read as a whole requires that if a
taxpayer is audited for more than one taxable year, the BIR
must specify each taxable year or taxable period on separate
LOAs.
Read in this light, the requirement to specify the taxable
period covered by the LOA is simply to inform the taxpayer of
the extent of the audit and the scope of the revenue officer's
authority. Without this rule, a revenue officer can unduly
burden the taxpayer by demanding random accounting
records from random unverified years,which may include
documents from as far back as ten years in cases of fraud
audit. 99
In the present case, the LOA issued to DLSU is for Fiscal Year
Ending 2003 and Unverified Prior Years. The LOA does not
strictly comply with RMO 43-90 because it includes unverified
prior years. This does not mean, however, that the entire
LOA is void.
As the CTA correctly held, the assessment for taxable year
2003 is valid because this taxable period is specified in the
LOA. DLSU was fully apprised that it was being audited for
taxable year 2003. Corollarily, the assessments for taxable
years 2001 and 2002 are void for having been unspecified on
separate LOAs as required under RMO No. 43-90.
Lastly, the Commissioner's claim that DLSU failed to raise the
issue of the LOA's validity at the CTA Division, and thus,
should not have been entertained on appeal, is not accurate.
On the contrary, the CTA En Banc found that the issue of the
LOA's validity came up during the trial. 100 DLSU then raised
the issue in its memorandum and motion for partial
reconsideration with the CTA Division. DLSU raised it again on
appeal to the CTA En Banc.Thus, the CTA En Banc could, as it
did, pass upon the validity of the LOA. 101 Besides, the
Commissioner had the opportunity to argue for the validity of
the LOA at the CTA En Banc but she chose not to file her
comment and memorandum despite notice. 102
III. The CTA correctly admitted
the supplemental evidence
formally offered by DLSU.
The Commissioner objects to the CTA Division's admission of
DLSU's supplemental pieces of documentary evidence.
To recall, DLSU formally offered its supplemental evidence
upon filing its motion for reconsideration with the CTA
Division. 103 The CTA Division admitted the supplemental
evidence, which proved that a portion of DLSU's rental
income was used actually, directly and exclusively for
educational purposes. Consequently, the CTA Division
reduced DLSU's tax liabilities.
We uphold the CTA Division's admission of the supplemental
evidence on distinct but mutually reinforcing grounds, to wit:
(1) the Commissioner failed to timely object to the formal
offer of supplemental evidence;and (2) the CTA is not
governed strictly by the technical rules of evidence.
First,the failure to object to the offered evidence renders it
admissible, and the court cannot, on its own, disregard such
evidence. 104
The Court has held that if a party desires the court to reject
the evidence offered, it must so state in the form of a timely
objection and it cannot raise the objection to the evidence
for the first time on appeal. 105 Because of a party's failure
to timely object, the evidence offered becomes part of the
evidence in the case. As a consequence, all the parties are
considered bound by any outcome arising from the offer of
evidence properly presented. 106
As disclosed by DLSU, the Commissioner did not oppose the
supplemental formal offer of evidence despite notice. 107
The Commissioner objected to the admission of the
supplemental evidence only when the case was on appeal to
the CTA En Banc.By the time the Commissioner raised her
objection, it was too late; the formal offer,admission and
evaluation of the supplemental evidence were all fait
accompli.
We clarify that while the Commissioner's failure to promptly
object had no bearing on the materiality or sufficiency of the
supplemental evidence admitted, she was bound by the
outcome of the CTA Division's assessment of the evidence.
108
Second, the CTA is not governed strictly by the technical rules
of evidence. The CTA Division's admission of the formal offer
of supplemental evidence, without prompt objection from
the Commissioner, was thus justified.
Notably, this Court had in the past admitted and considered
evidence attached to the taxpayers' motion for
reconsideration.
In the case of BPI-Family Savings Bank v. Court of Appeals,109
the tax refund claimant attached to its motion for
reconsideration with the CTA its Final Adjustment Return.The
Commissioner, as in the present case, did not oppose the
taxpayer's motion for reconsideration and the admission of
the Final Adjustment Return.110 We thus admitted and gave
weight to the Final Adjustment Return although it was only
submitted upon motion for reconsideration. AScHCD
We held that while it is true that strict procedural rules
generally frown upon the submission of documents after the
trial, the law creating the CTA specifically provides that
proceedings before it shall not be governed strictly by the
technical rules of evidence 111 and that the paramount
consideration remains the ascertainment of truth. We ruled
that procedural rules should not bar courts from considering
undisputed facts to arrive at a just determination of a
controversy. 112
We applied the same reasoning in the subsequent cases of
Filinvest Development Corporation v. Commissioner of
Internal Revenue 113 and Commissioner of Internal Revenue
v. PERF Realty Corporation,114 where the taxpayers also
submitted the supplemental supporting document only upon
filing their motions for reconsideration.
Although the cited cases involved claims for tax refunds, we
also dispense with the strict application of the technical rules
of evidence in the present tax assessment case. If anything,
the liberal application of the rules assumes greater force and
significance in the case of a taxpayer who claims a
constitutionally granted tax exemption. While the taxpayers
in the cited cases claimed refund of excess tax payments
based on the Tax Code, 115 DLSU is claiming tax exemption
based on the Constitution. If liberality is afforded to
taxpayers who paid more than they should have under a
statute, then with more reason that we should allow a
taxpayer to prove its exemption from tax based on the
Constitution.
Hence, we sustain the CTA's admission of DLSU's
supplemental offer of evidence not only because the
Commissioner failed to promptly object, but more so because
the strict application of the technical rules of evidence may
defeat the intent of the Constitution.
IV. The CTA's appreciation of
evidence is generally binding
on the Court unless compelling
reasons justify otherwise.
It is doctrinal that the Court will not lightly set aside the
conclusions reached by the CTA which, by the very nature of
its function of being dedicated exclusively to the resolution of
tax problems, has developed an expertise on the subject,
unless there has been an abuse or improvident exercise of
authority. 116 We thus accord the findings of fact by the CTA
with the highest respect. These findings of facts can only be
disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the
part of the CTA. In the absence of any clear and convincing
proof to the contrary, this Court must presume that the CTA
rendered a decision which is valid in every respect. 117
We sustain the factual findings of the CTA.
The parties failed to raise credible basis for us to disturb the
CTA's findings that DLSU had used actually, directly and
exclusively for educational purposes a portion of its assessed
income and that it had remitted the DST payments though an
online imprinting machine.
a. DLSU used actually, directly, and exclusively for
educational purposes a portion of its assessed income.
To see how the CTA arrived at its factual findings, we review
the process undertaken, from which it deduced that DLSU
successfully proved that it used actually, directly and
exclusively for educational purposes a portion of its rental
income.
The CTA reduced DLSU's deficiency income tax and VAT
liabilities in view of the submission of the supplemental
evidence, which consisted of statement of receipts,
statement of disbursement and fund balance and statement
of fund changes. 118
These documents showed that DLSU borrowed P93.86
Million, 119 which was used to build the university's Sports
Complex. Based on these pieces of evidence, the CTA found
that DLSU's rental income from its concessionaires were
indeed transmitted and used for the payment of this loan.
The CTA held that the degree of preponderance of evidence
was sufficiently met to prove actual, direct and exclusive use
for educational purposes.
The CTA also found that DLSU's rental income from other
concessionaires, which were allegedly deposited to a fund
(CF-CPA Account),120 intended for the university's capital
projects, was not proved to have been used actually, directly
and exclusively for educational purposes. The CTA observed
that "[DLSU] ...failed to fully account for and substantiate all
the disbursements from the [fund]." Thus, the CTA "cannot
ascertain whether rental income from the [other]
concessionaires was indeed used for educational purposes."
