Tio vs Videogram Regulatory Board
Facts:
PD No. 1994 amended the National Internal Revenue Code providing, inter alia: SEC.
134. There shall be collected on each processed video-tape cassette, ready for playback,
regardless of length, an annual tax of five pesos; Provided, That locally manufactured or
imported blank video tapes shall be subject to sales tax.The rationale relates to: 1) the
proliferation and unregulated circulation of videograms that have greatly prejudiced the
operations of movie houses and theaters, and have caused a sharp decline in theatrical
attendance by at least 40% and a tremendous drop in the collection of sales, contractor’s
specific, amusement and other taxes, thereby resulting in substantial losses estimated
at P450 Million annually in government revenues; 2) videogram establishments
collectively earn around P600 Million per annum from rentals, sales and disposition of
videograms, and such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year; 3) proper taxation of the
activities of videogram establishments will not only alleviate the dire financial condition of
the movie industry upon which more than 75,000 families and 500,00 workers depend
for their livelihood, but also provide an additional source of revenue for the Government,
and at the same time rationalize the heretofore distribution of videograms; 4) the rampant
and unregulated showing of obscene videogram features constitutes a clear andpresent
danger to the moral and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic efficiency and the
development of moral character and promote their physical, intellectual, and social being;
etc.Tio claimed that Section 10 was unconstitutional because the tax imposed is harsh,
confiscatory, oppressive and/or in unlawful restraint of trade in violationof the due process
clause of the Constitution, etc.
Issue:Whether or not the power of taxation was validly exercised.
Ruling:Yes. It is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed. The
power to impose taxes is one so unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any restrictions whatever, except
such as rest in the discretion of the authority which exercises it. The tax imposed by the
DECREE is not only a regulatory but also a revenue measure prompted by the realization
that earnings of videogram establishments of around P600 million per annum have not
been subjected to tax, thereby depriving the Government of an additional source of
revenue. It is an end-user tax, imposed on retailers for every videogram they make
available for public viewing. It is similar to the 30% amusement tax imposed or borne by
the movie industry which the theater-owners pay to the government, but which is passed
on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or
the viewing public. It is a tax that is imposed uniformly on all videogram operators. The
levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need
for regulating the video industry, particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the proliferation of pornographic video
tapes. And while it was also an objective of the DECREE to protect the movie industry,
the tax remains a valid imposition. The public purpose of a tax may legally exist even if
the motive which impelled the legislature to impose the tax was to favor one industry over
another.”It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that “inequities which result from a singling out
of one particular class for taxation
or exemption infringe no constitutional
limitation’.”Taxation has been made the implement of the state’s police power.At bottom,
the rate of tax is a matter better addressed to the taxing legislature.
WALTER LUTZ, as Judicial Administrator of the Intestate of the deceased Antonio Jayme
Ledesma, plaintiff-appellant v. J. ANTONIO ARANETA, as collector of Internal Revenue,
defendant-apppelle
FACTS: Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of
the intestate of the deceased Antonio Jayme Ledesma, seeks to recover from the
Collector of the Internal Revenue the total sum of fourteen thousand six hundred sixty six
and forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of
Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for the crop years
1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2 provides for an increase
of the existing tax on the manufacture of sugar on a graduated basis, on each picul of
sugar manufacturer; while section 3 levies on the owners or persons in control of the land
devoted tot he cultivation of sugarcane and ceded to others for consideration, on lease
or otherwise - "a tax equivalent to the difference between the money value of the rental
or consideration collected and the amount representing 12 per centum of the assessed
value of such land. It was alleged that such tax is unconstitutional and void, being levied
for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not
a public purpose for which a tax may be constitutionally levied. The action was dismissed
by the CFI thus the plaintiff appealed directly to the Supreme Court.
ISSUE:Whether or not the tax imposition in the Commonwealth Act No. 567 are
unconstitutional.
