Table of Contents
PART I
A. General Principles
Concept, Nature and Characteristics of Taxation and Taxes
Commissioner of Internal Revenue vs. Cebu Portland Cement Company 1
Commissioner of Internal Revenue vs. Algue 3
C.N. Hodges vs. Municipal Board of the City of Ililo 5
Classifications and Distinctions
Association of Customs Brokers, Inc. vs. Municipal Board 7
Esso Standard Eastern, Inc. vs. Commissioner of Internal Revenue 9
Progressive Development Corporation vs. Quezon City 11
PAL vs. Edu 13
Villegas vs. hiu Chiong Tsai Pao Ho 15
Compania General Tobacos de Filipinas vs. City of Manila 17
American Mail Lines vs. City of Basilan 19
Osmeña vs. Orbos 20
Republic of the Philippines vs. Bacolod -Murcia Milling Co. 22
Victorias Milling Co., Inc. v. Municipality of Victorias 24
Lutz vs. Araneta 26
PCGG vs. Cojuangco 27
Limitations on the Power of Taxation
Pascual vs. Secretary of Public Works 28
Osmeña vs. Orbos 29
Pepsi-Cola Bottling Company vs. Municipality of Tanauan 31
Social Security System vs. City of Bacolod 33
Sea-Land Services, Inc. vs. Court of Appeals 34
Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation 36
31st Infantry Post Exchange vs. Posadas 38
Commissioner of Internal Revenue vs. Marubeni Corporation 39
Reagan vs. Commissioner of Internal Revenue 41
Tiu vs. Court of Appeals 42
John Hay Peoples Alternative Coalition vs. BCDA 43
Coconut Oil Refines Association Inc. vs. BCDA 45
Province of Abra vs. Hernando 49
Tolentino vs. Secretary of Finance 51
Abakada Group Party List vs. Ermita 54
Misamis Oriental Association of Coco Traders, Inc. vs. Deparment of 58
Finance Secretary
Commissioner of Internal Revenue vs. Court of Appeals 59
Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc. 61
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan 63
Sison vs. Ancheta 65
Villegas vs. Hiu Chiong Tsai Pao Ho 66
Villanueva vs. City of Iloilo 68
Pepsi-Cola Bottling Co. of the Philippines Inc., vs. City of Butuan 70
Ormoc Sugar Company, Inc. vs. Treasurer of Ormoc City 72
Lutz vs. Araneta 73
Association of Customs Brokers, Inc. vs. Municipal Board 75
Eastern Theatrical Co., Inc. vs. Alfonso 77
Philippine Trust Company vs. Yatco 78
Churchill vs. Concepcion 80
Meralco vs. Province of Laguna 82
Province of Misamis Oriental vs. Cagayan Electric Power and Light 84
Company, Inc.
Cagayan Electric Power & Light Co., Inc. vs. Commissioner of Internal 86
Revenue
Lealda vs. Commissioner of Internal Revenue 88
Casanovas vs. Hord 90
American Bible Society vs. City of Manila 91
Abra Valley College vs. Aquino 92
Commissioner of Internal Revenue vs. Bishop of the Missionary District of 93
the Philippines
Lladoc vs. Commissioner of Internal Revenue 94
Herrera vs. Quezon City Board of Assessment Appeals 96
Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte 98
Commissioner of Internal Revenue vs. Court of Appeals and YMCA 99
Lung Center of the Philippines vs. Quezon City 101
Situs of Taxation and Double Taxation
Republic Bank vs. Court of Tax Appeals 104
Proctor & Gamble Philippine Manufacturing Corp. vs Municipality of Jagna 106
Pepsi-Cola Bottling Company vs. Municipality of Tanauan 107
Villanueva vs. City of Iloilo 108
Victoria Milling Co., Inc. vs. Municipality of Victorias 112
Compania General De Tabacos de Filipinas vs. City of Manila 114
Province of Bulacan vs. Court of Appeals 116
Forms of Escape from Taxation
Delpher Trades Corp. vs. Intermediate Appellate Court 118
Heng Tong Textiles Co., Inc. vs. Commissioner of Internal Revenue 120
Commissioner of Internal Revenue vs. Toda 121
Exemption from Taxation
Davao Gulf Lumber Corp. vs. Commissioner of Internal Revenue 123
Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue 124
Commissioner of Internal Revenue vs. Court of Appeals and Ateneo de 126
Manila University
Caltex Philippines, Inc. vs. Commission on Audit 128
Luzon Stevedoring Corp. vs. Court of Tax Appeals 131
National Development Company vs. Commissioner of Internal Revenue 133
Manila Electric Company vs. Vera 134
Maceda vs. Macaraig 135
Commissioner of Internal Revenue vs. Gotamco & Sons, Inc. 137
Commissioner of Internal Revenue vs. Court of Appeals and YMCA 138
Nitafan vs. Commissioner of Internal Revenue 139
Province of Abra vs. Hernando 140
Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation 141
31st Infantry Post Exchange vs. Posadas 143
PLDT vs. City of Davao 144
Sea-Land Services, Inc. vs. Court of Appeals 146
Meralco vs. Province of Laguna 147
Tiu vs. Court of Appeals 148
Mactan Cebu International Airport Authority vs. Marcos 150
Commissioner of Internal Revenue vs. Robertson 152
Basco vs. PAGCOR 154
Republic of the Philippines vs. Intermediate Appellate Court 156
Commissioner of Internal Revenue vs. Court of Appeals 158
Nature, Construction, Application and Sources of Tax Laws
Hilado vs. Commissioner of Internal Revenue 160
Misamis Oriental Association of Coco Traders, Inc. vs. Department of 161
Finance Secretary
Commissioner of Internal Revenue vs. Court of Appeals 163
Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc. 165
ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals 166
Philippine Bank of Communication vs. Commissioner of Internal Revenue 168
Power to Tax Involves Power to Destroy
Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd. 170
Reyes vs. Almanzor 172
Commissioner of Internal Revenue vs. Algue 174
Set-off of Taxes
Philex Mining Corp. vs. Commissioner of Internal Revenue 176
Francia vs. Intermediate Appellate Court 178
Commissioner of Internal Revenue vs. Itogon-Suyoc Mines, Inc. 180
Domingo vs. Garlitos 182
Republic of the Philippines vs. Mambulao Lumber Company 183
Taxpayer Suit
Anti-Graft League of the Philippines vs. San Juan 185
Joya vs. Presidential Commission on Good Government 187
Lozada vs. COMELEC 189
B. Tax Laws and Regulations
CIR vs. S.C. Johnson 191
C. Tax Remedies
St. Stephen’s Association and St. Stephen’s Girls School vs. Collector of 193
Internal Revenue
Advertising Associates vs. Court of Appeals and Commissioner of Internal 195
Revenue
Commissioner of Internal Revenue vs. Isabela Cultural Corporation 197
Surigao Electric Co. and Arturo Lumenian vs. Municipality of Surigao 199
Yabes vs. Flojo 201
Commissioner of Internal Revenue v. Algue 203
Commissioner of Internal Revenue v. Union Shipping Corporation and the 206
CTA
Philippine Journalists, Inc v. Commissioner of Internal Revenue 208
CIR vs. Philippine Global Communications, Inc. 211
RCBC vs. CIR 213
Oceanic Wireless vs. CIR 214
Fishwealth v. Commissioner of Internal Revenue 216
Part II
Local Taxation
Lung Center of the Philippines vs. Quezon City 217
Philippine Rural Electric Cooperatives vs. The Secretary, DILG 220
City Assessor of Cebu City vs. Association of Benevola de Cebu 222
City Government of San Pablo vs. Hon. Bienvenido Reyes 224
First Philippine Industrial Corp. vs. Court of Appeals 225
Manila Electric Company vs. Province of Laguna 227
Philippine Basketball Association vs. Court of Appeals 229
MIAA vs. CA and the City of Parañaque 232
Province of Bulacan vs. Court of Appeals 235
Drilon vs. Lim 237
Real Property Taxation
Davao Sawmill Co. vs. Castillo 239
City of Baguio vs. Busuego 241
Reyes, et al. vs. Almanzar 243
Pecson vs. Court of Appeals 245
Mathay, Jr. v. Macalincag 247
Patalinghug v. Court of Appeals 249
Ty, et. al. vs. Trampe 251
Talento vs. Escalada 253
FELS Energy vs. Province of Batangas 255
Mactan Cebu International Airport Authority vs. Marcos 257
Sesbreño vs. Central Board of Assessment Appeals 259
Lopez vs. City of Manila 261
Cagayan Robina Sugar Miling Co. vs. Court of Appeals 265
Light Rail Transit Authority vs. Central Board of Assessment Appeals 267
Tariff and Custom Laws
Jao vs. Court of Appeals 269
Transglobe International vs. Court of Appeals 270
Acting Commissioner of Customs vs. Court of Appeals 271
Chevron vs. Commission of BOC 272
SUMMARY OF CASE DOCTRINES
PART I.
A. GENERAL PRINCIPLES
I. Concept, Nature and Characteristics of Taxation and Taxes
1. Commissioner of Internal Revenue v. Cebu Portland Cement Company and Court of Tax Appeals
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight
of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes
could be postponed by simply questioning their validity, the machinery of the state would grind to a halt
and all government functions would be paralyzed.
2. Commissioner of Internal Revenue v. Algue Inc., and CTA
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On
the other hand, such collection should be made in accordance with the law, and any arbitrariness will
negate the very reason for government itself.
Without taxes, the government would be paralyzed for lack of the motive 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. The government
for its part is expected to respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This “symbiotic” relationship is the
rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by
those in the seat of power.
3. C. N. Hodges v The Municipal Board Of The City Of Iloilo, et al.
An ordinance imposing a sales tax, which has an additional provision prohibiting the registration of the
objects of the sale thereof, unless the tax impost has been paid, such additional prohibition is not be
considered a tax, for the same is merely a coercive measure to make the enforcement of the contemplated
sales tax more effective.
Taxes are the lifeblood of the government. It is imperative that the power to impose them to be clothed
with the implied authority to devise ways and means to accomplish their collection in the most effective
manner. Without this implied power the end of government may falter or fail.
II. Classification and Distinctions
4. Association of Customs Brokers Inc. and G. Manlapit v The Municipal Board, The City Trasurer, The City
Assessor and the City Mayor of the City of Manila
While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule
should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context
show that it is in effect an excise or a license tax.
The character of the tax as a property tax or a license or occupation tax must be determined by its
incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not
by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property
tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the
other hand, if the tax is levied upon persons on account of their business, it will be construed as a license
or occupation tax, even though it is graduated according to the property used in such business, or on the
gross receipts of the business.
5. Esso Standard Eastern, Inc. (formerly, Standard-Vacuum Oil Company) v The Commissioner of Internal
Revenue
A margin fee is imposed by the State in the exercise of its police power and not the power of taxation. A
margin fee is not a tax but an exaction designed to curb the excessive demands upon our international
reserve.
A tax is a levy for the purpose of providing revenue for government operations.
6. Progressive Development Corp. v. Quezon City
If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not
make the imposition a tax. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of
inspection and regulation may be held to be a tax rather than an exercise of the police power.
7. Philippine Airlines, Inc. v. Edu
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax. Such is the case of motor vehicle registration fees. Fees may be
properly regarded as taxes even though they also serve as an instrument of regulation.
8. Villegas vs. Hiu Chiong Tsai Pao Ho
While it is true that the first part of Ordinance No. 6537, which requires that the alien to secure an
employment permit, 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.
9. Compania General de Tabacos de Filipinas v. City of Manila
A license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police
power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of
raising revenues. Both a license fee and a tax may be imposed on the same business or occupation, or for
selling the same article, this not being in violation of the rule against double taxation.
10. American Mail Lines v. City of Basilan
The power to regulate as an exercise of police power does not include the power to impose fees for
revenue purposes. Fees for purely regulatory purposes may only be of sufficient amount to include the
expenses of issuing the license and the cost of the necessary inspection or police surveillance.
11. Osmeña vs. Orbos
Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the
exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special
treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law
refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of
the COA
12. Republic vs. Bacolod-Murcia Milling Co.
The protection of a large industry constituting one of the great source of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to
such an extent by public interests as to be within the police power of the sovereign.
The levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a
special assessment, but, the exercise of the police power for the general welfare of the entire country. It is,
therefore, an exercise of a sovereign power which no private citizen may lawfully resist.
13. Victorias Milling Co., Inc. v. Municipality of Victorias
The designation given by the municipal authorities does not decide whether the imposition is properly a
license tax or a license fee. The determining factors are the purpose and effect of the imposition as may be
apparent from the provisions of the ordinance. Thus, "when no police inspection, supervision, or
regulation is provided, nor any standard set for the applicant to establish, or that he agrees to attain or
maintain, but any and all persons engaged in the business designated, without qualification or hindrance,
may come, and a license on payment of the stipulated sum will issue, to do business, subject to no
prescribed rule of conduct and under no guardian eye, but according to the unrestrained judgment or
fancy of the applicant and licensee, the presumption is strong that the power of taxation, and not the
police power, is being exercised."
14. Lutz v. Araneta
Analysis of the Act will show that the 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 an
exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries of our
nation. Hence it was competent for the legislature to find that the general welfare demanded that the
sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking 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.
15. PCGG v. Cojuanco
Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional
contributions from persons and properties, exacted by the State by virtue of its sovereignty for the
support of government and for all public needs.
Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution
from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for
the support of the government. The coconut levy funds fall squarely into these elements
The coconut levy funds -- like the sugar levy and the oil stabilization funds, as well as the monies
generated by the On-line Lottery System -- are funds exacted by the State. Being enforced contributions,
they are prima facie public funds.
III. Limitations on the Power of Taxation
16. Pascual v. Secretary of Public Works and Communications
The right of the legislature to appropriate funds is correlative with its right to tax, under the constitutional
provision against taxation except for public purposes and prohibiting the collection of a tax for one
purpose and the devotion thereof to another purpose as appropriation for state funds can be made for
other than a public purpose.
17. John Osmeña v. Oscar Orbos
For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in
itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a standard —
limits of which are sufficiently determinate or determinable — to which the delegate must conform.
18. Pepsi-Cola Bottling Company v. Municipality of Tanauan
Double taxation, in general, is not forbidden by our fundamental law. Double taxation becomes obnoxious
only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by
the city or municipality.
19. Social Security System v. City of Bacolod and Reynaldo
When the legislature exempted lands and buildings owned by the government from payment of said taxes,
what it intended was a broad and comprehensive application of such mandate, regardless of whether such
property is devoted to governmental or proprietary purpose. It is axiomatic that when public property is
involved, exemption is the rule and taxation, the exception..
20. Sea-Land Service, Inc. v. Court of Appeals
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. Any interpretation that
would give it an expansive construction to encompass an exemption from taxation would be unwarranted.
21. Commissioner of Internal Revenue v. Mitsubishi Metal Corporation
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 burden of proof rests
upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which
onus petitioners have failed to discharge.
22. Thirty-First Infantry Post Exchange and First Lieutenant David L. Hardee v. Juan Posadas
The sale of merchandise through the post exchanges to the individuals of the United States Army and Navy
are not goods sold and delivered directly to the United States Army or Navy for the actual use or issue by
the Army or Navy and are therefore, not exempt from the payment of the internal revenue tax imposed by
the law.
23. Commissioner of Internal Revenue v. Marubeni Corporation
A tax amnesty is 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. It partakes of an
absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax
evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption,
is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption,
must be construed strictly against the taxpayer and liberally in favor of the taxing authority.
24. William Reagan, Etc. v. Commissioner of Internal Revenue
The Philippines being independent and sovereign, its authority may be exercised over its entire domain.
There is no portion thereof that is beyond its power. Within its limits, its decrees are supreme, its
commands paramount. Its laws govern therein, and everyone to whom it applies must submit to its terms.
25. Conrado L. Tiu vs. Court of Appeals
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.
26. John Hay Peoples Alternative Coalition v. Bases Conversion Development Authority
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. Other than Congress, the
Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on
exemption only from local taxes.
27. Coconut Oil Refiners Association, Inc. vs. Hon Ruben Torres
The mere fact that incentives and privileges are granted to certain enterprises to the exclusion of others
does not render the issuance unconstitutional for espousing unfair competition.
28. The Province Of Abra vs. Honorable Harold M. Hernando
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.
29. Arturo M. Tolentino vs.The Secretary of Finance and The Commisioner of Internal Revenue
The VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It
is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services
and the lease of properties purely for revenue purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the press pay income tax or subject it to general
regulation is not to violate its freedom under the Constitution.
30. Abakada Guro Party List vs. The Honorable Executive Secretary Eduardo Ermita It is the ministerial
duty of the President to immediately impose the 12% rate upon the existence of any of the conditions
specified by Congress. This is a duty which cannot be evaded by the President.
31. MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. vs. DEPARTMENT OF FINANCE
SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT
OFFICER, BIR MISAMIS ORIENTAL
There is a material or substantial difference between coconut farmers and copra producers, on the one
hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely
sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a
reasonable basis for classifying them differently.
32. COMMISSIONER OF INTERNAL REVENUE vs. HON. COURT OF APPEALS, HON. COURT OF TAX
APPEALS and FORTUNE TOBACCO CORPORATION
In a legislative rule (as opposed to interpretative), due observance of the requirements of notice, of
hearing, and of publication must be observed.
33. THE COMMISSIONER OF INTERNAL REVENUE vs. LINGAYEN GULF ELECTRIC POWER CO., INC. and
THE COURT OF TAX APPEALS
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.
34. KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C.
DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA vs. HON. BIENVENIDO TAN, as
Commissioner of Internal Revenue
1) The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the
framers of said Constitution had intended to terminate the exercise of legislative powers by the President
at the beginning of the term of office of the members of Congress, they should have so stated (but did not)
in clear and unequivocal terms.
2) It appears that a comprehensive study of the VAT had been extensively discussed by this framers and
other government agencies involved in its implementation, even under the past administration. The
legislative process started long before the signing when the data were gathered, proposals were weighed
and the final wordings of the measure were drafted, revised and finalized.
3) To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution,
not a doubtful and argumentative implication and not merely rely upon newspaper articles which are
actually hearsay and have evidentiary value
4) The distinction of the customs brokers from the other professionals who are subject to occupation tax
under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like
those of stock, real estate and immigration brokers) partake more of a business, rather than a profession
and were thus subjected to the percentage tax .
35. ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue et al.
Taxpayers may be classified into different categories. To repeat, it is enough that the classification must
rest upon substantial distinctions that make real differences. 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.
36. Villegas v. Hiu Chiong Tsai Pao Ho
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.
37. Villanueva v. City of Iloilo
A license tax may be levied upon a business or occupational though the land or property used in
connection therewith is subject to property tax. The rule of equality and uniformity is not violated by the
fact that tenement taxes are not imposed in other cities, for the same rule does not require that taxes for
the same purpose should be imposed in different territorial subdivisions at the same time. So long as the
burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly
classified or situated, equality and uniformity of taxation is accomplished.
38. Pepsi-Cola Bottling Co. of the Philippines, Inc v. City of Butuan
When the intention to limit the application of the ordinance to those merchandise brought into the City
from outside thereof is apparent, the tax partakes the nature of an import duty, which is beyond
defendant's authority to impose by express provision of law.
39. Ormoc Sugar Co. v. Treasurer of Ormoc CityOrmoc Sugar Co. v. Treasurer of Ormoc City
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, for the coverage of the tax.
40. Lutz v. Araneta
If objectives and methods are alike constitutionally valid, no reason is seen why the state may not levy
taxes to raise funds for their prosecution and attainment. Taxation may be made with the implement of
the state’s police power. Inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation.
41. Association of Customs Broker Inc. vs. The Municipal Board
While the ordinance in question refers to property tax and it is fixed ad valorem yet we cannot reject the
idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of
raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and
bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the
reason that, under said Act, municipal corporation already participate in the distribution of the proceeds
that are raised for the same purpose of repairing, maintaining and improving bridges and public highway
(section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the
imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question
merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition
above adverted to. Also, the ordinance infringes the rule of the uniformity of taxation ordained by our
Constitution. It does not distinguish between a motor vehicle for hire and one which is purely for private
use. Neither does it distinguish between a motor vehicle registered in the City of Manila nor one registered
in another place but occasionally comes to Manila and uses its streets and public highways. This is an
inequality which we find in the ordinance, and which renders it offensive to the Constitution.
42. Eastern Theatrical Co., Inc., et al. vs. Alfonso
Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation; and the theater companies cannot point out what places of
amusement taxed by the ordinance do not constitute a class by themselves and which can be confused
with those not included in the ordinance. The fact that somehow places of amusement are not taxed while
others, like the ones herein, are taxed is no argument at all against the equality and uniformity of the tax
imposition.
43. Churchill vs. Concepcion
Uniformity in taxation means that all taxable articles or kinds of property, of the same class, shall be taxed
at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises,
privileges, necessities, and luxuries shall all be assessed at the same rate. The rule does not require taxes
to be graded according to the value of the subject(s) upon which they are imposed, especially those levied
as privilege or occupation taxes.
44. Philippine Trust Company vs. A.L. Yatco
A tax is considered uniform when it 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.
45. Meralco vs. Province of Laguna
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 the Local Government Units (LGU).
46. Province of Misamis Oriental v. Cagayan Electric Power and Light Company Inc. A special and local
statute applicable to a particular case is not repealed by a later statute which is general in its terms,
provisions and application even if the terms of the general act are broad enough to include the cases in the
special law unless there is manifest intent to repeal or alter the special law.
47. Cagayan Electric Power & Light Co. Inc. v. CIR
The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress
when the public interest so requires.
48. Lealda v. CIR
It seems clear, therefore, that the intention of the legislature was to impose upon the grantee and his
successors in interest, the obligation to pay the same franchise tax imposed upon other grantees or
franchise holders at the time Act 2475 was enacted.
49. J. Casanovas vs. JNO S. Hord
The concessions can be cancelled only by reason of illegality in the procedure by which they were
obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the
laws under which they were granted.
50. American Bible Society vs. City of Manila
A tax on the income of one who engages in religious activities is different from 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, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the
exercise of a privilege is thepower to control or suppress its enjoyment.
51. Abra Valley College vs. Aquino
Reasonable emphasis has always been made that the exemption extends to facilities which are incidental
to and reasonably necessary for the accomplishment of the main purposes. The use of the school building
or lot for commercial purposes is neither contemplated by law, nor by jurisprudence.
52. Commissioner of Internal Revenue vs. Bishop of the Missionary District of the Philippines
The following requisites must concur in order that a taxpayer may claim exemption under the law:(1) the
imported articles must have been donated; (2) the done must be duly incorporated or established
international civic organization, religious or charitable society, or institution for civic religious or
charitable purposes; and (3) the articles so imported must have been donated for the use of the
organization, society or institution or for free distribution and not for barter, sale or hire.