121
To stress, the CTA's factual findings were based on and
supported by the report of the Independent CPA who
reviewed, audited and examined the voluminous documents
submitted by DLSU.
Under the CTA Revised Rules, an Independent CPA's
functions include: (a) examination and verification of receipts,
invoices, vouchers and other long accounts; (b) reproduction
of, and comparison of such reproduction with, and
certification that the same are faithful copies of original
documents, and pre-marking of documentary exhibits
consisting of voluminous documents; (c) preparation of
schedules or summaries containing a chronological listing of
the numbers, dates and amounts covered by receipts or
invoices or other relevant documents and the amount(s) of
taxes paid; (d) making findings as to compliance with
substantiation requirements under pertinent tax laws,
regulations and jurisprudence; (e) submission of a formal
report with certification of authenticity and veracity of
findings and conclusions in the performance of the audit; (f)
testifying on such formal report; and (g) performing such
other functions as the CTA may direct. 122
Based on the Independent CPA's report and on its own
appreciation of the evidence, the CTA held that only the
portion of the rental income pertaining to the substantiated
disbursements (i.e.,proved by receipts, vouchers, etc.) from
the CF-CPA Account was considered as used actually, directly
and exclusively for educational purposes. Consequently, the
unaccounted and unsubstantiated disbursements must be
subjected to income tax and VAT. 123 AcICHD
The CTA then further reduced DLSU's tax liabilities by
cancelling the assessments for taxable years 2001 and 2002
due to the defective LOA. 124
The Court finds that the above fact-finding process
undertaken by the CTA shows that it based its ruling on the
evidence on record, which we reiterate, were examined and
verified by the Independent CPA. Thus, we see no persuasive
reason to deviate from these factual findings.
However, while we generally respect the factual findings of
the CTA, it does not mean that we are bound by its
conclusions.In the present case, we do not agree with the
method used by the CTA to arrive at DLSU's unsubstantiated
rental income (i.e.,income not proved to have been actually,
directly and exclusively used for educational purposes).
To recall, the CTA found that DLSU earned a rental income of
P10,610,379.00 in taxable year 2003. 125 DLSU earned this
income from leasing a portion of its premises to: 1) MTOSports Complex, 2) La Casita, 3) Alarey, Inc.,4) Zaide Food
Corp.,5) Capri International,and 6) MTO Bookstore.126
To prove that its rental income was used for educational
purposes, DLSU identified the transactions where the rental
income was expended, viz.:1) P4,007,724.00 127 used to pay
the loan obtained by DLSU to build the Sports Complex; and 2)
P6,602,655.00 transferred to the CF-CPA Account. 128
DLSU also submitted documents to the Independent CPA to
prove that the P6,602,655.00 transferred to the CF-CPA
Account was used actually, directly and exclusively for
educational purposes. According to the Independent CPA'
findings, DLSU was able to substantiate disbursements from
the CF-CPA Account amounting to P6,259,078.30.
Contradicting the findings of the Independent CPA, the CTA
concluded that out of the P10,610,379.00 rental income,
P4,841,066.65 was unsubstantiated,and thus, subject to
income tax and VAT. 129
The CTA then concluded that the ratio of substantiated
disbursements to the total disbursements from the CF-CPA
Account for taxable year 2003 is only 26.68%.130 The CTA
held as follows:
However, as regards petitioner's rental income from Alarey,
Inc.,Zaide Food Corp.,Capri International and MTO Bookstore,
which were transmitted to the CF-CPA Account, petitioner
again failed to fully account for and substantiate all the
disbursements from the CF-CPA Account; thus failing to
prove that the rental income derived therein were actually,
directly and exclusively used for educational purposes.
Likewise, the findings of the Court-Commissioned
Independent CPA show that the disbursements from the CFCPA Account for fiscal year 2003 amounts to P6,259,078.30
only. Hence, this portion of the rental income, being the
substantiated disbursements of the CF-CPA Account, was
considered by the Special First Division as used actually,
directly and exclusively for educational purposes. Since for
fiscal year 2003, the total disbursements per voucher is
P6,259,078.3 (Exhibit "LL-25-C"),and the total disbursements
per subsidiary ledger amounts to P23,463,543.02 (Exhibit "LL29-C"),the ratio of substantiated disbursements for fiscal year
2003 is 26.68% (P6,259,078.30/P23,463,543.02).Thus, the
substantiated portion of CF-CPA Disbursements for fiscal year
2003, arrived at by multiplying the ratio of 26.68% with the
total rent income added to and used in the CF-CPA Account
in the amount of P6,602,655.00 is P1,761,588.35.131
(emphasis supplied)
For better understanding, we summarize the CTA's
computation as follows:
1. The CTA subtracted the rent income used in the
construction of the Sports Complex (P4,007,724.00) from the
rental income (P10,610,379.00) earned from the
abovementioned
concessionaries.
The
difference
(P6,602,655.00) was the portion claimed to have been
deposited to the CF-CPA Account.
2. The CTA then subtracted the supposed substantiated
portion of CF-CPA disbursements (P1,761,308.37) from the
P6,602,655.00 to arrive at the supposed unsubstantiated
portion of the rental income (P4,841,066.65).132
3. The substantiated portion of CF-CPA disbursements
(P1,761,308.37) 133 was derived by multiplying the rental
income claimed to have been added to the CF-CPA Account
(P6,602,655.00) by 26.68% or the ratio of substantiated
disbursements to total disbursements (P23,463,543.02).
4. The 26.68% ratio 134 was the result of dividing the
substantiated disbursements from the CF-CPA Account as
found by the Independent CPA (P6,259,078.30) by the total
disbursements (P23,463,543.02) from the same account.
We find that this system of calculation is incorrect and does
not truly give effect to the constitutional grant of tax
exemption to non-stock, non-profit educational institutions.
The CTA's reasoning is flawed because it required DLSU to
substantiate an amount that is greater than the rental
income deposited in the CF-CPA Account in 2003. TAIaHE
To reiterate, to be exempt from tax, DLSU has the burden of
proving that the proceeds of its rental income (which
amounted to a total of P10.61 million) 135 were used for
educational purposes. This amount was divided into two
parts: (a) the P4.01 million, which was used to pay the loan
obtained for the construction of the Sports Complex; and (b)
the P6.60 million, 136 which was transferred to the CF-CPA
account.
For year 2003, the total disbursement from the CF-CPA
account amounted to P23.46 million. 137 These figures, read
in light of the constitutional exemption, raises the question:
does DLSU claim that the whole total CF-CPA disbursement of
P23.46 million is tax-exempt so that it is required to prove
that all these disbursements had been made for educational
purposes?
We answer in the negative.
The records show that DLSU never claimed that the total CFCPA disbursements of P23.46 million had been for
educational purposes and should thus be tax-exempt; DLSU
only claimed P10.61 million for tax-exemption and should
thus be required to prove that this amount had been used as
claimed.
Of this amount, P4.01 had been proven to have been used for
educational purposes, as confirmed by the Independent CPA.
The amount in issue is therefore the balance of P6.60 million
which was transferred to the CF-CPA which in turn made
disbursements of P23.46 million for various general purposes,
among them the P6.60 million transferred by DLSU.
Significantly, the Independent CPA confirmed that the CF-CPA
made disbursements for educational purposes in year 2003 in
the amount P6.26 million. Based on these given figures, the
CTA concluded that the expenses for educational purposes
that had been coursed through the CF-CPA should be
prorated so that only the portion that P6.26 million bears to
the total CF-CPA disbursements should be credited to DLSU
for tax exemption.
This approach, in our view, is flawed given the constitutional
requirement that revenues actually and directly used for
educational purposes should be tax-exempt. As already
mentioned above, DLSU is not claiming that the whole P23.46
million CF-CPA disbursement had been used for educational
purposes; it only claims that P6.60 million transferred to CFCPA had been used for educational purposes. This was what
DLSU needed to prove to have actually and directly used for
educational purposes.