RULING: Yes, the Supreme Court held that the fact that sugar production is one of the
greatest industry of our nation, sugar occupying a leading position among its export
products; that it gives employment to thousands of laborers in the fields and factories;
that it is a great source of the state's wealth, is one of the important source of foreign
exchange needed by our government and is thus pivotal in the plans of a regime
committed to a policy of currency stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence it was competent for the
legislature to find that the general welfare demanded that the sugar industry be stabilized
in turn; and in the wide field of its police power, the law-making body could provide that
the distribution of benefits therefrom be readjusted among its components to enable it to
resist the added strain of the increase in taxes that it had to sustain. The subject tax is
levied with a regulatory purpose, to provide means for the rehabilitation and stabilization
of the threatened sugar industry. In other words, the act is primarily a valid exercise of
police power.
COMMISSIONER OF INTERNAL REVENUE vs. ALGUE and THE COURT OF TAX
APPEALS
FACTS:The Philippine Sugar Estate Development Company had earlier appointed Algue
as its agent, authorizing it to sell its land, factories and oil manufacturing process.
Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara,
Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil
Investment Corporation, inducing other persons to invest in it. Ultimately, after its
incorporation largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties.For this sale, Algue received as agent a commission of
P126,000.00, and it was from this commission that the P75,000.00 promotional fees were
paid to the aforenamed individuals.The petitioner contends that the claimed deduction of
P75,000.00 was properly disallowed because it was not an ordinary reasonable or
necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing
with Algue, it held that the said amount had been legitimately paid by the private
respondent for actual services rendered. The payment was in the form of promotional
fees.
ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by private respondent Algue as legitimate business
expenses in its income tax returns.
RULING:The Supreme Court agrees with the respondent court that the amount of the
promotional fees was not excessive. The amount of P75,000.00 was 60% of the total
commission. This was a reasonable proportion, considering that it was the payees who
did practically everything, from the formation of the Vegetable Oil Investment Corporation
to the actual purchase by it of the Sugar Estate properties.It is said that taxes are what
we pay for civilization society. Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard-earned income to the taxing authorities, every person who is
able to must contribute his share in the running of the government.
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY vs. MARCOS G.R. No.
120082. September 11, 1996.
DOCTRINE: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.
FACTS: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. 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, the Office of the Treasurer of the City of Cebu, demanded
payment for realty taxes on several parcels of land belonging to the petitioner 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:
xxxo) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units”
Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting
that the MCIAA is a government-controlled 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.
Section 234.
Exemptions from Real Property Taxes. — x x x
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.”
ISSUE:
1.
Whether the parcels of land in question belong to the Republic of the Philippines
whose beneficial use has been granted to the petitioner, and
2.
Whether the petitioner is a “taxable person.”
HELD:
1.
NO. 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.”
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.” Hence, the petitioner is now the owner of the
land in question and the exception in Section 234(c) of the LGC is inapplicable.
2. YES. 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.
CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.- CTA, Double
Taxation
FACTS:Respondent paid the local business tax only as a manufacturers as it was
expressly exempted from the business tax under a different section and which applied to
businesses subject to excise, VAT or percentage tax under the Tax Code. The City of
Manila subsequently amended the ordinance by deleting the provision exempting
businesses under the latter section if they have already paid taxes under a different
section in the ordinance. This amending ordinance was later declared by the Supreme
Court null and void. Respondent then filed a protest on the ground of double taxation.
RTC decided in favor of Respondent and the decision was received by Petitioner on April
20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time
to File Petition for Review asking for a 15-day extension or until May 20, 2007 within which
to file its Petition. A second Motion for Extension was filed on May 18, 2007, this time
asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on May
30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to
timely file the Petition.
ISSUES:
(1) Has Petitioner’s the right to appeal with the CTA lapsed?
(2) Does the enforcement of the latter section of the tax ordinance constitute double
taxation?