53. Lladoc vs. Commissioner of Internal Revenue
Imposition of the gift tax was valid, under Section 22(3) Article VI of the Constitution contemplates
exemption only from payment of taxes assessed on such properties as Property taxes contra distinguished
from Excise taxes The imposition of the gift tax on the property used for religious purpose is not a
violation of the Constitution. A gift tax is not a property by way of gift inter vivos.
54. Herrera v. Quezon City Board of Assessment Appeals
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.
The exemption in favor of property used exclusively for charitable or educational purposes is not limited
to property actually indispensable therefor but extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes.
55. Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte
The exemption in favor of the convent in the payment of land tax refers to the home of the priest who
presides over the church and who has to take care of himself in order to discharge his duties. The
exemption includes not only the land actually occupied by the Church but also the adjacent ground
destined to the ordinary incidental uses of man.
56. Commissioner of Internal Revenue v. Court of Appeals and YMCA
Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is
not exempt from income taxation, even if such income is exclusively used for the accomplishment of its
objectives.
A claim of statutory exemption from taxation should be manifest and unmistakable from the language of
the law on which it is based. Thus, it must expressly be granted in a statute stated in a language too clear
to be mistaken. Verba legis non est recedendum — where the law does not distinguish, neither should we.
The bare allegation alone that one is a non-stock, non-profit educational institution is insufficient to justify
its exemption from the payment of income tax. 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.
57. Lung Center of the Philippines v. Quezon City
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 tax-exempt purposes.
III. Situs of Taxation and Double Taxation
58. Republic Bank, Petitioner, Vs. Court Of Tax Appeals And The Commissioner Of Internal Revenue,
Respondents
It is clear from the statutes then in force that there was no double taxation involved
-- one was a penalty and the other was a tax. At any rate, we have upheld the validity of double taxation.
The payment of 1/10 of 1% is a penalty as the primary purpose involved is regulation, while the payment
of 1% for the same violation is a tax for the generation of revenue which is the primary purpose in this
instance.
59. Procter and Gamble Philippines Manufacturing Corp. vs. Municipality of Jagna For double taxation to
exist, the same property must be taxed twice, when it should be taxed but once. Double taxation has also
been defined as taxing the same person twice by the same jurisdiction for the same thing. Surely, a tax on
plaintiff's products is different from a tax on the privilege of storing copra in a bodega situated within the
territorial boundary of defendant municipality.
60. PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. vs. MUNICIPALITY OF TANAUAN
Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any
business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance in
question (Ordinance No. 27) comes within the second power of a municipality.
61. Villanueva, Et Al., v City of Iloilo
In order to constitute double taxation in the objectionable or prohibited sense the same property must be
taxed twice when it should be taxed but once; both taxes must be imposed on the same property or
subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character
of tax
62. Victorias Milling Co. v Municipality of Victoria
For double taxation to exist, "the same property must be taxed twice, when it should be taxed but once."
Double taxation has also been "defined as taxing the same person twice by the same jurisdiction for the
same thing."
63. Compania General De Tabacos De Filipinas v City of Manila, Et Al
Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same
article, this not being in violation of the rule against double taxation.
64. Province of Bulacan v Court of Appeals
A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code.
IV. Forms of Escape from Taxation
65. Delpher Trades Corporation v. IAC and Hydro Pipes Philippines
By changing the nature of their ownership from unincorporated to incorporated form, petitioners were
able to save on inheritance tax.
66. Heng Tong Textiles Co., Inc. v. CIR
An attempt to minimize one's tax does not necessarily constitute fraud. It is a settled principle that a
taxpayer may diminish his liability by any means which the law permits.
67. CIR v. The Estate of Benigno Toda, Jr.
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.
In cases of fraudulent returns, false returns with intent to evade tax, and failure to file a return, the period
within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case
may be.
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.
V. Exemption from Taxation
68. Davao Gulf Lumber Corporation v. CIR
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against
the grantee and liberally in favor of the government. Any exemption from the payment of a tax must be
clearly stated in the language of the law; it cannot be merely implied therefrom.
69. Philippine Acetylene Inc. vs. Commissioner of Internal Revenue
The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or
producer and not a tax on the purchaser. The purchaser does not pay the tax. He pays or may pay the
seller more for the goods because of the seller's obligation, but that is all and the amount added because of
the tax is paid to get the goods and for nothing else.
70. Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals, and Ateneo de Manila
University
Private respondent is mandated by law to undertake research activities to maintain its university status
and it occasionally accepts sponsorship for unfunded IPC research projects from international
organizations, private foundations and governmental agencies. The funds received by private respondent
are not given in the concept of a fee or price in exchange for the performance of a service or delivery of an
object. Rather, the amounts are in the nature of an endowment or donation given by IPC's benefactors
solely for the purpose of sponsoring or funding the research with no strings attached which are taxexempt.
71. Caltex Philippines, Inc. v. Commission on Audit, Commissioner Bartolome Fernandez and
Commissioner Alberto Cruz
Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the
taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact
covered by the exemption so claimed. The party claiming exemption must therefore be expressly
mentioned in the exempting law or at least be within its purview by clear legislative intent.
72. Luzon Stevedoring Corp. v. Court of Tax Appeals, Commissioner of Internal Revenue
In order that the importations of tugboats may be declared exempt from the compensating tax, the
following requirements must be complied with: (1) the engines and spare parts must be used by the
importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must
be used in coastwise or oceangoing navigation. The amendatory provisions of R.A. 3176 limit tax
exemption from the compensating tax to imported items to be used by the importer himself as operator of
passenger and/or cargo vessel.
73. National Development Company v. Commissioner Of Internal Revenue
Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any
doubt concerning this question must be resolved in favor of the taxing power.
74. Manila Electric Company v. Misael P. Vera
One who claims to be exempt from the payment of a particular tax must do so under clear and
unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer.
75. Ernesto M. Maceda v. Hon. Catalino Macaraig, Jr., et al.
The National Power Corporation under the provisions of its Revised Charter retains its exemption from
duties and taxes imposed on the petroleum products purchased locally and used for the generation of
electricity.
76. Commissioner Of Internal Revenue v. John Gotamco & Sons, Inc. and The Court of Tax Appeals
Direct taxes are those that are demanded from the very person who, it is intended or desired, should pay
them; while indirect taxes are those that are demanded in the first instance from one person in the
expectation and intention that he can shift the burden to someone else.
77. COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS
Under Section 27 of the NIRC, 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 the income is used- whether for profit of for lofty non-profit purposes. On the
other hand, Article VI, Section 28 of paragraph 3 of the Constitution, failed to prove by
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 actually, directly and exclusively for
educational purposes.
78. DAVID G. NITAFAN vs. COMMISSIONER OF INTERNAL REVENUE
The payment of income tax, which is applicable to all income earners, by Justices and Judges does not fall
within the constitutional protection against decrease of their salaries during their continuance in office.
79. THE PROVINCE OF ABRA vs. HONORABLE HAROLD M. HERNANDO
To be exempt under the Constitution, lands, buildings and improvements of religious and charitable
institutions must not only be exclusively but also actually and directly used for religious and charitable
purposes.
80. COMMISSIONER OF INTERNAL REVENUE vs. MITSUBISHI METAL CORPORATION 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 taxability of a party cannot be blandly
glossed over on the basis of a supposed “broad, pragmatic analysis” alone without substantial supportive
evidence.
VI. Exemption from Taxation
81. 31st Infantry Post Exchange v. Posadas
Whenever a state engages in a business which is of a private nature, that business is not withdrawn from
the taxing power of the Nation, or, conversely stated, whenever the National Government permits an
organization under its control to engage in a business which is of a private nature, that business is not
withdrawn from the taxing power of the state.
82. PLDT v. City of Davao
The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention
of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority
83. Sea Land Services, Inc. v. CA
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.
84. MERALCO v. Province of Laguna
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.
85. Tiu vs. Court of Appeals
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. A classification based on valid and reasonable standards does not violate the
equal protection clause.
86. Mactan Cebu International Airport vs. Marcos
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. 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.
87. Commissioner of Internal Revenue vs. Robertson
Although the laws granting tax exemptions must be construed in strictissimi juris against the taxpayer,
and that the burden of proof is with the person or entity given the exemption. The court, however, will not
deem itself authorized to depart from the plain meaning of the tax exemption provision, so explicit in
terms and so searching in extent.
88. Basco vs. PAGCOR
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. The power to tax which was called as the "power to destroy" cannot be allowed to
defeat an instrumentality or creation of the very entity which has the inherent power to wield it.
89. Republic of the Philippines v. Intermediate Appellate Court
The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and
liberally in favor of expressly and clearly declares.
90. Commissioner of internal Revenue v. Court of Appeals
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.
VII. NATURE, CONSTRUCTION, APPLICATION & SOURCES OF TAX LAWS
91. Hilado v. Collector of Internal Revenue
It is a legal maxim, that excepting that of a political nature, ‘Law once established continues until changed
by some competent legislative power. It is not changed merely by change of sovereignty.’
“It seems too clear for serious argument that an administrative officer cannot change a law enacted by
Congress. A regulation that is merely an interpretation of the statute when once determined to have been
erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the
collector of internal revenue does not preclude or estop the government from collecting a tax which is
legally due.”
92. Misamis Oriental of Coco Traders, inc. v. Department of Finance Secretary
The Commissioner of Internal Revenue is not bound by the ruling of his predecessors.
7 To the contrary, the overruling of decisions is inherent in the interpretation of laws.
93. Commissioner of Internal Revenue v. Court of Appeals
Well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be
prejudicial to the taxpayers.
94. CIR vs. Lingayen Gulf Electric Power Co., Inc.
The power of the Legislature to alter, amend, or repeal any franchise is always deemed reserved.
95. ABS-CBN Broadcasting Corporation v. Court of Tax Appeals
Rulings or circulars promulgated by the CIR have no retroactive application where to so apply them would
be prejudicial to taxpayers.
96. Philippine Bank of Communications v. Commissioner of Internal Revenue
Administrative issuances are merely interpretations and not expansions of the provisions of law, thus, in
case of inconsistency, the law prevails over them. Administrative agencies have no legislative power.
VIII. POWER TO TAX INVOLVES POWER TO DESTROY
97. Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer.
98. Reyes vs. Almanzor
The power to tax is not the power to destroy while the Supreme Court sits.
99. Commissioner of Internal Revenue vs. Algue
Taxes are, indeed, the lifeblood of the nation but the exercise of taxation must be done reasonably and
through the prescribed procedure.
IX. SET-OFF OF TAXES
100. Philex Mining Corp. vs. Commissioner of Internal Revenue
Taxes cannot be the subject for compensation for simple reason that the government and the tax payer are
not mutual creditors and debtors of each other.
101. Francia v. Intermediate Appellate Court
There can be no off-setting of taxes against the claims that the taxpayer may have against the government.
A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
102. Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.
The National Internal Revenue Code provides that interest upon the amount determined as a deficiency
shall be assessed and shall be paid upon notice and demand from the Commissioner of Internal Revenue at
the specified. It is made clear, however, in an earlier provision found in the same section that if in any
preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not yet
refunded, may be deducted from the tax to be paid.
103. Domingo v. Garlitos
Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of
the intestate for services rendered have already become overdue and demandable is well as fully
liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of
Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.
104. Republic of the Philippines v. Mambulao Lumber Company
Appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on
compensation is inapplicable. With respect to the forest charges which the defendant Mambulao Lumber
Company has paid to the government, they are in the coffers of the government as taxes collected, and the
government does not owe anything, crystal clear that the Republic of the Philippines and the Mambulao
Lumber Company are not creditors and debtors of each other, because compensation refers to mutual
debts.
X. TAXPAYER SUIT
105. Anti-Graft League of the Philippines v. San Juan
In order to constitute a taxpayer’s suit, two requisites must be met. First, public funds are disbursed by a
political subdivision or instrumentality and in doing so, a law is violated or some irregularity is
committed. Second, the petitioner is directly affected by the alleged ultra vires act.
106. Joya v. Presidential Commission on Good Governance
Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the
government. A taxpayer's suit can prosper only if the governmental acts being questioned involve
disbursement of public funds upon the theory that the expenditure of public funds by an officer of the
state for the purpose of administering an unconstitutional act constitutes a misapplication of such funds,
which may be enjoined at the request of a taxpayer.
107. Lozada v. Commission on Elections
A taxpayer’s suit may be allowed only when an act complained of, which may include a legislative
enactment of statute, involves the illegal expenditure of public money.
B. TAX LAWS & REGULATIONS
108. Commissioner of Internal Revenue v. S.C. Johnson
The essence of the principle of the “most-favored nation” clause is to allow the taxpayer in one state to
avail more liberal provisions granted in another tax treaty to which the country of residence of such
taxpayer is also a party provided that the subject matter of taxation is the same as that in the tax treaty
under which the taxpayer is liable.
Tax refunds are in the nature of tax exemptions and they are regarded as in derogation of sovereign
authority and to be construed strictissimi juris against the person or entity claiming the exemption. The
burden of proof is upon him who claims the exemption in his favor and he must be able to justify hi claim
by the clearest grant of organic or statute law.
C. TAX REMEDIES
109. St. Stephen’s Association and St. Stephen’s Girls School v. The Collector of Internal Revenue
The period for appeal to the respondent court in this case must be computed from the time petitioners
received the decision of the respondent Collector of Internal Revenue on the disputed assessment, and not
from the time they received said assessment.
110. Advertising Associates, Inc. v. Court of Appeals and CIR
The petition for review was filed on time. The reviewable decision is that contained in Commissioner
Plana's letter of May 23, 1979 and not the warrants of distraint.
111. Commissioner of Internal Revenue v. Isabela Cultural Corporation
The Final Notice Before Seizure should be considered as a denial of respondent’s request for
reconsideration of the disputed assessment. The Notice should be deemed as petitioner's last act, since
failure to comply with it would lead to the distraint and levy of respondent's properties, as indicated
therein.
112. Surigao Electric, Co., Inc. and Arturo Lumanlan v. Municipality of Surigao
A municipal government or a municipal corporation such as the Municipality of Surigao is a government
entity recognized, supported and utilized by the National Government as a part of its government
machinery and functions; a municipal government actually functions as an extension of the national
government and, therefore, it is an instrumentality of the latter; and by express provisions of Section 14(e)
of Act 2677, an instrumentality of the national government is exempted from the jurisdiction of the PSC
except with respect to the fixing of rates. This exemption is even clearer in Section 13(a).
It would be to erode the term "government entities" of its meaning if we are to reverse the Public Service
Commission and to hold that a municipality is to be considered outside its scope.
113. Yabes vs. Flojo
Court of Tax Appeals has exclusive jurisdiction over complaints involving an assessment made by a
Commissioner which has not yet become final and incontestable.
114. Commissioner of Internal Revenue v. Algue
Deductions on gross income includes all the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered.
115. Commissioner of Internal Revenue v. Union Shipping Corporation and the CTA If an individual or
corporation is not in the actual possession, custody, or control of the funds, it can neither be physically nor
legally liable or obligated to pay the socalled withholding tax on income.
116. Philippine Journalists, Inc v. Commissioner of Internal Revenue
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner
of Internal Revenue on matters relating to assessments or refunds. It gives the CTA the jurisdiction to
determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute
of Limitations was validly effected.
117. CIR v. Philippine Global Communications, Inc.
The law prescribed a period of three years from the date the return was actually filed or from the last date
prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a
national internal revenue tax. The three-year period for collection of the assessed tax began to run on the
date the assessment notice had been released, mailed or sent by the BIR.
118. RCBC v Commissioner of Internal Revenue
As provided under section 228, Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of
the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall
become final.
119. Ocean Wireless Network v. Commissioner of Internal Revenue
In this case, the letter of demand dated January 24, 1991, unquestionably
constitutes the final action taken by the Bureau of Internal Revenue on petitioner’s request for
reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its
payment. ; Moreover, the general rule is that the Commissioner of Internal Revenue may delegate any
power vested upon him by law to Division Chiefs or to officials of higher rank.
120. Fishwealth v. Commissioner of Internal Revenue
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable.
PART II.
A. LOCAL TAXATION
121. Lung Center of the Philippines vs. Quezon City
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. 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.
122. Philippine Rural Electric Cooperatives vs. The Secretary, Department of Interior and Local
Government
The withdrawal by the Local Government Code under Sections 193 and 234 of the tax exemptions
previously enjoyed by petitioners does not impair the obligations of the borrower, the lender or the
beneficiary under loan agreements as in fact, no taxation exemption is granted taxation exemption is
granted therein.
123. City Assessor of Cebu City vs. Association of Benevola de Cebu
The Chong Hua Hospital Medical Arts Center building should be classified as “commercial” and should not
be imposed the commercial level of 35% as it is not operated primarily for profit but as an integral part of
CHH. The CHHMAC, with operations being devoted for the benefit of the CHH’s patients, should be
accorded the 10% special assessment.
124. City Government of San Pablo vs. Hon. Bienvenido Reyes
The franchise tax under the LGC is imposable despite any exemption enjoyed under special laws. Hence, in
the absence of any provision of the Code to the contrary, any existing tax exemption or incentive enjoyed
by MERALCO under existing law was clearly intended to be withdrawn.
125. First Philippine Industrial Corporation v. Court of Appeals
A "common carrier" is exempted from business tax as provided for in Section 133 (j), of the Local
Government Code. It is clear that the legislative intent in excluding from the taxing power of the local
government unit the imposition of business tax against common carriers is to prevent a duplication of the
so-called "common carrier's tax." Petitioner is already paying three (3%) percent common carrier's tax on
its gross sales/earnings under the National Internal Revenue Code. To tax petitioner again on its gross
receipts in its transportation of petroleum business would defeat the purpose of the Local Government
Code.
126. Manila Electric Company vs. Province of Laguna
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.
127. Philippine Basketball Asscoiation vs. Court of Appeals
The government can never be in estoppel particularly in matters involving taxes. It is an established rule
that erroneous application and enforcement of the law by public officers do not preclude subsequent
correct application of the statute and the Government is never estopped by mistake or error on the part of
its agents.
128. MIAA vs Court of Appeals and the City of Parañaque
Real Properties owned by Republic of the Philippines are exempt from real estate tax. An instrumentality
of the government is likewise exempt from local taxation.
129. Province of Bulacan vs. Court of Appeals
The preemption on taxation refers to an instance wherein the National Government elects to tax a
particular area, impliedly withholding from the local government the delegated power to tax the same
field.
130. Drilon v. Lim
Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax
ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or
sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the
local government that enacted the measure. Such is an act not of control but of mere supervision.
B. REAL PROPERTY TAXATION
131. Davao Sawmill Co. v. Castillo
It must further be pointed out that while not conclusive, the characterization of the property as chattels by
the appellant is indicative of intention and impresses upon the property the character determined by the
parties. It is machinery which is involved; moreover, machinery not intended by the owner of any building
or land for use in connection therewith, but intended by a lessee for use in a building erected on the land
by the latter to be returned to the lessee on the expiration or abandonment of the lease.
132. City of Baguio v. Busuego
While the GSIS may be exempt from real estate tax, the exemption does not cover property belonging to it
"where the beneficial use thereof has been granted for consideration or otherwise to a taxable person."
133. Reyes, et al. v. Almanzor
It is declared that the first Fundamental Principle to guide the appraisal and assessment of real property
for taxation purposes is that the property must be "appraised at its current and fair market value." By no
strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with the
market value of properties not so covered. The former has naturally a much lesser market value in view of
the rental restrictions.
134. Pecson vs. Court of Appeals
Notices of the sale of the public auction may be sent to the delinquent taxpayer, either (i) at the address as
shown in the tax rolls or property tax record cards of the municipality or city where the property is
located or (ii) at his residence, if known to such treasurer or barrio captain.
135. Mathay, Jr. v. Macalincag
Section 9 of P.D. 921 is specific and mandatory. The Schedule of Values that will serve as the basis for the
appraisal and assessment for taxation purposes of real properties located within the Metropolitan Area
shall be prepared jointly by the City Assessors of the Districts created under Section one hereof, with the
City Assessor of Manila acting as Chairman.
136. Patalinghug vs. Court of Appeals
A tax declaration is not conclusive of the nature of the property for zoning purposes. A property may have
been declared by its owner as residential for real estate taxation purposes but it may well be within a
commercial zone. A discrepancy may thus exist in the determination of the nature of property for real
estate taxation purposes visa-vis the determination of a property for zoning purposes.
137. Ty, et. al. Vs. Trampe
RA 7160 (LGC) and PD 921 are compatible laws and can be harmonized in order to achieve the objective
that real estate tax should not unduly burden the taxpayer and at the same time encouraging local
government units to consolidate or coordinate their efforts, services and resources. Thus new schedule of
values and assessments within Metro Manila must be jointly agreed by the city, municipal assessors
within the Assessment Districts.
138. Talento vs. Escalada
Generally, even pending on appeal the LBAA, CBAA or the courts may not supend the collection of taxes,
only a payment under protest may stay an impending levy, however, under certain conditions provided
under the Rules of Procedure of the LBAA and the ammendments made by RA 9282, the collection of taxes
may be suspended pending the resolution of an appeal.
139. FELS Energy vs. Province of Batangas
First; should a taxpayer wish to question the assessment made by the city, provincial or municipal
assessor, the proper recourse would be to appeal before the Local Board of Assessment Appeals within 60
days from receipt of assessment. Second; movable property such as barges may be considered real
property subject to real property tax depending on the nature of their use. Lastly; taxation is the rule and
excemption is the exception, thus strict construction against excemptions.
140. Mactan Cebu International Airport Authority vs. Marcos
The Local Government Code's excemptions found in Sec. 133 of the LGC is the general provision for
excemption but this is further refined by Sec. 232 and 234, the objective of which is to limit those who may
enjoy the privilege of excemption and to increase those that can be taxed by the local government in order
to maximize their income to attain fiscal autonomy. When there is doubt as to whether an entity is
excempt or not, the rule is that the law shall be strictly interpreted against exemption.
141. Sesbreño v. Central Board of Assessment Appeals
Petitioner failed to pay under protest the tax assessed against his property. This is a violation of Section 64
of Presidential Decree No. 464 20 which requires that, before a court may entertain any suit assailing the
validity of a tax assessment, the taxpayer must first pay under protest the tax assessed against him. As a
rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its
consideration. 21 The Court has held in several cases, however, that an appellate court has an inherent
authority to review unassigned errors (1) which are closely related to an error properly raised, or (2)
upon which the determination of the error properly assigned is dependent, or (3) where the Court finds
that consideration of them is necessary in arriving at a just decision of the case.