That this fund had been first deposited into a separate fund
(the CF-CPA established to fund capital projects) lends
peculiarity to the facts of this case, but does not detract from
the fact that the deposited funds were DLSU revenue funds
that had been confirmed and proven to have been actually
and directly used for educational purposes via the CF-CPA.
That the CF-CPA might have had other sources of funding is
irrelevant because the assessment in the present case
pertains only to the rental income which DLSU indisputably
earned as revenue in 2003. That the proven CF-CPA funds
used for educational purposes should not be prorated as part
of its total CF-CPA disbursements for purposes of crediting to
DLSU is also logical because no claim whatsoever had been
made that the totality of the CF-CPA disbursements had been
for educational purposes. No prorating is necessary; to state
the obvious, exemption is based on actual and direct use and
this DLSU has indisputably proven.
Based on these considerations, DLSU should therefore be
liable only for the difference between what it claimed and
what it has proven. In more concrete terms, DLSU only had to
prove that its rental income for taxable year 2003
(P10,610,379.00) was used for educational purposes. Hence,
while the total disbursements from the CF-CPA Account
amounted to P23,463,543.02, DLSU only had to substantiate
its P10.6 million rental income, part of which was the
P6,602,655.00 transferred to the CF-CPA account. Of this
latter amount, P6.259 million was substantiated to have been
used for educational purposes.
To summarize, we thus revise the tax base for deficiency
income tax and VAT for taxable year 2003 as follows:
CTA
Decision 138
Revised
Rental income
10,610,379.00 10,610,379.00
Less: Rent income used
in construction of the
Sports Complex
4,007,724.00
4,007,724.00
Rental income deposited
to the CF-CPA Account
6,602,655.00
6,602,655.00
Less: Substantiated
portion of CF-CPA
disbursements
1,761,588.35
6,259,078.30
Tax base for deficiency
income tax and VAT
4,841,066.65
343,576.70
On DLSU's argument that the CTA should have appreciated its
evidence in the same way as it did with the evidence
submitted by Ateneo in another separate case, the CTA
explained that the issue in the Ateneo case was not the same
as the issue in the present case.
The issue in the Ateneo case was whether or not Ateneo
could be held liable to pay income taxes and VAT under
certain BIR and Department of Finance issuances 139 that
required the educational institution to own and operate the
canteens, or other commercial enterprises within its campus,
as condition for tax exemption. The CTA held that the
Constitution does not require the educational institution to
own or operate these commercial establishments to avail of
the exemption. 140
Given the lack of complete identity of the issues involved, the
CTA held that it had to evaluate the separate sets of evidence
differently. The CTA likewise stressed that DLSU and Ateneo
gave distinct defenses and that its wisdom "cannot be
equated on its decision on two different cases with two
different issues." 141 cDHAES
DLSU disagrees with the CTA and argues that the entire
assessment must be cancelled because it submitted similar, if
not stronger sets of evidence, as Ateneo. We reject DLSU's
argument for being non sequitur.Its reliance on the concept
of uniformity of taxation is also incorrect.
First,even granting that Ateneo and DLSU submitted similar
evidence,the sufficiency and materiality of the evidence
supporting their respective claims for tax exemption would
necessarily differ because their attendant issues and facts
differ.
To state the obvious, the amount of income received by DLSU
and by Ateneo during the taxable years they were assessed
varied. The amount of tax assessment also varied.The
amount of income proven to have been used for educational
purposes also varied because the amount substantiated
varied.142 Thus, the amount of tax assessment cancelled by
the CTA varied.
On the one hand, the BIR assessed DLSU a total tax deficiency
of P17,303,001.12 for taxable years 2001, 2002 and 2003. On
the other hand, the BIR assessed Ateneo a total deficiency
tax of P8,864,042.35 for the same period. Notably, DLSU was
assessed deficiency DST, while Ateneo was not. 143
Thus, although both Ateneo and DLSU claimed that they used
their rental income actually, directly and exclusively for
educational purposes by submitting similar evidence, e.g.,the
testimony of their employees on the use of university
revenues, the report of the Independent CPA, their income
summaries, financial statements, vouchers, etc.,the fact
remains that DLSU failed to prove that a portion of its income
and revenues had indeed been used for educational purposes.
The CTA significantly found that some documents that could
have fully supported DLSU's claim were not produced in court.
Indeed, the Independent CPA testified that some
disbursements had not been proven to have been used
actually, directly and exclusively for educational purposes.
144
other litigation, depends to a large extent on the sufficiency
of evidence. DLSU's evidence was wanting, thus, the CTA was
correct in not fully cancelling its tax liabilities.
b. DLSU proved its payment of the DST
The final nail on the question of evidence is DLSU's own
admission that the original of these documents had not in
fact been produced before the CTA although it claimed that
there was no bad faith on its part. 145 To our mind, this
admission is a good indicator of how the Ateneo and the
DLSU cases varied, resulting in DLSU's failure to substantiate
a portion of its claimed exemption.
Further, DLSU's invocation of Section 5, Rule 130 of the
Revised Rules on Evidence, that the contents of the missing
supporting documents were proven by its recital in some
other authentic documents on record, 146 can no longer be
entertained at this late stage of the proceeding. The CTA did
not rule on this particular claim. The CTA also made no
finding on DLSU's assertion of lack of bad faith. Besides, it is
not our duty to go over these documents to test the
truthfulness of their contents, this Court not being a trier of
facts.
Second,DLSU misunderstands the concept of uniformity of
taxation.
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class shall be taxed
at the same rate. 147 A tax is uniform when it operates with
the same force and effect in every place where the subject of
it is found. 148 The concept requires that all subjects of
taxation similarly situated should be treated alike and placed
in equal footing. 149
In our view, the CTA placed Ateneo and DLSU in equal footing.
The CTA treated them alike because their income proved to
have been used actually, directly and exclusively for
educational purposes were exempted from taxes. The CTA
equally applied the requirements in the YMCA case to test if
they indeed used their revenues for educational purposes.
DLSU can only assert that the CTA violated the rule on
uniformity if it can show that, despite proving that it used
actually, directly and exclusively for educational purposes its
income and revenues, the CTA still affirmed the imposition of
taxes. That the DLSU secured a different result happened
because it failed to fully prove that it used actually, directly
and exclusively for educational purposes its revenues and
income.
On this point, we remind DLSU that the rule on uniformity of
taxation does not mean that subjects of taxation similarly
situated are treated in literally the same way in all and every
occasion. The fact that the Ateneo and DLSU are both nonstock, non-profit educational institutions, does not mean that
the CTA or this Court would similarly decide every case for (or
against) both universities. Success in tax litigation, like in any
The CTA affirmed DLSU's claim that the DST due on its
mortgage and loan transactions were paid and remitted
through its bank's On-Line Electronic DST Imprinting Machine.
The Commissioner argues that DLSU is not allowed to use this
method of payment because an educational institution is
excluded from the class of taxpayers who can use the On-Line
Electronic DST Imprinting Machine.
We sustain the findings of the CTA. The Commissioner's
argument lacks basis in both the Tax Code and the relevant
revenue regulations.
DST on documents, loan agreements, and papers shall be
levied, collected and paid for by the person making, signing,
issuing, accepting, or transferring the same. 150 The Tax
Code provides that whenever one party to the document
enjoys exemption from DST, the other party not exempt from
DST shall be directly liable for the tax. Thus, it is clear that
DST shall be payable by any party to the document, such that
the payment and compliance by one shall mean the full
settlement of the DST due on the document. ASEcHI
In the present case, DLSU entered into mortgage and loan
agreements with banks. These agreements are subject to DST.