HELD:(1) NO. Petitioner complied with the reglementary period for filing the petition. From
April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within which to file their
Petition for Review with the CTA. The Motion for Extension filed by the petitioners on May
18, 2007, prior to the lapse of the 30-day period on 20 May 2007, in which they prayed
for another extended period of 10 days, or until 30 May 2007, to file their Petition for
Review was, in reality, only the first Motion for Extension of petitioners. Thus, when
Petitioner filed their Petition via registered mail their Petition for Review on 30 May 2007,
they were able to comply with the period for filing such a petition.
(2) YES. There is indeed double taxation if respondent is subjected to the taxes under
both Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the
same subject matter — the privilege of doing business in the City of Manila; (2) for the
same purpose — to make persons conducting business within the City of Manila
contribute to city revenues; (3) by the same taxing authority — petitioner City of Manila;
(4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of
Manila; (5) for the same taxing periods — per calendar year; and (6) of the same kind or
character — a local business tax imposed on gross sales or receipts of the business.
MANILA RAILROAD VS. COLLECTOR OF CUSTOMS
XXX
CIR VS. FIREMEN FUND INSURANCE
SEA LAND SERVICES VS. CIR
Maceda v MACARAIG
GR No 88291, May 31, 1991
FACTS:Commonwealth Act 120 created NAPOCOR as a public corporation to undertake
the development of hydraulic power and the production of power from other sources. RA
358 granted NAPOCOR tax and duty exemption privileges. RA 6395 revised the charter
of the NAPOCOR, tasking it to carry out the policy of the national electrification and
provided in detail NAPOCOR’s tax exceptions. PD 380 specified that NAPOCOR’s
exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938 dated May 27,
1976 further amended the aforesaid provision by integrating the tax exemption in general
terms under one paragraph.
ISSUE:Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the
enactment of PD 938 on May 27, 1976 which amended PD 380 issued on January 11,
1974
RULING:No, it is still exempt.
NAPOCOR is a non-profit public corporation created for the general good and welfare,
and wholly owned by the government of the Republic of the Philippines. From the very
beginning of the corporation’s existence, NAPOCOR enjoyed preferential tax treatment
“to enable the corporation to pay the indebtedness and obligation” and effective
implementation of the policy enunciated in Section 1 of RA 6395.
From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended
to be interpreted liberally so as to enhance the tax exempt status of NAPOCOR.
It is recognized that the rule on strict interpretation does not apply in the case of
exemptions in favor of government political subdivision or instrumentality. In the case of
property owned by the state or a city or other public corporations, the express exception
should not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property “exception is the rule and
taxation the exception.”
CIR v. COURT OF APPEALS (G.R. No. 108358, 240 SCRA 368)
January 20, 1995
Ponente: Vitug, J.
FACTS: ROH Auto Products applied for the tax amnesty granted by E.O. 41 issued by
then president Cory Aquino following the martial law period. Prior to the application, the
CIR already assessed ROH its tax liabilities.
The CIR then denied the amnesty application of ROH, claiming that the same was not
covered by the subject E.O. ROH then elevated the case to the CTA, which ruled in its
favor. The same was affirmed by the CA.
RULING
The SC ruled in favor of ROH Auto.
By its very nature, a tax amnesty, being a general pardon or intentional overlooking by
the State of its authority to impose penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the
Government of its right to collect what otherwise would be due it, and in this sense,
prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to
reform a chance to do so and thereby become a part of the new society with a clean slate.
CIR vs Estate of Benigno Toda Jr.
Commissioner of Internal Revenue vs. Estate of Benigno Toda Jr., et al.
G.R. No. 147188 September 14, 2004
483 SCRA 293
FACTS: Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, Jr.,
President and owner of 99.991% of its issued and outstanding capital stock, to sell a 16storey commercial building known as Cibeles Building and the two parcels of land on
which the building stands for an amount of not less than P90 million. Six months later,
Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn,
sold the same property on the same day to Royal Match Inc. (RMI) for P200 million.