142. Lopez v. City of Manila
Should the taxpayers question the excessiveness of the amount of tax, he must first pay the amount due, in
accordance with Section 252 of R.A. 7160. Then, he must request the annotation of the phrase "paid under
protest" and accordingly appeal to the Board of Assessment Appeals by filing a petition under oath
together with copies of the tax declarations and affidavits or documents to support his appeal. The
reduced assessment levels multiplied by the schedule of fair market values of real properties, provided by
Manila Ordinance No. 7894, resulted to decrease in taxes. To that extent, the ordinance is likewise, a social
legislation intended to soften the impact of the tremendous increase in the value of the real properties
subject to tax. The lower taxes will ease, in part, the economic predicament of the low and middle- income
groups of taxpayers.
143. Cagayan Robina Sugar Milling Co. v. Court of Appeals
Section 28 must be read in consonance with Section 3 (n)[8] of the said law, which defines "market value."
Under the latter provision, the LBAA and CBAA were not precluded from adopting various approaches to
value determination, including adopting the APT "floor bid price" for petitioner's properties. Tax
assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the
burden of proving otherwise.
144. Light Rail Transit Authority v. Central Board of Assessment Appeals
The Light Rail Transit Authority and the Metro Transit Organization function as service-oriented business
entities, which provide valuable transportation facilities to the paying public. In the absence, however, of
any express grant of exemption in their favor, they are subject to the payment of real property taxes.
C. TARIFF & CUSTOMS LAWS
145. Jao v. Court of Appeals
The estate of an inhabitant of the Philippines shall be settled or letters of administration granted in the
proper court located in the province where the decedent resides at the time of his death.
146. Transglobe International v. Court of Appeals
Forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the
owner. It is in the nature of a proceeding in rem, i.e., directed against the res or imported articles and
entails a determination of the legality of their importation. The fraud contemplated by law must be actual
and not constructive. It must be intentional, consisting of deception willfully and deliberately done or
resorted to in order to induce another to give up same right.
147. Acting Commissioner of Customs v. Court of Appeals
In all proceedings taken for the seizure and/or forfeiture of any vehicle, vessel, aircraft, beast or articles
under the provisions of the tariff and customs laws, the burden of proof shall lie upon the claimant:
Provided, That probable cause shall be first shown for the institution of such proceedings and that seizure
and/or forfeiture was made under the circumstances and in the manner described in the preceding
sections of this Code
148. Chevron v. Commissioner of Bureau of Customs
Under the relevant provisions of the TCC (Sec 205, 1301, 1802), both the IED and IEIRD should be filed
within 30 days from the date of discharge of the last package from the vessel or aircraft. When the
importer fails to file the entry within the said period, he "shall be deemed to have renounced all his
interests and property rights" to the importations and these shall be considered impliedly abandoned in
favor of the government.
Part I: General Principles
Concept, Nature and
Characteristics of Taxation and Taxes
Commissioner of Internal Revenue v. Cebu Portland Cement
Company and Court of Tax Appeals
[G.R. No. L-29059. December 15, 1987]
Digest by: ALVIAR, Joyce B
PONENTE: Cruz, J.
FACTS:
By virtue of a decision of the CTA rendered on June 21, 1961, as modified on appeal by the SC on February 27,
1965, the CIR was ordered to refund to the Cebu Portland Cement Co. the amount of P359,408.92, representing
overpayments of ad valorem taxes on cement produced and sold by it after October1957.
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private
respondent, the latter moved for writ of execution to enforce the said judgment.
The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales
tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a
balance owing on the sales taxes in the amount of P4,789,278.85 plus 28% surcharge.
On April 22, 1968, CTA granted the motion, holding that the alleged sales tax liability of Cebu Portland was still
being questioned and therefore could not be set-off against the refund.
In his petition to review the said resolution, the CIR claims that the refund should be charged against the
deficiency of the private respondent on the sales of cement under Sec. 186 of the Tax Code, which is a
manufactured and not a mineral product and therefore not exempt from sales tax. The petitioner also denies
that the sale tax assessments have already prescribed because the prescriptive period should be counted from
the filing of the sales tax returns, which had not yet been done by the private respondent.
Cebu Portland questioned the assessed tax based also on Article 186 of the Tax Code, and on jurisprudence
contending that cement was adjudged a mineral and not a manufactured product; and thusly they were not
liable for their alleged tax deficiency. Thereby, petitioner filed this petition for review.
ISSUE:
Whether or not assessment of taxes can be enforced (set-off against the deficiency sales tax of Cebu Portland)
even if there is a case contesting it.
HELD:
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the
urgency of the need to collect taxes as “the lifeblood of
PAGE 1
the government.” If the payment of taxes could be postponed by simply questioning their validity, the
machinery of the state would grind to a halt and all government functions would be paralyzed. That is the
reason why, save for the exception in RA 1125 , the Tax Code provides that injunction is not available to
restrain collection of tax. Thereby, we hold that the respondent Court of Tax Appeals erred in its order. The Tax
Code provides:
Sec. 291. Injunction not available to restrain collection of tax. — No court shall have authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.
To require the CIR to actually refund to the Cebu Portland the amount of the judgment debt, which he will later
have the right to distrain for payment of its sales tax liability is in our view an Idle ritual.
PAGE 2
Commissioner of Internal Revenue v. Algue Inc., and CTA
[G.R. No. L-28896. February 17, 1988]
Digest by: ALVIAR, Joyce B
PONENTE: Cruz, J.
FACTS:
Algue, Inc., is a domestic corporation engaged in engineering, construction and other allied activities. Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land,
factories and oil manufacturing process. A sale transpired for which Algue received as agent a commission of
P126,000.00, and from this commission a P75,000 promotional fees were paid to certain individuals (Guevara,
et. al. organizers of the VOICP). The payees duly reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon, there was no distribution if dividends involved. In 1965,
Algue received an assessment from the Commissioner of Internal Revenue in the amount of P83,183.85 as
delinquency income tax for years 1958 and 1959. Algue filed a protest or request for reconsideration which
was not acted upon by the Bureau of Internal Revenue. The counsel of Algue had to accept the warrant of
distraint and levy. Algue filed a petition for review with the Court of Tax Appeals. it claimed the 75,000
promotional fees are to be deductible from their tax which the CIR disallowed.
ISSUE:
Whether or not the Collector of Internal Revenue acted correctly in disallowing the P75,000 deduction claimed
by Algue as a legitimate business expenses in its income tax returns.
HELD:
CIR is incorrect. The burden is on the taxpayer to prove the validity of the claimed deduction. In the present
case however, we find that the onus has been discharged satisfactorily by Algue. Algue has proves that the
payment of fees was necessary and reasonable in light of the effort of the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos.
This was no mean feat and should be, as it was, to be sufficiently recompensed. Taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. On the other hand, such collection
should be made in accordance with the law, and any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparent conflicting interest of the authorities and the taxpayers
so that the real purpose of taxation, which is the promotion of the common good may be realized. It is said that
taxes are what we pay for a civilized society.
Without taxes, the government would be paralyzed for lack of the motive 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
PAGE 3
running of the government. The government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values.
This “symbiotic” relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. Otherwise, the
taxpayer has a right to complain and the courts will then come to his succor. For all the power vested in the tax
collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has been in this case, that
the law has not been observed.
PAGE 4
C. N. Hodges v The Municipal Board Of The City Of Iloilo, et
al.
[G.R. No. L-29059. December 15, 1987]
Digest by: ALVIAR, Joyce B
PONENTE: Bautista Angelo, J.
FACTS:
In 1960, the Municipal Board of Iloilo City enacted Ordinance No. 33, pursuant to the provisions of Republic Act
No. 2264, known as the Local Autonomy Act requiring the payment of sales tax of ½ of 1% of the selling price
of any motor vehicle and prohibiting the registration of the sale involving said vehicle in the Motor Vehicles
Office of the City of Iloilo unless the tax has been paid. It also expressly required that the payment of the
municipal tax shall be a requirement for registration and transfer of ownership. C.N. Hodges (Hodges), engaged
in buying and selling of second hand motor vehicles in the city, filed a petition for declaratory judgment with
the Court of First Instance of Iloilo assailing the ordinance as invalid for being passed in excess of the authority
conferred by law upon the Municipal Board.
The CFI rendered a decision which upheld that portion in the Ordinance, imposing of sales tax of ½ of 1% of the
selling price, but considered invalid that portion prohibiting registration of the sale/transfer unless such tax
has not been paid.
ISSUE:
1. Whether or not the City of Iloilo is empowered to impose the tax.
2. Whether or not the condition prohibiting the registration of motor vehicles unless the tax impost has been
paid is invalid.
HELD:
1. Section 2 of Republic Act No. 2264, known as the Local Autonomy Act pursuant to which the ordinance in
question was approved by the Municipal Board of the City of Iloilo, provides in part:
SEC. 2. Taxation.— Any provision of law to the contrary notwithstanding, all chartered cities, municipalities
and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in
any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by
requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal
council of the municipality, or the municipal district council of the municipal district; to collect fees and charges
for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for
services rendered in connection with any business, profession or occupation being conducted within the city,
municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or
fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales
or other taxes in any form based thereon nor impose
PAGE 5
taxes on articles subject to specific tax, except gasoline, under the provisions of the national internal revenue
code: ............
Hence, The City of Iloilo is empowered (a) to impose Municipal licenses, taxes or fees upon any person engaged
in any occupation or business, or exercising any privilege in the City; (b) to regulate and impose reasonable
fees for services rendered or conducted within the City, and (c) to levy for public purposes just and uniform
taxes, licenses, or fees. It would also appear that municipalities and municipal districts are prohibited from
imposing any percentage tax on sales or other taxes in any form on articles subject to specific tax, except
gasoline, under the provisions of the National Internal Revenue Code. The tax in question is in the form of
percentage tax on the proceeds of the sale of a motor vehicle. The prohibition against such tax as mentiones,
refer only to municipalities and municipal districts and does not comprehend chartered cities like the City of
Iloilo.
2. CFI undoubtedly had in mind the provisions of Section 2(h) of Republic Act No. 2264 which prohibits a
chartered city from imposing a tax on the registration of motor vehicles and the issuance of all kinds of licenses
or permits for the driving thereof, which is one of the exceptions constituting a restriction on the taxation
power granted by said Act to a city, municipality or municipal district. But the requirement of the ordinance
cannot be considered a tax, for the same is merely a coercive measure to make the enforcement of the
contemplated sales tax more effective. Well-settled is the principle that taxes are imposed for the support of
the government in return for the general advantage and protection which the government affords to taxpayers
and their. Taxes are the lifeblood of the government. It is imperative that the power to impose them to be
clothed with the implied authority to devise ways and means to accomplish their collection in the most
effective manner. Without this implied power the end of government may falter or fail.
PAGE 6
Part I: General Principles
Classification and Distinctions
Association of Customs Brokers Inc. and G. Manlapit v The Municipal
Board, The City Trasurer, The City Assessor and
the City Mayor of the City of Manila
[G.R. No. L-28896. February 17, 1988]
Digest by: ALVIAR, Joyce B
PONENTE: Bautista Angelo, J.
FACTS:
The Municipal Board of Manila passed ordinance No. 3379 which imposes a property tax that is within the
power of the City under its revised charter. The ordinance was passed by the Municipal Board under the
authority conferred by section 18 of RA 409, which confers upon the municipal board the power “to tax motor
and other vehicles operating within the City of Manila the provisions of any existing law to the contrary
notwithstanding. “The plaintiff, an association composed of all brokers and public service operators of Motor
Vehicles in the City of Manila filed this petition for declaratory relief challenging the validity of the ordinance
on the following grounds; that while it levies a so-called property tax, it is in reality a license fee which is
beyond the power of the board to impose; that the said ordinance goes against the rule on uniformity of
taxation; and, that the said imposition constitutes double taxation.
ISSUE:
1. What is the Character of an ad valorem tax?
2. Whether or not the ordinance infringes on the uniformity of taxes as ordained by the Constitution.
HELD:
1. As a rule an ad valorem tax is a property tax, and supported by some authorities, however it should not be
taken in its absolute sense, if the nature and purpose of the tax as gathered from the context show that it is in
effect an excise or a license tax. Thus, it has been held that “If a tax is in its nature an excise, it does not become
a property tax because it is proportioned in amount to the value of the property used in connection with the
occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by
property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an
act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise.”
The character of the tax as a property tax or a license or occupation tax must be determined by its incidents,
and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by
which it is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so
regarded, even though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax
is levied upon persons on account of their business, it will be construed as a license or occupation tax, even
though it is graduated according to the property used in such business, or on the gross receipts of the business.
PAGE 7
2. YES, The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. The Motor
Vehicle Law (Section 70[b]) provides that no fees may be exacted or demanded for the operation of any motor
vehicle other than those therein provided , the only exception being that which refers to property tax which
may be imposed by municipal corporations. While the ordinance refers to property tax and it is fixed ad
valorem, it is merely levied on motor vehicles operating within the city of Manila with the main purpose of
raising funds to be expanded exclusively for the repair, maintenance and improvement of streets and bridges in
said city. Because of this, the ordinance in question merely imposes a license fee although under the cloak of
being an ad valorem tax to circumvent the prohibition provided by the Motor Vehicle Law.
Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. The
distinction is important if we note that the ordinance intends to burden with the tax only those registered in
the City of Manila as may be inferred from the word “operating” used. The word “operating” is akin to a
registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of
the registration fees. There is no pretense that the ordinance equally applies to motor vehicles who come to
Manila for a temporary purposes, and it cannot be denied that they contribute in no small degree to the
deterioration of the streets and public highway. The fact that they are benefited by their use they should also
be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find in
the ordinance, and which renders it offensive to the Constitution.
PAGE 8
Esso Standard Eastern, Inc. (formerly, Standard-Vacuum Oil
Company) v The Commissioner of Internal Revenue
[G.R. No. L-29059. December 15, 1987]
Digest by: ALVIAR, Joyce B.
PONENTE: : Cruz, J.
FACTS:
The CTA denied ESSO’s claims for refund of overpaid income taxes of P102,246.00 for 1959 and
P434,234.93for 1960 in CTA Cases No. 1251 and 1558 respectively. In CTA Case No.1251, ESSO deducted from
its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for
drilling and exploration of its petroleum concessions. This claim was disallowed by the respondent
Commissioner of Internal Revenue on the ground that the expenses should be capitalized and might be written
off as a loss only when a “dry hole” should result. ESSO then filed an amended return where it asked for the
refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells and claimed as
ordinary and necessary expenses the margin fees paid to the Central Bank on profit remittances to its New
York head office. In another CTA Case, the CIR assessed ESSO a deficiency income tax for the year 1960 arising
from the disallowance of the margin fees paid by ESSO to the Central Bank on its profit remittances to its New
York head office. ESSO settled the same by applying as tax credit its overpayment on its income tax in 1959 and
paying under protest the remaining amount. The CIR denied the claims for refund of the overpayment of its
1959 and 1960 income taxes, holding that the margin fees paid to the Central Bank could not be considered
taxes or allowed as deductible business expenses. ESSO appealed to the CTA and sought the refund, contending
that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary
business expense, which was also denied.
ISSUE:
Whether or not the margin fees were deductible from gross income as a tax or an ordinary and necessary
business expense.
HELD:
The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. In
citing two previous cases the Court held that a margin fee is not a tax but an exaction designed to curb the
excessive demands upon our international reserve. In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, the
Court stated: “A margin levy on foreign exchange is a form of exchange control or restriction designed to
discourage imports and encourage exports, and ultimately, ‘curtail any excessive demand upon the
international reserve’ in order to stabilize the currency. By its nature, the margin levy is part of the rate of
exchange as fixed by the government.“ Moreover, it has been settled that a tax is levied to provide revenue for
government operations, while the proceeds of the margin fee are applied to strengthen our country’s
international reserves. In Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank,
The same idea was expressed, though in connection with a different levy: we do not
PAGE 9
find merit in the argument that the 20% retention of exporter’s foreign exchange constitutes an export tax. A
tax is a levy for the purpose of providing revenue for government operations, while the proceeds of the 20%
retention, are applied to strengthen the Central Bank’s international reserve. The margin fees are not ordinary
and necessary business expenses. Esso contends that such remittance was an expenditure necessary and
proper for the conduct of its corporate affairs. The Court citing a case, laid down the rules on the deductibility
of business expenses, thus: “ the law allowing expenses as deduction from gross income for purposes of the
income tax is Section 30(a) of the National Internal Revenue which allows a deduction of ‘all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business.’ An item of
expenditure, in order to be deductible under this section of the statute, must fall squarely within its language.
We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as a business
expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be
paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business.
In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or
records the deductions claimed under the law, otherwise, the same will be disallowed.
Ordinarily, an expense will be considered ‘necessary’ where the expenditure is appropriate and helpful in the
development of the taxpayer’s business. It is ‘ordinary’ when it connotes a payment which is normal in relation
to the business of the taxpayer and the surrounding circumstances. Assuming that the expenditure is ordinary
and necessary in the operation of the taxpayer’s business, the answer to the question as to whether the
expenditure is an allowable deduction as a business expense must be determined from the nature of the
expenditure itself, depends on the extent and permanency of the work accomplished by the expenditure.
The Court held that CTA was correct in saying that the margin fees are not expenses in connection with the
production or earning of petitioner’s incomes in the Philippines.‘ Since the margin fees in question were
incurred for the remittance of funds to petitioner’s Head Office in New York, a separate and distinct income
taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the
margin fees were appropriate and helpful in the development of petitioner’s business in the Philippines
exclusively or were incurred for purposes proper to the conduct of the affairs of petitioner’s branch in the
Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines
exclusively.“ ESSO has not shown that the remittance to the head office of part of its profits was made in
furtherance of its own trade or business.
It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this
as an ordinary and necessary expense paid or incurred in carrying on its own trade or business.
PAGE
10
Progressive Development Corp. v. Quezon City
[G.R. No. L-36081. April 24, 1989]
Digest by: ARBAS, Andrei Christopher G. PONENTE: Feliciano, J.
FACTS:
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969,
otherwise known as the Market Code of Quezon City, which provided that privately owned and operated public
markets shall submit monthly to the Treasurer’s Office, a certified list of stallholders showing the amount of stall fees
or rentals paid daily by each stallholder and shall pay 10% of the gross receipts from stall rentals to the City as
supervision fee. Failure to submit said list and to pay the corresponding amount within the period prescribed shall
subject the operator to the penalties provided in this Code including revocation of permit to operate. The Market Code
was thereafter amended by Ordinance No. 9236 on 23 March 1972, which imposed a five percent (5 %) tax on gross
receipts on rentals or lease of space in privately-owned public markets in Quezon City.
On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public market known as
the “Farmers Market & Shopping Center” filed a Petition for Prohibition with Preliminary Injunction against
respondent before the then Court of First Instance of Rizal on the ground that the supervision fee or license tax
imposed by the above-mentioned ordinances is in reality a tax on income which respondent may not impose, the same
being expressly prohibited by Republic Act No. 2264, as amended.
In its Answer, respondent contended that it had authority to enact the questioned ordinances, maintaining that the tax
on gross receipts imposed therein is not a tax on income but one imposed for the enjoyment of the privilege to engage
in a particular trade or business which was within the power of respondent to impose.
On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax on
income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose
and collect.
Having failed to obtain reconsideration of said decision, petitioner came to us on the present Petition for Review.
ISSUE:
Whether or not the tax imposed by respondent on gross receipts of stall rentals is properly characterized as
partaking of the nature of an income tax.
HELD:
NO. The tax imposed by respondent is a license fee. The term “tax” frequently applies to all kinds of exactions of
monies which become public funds. It is often loosely used to include levies for revenue as well as levies for
regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept
distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of
regulation, while
PAGE
11
the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the generating
of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation
is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax.
To be considered a license fee, the imposition questioned must relate to an occupation or activity that so
engages the public interest in health, morals, safety and development as to require regulation for the
protection and promotion of such public interest; the imposition must also bear a reasonable relation to the
probable expenses of regulation, taking into account not only the costs of direct regulation but also its
incidental consequences as well. Accordingly, a charge of a fixed sum which bears no relation at all to the cost
of inspection and regulation may be held to be a tax rather than an exercise of the police power.
The “Farmers’ Market and Shopping Center” being a public market in the’ sense of a market open to and
inviting the patronage of the general public, even though privately owned, petitioner’s operation thereof
required a license issued by the respondent City, the issuance of which, applying the standards set forth above,
was done principally in the exercise of the respondent’s police power. The operation of a privately owned
market is as equivalent to or quite the same as the operation of a government-owned market; both are
established for the rendition of service to the general public, which warrants close supervision and control by
the respondent City for the protection of the health of the public.
The Supreme Court held that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on
income, not a city income tax (as distinguished from the national income tax imposed by the National Internal
Revenue Code) within the meaning of Section 2
(g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the
petitioner is engaged.
PAGE
12
Philippine Airlines, Inc. v. Edu
[G.R. No. L-41383. August 15, 1988]
Digest by: ARBAS, Andrei Christopher G. PONENTE: Gutierrez, Jr., J.
FACTS:
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and
engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its franchise, PAL
is exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice (Op. No. 307,
series of 1956) PAL has, since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax
exempt entities, among them PAL to pay motor vehicle registration fees. LTO refused to register the PAL’s
motor vehicles unless the amounts imposed under Republic Act 4136 were paid. Under protest, PAL paid the
registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter to
respondent LTO Commissioner Edu demanding a refund of the amounts paid invoking that motor vehicle
registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative
franchise.
Respondent denied the request for refund on the ground that motor vehicle registration fees are regulatory
exceptional and not revenue measures and therefore, do not come within the exemption granted to PAL under
its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and
National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal.
Respondents filed a motion to dismiss alleging that the complaint states no cause of action because registration
fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the police
power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except two
per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as
motor vehicle registration fees.
The trial court rendered a decision dismissing the PAL’s complaint. From this judgment, PAL appealed to the
Court of Appeals which certified the case to us.
ISSUE:
Whether or not motor vehicle registration fees partakes nature a kind of tax.
HELD:
YES. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then
the exaction is properly called a tax. Such is the case of motor vehicle registration fees.
It is quite apparent that vehicle registration fees were originally simple exceptional
PAGE
13
intended only for rigidly purposes in the exercise of the State’s police powers. Over the years, however, as
vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem
life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising
much needed revenues. Without changing the earlier deputy. of registration payments as “fees,” their nature
has become that of “taxes.”
In view of the foregoing, the Supreme Court ruled that motor vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues of
government even if one fifth or less of the amount collected is set aside for the operating expenses of the
agency administering the program.
PAGE
14
Villegas vs. Hiu Chiong Tsai Pao Ho
[G.R. No. 29646. November 10, 1978]
Digest by: ARBAS, Andrei Christopher G. PONENTE: Fernandez, J.
FACTS:
Ordinance No. 6537 was passed by the Municipal Board of Manila and signed by the herein petitioner Mayor
Antonio J. Villegas of Manila on March 27, 1968. The ordinance 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.