151 For the purpose of showing that the DST on the loan
agreement has been paid, DLSU presented its agreements
bearing the imprint showing that DST on the document has
been paid by the bank, its counterparty. The imprint should
be sufficient proof that DST has been paid. Thus, DLSU
cannot be further assessed for deficiency DST on the said
documents.
Finally, it is true that educational institutions are not included
in the class of taxpayers who can pay and remit DST through
the On-Line Electronic DST Imprinting Machine under RR No.
9-2000. As correctly held by the CTA, this is irrelevant
because it was not DLSU who used the On-Line Electronic DST
Imprinting Machine but the bank that handled its mortgage
and loan transactions. RR No. 9-2000 expressly includes
banks in the class of taxpayers that can use the On-Line
Electronic DST Imprinting Machine.
Thus, the Court sustains the finding of the CTA that DLSU
proved the payment of the assessed DST deficiency, except
for the unpaid balance of P13,265.48. 152
WHEREFORE,premises considered, we DENY the petition of
the Commissioner of Internal Revenue in G.R. No. 196596
and AFFIRM the December 10, 2010 decision and March 29,
2011 resolution of the Court of Tax Appeals En Banc in CTA
En Banc Case No. 622, except for the total amount of
deficiency tax liabilities of De La Salle University, Inc.,which
had been reduced.
non-stock,
non-profit
educational
institution
"automatically lose its income tax-exempt status." 7
We also DENY both the petition of De La Salle University, Inc.
in G.R. No. 198841 and the petition of the Commissioner of
Internal Revenue in G.R. No. 198941 and thus AFFIRM the
June 8, 2011 decision and October 4, 2011 resolution of the
Court of Tax Appeals En Banc in CTA En Banc Case No. 671,
with the MODIFICATION that the base for the deficiency
income tax and VAT for taxable year 2003 is P343,576.70. SO
ORDERED.
In a Resolution dated 27 December 2013, 8 the RTC issued a
temporary restraining order against the implementation of
RMO No. 20-2013. It found that failure of SPCM to comply
with RMO No. 20-2013 would necessarily result to losing its
tax-exempt status and cause irreparable injury. CAacTH
[G.R. No. 215383. March 8, 2017]
HON. KIM S. JACINTO-HENARES, in her official capacity as
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE,
petitioner, vs. ST. PAUL COLLEGE OF MAKATI, respondent.
to
In a Resolution dated 22 January 2014, 9 the RTC granted the
writ of preliminary injunction after finding that RMO No. 202013 appears to divest non-stock, non-profit educational
institutions of their tax exemption privilege. Thereafter, the
RTC denied the CIR's motion for reconsideration. On 29 April
2014, SPCM filed a Motion for Judgment on the Pleadings
under Rule 34 of the Rules of Court.
The Ruling of the RTC
RESOLUTION
CARPIO, J p:
The Case
This petition for review 1 assails the Decision dated 25 July
2014 2 and Joint Resolution dated 29 October 2014 3 of the
Regional Trial Court, Branch 143, Makati City (RTC), in Civil
Case No. 13-1405, declaring Revenue Memorandum Order
(RMO) No. 20-2013 unconstitutional. ISHCcT
In a Decision dated 25 July 2014, the RTC ruled in favor of
SPCM and declared RMO No. 20-2013 unconstitutional. It
held that "by imposing the x x x [prerequisites alleged by
SPCM,] and if not complied with by non-stock, non-profit
educational institutions, [RMO No. 20-2013 serves] as
diminution of the constitutional privilege, which even
Congress cannot diminish by legislation, and thus more so by
the [CIR] who merely exercise[s] quasi-legislative function."
10
The dispositive portion of the Decision reads:
The Facts
On 22 July 2013, petitioner Kim S. Jacinto-Henares, acting in
her capacity as then Commissioner of Internal Revenue (CIR),
issued RMO No. 20-2013, "Prescribing the Policies and
Guidelines in the Issuance of Tax Exemption Rulings to
Qualified Non-Stock, Non-Profit Corporations and
Associations under Section 30 of the National Internal
Revenue Code of 1997, as Amended."
On 29 November 2013, respondent St. Paul College of Makati
(SPCM), a non-stock, non-profit educational institution
organized and existing under Philippine laws, filed a Civil
Action to Declare Unconstitutional [Bureau of Internal
Revenue] RMO No. 20-2013 with Prayer for Issuance of
Temporary Restraining Order and Writ of Preliminary
Injunction 4 before the RTC. SPCM alleged that "RMO No. 202013 imposes as a prerequisite to the enjoyment by nonstock, non-profit educational institutions of the privilege of
tax exemption under Sec. 4 (3) of Article XIV of the
Constitution both a registration and approval requirement,
i.e., that they submit an application for tax exemption to the
BIR subject to approval by CIR in the form of a
Tax[]Exemption Ruling (TER) which is valid for a period of
[three] years and subject to renewal." 5 According to SPCM,
RMO No. 20-2013 adds a prerequisite to the requirement
under Department of Finance Order No. 137-87, 6 and makes
failure to file an annual information return a ground for a
WHEREFORE, in view of all the foregoing, the Court hereby
declares BIR RMO No. 20-2013 as UNCONSTITUTIONAL for
being violative of Article XIV, Section 4, paragraph 3.
Consequently,
all
Revenue
Memorandum
Orders
subsequently issued to implement BIR RMO No. 20-2013 are
declared null and void.
The writ of preliminary injunction issued on 03 February 2014
is hereby made permanent.
SO ORDERED. 11
On 18 September 2014, the CIR issued RMO No. 34-2014, 12
which clarified certain provisions of RMO No. 20-2013, as
amended by RMO No. 28-2013. 13
In a Joint Resolution dated 29 October 2014, the RTC denied
the CIR's motion for reconsideration, to wit:
WHEREFORE, viewed in the light of the foregoing premises,
the Motion for Reconsideration filed by the respondent is
hereby DENIED for lack of merit.
Meanwhile, this Court clarifies that the phrase "Revenue
Memorandum Order" referred to in the second sentence of
its decision dated July 25, 2014 refers to "issuance/s" of the
respondent which tends to implement RMO 20-2013 for if it
is otherwise, said decision would be useless and would be
rendered nugatory.
xxx xxx xxx
SO ORDERED. 14
(H) A non-stock and non-profit educational institution; x x x."
Hence, this present petition.
It is clear and unmistakable from the aforequoted
constitutional provision that non-stock, non-profit
educational institutions are constitutionally exempt from tax
on all revenues derived in pursuance of its purpose as an
educational institution and used actually, directly and
exclusively for educational purposes. This constitutional
exemption gives the non-stock, non-profit educational
institutions a distinct character. And for the constitutional
exemption to be enjoyed, jurisprudence and tax rulings
affirm the doctrinal rule that there are only two requisites: (1)
The school must be non-stock and non-profit; and (2) The
income is actually, directly and exclusively used for
educational purposes. There are no other conditions and
limitations. DcHSEa
The Issues
The CIR raises the following issues for resolution:
WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT
RMO [NO.] 20-2013 IMPOSES A PREREQUISITE BEFORE A
NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTION MAY
AVAIL OF THE TAX EXEMPTION UNDER SECTION 4 (3),
ARTICLE XIV OF THE CONSTITUTION. IAETDc
WHETHER THE TRIAL COURT CORRECTLY CONCLUDED THAT
RMO NO. 20-2013 ADDS TO THE REQUIREMENT UNDER
DEPARTMENT OF FINANCE ORDER NO. 137-87. 15
The Ruling of the Court
We deny the petition on the ground of mootness.