These two transactions were evidenced by Deeds of Absolute Sale notarized on the
same day by the same notary public. For the sale of the property to RMI, Altonaga paid
capital gains tax in the amount of P10 million. When CIC filed for corporate annual
income tax return for the year 1989, it declared its gain from the sale of real property in
the amount of P75,728.021. After crediting withholding taxes of P254,497.00, it paid
P26,341,2078 for its net taxable income of P75,987,725. On 12 July 1990, Toda sold
his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by
a Deed of Sale of Shares of Stocks.Three and a half years later, Toda died.
ISSUES:
1. Whether or not the tax planning scheme adopted by CIC constitutes tax evasion that
would justify an assessment of deficiency income tax.
2. Whether or not the Estate is liable for the 1989 deficiency income tax of Cibeles
Insurance Corporation.
RULING:
Yes. Tax evasion is a scheme not sanctioned by law and when it is availed of, it
subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion
connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to
be legally due, or the non-payment of tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as being “evil,” in “bad faith,”
“willfull,” or “deliberate and not accidental”; and
(3) a course of action or failure of action which is unlawful.
All these factors are present in the instant case. It was proven that the real buyer of the
properties was RMI, and not the intermediary Altonaga. The scheme resorted to by CIC
in making it appear that there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI, thereby reducing the tax from 35% to 5%,
cannot be considered a legitimate tax planning because it is tainted with fraud.
2. Yes. Toda agreed to hold himself personally liable when he sold his shares of stock
to Le Hun T. Choa. In the Deed of Sale of Shares of Stock Toda, Toda undertook and
agreed “to hold the BUYER and Cibeles free from any all income tax liabilities of
Cibeles for the fiscal years 1987, 1988, and 1989.
It is important to note that a corporation has a juridical personality distinct and separate
from the persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a corporation and
vice versa. However, there are certain instances in which personal liability may arise.
Personal liability of a corporate director, trustee, or officer along with the corporation
may validly attach when:
1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the
corporation, its stockholders, or other persons;
2. He consents to the issuance of watered down stocks or, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by specific provision of law, to personally answer for his corporate
action.
NOTES:
Fraud in its general sense, “is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach of legal or equitable
duty, trust or confidence justly reposed, resulting in the damage to another, or by which
an undue and unconscionable advantage is taken of another.”
DELPHER TRADES CORPORATION, AND DELFIN PACHECO, PETITIONERS, VS.
INTERMEDIATE APPELLATE COURT AND HYDRO PIPES PHILIPPINES, INC.,
RESPONDENTS.
FACTS: A and B were owners of a parcel of land. They leased the land to CCI, Inc. The
lease contract provided that during the existence or after the term of the lease, the
lessors (A and B) should first offer the same to the lessee and the latter has priority to
buy under similar conditions. Later, CCI, Inc. assigned its rights in favor of Hydro, Inc.,
with the consent of A and B. Thereafter, a deed of exchange was executed by A and B,
on the one hand and Delpher Corp., upon the other, whereby A and B conveyed to
Delpher Corp. the leased property for 2,500 shares of stock of Delpher. On the ground
that it was not given the first option to buy the leased property pursuant to the provision
in the lease agreement, Hydro filed a complaint for reconveyance in its favor under
conditions similar to those whereby Delpher acquired the property from A and B.
The trial court declared valid Hydro’s preferential right to acquire the property (right of
first refusal), and ordered A and B and Delpher to convey the property to Hydro. The
Court of Appeals affirmed the decision. The Supreme Court reversed the judgment.
HELD: In the exchange for their properties whereby A and B acquired 2,500 original
unissued no par value shares of stocks of Delpher, the former became stockholders of
the latter by subscription, and by their ownership of the 2,500 shares, A and B acquired
control of the corporation. In effect, Delpher is a business conduit of A and B. What they
did was to invest their properties and change the nature of their ownership from
unincorporated to incorporated form by organizing Delpher to take control of their
properties and at the same time save on inheritance taxes. The deed of exchange of
property between A and B and Delpher cannot be considered a contract of sale. There
was no transfer of actual ownership interests by A and B to a third party. A and B
merely changed their ownership from one form to another. The ownership remained in
the same hands. Hence, Hydro has no basis for its claim of a right of first refusal.