Violations of the 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.
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, praying for the issuance of the writ of preliminary injunction and
restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said
Ordinance No. 6537 null and void on the ground that it is discriminatory and violative of the rule of the
uniformity in taxation.
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.
ISSUE:
Whether or not the required employment permit is a form of tax.
HELD:
YES. 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.
PAGE
15
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.
PAGE
16
Compania General de Tabacos de Filipinas v. City of Manila
[G.R. No. 16619. June 29, 1963]
Digest by: ARBAS, Andrei Christopher G. PONENTE: Dizon J.
FACTS:
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license fees
prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of
general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.
In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of
1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is
not denied that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the
action represents the tax corresponding to the liquor sales aforesaid.
Tabacalera filed an action for refund based on the theory that, in connection with its liquor sales, it should pay
the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances
Nos. 3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it under
the three ordinances mentioned heretofore is an overpayment made by mistake, and therefore refundable.
The City, on the other hand, contends that, for the permit issued to it granting proper authority to “conduct or
engage in the sale of alcoholic beverages, or liquors” Tabacalera is subject to pay the license fees prescribed by
Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816. The City of
Manila contended that Tabaclera is not entitled to a refund.
ISSUE:
Whether or not both a license fee and a tax may be imposed on the same business or occupation.
HELD:
YES. The term “tax” applies, generally speaking, to all kinds of exactions which become public funds. The term
is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees
are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under
the taxing power for the purpose of raising revenues
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the
business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila
pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether
imported or locally manufactured.
PAGE
17
The license fees imposed by it are essentially for purposes of regulation, and are justified, considering that the
sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to
supervision or regulation by the state and by cities and municipalities authorized to act in the premises.
On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general
merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by
virtue of its power to tax dealers for the sale of such merchandise.
Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article,
this not being in violation of the rule against double taxation.
PAGE
18
American Mail Lines v. City of Basilan
[G.R. No. 12647. May 31, 1961]
Digest by: ARBAS, Andrei Christopher G. PONENTE: Dizon J.
FACTS:
On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180, Series of 1955, stating that
“any foreign vessel engaged in coastwise trade which may anchor at any open bay, channel, or any loading
point within the territorial waters of the City of Basilan for the purpose of loading or unloading logs or
passengers and other cargoes shall pay an anchorage fee of P.005 per registered gross ton of the vessel for the
first 24 hours provided that maximum charge shall not exceed P75.00 per day.”
As the city treasurer assessed and attempted to collect anchorage fees prescribed in the aforesaid amendatory
ordinance, the company filed the present action for Declaratory Relief to have the courts determine its validity.
Respondents argued that the ordinance in question was validly enacted in the exercise of the city’s police
power and that the fees imposed therein are for purely regulatory purposes.
ISSUE:
Whether or not the anchorage fees were for regulatory purposes.
HELD:
NO. The fees required are extended for revenue purposes.
It has been held that the power to regulate as an exercise of police power does not include the power to impose
fees for revenue purposes. Fees for purely regulatory purposes may only be of sufficient amount to include the
expenses of issuing the license and the cost of the necessary inspection or police surveillance, taking into
account not only the expense of direct regulation but also incidental expenses.
The fees have no proper or reasonable relation to the cost of issuing the permits and the cost of inspection or
surveillance. The fee imposed on foreign vessels, 1/2 centavo per registered gross ton for the first 24 hours and
which shall not exceed P75.00 per day, exceeds even the harbor fee imposed by the National Government,
which is only P50.00 for foreign vessels. Respondent’s contention that the questioned ordinance was enacted
in the exercise of its power of taxation makes it obvious that the fees imposed are not merely regulatory.
PAGE
19
Osmeña v. Orbos
[G.R. No. 99886. March 31, 1993]
Digest by: AUMENTADO, Adrian F. PONENTE: Narvasa J.
FACTS:
On October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General
Fund, designated as the Oil Price Stabilization Fund (OPSF). It was designed to reimburse oil companies for
cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and
from increases in the world market prices of crude oil.
Later, the OPSF was reclassified into a “trust liability account,” by virtue of Executive Order (E.O.) 1024, and
ordered released from the National Treasury to the Ministry of Energy. President Corazon C. Aquino, amending
PD 1956, promulgated Executive Order No. 137, expanding the grounds for reimbursement to oil companies
for possible cost under recovery incurred due to the reduction of domestic prices of petroleum products, the
amount of the under recovery being left for determination by the Ministry of Finance.
Petitioner argues, among others, that “the monies collected pursuant to P.D. 1956, as amended, must be treated
as a ‘SPECIAL FUND,’ not as a ‘trust account’ or a ‘trust fund,’ and that “if a special tax is collected for a specific
purpose, the revenue generated therefrom shall ‘be treated as a special fund’ to be used only for the purpose
indicated, and not channeled to another government objective.” Further, that since “a ‘special fund’ consists of
monies collected through the taxing power of a State, such amounts belong to the State, although the use
thereof is limited to the special purpose/objective for which it was created.”
The petitioner does not suggest that a “trust account” is illegal per se, but maintains that the monies collected,
which form part of the OPSF, should be maintained in a special account of the general fund for the reason that
the Constitution so provides, and because they are, supposedly, taxes levied for a special purpose. He assumes
that the Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad
valorem taxes and the increases thereon.
ISSUE:
What is the nature and character of the OPSF?
HELD:
While the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the
State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is
segregated from the general fund; and while it is placed in what the law refers to as a “trust liability account,”
the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these
measures comply with the constitutional description of a “special fund.” Indeed, the practice is not without
precedent.
PAGE
20
Also of relevance is this Court’s ruling in relation to the sugar stabilization fund the nature of which is not far
different from the OPSF. In Gaston v. Republic Planters Bank, this Court upheld the legality of the sugar
stabilization fees and explained their nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for
the promotion of the sugar industry (Lutz
v. Araneta, 98 Phil. 148) ......... The tax collected is not in a pure exercise of the
taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a
special purpose — that of “financing the growth and development of the sugar industry and all its components,
stabilization of the domestic market including the foreign market.” The fact that the State has taken possession
of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special
purpose. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, “administered in trust” for the purpose intended. Once the purpose has been
fulfilled or abandoned, the balance if any, is to be transferred to the general funds of the Government. That is
the essence of the trust intended.
The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the funds are
deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid
out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec.
29 (3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).
PAGE
21
Republic v. Bacolod-Murcia Milling Co., Inc., et al
[G.R. No. L-19824. July 9, 1966]
Digest by: AUMENTADO, Adrian F. PONENTE: Regala J.
FACTS:
The three sugar centrals are sister companies under single ownership and management. They were required to
pay 10 centavos per picul of sugar collected for 5 crop years under Sec.
15 of RA 632.
The sugar tax was levied to create Philsugin (Philippine Sugar Institute), to conduct research and development
for sugar and sugar by-products for the benefit, development and improvement of the sugar industry. Philsugin
acquired the Insular Sugar Refinery and lost a lot of money
Appellants stopped paying the levy because they said that the purchase was unauthorized by RA 632. They
maintained that their obligation to contribute or pay to the said Fund subsists only to the limit and extent that
they are benefited by such contributions since Republic Act 632 is not a revenue measure but an Act which
establishes a “Special assessments.” As such, the proceeds thereof may be devoted only to the specific purpose
for which the assessment was authorized, a special assessment being a levy upon property predicated on the
doctrine that the property against which it is levied derives some special benefit from the improvement. It is
not a tax measure intended to raise revenues for the Government. Consequently, once it has been determined
that no benefit accrues or inures to the property owners paying the assessment, or that the proceeds from the
said assessment are being misapplied to the prejudice of those against whom it has been levied, then the
authority to insist on the payment of the said assessment ceases.
ISSUE:
Whether or not the appellants may refuse to continue paying the assessment under Republic Act 632?
HELD:
No. The nature of a “special assessment” similar to the case at bar has already been discussed and explained by
this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise
known as the Sugar Adjustment Act, levies on owners or persons in control of lands devoted to the cultivation
of sugar cane and ceded to others for a consideration, on lease or otherwise
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was
unconstitutional because it was being “levied for the aid and support of the sugar industry exclusively,” and
therefore, not for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said:
PAGE
22
The basic defect in the plaintiff’s position in his assumption that the tax provided for in Commonwealth Act No.
567 is a pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the 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 an exercise of the police power.
We hold that the special assessment at bar may be considered as similarly as the above, that is, that the levy for
the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special
assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore,
an exercise of a sovereign power which no private citizen may lawfully resist.
PAGE
23
Victorias Milling Co., Inc. v. Municipality of Victorias
[G.R. No. L-21183. September 27, 1968]
Digest by: AUMENTADO, Adrian F. PONENTE: Sanchez J.
FACTS:
This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias,
Negros Occidental. The disputed ordinance imposed license taxes on operators of sugar centrals and sugar
refineries.
Such changes were: with respect to sugar centrals, by increasing the rates of municipal license taxes; and as to
sugar refineries, by increasing the rates of municipal license taxes as well as the range of graduated schedule of
annual output capacity. The production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its
sugar refinery located in the Municipality of Victorias comes within these items. Plaintiff filed suit below to ask
for judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff contends that the ordinance
is discriminatory since it singles out plaintiff, which is the only operator of a sugar central and a sugar refinery
within the jurisdiction of defendant municipality. The trial court rendered its judgment declaring that the
ordinance in question refers to license taxes or fees. Both plaintiff and defendant directly appealed to the
Supreme Court.
ISSUE:
Was Ordinance No. 1, series of 1956, passed as a regulatory enactment or as a revenue measure?
HELD:
A municipality is authorized to impose three kinds of licenses: (1) license for regulation of useful occupations
or enterprises; (2) license for restriction or regulation of non-useful occupations or enterprises; and (3) license
for revenue. 12 The first two easily fall within the broad police power granted under the general welfare clause.
13 The third class, however, is for revenue purposes. It is not a license fee, properly speaking, and yet it is
generally so termed. It rests on the taxing power. That taxing power must be expressly conferred by statute
upon the municipality.
Because of the purpose of solving the financial difficulty of the low rates imposed by the municipality which
deprives the barrios, sitios and rural areas of the essential and necessary services and facilities, the present
imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum
annual tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will
readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which
would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation.
We should not hang so heavy a meaning on the use of the term “municipal license tax”. This does not
necessarily connote the idea that the tax is imposed — as the lower court would
PAGE
24
want
it —
to
mea
na
reve
nue
meas
ure
in
the
guise
of a
licen
se
tax.
For
reall
y,
this
runs
coun
ter
to
the
decla
red
purp
ose
to
mak
e
mon
ey.
Besi
des,
the
term
“lice
nse
tax”
has
not
acqu
ired
a
fixed
mea
ning.
It is
often
“use
d
indis
crimi
natel
y to
desig
nate
impo
sitio
ns
exact
ed
for
the
exerc
ise of
vario
us
privil
eges.
” It
does
not
refer
solel
y to a
licens
e for
regul
ation.
In
many
insta
nces,
it
refer
s to
“reve
nueraisin
g
exact
ions
on
privil
eges
or
activi
ties.”
On
the
other
hand,
licens
e fees
are
com
monl
y
calle
d
taxes.
But,
legall
y
spea
king,
the
latter
are
“for
the
purp
ose
of
raisin
g
reven
ues,”
in
contr
ast
to
the
form
er
whic
h are
impo
sed
“in
the
exer
cise
of
polic
e
pow
er
for
purp
oses
of
regul
ation
.”
We
acco
rdin
gly
say
that
the
desig
natio
n
give
n by
the
muni
cipal
auth
oriti
es
does
not
deci
de
whet
her
the
impo
sitio
n is
prop
erly
a
licen
se
tax
or a
licen
se
fee.
The
deter
mini
ng
facto
rs are
the
purp
ose
and
effect
of the
impo
sition
as
may
be
appa
rent
from
the
provi
sions
of the
ordin
ance.
Thus,
“whe
n no
polic
e
inspe
ction,
super
visio
n, or
regul
ation
is
provi
ded,
nor
any
stand
ard
set
for
the
appli
cant
to
estab
lish,
or
that
he
agree
s to
attai
n or
main
tain,
but
any
and
all
perso
ns
enga
ged
in
the
busi
ness
desig
nate
d,
with
out
quali
ficati
on or
hind
ranc
e,
may
com
e,
and
a
licen
se on
pay
ment
of
the
stipu
lated
sum
will
issue
, to
do
busi
ness,
subje
ct to
no
pres
cribe
d
rule
of
cond
uct
and
unde
r no
guar
dian
eye,
but
accor
ding
to the
unres
train
ed
judg
ment
or
fancy
of the
appli
cant
and
licens
ee,
the
presu
mpti
on is
stron
g that
the
powe
r of
taxati
on,
and
not
the
polic
e
powe
r, is
being
exerc
ised.”
PAGE
25
Lutz v. Araneta
[G.R. No. L-7859. December 22, 1955]
Digest by: AUMENTADO, Adrian F. PONENTE: Reyes J.
FACTS:
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948- 1949 and 1949-1950; alleging 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.
ISSUE:
Whether or not the imposition of the taxes are valid?
HELD:
Yes. The basic defect in the plaintiff’s position is his assumption that the tax provided for in Commonwealth Act
No. 567 is a pure exercise of the taxing power. The tax is levied with regulatory purpose; such is to provide
means for the rehabilitation and stabilization of the sugar industry. The act is primarily an exercise of police
power, and not a pure exercise of taxing power. As sugar production is one of the great industries of the
Philippines, and that its’ promotion, protection and advancement redounds greatly to the general welfare. The
legislature found that the general welfare demands that the industry should be stabilized, and provided that
the distribution of benefits therefrom be readjusted among its component to enable it to resist the added strain
of the increase in tax that it had to sustain.
PAGE
26
PCGG v. Cojuanco
[G.R. Nos. 147062-64. December 14, 2001]
Digest by: AUMENTADO, Adrian F. PONENTE: Panganiban J.
FACTS:
The PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of
allegedly ill-gotten companies, assets and properties, real or personal. Among the properties sequestered by
the Commission were shares of stock in the United Coconut Planters Bank(UCPB) registered in the names of
the alleged “one million coconut farmers,” the so-called Coconut Industry Investment Fund companies (CIIF
companies) and Private Respondent Eduardo Cojuangco Jr. On January 23, 1995, the trial court rendered its
final Decision nullifying and setting aside the Resolution of the Sandiganbayan which lifted the sequestration of
the subject UCPB shares.
ISSUE:
Are the Coconut Levy Funds raised through the State’s police and taxing powers?
HELD:
Yes. Coconut levy funds partake of the nature of taxes which, in general, are enforced proportional
contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of
government and for all public needs. Based on this definition, a tax has three elements, namely: a) it is an
enforced proportional contribution from persons and properties; b) it is imposed by the State by virtue of its
sovereignty; and c) it is levied for the support of the government. Taxation is done not merely to raise revenues
to support the government, but also to provide means for the rehabilitation and the stabilization of a
threatened industry, which is so affected with public interest as to be within the police power of the State.
Even if the money is allocated for a special purpose and raised by special means, it is still public in character. In
the case before us, the funds were even used to organize and finance State offices.
It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It
is, therefore, the State’s concern to make it a strong and secure source not only of the livelihood of a significant
segment of the population, but also of export earnings the sustained growth of which is one of the imperatives
of economic stability.
The coconut levy funds constitute state funds even though they may be held for a special public purpose. Such
coconut levy funds -- like the sugar levy and the oil stabilization funds, as well as the monies generated by the
On-line Lottery System -- are funds exacted by the State. Being enforced contributions, they are prima facie
public funds.
PAGE
27
Part I: General Principles
Limitations on the Power of Taxation
Pascual v. Secretary of Public Works and Communications
[G.R. No. L-10405. December 29, 1960]
Digest by: AVILA, Alyssa Daphne M. PONENTE: Concepcion, J.
FACTS:
Republic Act No. 920, the act appropriating funds for public works was enacted in 1953 containing an item for
the construction, reconstruction and improvement of Pasig feeder road terminals which were not yet
constructed within Antonio subdivision owned by Sen. Jose Zulueta. Zulueta donated said parcels of land to the
government five months after the enactment of R.A. No. 920 on the condition that if the government violates
such condition, the lands would revert to Zulueta. The provincial governor of Rizal questioned the validity of
the donation and the unconstitutionality of the item in R.A. No. 920, it being for a public purpose.
ISSUE:
Whether or not the appropriation was made for a public purpose.
HELD:
No. The right of the legislature to appropriate funds is correlative with its right to tax, under the constitutional
provision against taxation except for public purposes and prohibiting the collection of a tax for one purpose
and the devotion thereof to another purpose as appropriation for state funds can be made for other than a
public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage not
upon events or acts performed subsequent thereto, unless the latter consist an amendment of the organic law,
removing with retrospective operation the constitutional limitation infringed by said statute. Herein, inasmuch
as the land on which the projected feeder roads were to be constructed belonged to Sen. Zulueta at the time of
R.A. No. 920 was passed by Congress and the disbursement of said fund became effective pursuant to Sec.13 of
the law, the result is that the appropriation sought a private purpose, hence, null and void.
PAGE
28
John Osmeña v. Oscar Orbos
[G.R. No. 99886. March 31, 1993]
Digest by: AVILA, Alyssa Daphne M. PONENTE: Narvasa, C.J.
FACTS:
Presidential Decree No. 1956 created a Special Account in the General Fund, designated as the Oil Price
Stabilization Fund (OPSF) which was designed to reimburse oil companies for cost increases in crude oil and
imported petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil. Subsequently, the OPSF was reclassified into a “trust liability account,” in virtue of
E.O. 1024 and ordered released from the National Treasury to the Ministry of Energy. The same Executive
Order also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund. President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive
Order No. 137 on February 27, 1987, expanding the grounds for reimbursement to oil companies for possible
cost under recovery incurred as a result of the reduction of domestic prices of petroleum products, the amount
of the under recovery being left for determination by the Ministry of Finance.
The petition further avers that the creation of the trust fund violates Section 29(3), Article VI of the
Constitution. The petitioner argues that “the monies collected pursuant to P.D. 1956, as amended, must be
treated as a ‘SPECIAL FUND,’ not as a ‘trust account’ or a ‘trust fund,’ and that “if a special tax is collected for a
specific purpose, the revenue generated therefrom shall ‘be treated as a special fund’ to be used only for the
purpose indicated, and not channeled to another government objective.”10 Petitioner further points out that
since “a ‘special fund’ consists of monies collected through the taxing power of a State, such amounts belong to
the State, although the use thereof is limited to the special purpose/objective for which it was created.”
ISSUE:
Whether or not there was undue delegation of legislative power.
HELD:
The Court finds that the provision conferring the authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by which the authority must be exercised. In addition to the
general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates, Sec.
8(c) of P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the
Fund. What petitioner would wish is the fixing of some definite, quantitative restriction, or “a specific limit on
how much to tax.” The Court is cited to this requirement by the petitioner on the premise that what is involved
here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much
the power of taxation as police power. Although the provision authorizing the ERB to impose additional
amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding
consideration is
PAGE
29
to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by
the police power of the State.
For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself,
that is it must set forth the policy to be executed by the delegate and
(2) it must fix a standard — limits of which are sufficiently determinate or determinable — to which the
delegate must conform.
The standard, as the Court has already stated, may even be implied. In that light, there can be no ground upon
which to sustain the petition, inasmuch as the challenged law sets forth a determinable standard which guides
the exercise of the power granted to the ERB. By the same token, the proper exercise of the delegated power
may be tested with ease. It seems obvious that what the law intended was to permit the additional imposts for
as long as there exists a need to protect the general public and the petroleum industry from the adverse
consequences of pump rate fluctuations.
Where the standards set up for the guidance of an administrative officer and the action taken are in fact
recorded in the orders of such officer, so that Congress, the courts and the public are assured that the orders in
the judgment of such officer conform to the legislative standard, there is no failure in the performance of the
legislative functions.
PAGE
30
Pepsi-Cola Bottling Company v. Municipality of Tanauan
[G.R. No. L-31156. February 27, 1976]
Digest by: AVILA, Alyssa Daphne M. PONENTE: Martin, J.
FACTS:
Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction
before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264.
Otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as
well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and
void. Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and
collects “from soft drinks producers and manufacturers a tai of one sixteenth (1/16) of a centavo for every
bottle of soft drink corked.” For the purpose of computing the taxes due, the person, firm, company or
corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total
number of bottles produced and corked during the month. On the other hand, Municipal Ordinance No. 27,
which was approved on October 28, 1962, levies and collects “on soft drinks produced or manufactured within
the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity.” For the purpose of computing the taxes due, the person, fun company, partnership,
corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the
total number of gallons produced or manufactured during the month. The tax imposed in both Ordinances Nos.
23 and 27 is denominated as “municipal production tax”.
ISSUE:
Whether or not ordinances No. 23 and 27 constitute double taxation.
HELD:
There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory
of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates
the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved
the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental
law, since we have not adopted as part thereof the injunction against double taxation found in the Constitution
of the United States and some states of the Union. Double taxation becomes obnoxious only where the taxpayer
is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose,
but not in a case where one tax is imposed by the State and the other by the city or municipality.
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and
operates as a repeal of the latter, even without words to that effect. Plaintiff-appellant in its brief admitted that
defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts
confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the
PAGE
31
plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The
aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendantsappellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief “that Section 7 of
Ordinance No. 27, series of 1962 clearly repeals Ordinance No.
23 as the provisions of the latter are inconsistent with the provisions of the former.”
PAGE
32
Social Security System v. City of Bacolod and Reynaldo
[G.R. No. L-35726. July 21, 1982]
Digest by: AVILA, Alyssa Daphne M. PONENTE: Escolin, J.
FACTS:
Petitioner is a government agency whose primary function is to develop, establish gradually and perfect a
social security system which shall be equitable to the needs of the Philippines throughout the Philippines. For
its failure to pay realty taxes, respondent city levied upon petitioner‘s lands and building and later declared
such properties forfeited in the city‘s favor. Petitioner argued that being a government-owned and controlled
corporation, it is exempt from payment of real estate taxes. The trial court ruled that properties of petitioner
are not exempt since there is no law which exempts said entity from taxes and it also does not fall under the
provisions of Section 29 of the Charter of the City of Bacolod which exempt from taxation lands and buildings
owned by the government and those used exclusively for religious, charitable, scientific, or educational
purposes and not for profit. The court a quo restricted the scope of the exemption exclusively to those
government agencies, entities and instrumentalities exercising governmental or sovereign functions. It relied
on a previous ruling that a government agency performing ministrant functions is not included in the term
―Government of the Republic of the Philippines || for purposes of exemption from the legal fees provided for in
Rule 130 of the Rules of Court.