We take judicial notice that on 25 July 2016, the present CIR
Caesar R. Dulay issued RMO No. 44-2016, which provides that:
SUBJECT: Amending Revenue Memorandum Order No. 202013, as amended (Prescribing the Policies and
Guidelines in the Issuance of Tax Exemption
Rulings to Qualified Non-Stock, Non-Profit
Corporations and Associations under Section 30 of
the National Internal Revenue Code of 1997, as
Amended)
In line with the Bureau's commitment to put in proper
context the nature and tax status of non-profit, non-stock
educational institutions, this Order is being issued to exclude
non-stock, non-profit educational institutions from the
coverage of Revenue Memorandum Order No. 20-2013, as
amended.
SECTION 1. Nature of Tax Exemption. — The tax exemption of
non-stock, non-profit educational institutions is directly
conferred by paragraph 3, Section 4, Article XIV of the 1987
Constitution, the pertinent portion of which reads:
"All revenues and assets of non-stock, non-profit educational
institutions used actually, directly and exclusively for
educational purposes shall be exempt from taxes and duties."
This constitutional exemption is reiterated in Section 30 (H)
of the 1997 Tax Code, as amended, which provides as follows:
"Sec. 30. Exempt from Tax on Corporations. — The following
organizations shall not be taxed under this Title in respect to
income received by them as such:
In this light, the constitutional conferral of tax exemption
upon non-stock and non-profit educational institutions
should not be implemented or interpreted in such a manner
that will defeat or diminish the intent and language of the
Constitution.
SECTION 2. Application for Tax Exemption. — Non-stock, nonprofit educational institutions shall file their respective
Applications for Tax Exemption with the Office of the
Assistant Commissioner, Legal Service, Attention: Law
Division.
SECTION 3. Documentary Requirements. — The non-stock,
non-profit educational institution shall submit the following
documents:
a. Original copy of the application letter for issuance of Tax
Exemption Ruling;
b. Certified true copy of the Certificate of Good Standing
issued by the Securities and Exchange Commission;
c. Original copy of the Certification under Oath of the
Treasurer as to the amount of the income, compensation,
salaries or any emoluments paid to its trustees, officers and
other executive officers;
d. Certified true copy of the Financial Statements of the
corporation for the last three (3) years;
e.
Certified
true
copy
of
government
recognition/permit/accreditation to operate as an
educational institution issued by the Commission on Higher
Education (CHED), Department of Education (DepEd), or
Technical Education and Skills Development Authority
(TESDA);
Provided,
that
if
the
government
recognition/permit/accreditation to operate as an
educational institution was issued five (5) years prior to the
application for tax exemption, an original copy of a current
Certificate of Operation/Good Standing, or other equivalent
document issued by the appropriate government agency (i.e.,
CHED, DepEd, or TESDA) shall be submitted as proof that the
non-stock and non-profit education is currently operating as
such; and
f. Original copy of the Certificate of utilization of annual
revenues and assets by the Treasurer or his equivalent of the
non-stock and non-profit educational institution. SCaITA
SECTION 4. Request for Additional Documents. — In the
course of review of the application for tax exemption, the
Bureau may require additional information or documents as
the circumstances may warrant.
SECTION 5. Validity of the Tax Exemption Ruling. — Tax
Exemption Rulings or Certificates of Tax Exemption of nonstock, non-profit educational institutions shall remain valid
and effective, unless recalled for valid grounds. They are not
required to renew or revalidate the Tax exemption rulings
previously issued to them.
The Tax Exemption Ruling shall be subject to revocation if
there are material changes in the character, purpose or
method of operation of the corporation which are
inconsistent with the basis for its income tax exemption.
SECTION 6. Transitory Provisions. — To update the records of
the Bureau and for purposes of a better system of monitoring,
non-stock, non-profit educational institutions with Tax
Exemption Rulings or Certificates of Exemption issued prior
to June 30, 2012 are required to apply for new Tax Exemption
Rulings.
SECTION 7. Repealing Clause. — Any revenue issuance which
is inconsistent with this Order is deemed revoked, repealed,
or modified accordingly.
SECTION 8. Effectivity. — This Order shall take effect
immediately. (Emphases supplied)
A moot and academic case is one that ceases to present a
justiciable controversy by virtue of supervening events, so
that an adjudication of the case or a declaration on the issue
would be of no practical value or use. 16 Courts generally
decline jurisdiction over such case or dismiss it on the ground
of mootness. 17
With the issuance of RMO No. 44-2016, a supervening event
has transpired that rendered this petition moot and
academic, and subject to denial. The CIR, in her petition,
assails the RTC Decision finding RMO No. 20-2013
unconstitutional because it violated the non-stock, non-profit
educational institutions' tax exemption privilege under the
Constitution. However, subsequently, RMO No. 44-2016
clarified that non-stock, non-profit educational institutions
are excluded from the coverage of RMO No. 20-2013.
Consequently, the RTC Decision no longer stands, and there
is no longer any practical value in resolving the issues raised
in this petition.
WHEREFORE, we DENY the petition on the ground of
mootness. We SET ASIDE the Decision dated 25 July 2014 and
Joint Resolution dated 29 October 2014 of the Regional Trial
Court, Branch 143, Makati City, declaring Revenue
Memorandum Order No. 20-2013 unconstitutional. The writ
of preliminary injunction is superseded by this Resolution. SO
ORDERED.
[G.R. No. 203514. February 13, 2017.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ST.
LUKE'S MEDICAL CENTER, INC., respondent.
DECISION
DEL CASTILLO, J p:
The doctrine of stare decisis dictates that "absent any
powerful countervailing considerations, like cases ought to
be decided alike." 1 ICHDca
This Petition for Review on Certiorari 2 under Rule 45 of the
Rules of Court assails the May 9, 2012 Decision 3 and the
September 17, 2012 Resolution 4 of the Court of Tax Appeals
(CTA) in CTA EB Case No. 716.
Factual Antecedents
On December 14, 2007, respondent St. Luke's Medical Center,
Inc. (SLMC) received from the Large Taxpayers ServiceDocuments Processing and Quality Assurance Division of the
Bureau of Internal Revenue (BIR) Audit Results/Assessment
Notice Nos. QA-07-000096 5 and QA-07-000097, 6 assessing
respondent SLMC deficiency income tax under Section 27 (B)
7 of the 1997 National Internal Revenue Code (NIRC), as
amended, for taxable year 2005 in the amount of
P78,617,434.54 and for taxable year 2006 in the amount of
P57,119,867.33.
On January 14, 2008, SLMC filed with petitioner
Commissioner of Internal Revenue (CIR) an administrative
protest 8 assailing the assessments. SLMC claimed that as a
non-stock, non-profit charitable and social welfare
organization under Section 30 (E) and (G) 9 of the 1997 NIRC,
as amended, it is exempt from paying income tax.
On April 25, 2008, SLMC received petitioner CIR's Final
Decision on the Disputed Assessment 10 dated April 9, 2008
increasing the deficiency income for the taxable year 2005
tax to P82,419,522.21 and for the taxable year 2006 to
P60,259,885.94, computed as follows:
For Taxable Year 2005:
ASSESSMENT NO. QA-07-000096
PARTICULARS
AMOUNT
Sales/Revenues/Receipts/Fees
P3,623,511,616.00
Less: Cost of Sales/Services
2,643,049,769.00
Gross Income from Operation
980,461,847.00
Add: Non-Operating & Other Income
Total Gross Income
980,461,847.00
Less: Deductions
481,266,883.00
Net Income Subject to Tax
499,194,964.00
X Tax Rate
10%
Tax Due
49,919,496.40
Less: Tax Credits
Deficiency Income Tax
49,919,496.40
Add: Increments
25% Surcharge
12,479,874.10
20% Interest Per Annum
(4/15/06-4/15/08
19,995,151.71
Compromise Penalty for
Late Payment
25,000.00
Total increments
32,500,025.81
Total Amount Due
P82,419,522.21
Notice Nos. QA-07-000096 and QA-07-000097, assessing
petitioner for alleged deficiency income taxes for the taxable
years 2005 and 2006, respectively, are hereby CANCELLED
and SET ASIDE.