ISSUE:
Whether the properties of the Social Security System is exempted from payment of real estate taxes.
HELD:
Yes. There can be no question that a government owned or controlled corporation is subject to payment of the
legal fees provided for in Rule 130 of the Rules of Court. However, the subject of inquiry in the case at bar is not
whether a government corporation exercising ministrant or proprietary function, such as petitioner SSS, is
exempt from the payment of legal fees, but whether the properties in question, which are concededly owned by
the government, are exempt from realty taxes.
Under Section 29 of the Charter of the City of Bacolod, they are so exempt. Said section does not contain any
qualification whatsoever in providing for the exemption from real estate taxes of “lands and buildings owned
by the Commonwealth or Republic of Philippines.” Hence, when the legislature exempted lands and buildings
owned by the government from payment of said taxes, what it intended was a broad and comprehensive
application of such mandate, regardless of whether such property is devoted to governmental or proprietary
purpose.
What is decisive is that the properties possessed by the SSS, albeit devoted to private or proprietary purpose,
are in fact owned by the government of the Philippines. As such they are exempt from realty taxes. It is
axiomatic that when public property is involved, exemption is the rule and taxation, the exception.
PAGE
33
Sea-Land Service, Inc. v. Court of Appeals
[G.R. No. 122605. April 30, 2001]
Digest by: AVILA, Alyssa Daphne M. PONENTE: Pardo, J.
FACTS:
Sea-Land is an American international shipping company licensed by the SEC to do business in the Philippines
entered into a contract with the US Government to transport military household goods and effects of US
military personnel assigned to the Subic Naval Base. From the aforesaid contract, Sea-Land derived an income
for the taxable year 1984 amounting to P58,006,207.54. During the taxable year in question, Sea-Land filed
with the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Return (ITR) and paid the
income tax due thereon of 1.5% as required in Section 25 (a) (2) of the National Internal Revenue Code (NIRC)
in relation to Article 9 of the RP-US Tax Treaty, amounting to P870,093.12. Claiming that it paid the
aforementioned income tax by mistake, a written claim for refund was filed with the BIR on 15 April 1987.
However, before the said claim for refund could be acted upon by the CIR, petitioner-appellant filed a petition
for review with the CTA to judicially pursue its claim for refund and to stop the running of the two-year
prescriptive period under the then Section 243 of the NIRC. CTA denied Sea-Land ‘s claim for refund of the
income tax it paid in 1984. Such decision was then affirmed by the Court of Appeals.
ISSUE:
Whether or not the income that petitioner derived from services in transporting the household goods and
effects of U. S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RPUS Military Bases Agreement.
HELD:
No. The Supreme Court denied the petition of tax for the refund. The RP-US Military Bases Agreement provides:
―No national of the United States, or corporation organized under the laws of the United States, resident in the
United States, shall be liable to pay income tax in the Philippines in respect of any profits derived under a
contract made in the United States with the government of the United States in connection with the
construction, maintenance, operation and defense of the bases, or any tax in the nature of a license in respect of
any service or work for the United States in connection with the construction, maintenance, operation and
defense of the bases.
Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine
Government agreed to exempt from payment of Philippine income tax nationals of the United States, or
corporations organized under the laws of the United States, residents in the United States in respect of any
profit derived under a contract made in the United States with the Government of the United States in
connection with the construction, maintenance, operation and defense of the bases.
It is obvious that the transport or shipment of household goods and effects of U. S.
PAGE
34
milit
ary
pers
onne
l is
not
inclu
ded
in
the
term
―con
struc
tion,
main
tena
nce,
oper
ation
and
defe
nse
of
the
base
s.
Neit
her
coul
d the
perf
orma
nce
of
this
servi
ce to
the
U. S.
gove
rnm
ent
be
inter
prete
d as
direc
tly
relat
ed to
the
defe
nse
and
secu
rity
of
the
Phili
ppin
e
territ
ories
.―
Whe
n the
law
spea
ks in
clear
and
categ
orical
langu
age,
there
is no
reaso
n for
inter
preta
tion
or
const
ructi
on,
but
only
for
appli
catio
n.
Any
inter
preta
tion
that
woul
d
give
it an
expa
nsive
const
ructi
on to
enco
mpas
s
petiti
oner‘
s
exem
ption
from
taxati
on
woul
d be
unwa
rrant
ed.
Laws
grant
ing
exem
ption
from
tax
are
const
rued
strict
issim
i
juris
agai
nst
the
taxp
ayer
and
liber
ally
in
favor
of
the
taxin
g
pow
er.
Taxa
tion
is
the
rule
and
exe
mpti
on is
the
exce
ption
. The
law
―
does
not
look
with
favor
on
tax
exe
mpti
ons
and
that
he
who
woul
d
seek
to be
thus
privi
lege
d
must
justif
y it
by
word
s too
plain
to be
mist
aken
and
too
categ
orical
to be
misin
terpr
eted.
The
avow
ed
purp
ose
of tax
exem
ption
―is
some
publi
c
benef
it or
inter
est,
whic
h the
lawm
aking
body
consi
ders
suffic
ient
to
offset
the
mone
tary
loss
entail
ed in
the
grant
of the
exem
ption.
The
hauli
ng or
trans
port
of
hous
ehold
good
s and
perso
nal
effect
s of
U. S.
milit
ary
perso
nnel
woul
d not
direc
tly
contr
ibute
to
the
defe
nse
and
secur
ity of
the
Phili
ppine
s.
PAGE
35
Commissioner of Internal Revenue v. Mitsubishi Metal
Corporation
[G.R. No. L-54908. January 22, 1990]
Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Regalado, J.
FACTS:
On April 17, 1970, Atlas Consolidated Mining and Development Corporation (Atlas) entered into a Loan and
Sales Contract with Mitsubishi Metal Corporation (Mitsubishi), a Japanese corporation licensed to engage in
business in the Philippines, for projected expansion of the productive capacity of the former’s mines in Toledo,
Cebu. Under the contract, Mitsubishi agreed to extend a loan to Atlas ‘in the amount of $20,000,000.00, United
States currency, for the installation of a new concentrator for copper production. Atlas, in turn undertook to
sell to Mitsubishi all the copper concentrates produced from said machine for a period of fifteen
(15) years.
In order to comply with its obligation, Mitsubishi applied for a loan with the Export-Import Bank of Japan
[Eximbank] which was approved on May 26, 1970 in the sum of¥4,320,000,000.00, at about the same time as
the approval of its loan for ¥2,880,000,000.00 from a consortium of Japanese banks.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the
latter totalling P13,143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in the amount
of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the National Internal
Revenue Code, as amended by Presidential Decree No. 131, and duly remitted to the Government. On March 5,
1976, private respondents filed a claim for tax credit requesting that the sum of P1,971,595.01 be applied
against their existing and future tax liabilities. The petitioner not having acted on the claim for tax credit,
private respondents filed a petition for review with respondent court. While said case was still pending before
the tax court, the corresponding 15% tax on the amount of P439,167.95 on the P2,927,789.06 interest
payments for the years 1977 and 1978 was withheld and remitted to the Government. Atlas again filed a claim
for tax credit with the petitioner, repeating the same basis for exemption. Respondent Court in both cases
ordered petitioner to grant a tax credit in favor of Atlas.
ISSUE:
Whether or not Mitsubishi is a mere conduit of Eximbank which will then be
considered as the creditor whose investments in the Philippines on loans are exempt from taxes under the
code
HELD:
No. The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential
reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the contract of
loan and Atlas as the seller of the copper concentrates. MITSUBISHI secured such loans in its own independent
capacity as a private entity and not
PAGE
36
as a
cond
uit of
the
cons
ortiu
m of
Japa
nese
bank
s or
the
EXIM
BAN
K of
Japa
n.
Whil
e the
loans
were
secu
red
by
MITS
UBIS
HI
prim
arily
“as a
loan
to
and
in
consi
derat
ion
for
impo
rting
copp
er
conc
entra
tes
from
ATL
AS,”
the
fact
rema
ins
that
it
was
a
loan
by
EXIM
BAN
K of
Japa
n to
MITS
UBIS
HI
and
not
to
ATLA
S.
Thus,
the
trans
actio
n
betw
een
MITS
UBIS
HI
and
EXIM
BAN
K of
Japan
was a
distin
ct
and
separ
ate
contr
act
from
that
enter
ed
into
by
MITS
UBIS
HI
and
ATLA
S. It
is too
settle
da
rule
in
this
juris
dictio
n
that
laws
grant
ing
exem
ption
from
tax
are
const
rued
strict
issim
i juris
again
st the
taxpa
yer
and
liber
ally
in
favor
of
the
taxin
g
pow
er.
Taxa
tion
is
the
rule
and
exe
mpti
on is
the
exce
ption
. The
burd
en of
proo
f
rests
upon
the
part
y
clai
ming
exe
mpti
on to
prov
e
that
it is
in
fact
cove
red
by
the
exe
mpti
on so
clai
med,
whic
h
onus
petiti
oners
have
failed
to
disch
arge.
Signif
icantl
y,
priva
te
respo
nden
ts are
not
even
amon
g the
entiti
es
whic
h,
unde
r
Secti
on 29
(b)
(7)
(A) of
the
tax
code,
are
entitl
ed to
exem
ption
and
whic
h
shoul
d
indis
pens
ably
be
the
party
in
inter
est in
this
case.
PAGE
37
Thirty-First Infantry Post Exchange and First Lieutenant David L. Hardee
vs Juan Posadas, Jr., Collector of Internal
Revenue
[G.R. No. 33403. September 4, 1930]
Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Malcolm, J.
FACTS:
Thirty-first Infantry Post Exchange, is a post exchange constituted in accordance with the Army Regulations
and the laws of the United States, with its place of business in the Cuartel de España in the City of Manila, P. I. It
is an agency within the United States Army, under the control of the officers of the Army which is designed for
the accommodation, convenience, and assistance of the personnel of the Army. All of the goods sold to and
purchased by the plaintiff Exchange are intended for resale to and are in fact resold, as they have been in the
past, to the officers, soldiers and the civilian employees of the Army, and their families.
The defendant and his predecessors in that office have collected from the merchants who made the sales of the
commodities, goods, wares, and merchandise to the plaintiff Exchange, taxes at the rate of one and one-half per
centum on the gross value in money of the commodities, goods, wares, and merchandise, sold by them to the
plaintiff Exchange. petitioner to grant a tax credit in favor of Atlas.
ISSUE:
Whether or not a tax may be levied by the Government of the Philippine Islands on sales made by merchants to
Post Exchanges of the United States Army in the Philippines
HELD:
The Court, citing the case of Walter E. Olsen vs Rafferty, ruled that the sale of merchandise through the post
exchanges to the individuals of the United States Army and Navy are not goods sold and delivered directly to
the United States Army or Navy for the actual use or issue by the Army or Navy and are therefore, not exempt
from the payment of the internal revenue tax imposed by the law.
Since no law of the Congress forbids the taxation of merchants who deal with Army Post Exchanges, and since
the Congress has legalized the applicable law, and in doing so has granted no immunity from taxation to
merchants who deal with Army Post Exchanges, the Congress has permitted such transactions with Army Post
Exchanges, on the assumption that Post Exchanges are agencies of the United States, to be taxed by the
Philippine Government. It must be understood, however, that the waiver must be clear, and that every well
grounded doubt should be resolved in favor of the exemption.
PAGE
38
Commissioner of Internal Revenue v. Marubeni Corporation
[G.R. No. 33403. September 4, 1930]
Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Puno, J.
FACTS:
Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan duly
registered to engage in such business in the Philippines and maintains a branch office in Manila. Petitioner
found respondent to have undeclared income from two (2) contracts in the Philippines in 1984. Respondent
then received a letter from petitioner assessing it for several deficiency taxes including surcharges and
interests. Respondent filed two (2) petitions for review with the Court of Tax Appeals, the first questioning the
deficiency income, branch profit remittance and contractor’s tax assessments and the second questioning the
deficiency commercial broker’s assessment.
On August 2, 1986, Executive Order (E.O.) No. 412 declaring a one-time amnesty covering unpaid income taxes
for the years 1981 to 1985 was issued. Taxpayers who wished to avail of said amnesty should file the necessary
documents before October 31, 1986. In accordance with the terms of E.O. No. 41, respondent filed its tax
amnesty return dated October 30, 1986. On November 17, 1986, the scope and coverage of E.O. No. 41 was
expanded by Executive Order (E.O.) No. 64. In addition to the income tax amnesty granted by E.O. No. 41 for the
years 1981 to 1985, E.O. No. 64 included estate and donor’s taxes under Title III and the tax on business under
Chapter II, Title V of the National Internal Revenue Code, also covering the years 1981 to 1985. Under E.O. No.
64, those taxpayers who already filed their amnesty return under E.O. No. 41, as amended, could avail
themselves of the benefits, immunities and privileges under the new E.O. by filing an amended return and
paying an additional 5% on the increase in net worth to cover business, estate and donor’s tax liabilities.
On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64
and paid a further amount of P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase of its net
worth between 1981 and 1986.
On July 29, 1996, the Court of Tax Appeals rendered a decision stating that respondent had properly availed of
the tax amnesty under E.O. Nos. 41 and 64 and declared the deficiency taxes subject of said case as deemed
cancelled and withdrawn.
ISSUE:
Whether or not respondent is covered by the tax amnesties
HELD:
Yes. Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted thereunder, viz:
“Sec. 4. Exceptions. — The following taxpayers may not avail themselves of the
PAGE
39
amnesty herein granted:
a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;
b) Those with income tax cases already filed in Court as of the effectivity hereof;
The point of reference is the date of effectivity of E.O. No. 41. E.O. No. 41 took effect on August 22, 1986. CTA
Case No. 4109 questioning the 1985 deficiency income, branch profit remittance and contractor’s tax
assessments was filed by respondent with the Court of Tax Appeals on September 26, 1986. When E.O. No. 41
became effective on August 22, 1986, CTA Case No. 4109 had not yet been filed in court. Respondent
corporation did not fall under the said exception in Section 4 (b), hence, respondent was not disqualified from
availing of the amnesty for income tax under E.O. No. 41.
The difficulty lies with respect to the contractor’s tax assessment and respondent’s availment of the amnesty
under E.O. No. 64. E.O. No. 64 expanded the coverage of E.O. No.
41 by including estate and donor’s taxes and tax on business. When E.O. No. 64 took effect on November 17,
1986, it did not provide for exceptions to the coverage of the amnesty for business, estate and donor’s taxes. By
virtue of Section 8 of E.O. No. 64, the provisions of E.O. No. 41 not contrary to or inconsistent with the
amendatory act were reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the exceptions to amnesty
coverage also applied to E.O. No. 64. With respect to Section 4 (b) in particular, this provision excepts from tax
amnesty coverage a taxpayer who has “income tax cases already filed in court as of the effectivity hereof.” In
view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to E.O. No. 41 and
its date of effectivity. The general rule is that an amendatory act operates prospectively. While an amendment
is generally construed as becoming a part of the original act as if it had always been contained therein,10 it may
not be given a retroactive effect unless it is so provided expressly or by necessary implication and no vested
right or obligations of contract are thereby impaired.11
E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is 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. It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it
and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax
exemption, is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax
exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. For the
right of taxation is inherent in government. The State cannot strip itself of the most essential power of taxation
by doubtful words. He who claims an exemption (or an amnesty) from the common burden must justify his
claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a
doubt arises as to the intent of the legislature, that doubt must be resolved in favor of the state.
PAGE
40
William Reagan, Etc. v. Commissioner of Internal Revenue
[G.R. No. L-26379. December 27, 1969]
Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Fernando, J.
FACTS:
Petitioner William C. Reagan, at one time a civilian employee of an American corporation providing technical
assistance to the United States Air Force in the Philippines, disputes the payment of the income tax assessed on
him by respondent Commissioner of Internal Revenue on an amount realized by him on a sale of his
automobile to a member of the United States Marine Corps, the transaction having taken place at the Clark
Field Air Base at Pampanga. He contends that in legal contemplation the sale was made outside Philippine
territory and therefore beyond our jurisdictional power to tax.
ISSUE:
Whether or not the sale was in legal contemplation “outside the Philippines” and thus beyond our jurisdiction
to tax
HELD:
No. Nothing is better settled than that the Philippines being independent and sovereign, its authority may be
exercised over its entire domain. There is no portion thereof that is beyond its power. Within its limits, its
decrees are supreme, its commands paramount. Its laws govern therein, and everyone to whom it applies must
submit to its terms. That is the extent of its jurisdiction, both territorial and personal. Necessarily, likewise, it
has to be exclusive. If it were not thus, there is a diminution of its sovereignty.
The contention that Clark Air Force is foreign soil or territory for purposes of income tax legislation is clearly
without support in law. There is nothing in the Military Bases Agreement that lends support to such an
assertion. It has not become foreign soil or territory. This country’s jurisdictional rights therein, certainly not
excluding the power to tax, have been preserved.
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41
Conrado L. Tiu v. Court of Appeals
[G.R. No. 127410. January 20, 1999]
Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Panganiban, J.
FACTS:
On March 13, 1992 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” was passed. Section 12 of said law created the Subic Special Economic Zone
and granted thereto special privileges. 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 and subsequently issued on June 19,
1993 Executive Order No. 97-A (EO 97-A), specifying that “The Secured Area consisting of the presently fencedin former Subic Naval Base shall be the only completely tax and duty- free area in the SSEFPZ [Subic Special
Economic and Free Port Zone].” Petitioners assailed the constitutionality of EO 97-A for allegedly being
violative of their right to equal protection of the laws.
ISSUE:
Whether 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]
HELD:
The constitutional rights to equal protection of the law is not violated by an executive order, issued pursuant to
law, granting tax and duty incentives only to the bussiness and residents within the “secured area” of the Subic
Special Econimic 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.
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.
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42
John Hay Peoples Alternative Coaliton v. Bases Conversion
Development Authority
[G.R. No. 127410. January 20, 1999]
Digest by: BONAVENTE, Arianne
PONENTE: Carpio-Morales
FACTS:
The Bases Conversion and Development Act of 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. R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic SEZ) which
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. It also 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. 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) 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. They executed a Joint Venture Agreement 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.
On July 5, 1994 then President Ramos issued Proclamation No. 420, the title of which was earlier indicated,
which established a SEZ on a portion of Camp John Hay and which reads as follows:
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 Investment Code of 1987, the Foreign Investment Act of 1991, and
new investment laws that may hereinafter be enacted.
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43
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.”
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.
the laws.
ISSUE:
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.
HELD:
No. 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. The deliberations of the Senate
confirm the exclusivity to Subic SEZ of the tax and investment privileges accorded it under the law.
Moreover 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. 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. 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. 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.
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44
Coconut Oil Refiners Association, Inc. vs. Hon Ruben Torres
[G.R. No. 132527. July 29, 2005]
Digest by:BONAVENTE, Arianne PONENTE: Azcuna, J.
FACTS:
On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the sound and
balanced conversion of the Clark and Subic military reservations and their extensions into alternative
productive uses in the form of special economic zones in order to promote the economic and social
development of Central Luzon in particular and the country in general. Among the salient provisions are as
follows:
SECTION 12. Subic Special Economic Zone. —
The abovementioned zone shall be subject to the following policies:
(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 selfsustaining, 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;[4]
(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 Ecoomic 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 Olangapo and the
Municipality of Subic, and other municipalities contiguous to the base areas.
On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others, that
Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under
Republic Act No. 7227.
Pursuant to the directive under Executive Order No. 80, the BCDA passed Board
PAGE
45
Resolution No. 93-05-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods
imported via Clark for consumption outside the CSEZ. On June 10, 1993, the President issued Executive Order
No. 97, “Clarifying the Tax and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A.
No. 7227.” Said issuance in part states, 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.
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.
On June 19, 1993, Executive Order No. 97-A was issued, “Further Clarifying the Tax and Duty-Free Privilege
Within the Subic Special Economic and Free Port Zone.” The relevant provisions read, as follows:
SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured Area of the
Subic Special Economic and Free Port Zone:
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. 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.
1.2. Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and consume any
quantity of consumption items in hotels and restaurants within the Secured Area. However, these residents can
purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not
exceeding US$100 per month per person. Only residents age 15 and over are entitled to this privilege.
1.3. Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of
consumption items in hotels and restaurants within the Secured Area. However, they can purchase and bring
out [of] the Secured Area to other parts of the Philippine territory consumer items worth not exceeding
US$200 per year per person. Only Filipinos age 15 and over are entitled to this privilege.
Petitioners assail the $100 monthly and $200 yearly tax-free shopping
privileges granted by the aforecited provisions respectively to SSEZ residents living outside the Secured Area
of the SSEZ and to Filipinos aged 15 and over residing outside the SSEZ.
PAGE
46
ISSUE:
Whether or not the assailed issuances are unconstitutional, illegal and void for being an exercise of
executivelawmaking, contrary to RA No. 7227 and in violation of the Constitutional provisions, particularly the
equal protectionclause, prohibition of unfair competition and combinations in restraint of trade, and
preferential use of Filipino labor,domestic materials and locally produced goods?
HELD:
On the issue of executive legislation, petitioners contend that the wording of RA No. 7227 clearly limits the
grant of tax incentives to the importation of raw materials, capital and equipment only. Hence, they claim that
the assailed issuances constitute executive legislation for invalidly granting tax incentives in the importation of
consumer goods such as those being sold in the duty-free shops, in violation of the letter and intent of RA No.
7227. The Court held that Section12 of RA No. 7227 clearly does not restrict the duty-free importation only to
‘raw materials, capital and equipment. To limit the tax-free importation privilege of enterprises located inside
the special economic zone only to raw materials, capital and equipment clearly runs counter to the intention of
the Legislature to create a free port where the ‘free flow of goods or capital within, into, and out of the zones’ is
insured. The phrase ‘tax and duty-free importations of raw materials, capital and equipment was merely cited
as an example of incentives that may be given to entities operating within the zone. Moreover, the records of
the Senate containing the discussion of the concept of ‘special economic zone in Section 12 (a)of Republic Act
No. 7227 show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of the zone
and are consumed there are not subject to duties and taxes in accordance with Philippine laws. However, the
second sentences of paragraphs 1.2 and 1.3 of EO No. 97-A, allowing tax and duty-free removal of goods to
certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being
contrary to Section12 of RA No. 7227. Said Section clearly provides that 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. On
the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive legislation is
tenable. While Section 12 of RA No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to
make any similar grant in favor of other economic zones, including the CSEZ. Tax and duty- free incentives
being in the nature of tax exemptions, the basis thereof should be categorically and unmistakably expressed
from the language of the statute. Consequently, in the absence of any express grant of tax and duty-free
privileges to the CSEZ in RA No. 7227, there would be no legal basis to uphold the questioned portions of two
issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034, which
both pertain to the CSEZ. On the issue on equal protection, it is an established principle of constitutional law
that the guaranty of the equal protection of the laws is not violated by a legislation based on a reasonable
classification. Classification, to be valid, must (1) rest on substantial distinction,
(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. In this case, the Court found that there’s real and substantial distinction between
residents within the secured area and those living within the economic zone but outside the fenced-off area. A
significant distinction between the two
PAGE
47
groups is that enterprises outside the zones maintain their businesses within Philippine customs territory,
while private respondents and the other duly-registered zone enterprises operate within the so-called
‘separate customs territory. The classification is also germane to the purpose of RA No. 7227 because its
purpose 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 the
establishments within the zone to attract and encourage foreign and local investors. The classification,
moreover, is not limited to the existing conditions when the law was promulgated, but to future conditions as
well, inasmuch as the law envisioned the former military reservation to ultimately develop into a selfsustaining investment center. And, lastly, the classification applies equally to all retailers found within the
‘secured area. On the issue of unfair competition the Court held that the mere fact that incentives and privileges
are granted to certain enterprises to the exclusion of others does not render the issuance unconstitutional for
espousing unfair competition. Said constitutional prohibition cannot hinder the Legislature from using tax
incentives as a tool to pursue RA No. 7227 policies of developing the SSEZ into a self-sustaining entity that will
generate employment and attract foreign and local investment. Lastly, on the issue of preferential use of
Filipino labor, materials and goods, the Court held that this Constitutional provision did not intend to pursue an
isolationist policy. It did not shut out foreign investments, goods and services in the development of the
Philippine economy. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on
foreign competition that is unfair Furthermore, Executive Department, with its subsequent issuance of
Executive Order Nos. 444 and 303, has already provided certain measures to prevent that unfair competition.
The petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section
4 of BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and are accordingly declared
of no legal force and effect. All portions of Executive Order No. 97-A are valid and effective, except the second
sentences in paragraphs 1.2 and 1.3of said Executive Order, which are hereby declared INVALID.
PAGE
48
The Province Of Abra vs. Honorable Harold M. Hernando
[G.R. No. L-49336. August 31, 1981]
Digest by: BONAVENTE, Arianne
PONENTE: Fernando, J.:
FACTS:
The Province of Abra sought to tax the properties of the Roman Catholic Bishop, Inc. of Bangued. Judge
Hernando dismissed the petition of Abra without hearing its side. Hernando ruled 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.” 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.” “The proper remedy of the petitioner is appeal and not this special civil action.
ISSUE:
Whether or not the properties of the church (in this case) is exempt from taxes.
HELD:
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.” 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. According
to Commissioner of Internal Revenue v. Guerrero: “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.” In Manila Electric Company v. Vera, a 1975 decision, such
principle was reiterated, reference being made to Republic Flour Mills, Inc. v. Commissioner of Internal
Revenue; Commissioner of Customs v. Philippine Acetylene Co. & CTA; and Davao Light and Power Co., Inc. v.
Commissioner of Customs.
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
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49
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. 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.
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.
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50
Arturo M. Tolentino vs.The Secretary of Finance and The
Commisioner of Internal Revenue
[G.R. No. 115455. October 30, 1995]
Digest by: BONAVENTE, Arianne
PONENTE: Mendoza, J.:
FACTS:
Tolentino et al is questioning the constitutionality of RA 7716 otherwise known as the Expanded Value Added
Tax (EVAT) Law. Tolentino averred that this revenue bill did not exclusively originate from the House of
Representatives as required by Section 24, Article
6 of the Constitution. Even though RA 7716 originated as HB 11197 and that it passed the
3 readings in the HoR, the same did not complete the 3 readings in Senate for after the 1st reading it was
referred to the Senate Ways & Means Committee thereafter Senate passed its own version known as Senate Bill
1630. Tolentino averred that what Senate could have done is amend HB 11197 by striking out its text and
substituting it w/ the text of SB 1630 in that way “the bill remains a House Bill and the Senate version just
becomes the text (only the text) of the HB”. Tolentino and co-petitioner Roco [however] even signed the said
Senate Bill.
ISSUE:
Whether or not EVAT originated in the HoR.
HELD:
The contention has no merit.
The addition of the word “exclusively” in the Philippine Constitution and the decision to drop the phrase “as on
other Bills” in the American version, according to petitioners, shows the intention of the framers of our
Constitution to restrict the Senate’s power to propose amendments to revenue bills. Petitioner Tolentino
contends that the word “exclusively” was inserted to modify “originate” and “the words ‘as in any other bills’
(sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a
special kind.”
The history of this provision does not support this contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary to provide for the procedure for lawmaking by the
Senate and the House of Representatives. The work of proposing amendments to the Constitution was done by
the National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the
Assembly’s lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall
originate exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of
disapproval by
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the Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted and may be submitted to the President for
corresponding action. In the event that the Senate should fail to finally act on any such bills, the Assembly may,
after thirty days from the opening of the next regular session of the same legislative term, reapprove the same
with a vote of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be
deemed enacted and may be submitted to the President for corresponding action.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present
Constitution was derived. It explains why the word “exclusively” was added to the American text from which
the framers of the Philippine Constitution borrowed and why the phrase “as on other Bills” was not copied.
Considering the defeat of the proposal, the power of the Senate to propose amendments must be understood to
be full, plenary and complete “as on other Bills.” Thus, because revenue bills are required to originate
exclusively in the House of Representatives, the Senate cannot enact revenue measures of its own without such
bills. After a revenue bill is passed and sent over to it by the House, however, the Senate certainly can pass its
own version on the same subject matter. This follows from the coequality of the two chambers of Congress.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling goods, is valid, its application to the press or to religious
groups, such as the Jehovah’s Witnesses, in connection with the latter’s sale of religious books and pamphlets,
is unconstitutional. As the U.S. Supreme Court put it, “it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon.” A similar ruling was made by
this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance
requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax
could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise
of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it
to general regulation is not to violate its freedom under the Constitution.
It is claimed that the application of the tax to existing contracts of the sale of real property by installment or on
deferred payment basis would result in substantial increases in the monthly amortizations to be paid because
of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the
time he entered into the
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contract.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall “evolve a progressive system of taxation.” The constitutional
provision has been interpreted to mean simply that “direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized.” (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax
system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited
with the proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was
taken. Sales taxes are also regressive.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We
have in fact taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We
have now come to the conclusion that the law suffers from none of the infirmities attributed to it by petitioners
and that its enactment by the other branches of the government does not constitute a grave abuse of discretion.
Any question as to its necessity, desirability or expediency must be addressed to Congress as the body which is
electorally responsible, remembering that, as Justice Holmes has said, “legislators are the ultimate guardians of
the liberties and welfare of the people in quite as great a degree as are the courts.” (Missouri, Kansas & Texas
Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does
in arguing that we should enforce the public accountability of legislators, that those who took part in passing
the law in question by voting for it in Congress should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less
exercise a veto power over legislation.
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Abakada Guro Party List vs. The Honorable Executive Secretary Eduardo Ermita
[G.R. No. 168056. September 1, 2005]
Digest by: BONAVENTE, Arianne
PONENTE: Austria-Martinez, J.:
FACTS:
Petitioners ABAKADA GURO Party List, et al. question the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section
4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods,
and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniform proviso authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been
satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on
the ground that it amounts to an undue delegation of legislative power, petitioners also contend that the
increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due
process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax
burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be
returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which
is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the
previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral
Conference Committee is a violation of the “no-amendment rule” upon last reading of a bill laid down in Article
VI, Section 26(2) of the Constitution.
PAGE
54
Thereafter, a petition for prohibition was filed by the Association of Pilipinas Shell Dealers, Inc., et al., assailing
the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall
be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million
Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and
properties) and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
According to petitioners, the contested sections impose limitations on the amount of input tax that may be
claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law. Petitioners further contend that like any other property or
property right, the input tax credit may be transferred or disposed of, and that by limiting the same, the
government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has
a high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the
government, is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1)
of the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer
the consequences thereof for it wipes out whatever meager margins the petitioners make.
Governor Enrique T. Garcia filed a petition for certiorari and prohibition, alleging unconstitutionality of the law
on the ground that the limitation on the creditable input tax in effect allows VAT-registered establishments to
retain a portion of the taxes they collect, thus violating the principle that tax collection and revenue should be
solely allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing these
establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the
Constitution.
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents.
PAGE
55
Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, respondents argue that the procedural issues raised
by petitioners, i.e., legality of the bicameral proceedings, exclusive origination of revenue measures and the
power of the Senate concomitant thereto, have already been settled. With regard to the issue of undue
delegation of legislative power to the President, respondents contend that the law is complete and leaves no
discretion to the President but to increase the rate to 12% once any of the two conditions provided therein
arise.
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle on progressive taxation, among others. Finally,
respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. A reform in the
value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable
macroeconomic environment necessary for economic growth.
ISSUE:
Whether or not the questioned provisions of R.A. No. 9337 are unconstitutional.
HELD:
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax because such delegation is not within the purview of
Section 28 (2), Article VI of the Constitution, which provides: “The Congress may, by law, authorize the
President to fix within specified limits, and may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the national development program of the
government.”
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of
facts upon which enforcement and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact
or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of
the control of the executive. Thus, it is the ministerial duty of the President to immediately impose the 12%
rate upon the existence of any of the conditions specified by Congress. This is a duty which cannot be evaded by
the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President
does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are
present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain specified
contingency, or upon the ascertainment of certain facts or conditions by a person or body other than the
legislature itself.
PAGE
56
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law
effectively nullified the President’s power of control over the Secretary of Finance by mandating the fixing of
the tax rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also
subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase “upon the
recommendation of the Secretary of Finance.” Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside
by the President since the former is a mere alter ego of the latter.
In the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none,
petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’ fear of a fluctuating VAT
rate because the law itself does not provide that the rate should go back to 10% if the conditions provided in
Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court’s seeking the legislative intent, the law must be taken as
it is, devoid of judicial addition or subtraction.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be
claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against the
output tax. Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax,
and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is
less than 70% of the output tax, then 100% of such input tax is still creditable.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding,
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207, 168461, 168463,
and 168730, are hereby dismissed.
PAGE
57
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU
OF INTERNAL REVENUE (BIR), AND REVENUE
DISTRICT OFFICER, BIR MISAMIS ORIENTAL
[G.R. No. 108524. November 10, 1994]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: Mendoza, J.:
FACTS:
Petitioner are engaged in the buying and selling of copra in Misamis Oriental. They seek to nullify Revenue
Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value Added
Tax (VAT) on the sale of copra by members of petitioner organization.
They allege that prior to the issuance of the assailed Revenue Memorandum, which implemented VAT Ruling
190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code
and, therefore, exempt from VAT at all stages of production or distribution. However, respondent
Commissioner of Internal Revenue issued the circular in question, classifying copra as an agricultural non-food
product and declaring it “exempt from VAT only if the sale is made by the primary producer pursuant to
Section 103(a) of the Tax Code, as amended.”
The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra
was classified as an agricultural food product under §103(b) of the NIRC.
Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of
the Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not,
although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the
VAT payment of traders and dealers.
ISSUE:
Whether there was violation of the equal protection clause.
HELD:
No. There is a material or substantial difference between coconut farmers and copra producers, on the one
hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell
copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable
basis for classifying them differently.
PAGE
58
COMMISSIONER OF INTERNAL REVENUE vs. HON. COURT OF APPEALS,
HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION
[G.R. No. 119761. August 29, 1996]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: VITUG, J.
FACTS:
On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark
registration over “Champion,” “Hope,” and “More” cigarettes. The Commissioner of Internal Revenue
Bienvenido A. Tan, Jr. classify them as foreign brands since they were listed in the World Tobacco Directory as
belonging to foreign companies. However, Fortune Tobacco changed the names of ‘Hope’ to ‘Hope Luxury’ and
‘More’ to ‘Premium More,’ thereby removing the said brands from the foreign brand category. Proof was also
submitted to the Bureau (of Internal Revenue [‘BIR’]) that ‘Champion’ was an original Fortune Tobacco
Corporation register and therefore a local brand.” Ad Valorem taxes were imposed on these brands.
A bill, which later became Republic Act (“RA”) No. 7654 was enacted. In effect, a revenue memorandum circular
was issued which stated that the aforesaid brands of cigarettes, viz: “HOPE,” “MORE” and “CHAMPION” being
manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing
a foreign brand subject to the 55% ad valorem tax on cigarettes.
The CTA ruled that the Revenue Memorandum Circular reclassifying the brands of cigarettes, viz: “HOPE,”
“MORE” and “CHAMPION” being manufactured by Fortune Tobacco Corporation as locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective,
invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question
were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as
amended by R.A. No. 7654 and were therefore still classified as other locally manufactured cigarettes and taxed
at 45% or 20% as the case may be.
ISSUE:
1. Whether there was violation of due process in the issuance of the circular.
2. Whether the circular is discriminatory (violation of uniformity in taxation).
HELD:
1. Yes, there was violation of due process. Being a legislative rule (as opposed to interpretative), due
observance of the requirements of notice, of hearing, and of publication should not have been then ignored.
It has been observed that one of the problem areas bearing on compliance with Internal
PAGE
59
Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is
due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict
enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on “due
process of law” and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is
a basic requirement. In order that there shall be a just enforcement of rules and regulations, in conformity with
the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and
implementation of the said Revenue Tax Issuances:
(a) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c)
Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and
regulations.
(b) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not
begin to be operative until after due notice thereof may be fairly presumed.
Due notice of the said issuances may be fairly presumed only after the following procedures have been taken.
2. Yes, there was no uniformity. The assailed RMC 37-93 would only apply to “Hope Luxury,” “Premium More”
and “Champion” cigarettes and that other cigarettes bearing foreign brands have not been similarly included
within the scope of the circular.
PAGE
60
THE COMMISSIONER OF INTERNAL REVENUE vs. LINGAYEN GULF
ELECTRIC POWER CO., INC. and THE COURT OF TAX
APPEALS
[G.R. No. L-23771. August 4, 1988]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: SARMIENTO, J.
FACTS:
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 Resolution Nos. 14 and 25 of June
29 and July 2, 1946, respectively. 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.
Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, 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 which states that 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 from the
grantee.
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.
ISSUE:
1. 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.
2. 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.
HELD:
1. No violation of 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. It is true
that the
PAGE
61
priva
te
resp
onde
nts
muni
cipal
franc
hises
were
obtai
ned
unde
r Act
No.
667
of
the
Phili
ppin
e
Com
missi
on,
but
thes
e
origi
nal
franc
hises
have
been
repla
ced
by a
new
legisl
ative
franc
hise,
i.e.
R.A.
No.
3843
. As
corr
ectly
held
by
the
resp
onde
nt
court
, the
latte
r
was
gran
ted
subje
ct to
the
term
s and
condi
tions
estab
lishe
d in
Act
No.
3636,
as
amen
ded
by
C.A.
No.
132.
Thes
e
condi
tions
ident
ify
the
priva
te
respo
nden
t’s
powe
r
plant
as
fallin
g
withi
n
that
class
of
powe
r
plant
s
creat
ed by
Act
No.
3636,
as
amen
ded.
The
benef
its of
the
tax
reduc
tion
provi
ded
by
law
(Act
No.
3636
as
amen
ded
by
C.A.
No.
132
and
R.A.
No.
3843
)
appl
y to
the
resp
onde
nt’s
pow
er
plant
and
othe
rs
circu
mscr
ibed
withi
n
this
class.
R.ANo.
3843
mere
ly
trans
ferre
d the
petiti
oner’
s
pow
er
plant
from
that
class
provi
ded
for
in
Act
No.
667,
as
ame
nded
, to
whic
h it
belo
nged
until
the
appr
oval
of
R.ANo.
3843,
and
place
d it
withi
n the
class
fallin
g
unde
r Act
No.
3636,
as
amen
ded.
Thus,
it
only
effect
ed
the
trans
fer of
a
taxab
le
prop
erty
from
one
class
to
anoth
er.
Furth
ermo
re,
the
5%
franc
hise
tax
rate
provi
ded
in
Secti
on
259
of the
Tax
Code
was
never
inten
ded
to
have
a
unive
rsal
appli
catio
n.
The
said
Secti
on
259
of
the
Tax
Code
expr
essly
allo
ws
the
pay
ment
of
taxes
at
rates
lowe
r
than
5%
whe
n the
chart
er
gran
ting
the
franc
hise
of a
gran
tee,
like
the
one
gran
ted
to
the
priva
te
resp
onde
nt
unde
r
Secti
on 4
of
R.A.
No.
3843
,
precl
udes
the
impo
sitio
n of
a
high
er
tax.
R.A.
No.
3843
did
not
only
fix
and
speci
fy a
franc
hise
tax of
2%
on its
gross
recei
pts,
but
made
it “in
lieu
of
any
and
all
taxes,
all
laws
to the
contr
ary
notw
ithsta
nding
,”
thus,
leavi
ng no
room
for
doub
t
regar
ding
the
legisl
ative
inten
t.
“Char
ters
or
speci
al
laws
grant
ed
and
enact
ed by
the
Legis
latur
e are
in
the
natu
re of
priva
te
contr
acts.
They
do
not
cons
titut
ea
part
of
the
mac
hine
ry of
the
gene
ral
gove
rnm
ent.
They
are
usua
lly
adop
ted
after
caref
ul
consi
derat
ion
of
the
priva
te
right
s in
relati
on
with
resul
tant
bene
fits
to
the
State
... in
passi
ng a
speci
al
chart
er
the
atten
tion
of
the
Legis
latur
e is
direc
ted to
the
facts
and
circu
msta
nces
whic
h the
act or
chart
er is
inten
ded
to
meet.
The
Legis
latur
e
consi
der
and
make
provi
sion
for
all
the
circu
msta
nces
of a
parti
cular
case.”
In
view
of the
foreg
oing,
SC
finds
no
reaso
n to
distu
rb
the
respo
nden
t
court
’s
rulin
g
uphol
ding
the
const
itutio
nalit
y of
the
law
in
ques
tion.
2.
Yes.
In
the
insta
nt
case,
Act
No.
3843
provi
des
that
“effe
ctive
...
upon
the
date
the
origi
nal
franc
hise
was
gran
ted,
no
othe
r tax
and/
or
licen
ses
othe
r
than
the
franc
hise
tax of
two
per
centu
m on
the
gross
recei
pts ...
shall
be
collec
ted,
any
provi
sion
to the
contr
ary
notw
ithsta
nding
.”
Repu
blic
Act
No.
3843
there
fore
speci
ficall
y
provi
ded
for
the
retro
activ
e
effect
of the
law.
PAGE
62
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS,
INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C.
VILLANUEVA vs. HON. BIENVENIDO
TAN, as Commissioner of Internal Revenue
[G.R. No. 81311. June 30, 1988]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: PADILLA, J.
FACTS:
There are four petitions which seek to nullify Executive Order No. 273 issued by the President which amended
certain sections of the National Internal Revenue Code and adopted the value-added tax for being
unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other
provisions of the 1987 Constitution.
ISSUE:
1. Whether the President had no authority to issue EO 273.
2. Whether there was grave abuse of discretion on the part of the President.
3. Whether EO 273 is oppressive, discriminatory, unjust and regressive.
4. Whether EO 273 unduly discriminates against customs brokers.
HELD:
1. Yes, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers
until a legislature under a new Constitution is convened. The first Congress, created and elected under the
1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2)
days before Congress convened on
27 July 1987, was within the President’s constitutional power and authority to legislate.
The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers
of said Constitution had intended to terminate the exercise of legislative powers by the President at the
beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear
and unequivocal terms. The Court has not power to rewrite the Constitution and give it a meaning different
from that intended.
2. No grave abuse if discretion. Petitioners have failed to show that EO 273 was issued capriciously and
whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a
comprehensive study of the VAT had been extensively discussed by this framers and other government
agencies involved in its implementation, even under the past administration. The signing of E.O. 273 was
merely the last stage in the exercise of her (Pres. Aquino) legislative powers. The legislative process started
long before the signing when the data were gathered, proposals were weighed and the final wordings of the
measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to
speak, on the Congress, two days before it convened.
PAGE
63
3. No. The petitioners’ assertions in this regard are not supported by facts and circumstances to warrant their
conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust.
Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To
justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a
doubtful and argumentative implication.
4. No. At any rate, the distinction of the customs brokers from the other professionals who are subject to
occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs
brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a
profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code
prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the
petitioner Association did not protest the classification of customs brokers then, the Court sees no reason why
it should protest now.
PAGE
64
ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue et al.
[G.R. No. L-59431. July 25, 1984]
Digest by: CABATU, RICKY BOY VILLALUZ
PONENTE: PADILLA, J.
FACTS:
The validity of Section I of Batas Pambansa Blg. 135 is questioned due to constitutional infirmities. 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.
Petitioner 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. He characterizes the above sction as
arbitrary amounting to class legislation, oppressive and capricious in character. For petitioner, therefore, there
is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule
requiring uniformity in taxation.
ISSUE:
Whether the assailed law is discriminatory.
HELD:
No. 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 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 e 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.
PAGE
65
Villegas v. Hiu Chiong Tsai Pao Ho
[G.R. No. L-29646. November 10, 1978]
Digest by: DE GUZMAN, Pristine B.
PONENTE: Fernandez, J.
FACTS:
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. Section 1 of said Ordinance No. 6537
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.
Hiu Chiong Tsai Pao questioned the validity of the ordinance on the ground that it is discriminatory and
violative of the rule of uniformity in taxation. On the other hand, petitioner Mayor Villegas argues that
Ordinance No. 6537 did not violate 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.
ISSUE:
Whether or not Ordinance No. 6537 is null and void on the ground that it violated the rule on uniformity of
taxation.
HELD:
YES. 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
PAGE
66
the
exer
cise
of
his
discr
etion
. It
has
been
held
that
wher
e an
ordi
nanc
e of a
muni
cipal
ity
fails
to
state
any
polic
y or
to
set
up
any
stan
dard
to
guid
e or
limit
the
may
or’s
actio
n,
expr
esses
no
purp
ose
to be
attai
ned
by
requi
ring
a
per
mit,
enu
mera
tes
no
cond
ition
s for
its
gran
t or
refus
al,
and
entir
ely
lacks
stand
ard,
thus
confe
rring
upon
the
Mayo
r
arbit
rary
and
unres
tricte
d
powe
r to
grant
or
deny
the
issua
nce
of
build
ing
perm
its,
such
ordin
ance
is
invali
d,
being
an
undef
ined
and
unli
mite
d
deleg
ation
of
powe
r to
allow
or
preve
nt an
activi
ty
per
se
lawfu
l.
PAGE
67
Villanueva v. City of Iloilo
[G.R. No. L-26521. December 28, 1968]
Digest by: DE GUZMAN, Pristine B.