For Taxable Year 2006: cDHAES
ASSESSMENT NO. QA-07-000097
PARTICULARS
[AMOUNT]
Sales/Revenues/Receipts/Fees
P3,815,922,240.00
Less: Cost of Sales/Services
2,760,518,437.00
Gross Income from Operation
1,055,403,803.00
Add: Non-Operating & Other Income
Total Gross Income
1,055,403,803.00
Less: Deductions
640,147,719.00
Net Income Subject to Tax
415,256,084.00
X Tax Rate
10%
Tax Due
41,525,608.40
Less: Tax Credits
Deficiency Income Tax
41,525,608.40
Add: Increments
25% Surcharge
10,381,402.10
20% Interest Per Annum
(4/15/07-4/15/08)
8,327,875.44
Compromise Penalty
for Late Payment
25,000.00
Total increments
18,734,277.54
Total Amount Due
P60,259,885.94
On September 17, 2012, the CTA En Banc denied CIR's
Motion for Reconsideration.
Aggrieved, SLMC elevated the matter to the CTA via a
Petition for Review, 12 docketed as CTA Case No. 7789.
Ruling of the Court of Tax Appeals Division
On August 26, 2010, the CTA Division rendered a Decision 13
finding SLMC not liable for deficiency income tax under
Section 27 (B) of the 1997 NIRC, as amended, since it is
exempt from paying income tax under Section 30 (E) and (G)
of the same Code. Thus: TCAScE
WHEREFORE, premises considered, the Petition for Review is
hereby GRANTED. Accordingly, Audit Results/Assessment
SO ORDERED. 14
CIR moved for reconsideration but the CTA Division denied
the same in its December 28, 2010 Resolution. 15
This prompted CIR to file a Petition for Review 16 before the
CTA En Banc.
Ruling of the Court of Tax Appeals En Banc
On May 9, 2012, the CTA En Banc affirmed the cancellation
and setting aside of the Audit Results/Assessment Notices
issued against SLMC. It sustained the findings of the CTA
Division that SLMC complies with all the requisites under
Section 30 (E) and (G) of the 1997 NIRC and thus, entitled to
the tax exemption provided therein. 17
Issue
Hence, CIR filed the instant Petition under Rule 45 of the
Rules of Court contending that the CTA erred in exempting
SLMC from the payment of income tax.
Meanwhile, on September 26, 2012, the Court rendered a
Decision in G.R. Nos. 195909 and 195960, entitled
Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc., 18 finding SLMC not entitled to the tax
exemption under Section 30 (E) and (G) of the NIRC of 1997
as it does not operate exclusively for charitable or social
welfare purposes insofar as its revenues from paying patients
are concerned. Thus, the Court disposed of the case in this
manner:
WHEREFORE, the petition of the Commissioner of Internal
Revenue in G.R. No. 195909 is PARTLY GRANTED. The
Decision of the Court of Tax Appeals En Banc dated 19
November 2010 and its Resolution dated 1 March 2011 in
CTA Case No. 6746 are MODIFIED. St. Luke's Medical Center,
Inc. is ORDERED TO PAY the deficiency income tax in 1998
based on the 10% preferential income tax rate under Section
27(B) of the National Internal Revenue Code. However, it is
not liable for surcharges and interest on such deficiency
income tax under Sections 248 and 249 of the National
Internal Revenue Code. All other parts of the Decision and
Resolution of the Court of Tax Appeals are AFFIRMED.
The petition of St. Luke's Medical Center, Inc. in G.R. No.
195960 is DENIED for violating Section I, Rule 45 of the Rules
of Court.
SO ORDERED. 19 ASEcHI
Considering the foregoing, SLMC then filed a Manifestation
and Motion 20 informing the Court that on April 30, 2013, it
paid the BIR the amount of basic taxes due for taxable years
1998, 2000-2002, and 2004-2007, as evidenced by the
payment confirmation 21 from the BIR, and that it did not
pay any surcharge, interest, and compromise penalty in
accordance with the above-mentioned Decision of the Court.
In view of the payment it made, SLMC moved for the
dismissal of the instant case on the ground of mootness.
CIR opposed the motion claiming that the payment
confirmation submitted by SLMC is not a competent proof of
payment as it is a mere photocopy and does not even
indicate the quarter/s and/or year/s said payment covers. 22
In reply, 23 SLMC submitted a copy of the Certification 24
issued by the Large Taxpayers Service of the BIR dated May
27, 2013, certifying that, "[a]s far as the basic deficiency
income tax for taxable years 2000, 2001, 2002, 2004, 2005,
2006, 2007 are concerned, this Office considers the cases
closed due to the payment made on April 30, 2013." SLMC
likewise submitted a letter 25 from the BIR dated November
26, 2013 with attached Certification of Payment 26 and
application for abatement, 27 which it earlier submitted to
the Court in a related case, G.R. No. 200688, entitled
Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc. 28
Thereafter, the
memorandum.
parties
submitted
their
respective
CIR's Arguments
CIR argues that under the doctrine of stare decisis SLMC is
subject to 10% income tax under Section 27 (B) of the 1997
NIRC. 29 It likewise asserts that SLMC is liable to pay
compromise penalty pursuant to Section 248 (A) 30 of the
1997 NIRC for failing to file its quarterly income tax returns.
31
G.R. Nos. 195909 and 195960 (Commissioner of Internal
Revenue v. St. Luke's Medical Center, Inc.), 36 it is not liable
for compromise penalties. 37
In any case, SLMC insists that the instant case should be
dismissed in view of its payment of the basic taxes due for
taxable years 1998, 2000-2002, and 2004-2007 to the BIR on
April 30, 2013. 38 cTDaEH
Our Ruling
SLMC is liable for income tax under
Section 27 (B) of the 1997 NIRC insofar
as its revenues from paying patients are
concerned.
The issue of whether SLMC is liable for income tax under
Section 27 (B) of the 1997 NIRC insofar as its revenues from
paying patients are concerned has been settled in G.R. Nos.
195909 and 195960 (Commissioner of Internal Revenue v. St.
Luke's Medical Center, Inc.), 39 where the Court ruled that:
x x x We hold that Section 27(B) of the NIRC does not remove
the income tax exemption of proprietary non-profit hospitals
under Section 30(E) and (G). Section 27(B) on one hand, and
Section 30(E) and (G) on the other hand, can be construed
together without the removal of such tax exemption. The
effect of the introduction of Section 27(B) is to subject the
taxable income of two specific institutions, namely,
proprietary non-profit educational institutions and
proprietary non-profit hospitals, among the institutions
covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate
under the last paragraph of Section 30 in relation to Section
27(A)(1).
SLMC's Arguments
Section 27(B) of the NIRC imposes a 10% preferential tax rate
on the income of (1) proprietary non-profit educational
institutions and (2) proprietary non-profit hospitals. The only
qualifications for hospitals are that they must be proprietary
and non-profit. 'Proprietary' means private, following the
definition of a 'proprietary educational institution' as 'any
private school maintained and administered by private
individuals or groups' with a government permit. 'Non-profit'
means no net income or asset accrues to or benefits any
member or specific person, with all the net income or asset
devoted to the institution's purposes and all its activities
conducted not for profit.