PONENTE: CASTRO, J.
FACTS:
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86. The Supreme Court, however,
declared the ordinance ultra vires. On January 15, 1960 the municipal board of Iloilo City, believing that with
the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or
power to enact an ordinance similar to that previously declared by the Supreme Court as ultra vires, enacted
Ordinance 11, series of 1960, imposing municipal license tax on persons engaged in the business of operating
tenement houses in accordance with the schedule of payment provided by therein.
Villanueva and the other apartment owners from whom, the city collected license taxes by virtue of Ordinance
11 aver that the said ordinance is unconstitutional for RA 2264 does not empower cities to impose apartment
taxes; that the same is oppressive and unreasonable for it penalizes those who fail to pay the apartment taxes;
that it constitutes not only double taxation but treble taxation; and, that it violates uniformity of taxation.
ISSUE:
1. Whether or not the ordinance constitutes double taxation?
2. Whether or not the City of Iloilo is empowered by the Local Autonomy Act to impose tenement taxes.
3. Whether or not Ordinance 11 violated the rule of uniformity of taxation.
HELD:
1. NO. While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under
Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by the
national government as well as by the local government. The contention that appellees are doubly taxed
because they are paying real estate taxes and the tenement tax is also devoid of merit. A license tax may be
levied upon a business or occupational though the land or property used in connection therewith is subject to
property tax. In order to constitute double taxation, both taxes must be the same kind or character. Real estate
taxes and tenement taxes are not of the same character.
2. YES. The lower court has interchangeably denominated the tax in question as a tenement tax or an
apartment tax. Called by either name, it is not among the exceptions listed in Section 2 of the Local Autonomy
Act. The imposition by the ordinance of a license tax on persons engaged in the business of operating tenement
houses finds authority in Section 2 of the Local Autonomy Act which provides that chartered cities have the
authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or
PAGE
68
exer
cisin
g
privi
leges
withi
n
their
resp
ectiv
e
territ
ories
, and
“othe
rwis
e to
levy
for
publi
c
purp
oses,
just
and
unifo
rm
taxes
,
licen
ses,
or
fees.
”
3.
NO.
The
ordi
nanc
e is
not
viola
tive
of
the
rule
of
unifo
rmit
y in
taxat
ion.
The
Supr
eme
Cour
t has
alrea
dy
ruled
that
tene
ment
hous
es
cons
titute
a
distin
ct
class
of
prop
erty.
It has
likew
ise
ruled
that
“taxe
s are
unifo
rm
and
equal
when
impo
sed
upon
all
prop
erty
of the
same
class
or
chara
cter
withi
n the
taxin
g
autho
rity.”
The
fact,
there
fore,
that
the
owne
rs of
other
class
es of
build
ings
in the
City
of
Iloilo
do
not
pay
the
taxes
impo
sed
by
the
ordin
ance
in
ques
tion
is no
argu
ment
at all
agai
nst
unifo
rmit
y
and
equa
lity
of
the
tax
impo
sitio
n.
Neit
her
is
the
rule
of
equa
lity
and
unifo
rmit
y
viola
ted
by
the
fact
that
tene
ment
taxes
are
not
impo
sed
in
othe
r
cities
, for
the
same
rule
does
not
requi
re
that
taxes
for
the
same
purp
ose
shoul
d be
impo
sed
in
differ
ent
territ
orial
subdi
visio
ns at
the
same
time.
So
long
as
the
burd
en of
the
tax
falls
equal
ly
and
impa
rtiall
y on
all
owne
rs or
oper
ators
of
tene
ment
hous
es
simil
arly
classi
fied
or
situat
ed,
equal
ity
and
unifo
rmity
of
taxati
on is
acco
mplis
hed.
PAGE
69
Pepsi-Cola Bottling Co. of the Philippines, Inc v. City of Butuan
[G.R. No. L-2281. August 28, 1968]
Digest by: DE GUZMAN, Pristine B.
PONENTE: CONCEPCION, C.J.
FACTS:
In 1960, Ordinance 110 was passed in Butuan. It was later amended by Ordinance 122. This Ordinance imposes
a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi- Cola. Pepsi operates within the
Butuan and it 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. Pepsi filed a 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 the case.
Pepsi 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.
ISSUE:
Whether or not the ordinance is null and void.
HELD:
YES. The first and the fourth objections by petitioner merit 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.”
As a consequence, merchants engaged in the sale of soft drink 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.
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
PAGE
70
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. 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 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 sealers
other than agents or consignees of producers or merchants established outside the City of Butuan should be
exempt from the tax.
PAGE
71
Ormoc Sugar Co. v. Treasurer of Ormoc City
[G.R. No. L-23794. February 17, 1968]
Digest by: DE GUZMAN, Pristine B.
PONENTE: BENGZON, J.P., J.
FACTS:
Ormoc city passed an ordinance which provides: “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. Ormoc Sugar paid the tax (P7,087.50) in protest averring
that the same is violative of Section 2287 of the Revised Administrative Code which provides: “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.” And that the
ordinance is violative to equal protection as it singled out Ormoc Sugar as being liable for such tax impost for
no other sugar mill is found in the city.
ISSUE:
Whether or not the ordinance violates the equal protection clause and the uniformity of taxation.
HELD:
YES. 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, for 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 City Sugar Company, Inc. as
the entity to be levied upon.
PAGE
72
Lutz v. Araneta
[G.R. No. L-7859. December 22, 1955]
Digest by: DE GUZMAN, Pristine B.
PONENTE: REYES, J.B L., J..
FACTS:
Due to the threat to industry by the imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffe Act, and the “eventual loss of its preferential position in the United States market”; the
National Assembly promulgated Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act “to
obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof” and
“to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in
the United States market and the imposition of the export taxes.”
Walter Lutz, as the Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover
from J. Antonio Araneta, the Collector of Internal Revenue, the sum of money paid by the estate as taxes,
pursuant to the Sugar Adjustment Act. Under Section
3 of said Act, taxes are levied on the owners or persons in control of the lands devoted to the cultivation of
sugar cane. Furthermore, Section 6 states all the collections made under said Act shall be for aid and support of
the sugar industry exclusively. Lutz contends that such purpose is not a matter of public concern hence making
the tax levied for that cause unconstitutional and void. The Court of First Instance dismissed his petition, thus
this appeal before the Supreme Court.
ISSUE:
Whether or not the tax levied under the Sugar Adjustment Act is unconstitutional.
HELD:
NO. The tax levied under the Sugar Adjustment Act is constitutional. The tax under said Act is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry.
Since sugar production is one of the great industries of our nation, its promotion, protection, and advancement,
therefore redounds greatly to the general welfare. Hence, said objectives of the Act are of public concern and is
therefore constitutional. It follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion. If objectives and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution
and attainment. Taxation may be made with the implement of the state’s police power. In addition, it is only
rational that the taxes be obtained from those that will directly benefit from it.
At any rate, 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 “inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation”
PAGE
73
From the point of view we have taken it appears of no moment that the funds raised under the Sugar
Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very
enterprise that is being protected. It may be that other industries are also in need of similar protection; that the
legislature is not required by the Constitution to adhere to a policy of “all or none.” “if the law presumably hits
the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have
been applied;” and that “the legislative authority, exerted within its proper field, need not embrace all the evils
within its reach”
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution
of allied problems, as well as to the improvements of living and working conditions in sugar mills or
plantations, without any part of such money being channeled directly to private persons, constitutes
expenditure of tax money for private purposes.
PAGE
74
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR
and THE CITY MAYOR, all of the City of
Manila
[G.R. No. L-4376, May 22, 1953]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: BAUTISTA ANGELO, J.
FACTS:
The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of
motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service
operator of the trucks in said City, challenge the validity of Ordinance No. 3379 passed by the Municipal Board
of the City of Manila on March 24, 1950 on the ground that (1) while it levies a so-called property tax it is in
reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance
offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.
The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a
property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18
(p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor
does it constitute double taxation.
The Court of First Instance of Manila sustained the validity of the ordinance and dismissed the petition. Hence
this appeal.
ISSUE:
1. Whether or not Ordinance no. 3379 is void for having passed beyond the power of the Municipal Board of the
City of Manila.
2. Whether or not Ordinance no. 3379 violates the rule of uniformity of taxation.
HELD:
1. In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the Motor
Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal corporation to
impose tax on motor vehicles operating in any highway in the Philippines. The pertinent provisions are
contained in section 70 (b) which provide in part: No further fees than those fixed in this Act shall be exacted
or demanded by any public highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for
the operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall be
construed to exempt any motor vehicle from the payment of any lawful and equitable insular, local or
municipal property tax imposed thereupon...........................
Note that under the said section no fees may be exacted or demanded for the operation
PAGE
75
of any motor vehicle other than those therein provided, the only exception being that which refers to the
property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that sense
that it applies to all motor vehicles. In this sense, this provision should be construed as limiting the broad grant
of power conferred upon the City of Manila by its Charter to impose taxes.
While it refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is merely levied on
motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended
exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is
precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act,
municipal corporation already participate in the distribution of the proceeds that are raised for the same
purpose of repairing, maintaining and improving bridges and public highway (section 73 of the Motor Vehicle
Law). This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for
this reason that we believe that the ordinance in question merely imposes a license fee although under the
cloak of an ad valorem tax to circumvent the prohibition above adverted to.
2. The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the
ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a
motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to
Manila and uses its streets and public highways. The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in the City of Manila as may be inferred from the word
“operating” used therein. The word “operating” denotes a connotation which is akin to a registration, for under
the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees.
There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary
stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of
the streets and public highway. The fact that they are benefited by their use they should also be made to share
the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance,
and which renders it offensive to the Constitution.
PAGE
76
EASTERN THEATRICAL CO., INC., ET AL., vs. VICTOR, ALFON- SO as City
Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OF MANILA,
and JUAN NOLASCO, as Mayor of the
City of Manila
[G.R. No. L-1104, May 31, 1949]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: PERFECTO, J.
FACTS:
The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of every
admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing
exhibitions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600. Plaintiffs, operator of
theaters in Manila And distributor of local or imported films allege that they are interested in the provision of
section 1,2 and 4 of said ordinance which they impugn as null and void upon the following grounds: (a) For
violation the Constitution more particular the provision regarding the uniformity and equality of taxation and
the equal protection of the laws; (b) because the Municipal Board of Manila exceeded and over-stepped the
power granted it the Charter of the City of Manila; (c) because it contravenes violates and is inconsistent with,
existing national legislation more particularly revenue and tax laws and (d) because it is unfair, unjust,
arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and recognizes
principles of taxation and licensing laws.
ISSUE:
Whether the ordinance violates the rule on uniformity and equality of taxation.
HELD:
The fact that some places of amusement are not taxed while others, such as cinematographs, theaters,
vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of
amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality
and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places
of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with
those not included in the ordinance.
PAGE
77
PHILIPPINE TRUST COMPANY, PEOPLES BANK AND TRUST COMPANY,
THE YOKOHAMA SPECIE BANK, LTD., and THE CHARTERED BANK OF
INDIA, AUSTRALIA AND CHINA, vs.
A.L. YATCO, as Collector of Internal Revenue,
[G.R. Nos. L-46255, 46256, 46259 and 46277, January 23, 1940]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: LAUREL, J
FACTS:
The original plaintiffs in the Court of First Instance of Manila were the Philippine Trust Company, the Peoples
Bank and Trust Company, the Yokohama Specie Bank, Ltd., the Chartered Bank of India, Australia & China, the
Bank of the Philippine Islands, the Hongkong & Shanghai Banking Corporation, and the China Banking
corporation. As the last three named Banks did not appeal from the decision of the lower court, we are here
concerned with the appeal taken by the plaintiffs named in the four above-titled cases.
The records disclosed that prior to the filing of these suits, and for a number of years, the plaintiffs-appellants
had been paying capital and deposit taxes without protest, formerly under section 111 of Act No. 1189, and
later under section 1499 of the Revised Administrative Code of 1917, as amended.
In the trial court, by agreement of the parties, the case were submitted and heard together on a joint stipulation
of facts. After trial, the Court of First Instance of Manila dismissed the actions and upheld the validity of section
1499 of the Revised Administrative Code, as amended by Act No. 3199.
Appellants challenge the constitutionality of the aforesaid section of the Revised Administrative Code,
principally on the grounds that it violates the rule regarding uniformity of taxation, and that it is
discriminatory, and therefore violative of the equal protection clause of the Constitution.
ISSUE:
Whether or not said section of thr Revised Administrative Code violates the Rule on uniformity of taxation.
HELD:
No. A tax is considered uniform when it operates with the same force and effect in every place where the
subject may be found. (State v. Railroad Tax Cases, 92 U.S. 575, 595, 612, 23 Law. ed. 363, 373.) Section 1499 of
the Revised Administrative Code, as amended, applies uniformly to, and operates on, all banks in the
Philippines without distinction and discrimination, and if the National City Bank of New York is exempted from
its operation because it is a federal instrumentality subject only to the authority of Congress, that alone could
have the effect of rendering it violative of the rule of uniformity. In every well-regulated and enlightened state
or government, certain descriptions of property and also certain
PAGE
78
institutions are exempt from taxation, but these exemptions have never been regarded as disturbing the rules
of taxation, even where the fundamental law had ordained that it should be uniform. (Des Moines Bank v.
Fairweather, 263 U.S. 103,118). The rule of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable.
PAGE
79
FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, vs. VENANCIO
CONCEPCION, as Acting Collector of Internal
Revenue,
[G.R. No. 11572, September 22, 1916]
Digest by: DESTURA, Kristina Bianca D.
PONENTE: TRENT, J.:
FACTS:
Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914, imposed an annual tax of P4 per
square meter upon “electric signs, billboards, and spaces used for posting or displaying temporary signs, and
all signs displayed on premises not occupied by buildings.” This section was subsequently amended by Act No.
2432, effective January 1, 1915, by reducing the tax on such signs, billboards, etc., to P2 per square meter or
fraction thereof. Section 26 of Act No. 2432 was in turn amended by Act No. 2445, but this amendment does not
in any way affect the questions involved in the case under consideration. The taxes imposed by Act No. 2432, as
amended, were ratified by the Congress of the United States on March 4, 1915.
Francis A. Churchill and Stewart Tait, copartners doing business under the firm name and style of the
Mercantile Advertising Agency, owners of a sign or billboard containing an area of 52 square meters
constructed on private property in the city of Manila and exposed to public view, were taxes thereon P104. The
tax was paid under protest and the plaintiffs having exhausted all their administrative remedies instituted the
present action under section 140 of Act No. 2339 against the Collector of Internal Revenue to recover back the
amount thus paid. From a judgment dismissing the complaint upon the merits.
ISSUE:
Whether the statute or tax is void for lack of uniformity.
HELD:
A tax is uniform when it operates with the same force and effect in every place where the subject of it is found
(State Railroad Tax Cases, 92 U.S., 575.) The words “uniform throughout the United States,” as required of a tax
by the Constitution, do not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is
therefore the only uniformity which is prescribed by the Constitution. (Patton vs. Brady, 184 U.S., 608; 46 L.
Ed., 713.) A tax is uniform, within the constitutional requirement, when it operates with the same force and
effect in every place where the subject of it is found. (Edye vs. Robertson, 112 U.S., 580; 28 L. Ed., 798.)
“Uniformity,” as applied to the constitutional provision that all taxes shall be uniform, means that all property
belonging to the same class shall be taxed alike. (Adams vs. Mississippi State Bank, 23 South, 395, citing
Mississippi Mills vs Cook, 56 Miss., 40.) The statute under consideration imposes a tax of P2 per square meter
or fraction thereof upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or in
other words, “the rule of taxation” upon such signs is uniform throughout the Islands. The rule, which we
PAGE
80
have
just
quot
ed
from
the
Phili
ppin
e
Bill,
does
not
requi
re
taxes
to be
grad
ed
acco
rdin
g to
the
valu
e of
the
subje
ct or
subje
cts
upon
whic
h
they
are
impo
sed,
espe
cially
thos
e
levie
d as
privi
lege
or
occu
patio
n
taxes
. We
can
hardl
y see
wher
ein
the
tax
in
ques
tion
cons
titut
es
doub
le
taxat
ion.
The
fact
that
the
land
upon
whic
h the
billbo
ards
are
locat
ed is
taxed
at so
much
per
unit
and
the
billbo
ards
at so
much
per
squar
e
mete
r
does
not
const
itute
“dou
ble
taxati
on.”
Doub
le
taxati
on,
withi
n the
true
mean
ing of
that
expre
ssion,
does
not
neces
sarily
affect
its
validi
ty. (1
Coole
y on
Taxat
ion,
3d
ed.,
389.)
And
agai
n, it
is
not
for
the
judic
iary
to
say
that
the
class
ificat
ion
upon
whic
h the
tax is
base
d “is
mere
arbit
rary
selec
tion
and
not
base
d
upon
any
reas
onab
le
grou
nds.”
The
Legis
latur
e
select
ed
signs
and
billbo
ards
as a
subje
ct for
taxati
on
and it
must
be
presu
med
that
it, in
so
doing
,
acted
with
a full
know
ledge
of the
situat
ion.
PAGE
81
Meralco vs. Province of Laguna
[G.R. No. 131359. May 5, 1999]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Vitug, J.
FACTS:
In the province of Laguna, certain municipalities thereof issued resolutions through their respective municipal
councils, granting MERALCO franchises for the supply of light and power. Thereafter, the Local Government
Code of 1991 was enacted enjoining local goverment units to create their own sources of revenue and to levy
taxes, fees and charges, subject to the limitations, consistent with the basic policy of local autonomy.
Thereafter, the Province of Laguna enacted Laguna Provincial Ordinance which imposed tax on businesses
enjoying a franchise at a rate of 50% of 1% of the gross annual receipts. MERALCO was then sent a demand
letter to pay the corresponding tax. MERALCO paid the tax under protest (approx. Php19.5M) and later on filed
a formal claim for refund.
MERALCO claims that the franchise tax it had paid and continued to pay to the National Government already
included the tax imposed by the Provincial Tax Ordinance. The RTC dismissed the complaint and ruled that the
Ordinance was valid, binding, reasonable and enforceable.
ISSUE:
Whether or not the Laguna Provincial Tax Ordinance is valid.
HELD:
Yes. 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 the Local Government Units (LGU).
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. 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
PAGE
82
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.
The Local Government Code of 1991 explicitly authorizes provincial governments, notwithstanding “any
exemption granted by any law or other special law, to impose a tax on businesses enjoying a franchise”.
Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local
government units, LGC has effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities.
MERALCO further contends that in a plethora of cases, the phrase “shall be in lieu of all taxes and at any time
levied, established by, or collected by any authority” exempted the franchise holder from any other tax
imposed by the then Internal Revenue Code and local ordinaces. The SC holds otherwise. 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.
PAGE
83
Province of Misamis Oriental v. Cagayan Electric Power and
Light Company Inc.
[G.R. No. 131359. May 5, 1999]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Grino-Aquino
FACTS:
Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on June 17, 1961 under
RA 3247 to install, operate and maintain an electric light, heat and power system in the City of Cagayan de Oro
and its suburbs. The franchise was amended on June 21, 1963 by RA 3570 which added the municipalities of
Tagoloan and Opol to CEPALCO’s sphere of operation, and was further amended on August 4, 1969 by RA 6020
which extended its field of operation to the municipalities of Villanueva and Jasaan.
On June 28, 1973, the Local Tax Code (PD 231) was promulgated. Pursuant thereto, the Province of Misamis
Oriental enacted Provincial Revenue Ordinance 19 which provide for a franchise tax. The Provincial Treasurer
of Misamis Oriental demanded payment of the provincial franchise tax from CEPALCO. The company refused to
pay, alleging that it is exempt from all taxes except the franchise tax required by RA 6020. Nevertheless,
CEPALCO paid under protest on May 27, 1974 the sum of P4,276.28 and appealed the fiscal’s ruling to the
Secretary of Justice who reversed it and ruled in favor of CEPALCO.
On 16 February 1976, the Province filed in the CFI Misamis Oriental a complaint for declaratory relief praying
that the Court exercise its power to construe PD 231 in relation to the franchise of CEPALCO (RA 6020), and to
declare the franchise as having been amended by PD 231. The Court dismissed the complaint and ordered the
Province to return to CEPALCO the sum of P4,276.28 paid under protest.
ISSUE:
Whether or not the imposed franchise tax is valid.
HELD:
Section 9 of PD 231 provides that “any provision of special laws to the contrary notwithstanding, the province
may impose a tax on businesses enjoying franchise, based on the gross receipts realized within its territorial
jurisdiction, at the rate of not exceeding one- half of one per cent of the gross annual receipts for the preceding
calendar year. In the case of newly started business, the rate shall not exceed three thousand pesos per year.
Sixty per cent of the proceeds of the tax shall accrue to the general fund of the province and forty per cent to
the general fund of the municipalities serviced by the business on the basis of the gross annual receipts derived
therefrom by the franchise holder. In the case of a newly started business, forty per cent of the proceeds of the
tax shall be divided equally among the municipalities serviced by the business.”
PAGE
84
The Provincial Revenue Ordinance 19 provides that “there shall be levied, collected and paid on businesses
enjoying franchise tax of one-half of one per cent of their gross annual receipts for the preceding calendar year
realized within the territorial jurisdiction of the province of Misamis Oriental.”
There is no provision in PD 231 expressly or impliedly amending or repealing Section
3 of RA 6020. The perceived repugnancy between the two statutes should be very clear before the Court may
hold that the prior one has been repealed by the later, since there is no express provision to that effect.
The rule is that a special and local statute applicable to a particular case is not repealed by a later statute which
is general in its terms, provisions and application even if the terms of the general act are broad enough to
include the cases in the special law unless there is manifest intent to repeal or alter the special law.
Republic Acts 3247, 3570 and 6020 are special laws applicable only to CEPALCO, while PD 231 is a general tax
law. The presumption is that the special statutes are exceptions to the general law (PD 231) because they
pertain to a special charter granted to meet a particular set of conditions and circumstances. The CEPALCO’s
franchise expressly exempts it from payment of “all taxes of whatever authority” except the three per centum
(3%) tax on its gross earnings. The Local Tax Regulation 3-75 issued by the Secretary of Finance on 26 June
1976, has made it crystal clear that the franchise tax provided in the Local Tax Code (PD 231, Sec. 9) may only
be imposed on companies with franchises that do not contain the exempting clause.
The provision: “shall be in lieu of all taxes of every name and nature” in the franchise of the Manila Railroad
exempts the Manila Railroad from payment of internal revenue tax.
The 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. As a charter is in the nature of a private contract, the imposition
of another franchise tax on the corporation by the local authority would constitute an impairment of the
contract between the government and the corporation.