SLMC, on the other hand, begs the indulgence of the Court to
revisit its ruling in G.R. Nos. 195909 and 195960
(Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc.) 33 positing that earning a profit by a charitable,
benevolent hospital or educational institution does not result
in the withdrawal of its tax exempt privilege. 34 SLMC further
claims that the income it derives from operating a hospital is
not income from "activities conducted for profit." 35 Also, it
maintains that in accordance with the ruling of the Court in
'Non-profit' does not necessarily mean 'charitable.' In
Collector of Internal Revenue v. Club Filipino, Inc. de Cebu,
this Court considered as non-profit a sports club organized
for recreation and entertainment of its stockholders and
members. The club was primarily funded by membership fees
and dues. If it had profits, they were used for overhead
expenses and improving its golf course. The club was nonprofit because of its purpose and there was no evidence that
it was engaged in a profit-making enterprise.
As to the alleged payment of the basic tax, CIR contends that
this does not render the instant case moot as the payment
confirmation submitted by SLMC is not a competent proof of
payment of its tax liabilities. 32
The sports club in Club Filipino, Inc. de Cebu may be nonprofit, but it was not charitable. The Court defined 'charity' in
Lung Center of the Philippines v. Quezon City as 'a gift, to be
applied consistently with existing laws, for the benefit of an
indefinite number of persons, either by bringing their minds
and hearts under the influence of education or religion, by
assisting them to establish themselves in life or [by]
otherwise lessening the burden of government.' A non-profit
club for the benefit of its members fails this test. An
organization may be considered as non-profit if it does not
distribute any part of its income to stockholders or members.
However, despite its being a tax exempt institution, any
income such institution earns from activities conducted for
profit is taxable, as expressly provided in the last paragraph
of Section 30. ITAaHc
To be a charitable institution, however, an organization must
meet the substantive test of charity in Lung Center. The issue
in Lung Center concerns exemption from real property tax
and not income tax. However, it provides for the test of
charity in our jurisdiction. Charity is essentially a gift to an
indefinite number of persons which lessens the burden of
government. In other words, charitable institutions provide
for free goods and services to the public which would
otherwise fall on the shoulders of government. Thus, as a
matter of efficiency, the government forgoes taxes which
should have been spent to address public needs, because
certain private entities already assume a part of the burden.
This is the rationale for the tax exemption of charitable
institutions. The loss of taxes by the government is
compensated by its relief from doing public works which
would have been funded by appropriations from the Treasury.
Charitable institutions, however, are not ipso facto entitled
to a tax exemption. The requirements for a tax exemption
are specified by the law granting it. The power of Congress to
tax implies the power to exempt from tax. Congress can
create tax exemptions, subject to the constitutional provision
that '[n]o law granting any tax exemption shall be passed
without the concurrence of a majority of all the Members of
Congress.' The requirements for a tax exemption are strictly
construed against the taxpayer because an exemption
restricts the collection of taxes necessary for the existence of
the government.
The Court in Lung Center declared that the Lung Center of
the Philippines is a charitable institution for the purpose of
exemption from real property taxes. This ruling uses the
same premise as Hospital de San Juan and Jesus Sacred Heart
College which says that receiving income from paying
patients does not destroy the charitable nature of a hospital.
As a general principle, a charitable institution does not lose
its character as such and its exemption from taxes simply
because it derives income from paying patients, whether
outpatient, or confined in the hospital, or receives subsidies
from the government, so long as the money received is
devoted or used altogether to the charitable object which it
is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.
For real property taxes, the incidental generation of income
is permissible because the test of exemption is the use of the
property. The Constitution provides that '[c]haritable
institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all
lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational
purposes shall be exempt from taxation.' The test of
exemption is not strictly a requirement on the intrinsic
nature or character of the institution. The test requires that
the institution use the property in a certain way, i.e., for a
charitable purpose. Thus, the Court held that the Lung Center
of the Philippines did not lose its charitable character when it
used a portion of its lot for commercial purposes. The effect
of failing to meet the use requirement is simply to remove
from the tax exemption that portion of the property not
devoted to charity. cSaATC
The Constitution exempts charitable institutions only from
real property taxes. In the NIRC, Congress decided to extend
the exemption to income taxes. However, the way Congress
crafted Section 30(E) of the NIRC is materially different from
Section 28(3), Article VI of the Constitution. Section 30(E) of
the NIRC defines the corporation or association that is
exempt from income tax. On the other hand, Section 28(3),
Article VI of the Constitution does not define a charitable
institution, but requires that the institution 'actually, directly
and exclusively' use the property for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable
institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure
to the benefit of any member, organizer, officer or any
specific person.
Thus, both the organization and operations of the charitable
institution must be devoted 'exclusively' for charitable
purposes. The organization of the institution refers to its
corporate form, as shown by its articles of incorporation, bylaws and other constitutive documents. Section 30(E) of the
NIRC specifically requires that the corporation or association
be non-stock, which is defined by the Corporation Code as
'one where no part of its income is distributable as dividends
to its members, trustees, or officers' and that any profit
'obtain[ed] as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was
organized.' However, under Lung Center, any profit by a
charitable institution must not only be plowed back
'whenever necessary or proper,' but must be 'devoted or
used altogether to the charitable object which it is intended
to achieve.'
The operations of the charitable institution generally refer to
its regular activities. Section 30(E) of the NIRC requires that
these operations be exclusive to charity. There is also a
specific requirement that 'no part of [the] net income or
asset shall belong to or inure to the benefit of any member,
organizer, officer or any specific person.' The use of lands,
buildings and improvements of the institution is but a part of
its operations. CHTAIc
There is no dispute that St. Luke's is organized as a non-stock
and non-profit charitable institution. However, this does not
automatically exempt St. Luke's from paying taxes. This only
refers to the organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution is not ipso
facto tax exempt. To be exempt from real property taxes,
Section 28(3), Article VI of the Constitution requires that a
charitable institution use the property 'actually, directly and
exclusively' for charitable purposes. To be exempt from
income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be 'organized and operated
exclusively' for charitable purposes. Likewise, to be exempt
from income taxes, Section 30(G) of the NIRC requires that
the institution be 'operated exclusively' for social welfare.
However, the last paragraph of Section 30 of the NLRC
qualifies the words 'organized and operated exclusively' by
providing that:
Notwithstanding the provisions in the preceding paragraphs,
the income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal,
or from any of their activities conducted for profit regardless
of the disposition made of such income, shall be subject to
tax imposed under this Code.
In short, the last paragraph of Section 30 provides that if a
tax exempt charitable institution conducts 'any' activity for
profit, such activity is not tax exempt even as its not-forprofit activities remain tax exempt. This paragraph qualifies
the requirements in Section 30(E) that the '[n]on-stock
corporation or association [must be] organized and operated
exclusively for . . . charitable . . . purposes . . . .' It likewise
qualifies the requirement in Section 30(G) that the civic
organization must be 'operated exclusively' for the
promotion of social welfare.
Thus, even if the charitable institution must be 'organized
and operated exclusively' for charitable purposes, it is
nevertheless allowed to engage in 'activities conducted for
profit' without losing its tax exempt status for its not-forprofit activities. The only consequence is that the 'income of
whatever kind and character' of a charitable institution 'from
any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax.'
Prior to the introduction of Section 27(B), the tax rate on
such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of
Section 27(B), the tax rate is now 10%.
In 1998, St. Luke's had total revenues of P1,730,367,965 from
services to paying patients. It cannot be disputed that a
hospital which receives approximately P1.73 billion from
paying patients is not an institution 'operated exclusively' for
charitable purposes. Clearly, revenues from paying patients
are income received from 'activities conducted for profit.'
Indeed, St. Luke's admits that it derived profits from its
paying patients. St. Luke's declared P1,730,367,965 as
'Revenues from Services to Patients' in contrast to its 'Free
Services' expenditure of P218,187,498. In its Comment in G.R.
No. 195909, St. Luke's showed the following 'calculation' to
support its claim that 65.20% of its 'income after expenses
was allocated to free or charitable services' in 1998. cHDAIS
xxx xxx xxx
In Lung Center, this Court declared:
'[e]xclusive' is defined as possessed and enjoyed to the
exclusion of others; debarred from participation or
enjoyment; and 'exclusively' is defined, 'in a manner to
exclude; as enjoying a privilege exclusively.' . . . The words
'dominant use' or 'principal use' cannot be substituted for the
words 'used exclusively' without doing violence to the
Constitution and the law. Solely is synonymous with
exclusively.
The Court cannot expand the meaning of the words
'operated exclusively' without violating the NIRC. Services to
paying patients are activities conducted for profit. They
cannot be considered any other way. There is a 'purpose to
make profit over and above the cost' of services. The P1.73
billion total revenues from paying patients is not even
incidental to St. Luke's charity expenditure of P218,187,498
for non-paying patients.
St. Luke's claims that its charity expenditure of P218,187,498
is 65.20% of its operating income in 1998. However, if a part
of the remaining 34.80% of the operating income is
reinvested in property, equipment or facilities used for
services to paying and non-paying patients, then it cannot be
said that the income is 'devoted or used altogether to the
charitable object which it is intended to achieve.' The income
is plowed back to the corporation not entirely for charitable
purposes, but for profit as well. In any case, the last
paragraph of Section 30 of the NIRC expressly qualities that
income from activities for profit is taxable 'regardless of the
disposition made of such income.'
Jesus Sacred Heart College declared that there is no official
legislative record explaining the phrase 'any activity
conducted for profit.' However, it quoted a deposition of
Senator Mariano Jesus Cuenco, who was a member of the
Committee of Conference for the Senate, which introduced
the phrase 'or from any activity conducted for profit.'
P. Cuando ha hablado de la Universidad de Santo Tomas que
tiene un hospital, no cree Vd. que es una actividad esencial
dicho hospital para el funcionamiento del colegio de
medicina de dicha universidad?
xxx xxx xxx
R. Si el hospital se limita a recibir enformos pobres, mi
contestación series afirmativa; pero considerando que el
hospital tiene cuartos de pago, y a los mismos generalmente
van enfermos de buena posición social económica, lo que se
paga por estos enfermos debe estar sujeto a 'income tax,' y
es una de las razones que hemos tenido para insertar las
palabras o frase 'or from any activity conducted for profit.'
The question was whether having a hospital is essential to an
educational institution like the College of Medicine of the
University of Santo Tomas. Senator Cuenco answered that if
the hospital has paid rooms generally occupied by people of
good economic standing, then it should be subject to income
tax. He said that this was one of the reasons Congress
inserted the phrase 'or any activity conducted for profit.'
EATCcI
The question in Jesus Sacred Heart College involves an
educational institution. However, it is applicable to charitable
institutions because Senator Cuenco's response shows an
intent to focus on the activities of charitable institutions.
Activities for profit should not escape the reach of taxation.
Being a non-stock and non-profit corporation does not, by
this reason alone, completely exempt an institution from tax.
An institution cannot use its corporate form to prevent its
profitable activities from being taxed.
The Court finds that St. Luke's is a corporation that is not
'operated exclusively' for charitable or social welfare
purposes insofar as its revenues from paying patients are
concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also
on the clear and plain text of Section 30(E) and (G). Section
30(E) and (G) of the NIRC requires that an institution be
'operated exclusively' for charitable or social welfare
purposes to be completely exempt from income tax. An
institution under Section 30(E) or (G) does not lose its tax
exemption if it earns income from its for-profit activities.
Such income from for-profit activities, under the last
paragraph of Section 30, is merely subject to income tax,
previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).
A tax exemption is effectively a social subsidy granted by the
State because an exempt institution is spared from sharing in
the expenses of government and yet benefits from them. Tax
exemptions for charitable institutions should therefore be
limited to institutions beneficial to the public and those
which improve social welfare. A profit-making entity should
not be allowed to exploit this subsidy to the detriment of the
government and other taxpayers.
St. Luke's fails to meet the requirements under Section 30(E)
and (G) of the NIRC to be completely tax exempt from all its
income. However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not
distribute any of its profits to its members and such profits
are reinvested pursuant to its corporate purposes. St Luke's,
as a proprietary non-profit hospital, is entitled to the
preferential tax rate of 10% on its net income from its forprofit activities. ISHCcT
St. Luke's is therefore liable for deficiency income tax in 1998
under Section 27(B) of the NIRC. However, St. Luke's has
good reasons to rely on the letter dated 6 June 1990 by the
BIR, which opined that St. Luke's is 'a corporation for purely
charitable and social welfare purposes' and thus exempt from
income tax. In Michael n J. Lhuillier, Inc. v. Commissioner of
Internal Revenue, the Court said that 'good faith and honest
belief that one is not subject to tax on the basis of previous
interpretation of government agencies tasked to implement
the tax law, are sufficient justification to delete the
imposition of surcharges and interest.' 40
A careful review of the pleadings reveals that there is no
countervailing consideration for the Court to revisit its
aforequoted ruling in G.R. Nos. 195909 and 195960
(Commissioner of Internal Revenue v. St. Luke's Medical
Center, Inc.). Thus, under the doctrine of stare decisis, which
states that "[o]nce a case has been decided in one way, any
other case involving exactly the same point at issue x x x
should be decided in the same manner," 41 the Court finds
that SLMC is subject to 10% income tax insofar as its
revenues from paying patients are concerned.
To be clear, for an institution to be completely exempt from
income tax, Section 30 (E) and (G) of the 1997 NIRC requires
said institution to operate exclusively for charitable or social
welfare purpose. But in case an exempt institution under
Section 30 (E) or (G) of the said Code earns income from its
for-profit activities, it will not lose its tax exemption.
However, its income from for-profit activities will be subject
to income tax at the preferential 10% rate pursuant to
Section 27 (B) thereof.
SLMC is not liable for
Compromise Penalty.
As to whether SLMC is liable for compromise penalty under
Section 248 (A) of the 1997 NIRC for its alleged failure to file
its quarterly income tax returns, this has also been resolved
in G.R. Nos. 195909 and 195960 (Commissioner of Internal
Revenue v. St. Luke's Medical Center, Inc.), 42 where the
imposition of surcharges and interest under Sections 248 43
and 249 44 of the 1997 NIRC were deleted on the basis of
good faith and honest belief on the part of SLMC that it is not
subject to tax. Thus, following the ruling of the Court in the
said case, SLMC is not liable to pay compromise penalty
under Section 248 (A) of the 1997 NIRC.
The Petition is rendered moot by the
payment made by SLMC on April 30,
2013. DHITCc
However, in view of the payment of the basic taxes made by
SLMC on April 30, 2013, the instant Petition has become
moot.
While the Court agrees with the CIR that the payment
confirmation from the BIR presented by SLMC is not a
competent proof of payment as it does not indicate the
specific taxable period the said payment covers, the Court
finds that the Certification issued by the Large Taxpayers
Service of the BIR dated May 27, 2013, and the letter from
the BIR dated November 26, 2013 with attached Certification
of Payment and application for abatement are sufficient to
prove payment especially since CIR never questioned the
authenticity of these documents. In fact, in a related case,
G.R. No. 200688, entitled Commissioner of Internal Revenue
v. St. Luke's Medical Center, Inc., 45 the Court dismissed the
petition based on a letter issued by CIR confirming SLMC's
payment of taxes, which is the same letter submitted by
SLMC in the instant case.
In fine, the Court resolves to dismiss the instant Petition as
the same has been rendered moot by the payment made by
SLMC of the basic taxes for the taxable years 2005 and 2006,
in the amounts of P49,919,496.40 and P41,525,608.40,
respectively. 46
WHEREFORE, the Petition is hereby DISMISSED. SO ORDERED.