PAGE
85
Cagayan Electric Power & Light Co. Inc. v. CIR
[G.R. No. L-60126 September 25, 1985]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Aquino
FACTS:
Under RA 3247, Cagayan Electric Power and Light Co. is the holder of a legislative franchise, 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.”
On June 27 1968, RA 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 the company’s case, its franchise was
amended by RA 6020 by authorizing the company 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.
Said amendment reenacted the tax exemption in its original charter or neutralized the modification made by
RA 5431 more than a year before. By reason of the amendment to section 24 of the Tax Code, the
Commissioner of Internal Revenue required the company to pay deficiency income taxes for 1968 to 1971. The
company contested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but
insisted on those for 1968 and 1969. The company filed a petition for review with the Tax Court, which held
the company liable only for the income tax for the period from January 1 to August 3, 1969 or before the
passage of RA 6020 which reiterated its tax exemption. The liability of the company for income tax amounted
to P75,149.73 for the more than seven-month period of the year 1969 in addition to franchise tax. The
company appealed to the Supreme Court.
ISSUE:
Whether or not Congress could impair the company’s legislative franchise
HELD:
Yes. Congress could impair the company’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. Section 1 of the company’s franchise, RA 3247, provides that it is subject to the
provisions of the Constitution and to the terms and conditions established in Act 3636 whose section 12
provides that the franchise is subject to amendment, alteration or repeal by Congress.
RA 5431, in amending section 24 of the Tax Code by subjecting to income tax all
PAGE
86
corporate taxpayers not expressly exempted therein and in section 27 of the Code, had the effect of
withdrawing the company’s exemption from income tax.
The exemption was restored by the subsequent enactment on 4 August 1969 of RA 6020 which reenacted the
said tax exemption. Hence, the company is liable only for the income tax for the period from January 1 to
August 3, 1969 when its tax exemption was modified by RA 5431.
PAGE
87
Lealda v. CIR
[G.R. No. L-16428. April 30, 1963.]
Digest by: ERIGA, Ronald Fredric H.
PONENTE: Dizon
FACTS:
Julian M. Locsin Anson was granted a franchise in 1915, to operate an electric light and power plant to supply
electric current to the residents of the municipalities of Legaspi and Daraga in Albay province (Act 2475, as
amended by Act 2620). Subsequently, he sold his franchise, certificate of public convenience and the electric
plant to Saturnino Benito, who in turn sold the same to Alfredo, Mario and Benjamin, all surnamed Benito, on
March 13, 1941. On June 11, 1949, the Benitos and other parties formed a partnership to operate the electric
plant. After the incorporation of Lealda Electric on February 8, 1951, the franchise, certificate of public
convenience and the electric plant was transferred to it by said partnership. All these transactions were
approved by the Public Service Commission.
Since 1915, the original grantee and, after him, his various successors in interest, paid a franchise tax of 2% on
the gross earnings or receipts from the business operated under the franchise until October 1, 1946 when
Section 259 of the National Internal Revenue Code was amended by RA 39 which increased the franchise tax to
5%. Upon the approval of this mandatory act, Lealda Electric was required to pay, as it did pay, the increased
franchise tax, except those that became payable before its incorporation, these having been paid by its
predecessors in interest. Apparently on 27 October 1953, Lealda Electric had filed a claim for refund, action on
which, however, was held in abeyance pending receipt by the Collector of Internal Revenue of an audit report
expected from the General Auditing Office. On January 8, 1954, Lealda Electric filed with the Commissioner of
Internal Revenue a petition for refund contending that, under its charter, it was liable to pay a franchise tax
equivalent to only 2% and not 5% of its gross earnings or receipts. On June 22, 1958, Lealda Electric filed its
last claim for refund of the total amount of P78,891.34 representing alleged excess payments of franchise tax
covering the period from 20 January 1947 to April 15, 1958.
On January 8, 1959 petitioner filed with the Court of Tax Appeals a petition for review praying for the refund of
the total sum of P84,573.61 representing alleged excess payments of franchise tax for the period from January
20, 1947 to October 14, 1958, and for an order restraining said commission and its agents from collecting from
it more than 2% of its gross earnings or receipts, as franchise tax. After proper proceedings in the Court of Tax
Appeals, the court held that Lealda Electric was “subject to pay the 5% franchise tax as prescribed in Section
259 of the National Internal Revenue Code, as amended by RA 39” and, as a consequence, dismissing the
petition for refund for lack of merit.
ISSUE:
Whether or not Lealda is entitled to the refund.
PAGE
88
HEL
D:
No.
Leal
da
Elect
ric’s
franc
hise
does
not
speci
ficall
y
state
that
the
rate
of
the
franc
hise
tax
to be
paid
there
unde
r by
the
origi
nal
gran
tee
and
his
succ
esso
rs in
inter
est
shall
be
2%
of
his
gros
s
earni
ngs
or
recei
pts.
It
seem
s
clear
,
there
fore,
that
the
inten
tion
of
the
legisl
ature
was
to
impo
se
upon
the
grant
ee
and
his
succe
ssors
in
inter
est,
the
oblig
ation
to
pay
the
same
franc
hise
tax
impo
sed
upon
other
grant
ees
or
franc
hise
holde
rs at
the
time
Act
2475
was
enact
ed.
Prior
to its
amen
dmen
t,
Secti
on
259
of the
Tax
Code
mere
ly
provi
ded
that
the
grant
ees of
franc
hises
shoul
d
pay
on
their
gros
s
earni
ngs
or
recei
pts
“suc
h
taxes
,
char
ges
and
perc
enta
ges
as
are
speci
fied
in
speci
al
chart
ers
of
corp
orati
ons
upon
who
m
such
franc
hises
are
conf
erre
d”
This
provi
sion
did
not
cove
r the
case
of
franc
hise
hold
ers
who
se
chart
ers
did
not
speci
fy
the
rate
of
franc
hise
tax to
be
paid
by
them.
Cons
eque
ntly,
prior
to the
enact
ment
of RA
39,
the
franc
hise
tax
paid
by
grant
ees
whos
e
chart
ers
did
not
speci
fy the
rate
of the
franc
hise
tax to
be
paid
by
them
was
the
one
provi
ded
for in
Secti
on 10
of Act
3636,
know
n as
the
Mode
l
Elect
ric
Light
and
Powe
r
Franc
hise
Act.
Cons
eque
ntly,
Secti
on
259
of
the
Tax
Code
, as
ame
nded
by
RA
39,
beca
me
the
basic
franc
hise
tax
law
beca
use
it
was
not
only
entitl
ed
“Tax
on
Corp
orate
Fran
chise
s”
but it
fixed
the
rate
of
the
franc
hise
tax
to be
paid
by
hold
ers
of all
exist
ing
and
futur
e
franc
hises.
Such
being
the
case,
the
provi
sions
of the
act
amen
ding
said
secti
on
must
be
deem
ed to
apply
likew
ise to
Leald
a
Elect
ric
beca
use
its
franc
hise
was
alrea
dy
existi
ng at
the
time
of the
adopt
ion of
the
amen
dmen
t. Tax
exem
ption
s are
not
presu
med.
PAGE
89
Casanovas v. Hord
[G.R. No. 3473, March 22, 1907]
Digest by: ESCANER, Michael Joseph
PONENTE: Willard, J.
FACTS:
The Spanish Government in 1897 granted petitioner certain mines in the province of Ambos Camarines in
accordance with the provisions of the royal decree of 14th May 1867. The mines granted are now in the
ownership of petitioner. Petitioner contended that these were validly perfected mining concessions granted to
him prior to 11th of April 1899. The Collector of Internal Revenue considered the mines to fall within the
provisions of Section 134 of Act 1189 (InternalRevenue Act). The defendant Commissioner, JNO S. Hord,
imposed upon these properties the tax mentioned in Section134, which plaintiff Casanovas paid under protest.
ISSUE:
Whether or not Section 134 of Act 1189 is valid.
HELD:
The deed constituted a contract between the Spanish Government and Casanovas. The concessions can be
cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply
with the conditions prescribed as requisites for their retention in the laws under which they were granted.
There is no claim in this case that there was any illegality in the procedure by which these concessions were
obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed in the royal
decree of 1867. The obligation in the contract was impaired by the enactment of Section 134 of the Internal
Revenue Law
PAGE
90
American Bible Society vs. City of Manila
[G.R. No. L-9637, April 30, 1957]
Digest by: ESCANER, Michael Joseph
PONENTE: Felix, J.
FACTS:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and
doing business in the Philippines. The defendant appellee is a municipal corporation with powers that are to be
exercised in conformity with the provisions of the Revised Charter of the City of Manila. In the course of its
ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or
gospel portions thereof throughout the Philippines and translating the same into several Philippine dialects.
The acting City Treasurer of Manila required the society to secure the corresponding Mayor’s permit and
municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd
quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances
under which the fees are being collected.
ISSUE:
Whether or not the respondent can tax the petitioner with respect to its act of selling
bibles.
HELD:
A tax on the income of one who engages in religious activities is different from 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, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the
exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press
are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely
religious and does not fall under Section 27(e) of the Tax Code (CA 466). The fact that the price of bibles
petitioner are selling is a little higher than actual cost of the same does not necessarily mean it is already
engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the petitioner 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.
PAGE
91
Abra Valley College v. Aquino
[G.R. NO. 39086 June 15, 1988]
Digest by: ESCANER, Michael Joseph
PONENTE: Paras
FACTS:
Petitioner filed a complaint to annul and declare void the “Notice of Seizure’ and the “Notice of Sale” of its lot
and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting
toP5,140.31. Said “Notice of Seizure” by respondents Municipal Treasurer and Provincial Treasurer was issued
for the satisfaction of the said taxes thereon. The trial court ruled for the government, holding that the second
floor of the building is being used by the director for residential purposes and that the ground floor is being
used and rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not
being used exclusively for educational purposes.
ISSUE:
Whether or not the lot and building are used exclusively for educational purposes and is thus tax exempt.
HELD:
Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, 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 case at bar, the
lease of the first floor of the building to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of education. The test of exemption from taxation is the
use of the property for purposes mentioned in the Constitution. The decision of the CFI Abra (Branch I) is
affirmed subject to the modification that half of the assessed tax be returned to the petitioner. The modification
is derived from the fact that the ground floor is being used for commercial purposes and the second floor being
used as incidental to education.
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Commissioner of Internal Revenue vs. Bishop of the
Missionary District of the Philippines
[G.R. No. L-19445, August 31, 1965]
Digest by: ESCANER, Michael Joseph
PONENTE: Regala, J.
FACTS:
In 1957 to 1959, the Missionary District received various shipments of materials, supplies, equipment and
other articles intended for use in the construction and operation of the new St. Luke’s Hospital. On these
shipments, the Commissioner collected compensation tax. The Missionary District filed claims for refund, but
which was denied by the Commissioner on the ground that St. Luke’s Hospital was not a charitable institution
and therefore was not exempt from taxes because it admits pay patients.
ISSUE:
Whether or not the shipments for St. Luke’s Hospital are tax-exempt.
HELD:
The following requisites must concur in order that a taxpayer may claim exemption under the law:(1) the
imported articles must have been donated; (2) the done must be duly incorporated or established international
civic organization, religious or charitable society, or institution for civic religious or charitable purposes; and
(3) the articles so imported must have been donated for the use of the organization, society or institution or for
free distribution and not for barter, sale or hire. As the law does not distinguish or qualify the enjoyment or the
exemption (as the Secretary of Finance did in Department Order 18, series of 1958), the admission of pay
patients does not detract from the charitable character of a hospital, if its funds are devoted exclusively to the
maintenance of the institution. Thus, the shipments are tax exempt.
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93
REV. FR. CASIMIRO LLADOC v. CIR and CTA
[14 SCRA 202 ,June 16, 1965]
Digest by: GARCIA, Vianne Marie O.
PONENTE: J. Paredes
FACTS:
In 1957, the M.B. Estate, Inc. in Bacolod City donated P10,000 in case to Rev. Fr. Crispin Ruiz, the then parish
priest of Victorias, Negros Occidental and the predecessor of Rev. Fr. Casimiro Lladoc, for the construction of a
new Catholic Church. The total amount was actually spent for the purpose intended.
On March 1958, M.B. Estate filed a donor’s gift tax return. Subsequently, on April 1960, the CIR issued an
assessment for donee’s gift tax in the amount of P1,370 including surcharges, interest of 1% monthly from May
1958 to June 1960 and the compromise for the late filing of the return against the Catholic Parish of Victorias,
Negros Occidental of which Lladoc was a priest.
Lladoc protested and moved to reconsider but it was denied. He then appealed to the CTA, in his petition for
review, he claimed that at the time of the donation, he was not the parish priest, thus, he is not liable. Moreover,
he 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 Constitution. The CTA ruled in favor of the CIR. Hence, the present
petition.
ISSUE:
Whether or not donee’s gift tax should be paid
HELD:
Yes. Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches
and parsonages 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 contra distinguished 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. 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, does 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 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
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Lladoc, the exemption herein must be denied.
However, the Court noted the merit of Lladoc’s claim, and held as liable the Head of Deocese for being the real
party in interest instead of Lladoc who was held to be not personally liable; the former manifested that it was
submitting himself to the jurisdiction and orders of the Court and he presented Lladoc’s brief, by reference, as
his own and for all purposes.
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95
Jose V. Herrera and Ester Herrera vs. The Quezon City Board
Of Assessment Appeals
[L-15270 ,September 30, 1961]
Digest by: GARCIA, Vianne Marie O. PONENTE: Concepcion, J.
FACTS:
Petitioners Jose and Ester Herrera were authorized by the Director of the Bureau of Hospitals to establish and
operate the St. Catherine’s Hospital. In 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 which was granted effective the years 1953 to 1955. Subsequently, however, in a letter dated
August 10, 1955 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. The petitioners
appealed the assessment to the Quezon City Board of Assessment Appeals, which, affirmed the decision of the
City Assessor. A motion for reconsideration thereof was denied. From this decision, the petitioners instituted
the instant appeal.
The building involved in this case is principally used as a hospital. 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 (“outcharity patients”); and (b) those who remain in the hospital for treatment (“lying-in-patients”). 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. 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. However, the petitioners have
refused to submit a separate statement of accounts of the school.
ISSUE:
Whether or not the said properties are used exclusively for charitable or educational purposes which are
exempt from real property tax
HELD:
The Supreme Court ruled in the affirmative. 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.
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 petitioners, Dr. Ester Ochangco Herrera,
as directress of said hospital,
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96
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 its funds are devoted exclusively to the maintenance of the institution as a public charity. 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.
Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is not
limited to property actually indispensable therefor 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.
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 “outcharity patients” who come only for consultation.
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Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte
[GR 27588, 31 December 1927]
Digest by: GARCIA, Vianne Marie O.
PONENTE: AVANCEÑA, J
FACTS:
The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas, Ilocos Norte. On the south
side is a part of the Church yard, the convent and an adjacent lots used for a vegetable garden in which there is
a stable and a well for the use of the convent. In the center is the remainder of the church yard and the Church.
On the north side is an old cemetery with its two walls still standing, and a portion where formerly stood a
tower. The provincial board assessed land tax on lots comprising the north and south side, which the church
paid under protest. It filed suit to recover the amount, alleging that the collection of this tax is illegal.
ISSUE:
Whether the lots are covered by the Church’s tax exemption?
HELD:
The exemption in favor of the convent in the payment of land tax refers to the home of the priest who presides
over the church and who has to take care of himself in order to discharge his duties. The exemption includes
not only the land actually occupied by the Church but also the adjacent ground destined to the ordinary
incidental uses of man. A vegetable garden, thus, which belongs to a convent, where its use is limited to the
necessity of the priest, comes under the exemption.
In regard to the lot which formerly was the cemetery was neither used for any commercial purpose. The land
was used as a lodging house by the people who participate in religious festivities, which constitute an
incidental use in religious functions. Likewise it comes within the exemption.
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98
COMMISSIONER OF INTERNAL REVENUE v. YMCA
[G.R. No. 124043 October 14, 1998]
Digest by: GARCIA, Vianne Marie O.
PONENTE: Panganiban, J.
FACTS:
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.
YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and
canteen operators, and from parking fees collected from non-members. Petitioner issued an assessment to
private respondent for deficiency taxes. Private respondent formally protested the assessment. In reply, the
CIR denied the claims of YMCA.
ISSUE:
Whether or not the income derived from rentals of real property owned by YMCA subject to income tax
HELD:
Yes. Income of whatever kind and character of non-stock non-profit 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 the NIRC.
Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not
exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions (Commissioner of Internal Revenue
v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997). 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”
(Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359,
p. 15 July 23, 1998).
Verba legis non est recedendum. 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.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming that it “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
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on its properties and income.” This is without merit since the exemption provided lies on the payment of
property tax, and not on the income tax on the rentals of its property. The bare allegation alone that one 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 above 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. Unfortunately for respondent, the Court noted that not a scintilla of evidence was submitted to prove
that it met the said requisites.
The Court appreciates the nobility of respondent’s 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. 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.
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100
Lung Center of the Philippines vs. Quezon City
[G.R. No. 144104 June 29, 2004]
Digest by: HATOL, Michelle Marie
PONENTE: CALLEJO, SR., J.:
FACTS:
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established by virtue of P D
No. 1823. It is the registered owner of a parcel of land, located in Quezon City. The lot has an area of 121,463
square meters and 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. A big portion on the right side 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. 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. Accordingly, Tax Declarations were issued for
the land and the hospital building. On August 25, 1993, the petitioner filed a Claim for Exemption from real
property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioner’s
request was denied.
ISSUE:
1. Whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the
1973 and 1987 Constitutions and Republic Act No. 7160;
2. Whether the real properties of the petitioner are exempt from real property taxes.
HELD:
1. On the first issue, we hold that the petitioner is a charitable institution. 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 by-laws, 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.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock 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.
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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 out- patient, 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.
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.
2. 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.
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:
(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.
We note that under the 1935 Constitution, “... all lands, buildings, and improvements used ‘exclusively’ for …
charitable … purposes shall be exempt from taxation.” 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.
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 tax-exempt purposes.
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
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102
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. 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.
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103
Part I: General Principles
Situs of Taxation and Double Taxation
Republic Bank vs. Court of Tax Appeals
[G.R. No. 62554-55, September 02, 1992]
Digest by: HATOL, Michelle Marie
PONENTE: NOCON, J.
FACTS:
On 14 September 1971, respondent Commissioner assessed petitioner the amount of P1,060,615.06, plus 25%
surcharge in the amount of P265,153.76, or a total of P1,325,768.82, as 1% monthly bank reserve deficiency
tax for taxable year 1969. “On 5 April 1973, respondent Commissioner assessed petitioner the amount of
P1,562,506.14, plus 25% surcharge in the amount of P390,626.53, or a total of P1,953,132.67, as 1% monthly
bank reserve deficiency tax for taxable year 1970.
Petitioner requested reconsideration of the assessment which respondent Commissioner denied.
“Petitioner contends that Section 249 of the Tax Code is no longer enforceable, because Section 126 of Act
1459, which was allegedly the basis for the imposition of the 1% reserve deficiency tax, was repealed by
Section 90 of Republic Act 337, the General Banking Act, and by Sections 100 and 101 of Republic Act 265.
“On 28 March 1973, petitioner filed a petition for review with the Tax Court, contesting the assessment for the
taxable year 1969 and 1970.
“The cases, involving similar issues, were consolidated. After hearing, the Tax Court rendered a decision dated
30 September 1982 dismissing the petitions for review and upholding the validity of the assessments.
Hence this petition;
ISSUE:
1. Whether section 249 OF THE TAX CODE WHICH PROVIDES THAT ‘THERE SHALL BE COLLECTED UPON THE
AMOUNT OF RESERVE DEFICIENCIES INCURRED BY THE BANK was repealed by section 126 of the
corporation law.
2. Whether there was double taxation.
HELD:
After a careful consideration of the facts of the case and the pertinent laws involved, We vote to deny the
petition.
Firstly, We would like to state that We find unfortunate petitioner’s act of quoting out of context the questioned
provision in the Tax Code. Petitioner alleged that the second paragraph of Section 249 of the Tax Code “merely
states” that there “shall be collected x x x as provided in Section one hundred twenty one of Act numbered one
thousand four hundred and fifty nine x x x one per centum per month.”
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104
If petitioner had been candid and honest enough, it would have stated under what title and chapter of the Tax
Code the second paragraph of Section 249 falls. As it then stood, the law stated:
xxx
TITLE VIII - MISCELLANEOUS TAXES “Sec. 249. Tax on Banks. xxx xxx xxx.
“There shall be collected upon the amount of reserve deficiencies incurred by the bank, and for the period of
their duration, as provided in section one hundred twenty six of Act numbered one thousand four hundred and
fifty-nine, as amended by Act Numbered Three thousand six hundred and ten, one per centum per month. xxx
xxx xxx. (As amended by Rep. Act No. 6110)”
As the law stood during the years the petitioner was assessed for taxes on reserve deficiencies (1969 & 1970),
petitioner had to pay twice -- the first, a penalty, to the Central Bank by virtue of Section 106 for violation of
Secs. 100 and 101, all of theCentral Bank Act and the second, a tax to the Bureau of Internal Revenue for
incurring a reserve deficiency.
As correctly analyzed by the petitioner and public respondents, the new legislations on bank reserves merely
provided the basis for computation of the reserve deficiency of petitioner bank.
Petitioner submits that it was not the legislative intention that banks with reserve deficiencies would pay twice
as the Tax Code (CA 466, as amended by P.D. 69) enacted on January 1, 1973 did not contain said questioned
provision.
While petitioner might have a point, the wisdom of this legislation is not the province of the Court. It is clear
from the statutes then in force that there was no double taxation involved -- one was a penalty and the other
was a tax. At any rate, We have upheld the validity of double taxation. The payment of 1/10 of 1% for incurring
reserve deficiencies (Section 106, Central Bank Act) is a penalty as the primary purpose involved is regulation,
while the payment of 1% for the same violation (Second Paragraph, Section 249, NIRC) is a tax for the
generation of revenue which is the primary purpose in this instance. Petitioner should not complain that it is
being asked to pay twice for incurring reserve deficiencies. It can always avoid this predicament by not having
reserve deficiencies. Petitioner’s case is covered by two special laws -- one a banking law and the other, a tax
law. These two laws should receive such construction as to make them harmonize with each other and with the
other body of pre- existing laws.
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105
Proctor & Gamble Philippines Manufacturing Corp. vs.
Municipality of Jagna
[G.R. No. 124043 October 14, 1998]
Digest by: HATOL, Michelle Marie
PONENTE: MELENCIO-HERRERA, J.
FACTS:
Petitioner Procter and Gamble Philippines Manufacturing Corp. is a consolidated corporation of Procter and
Gamble Trading Company engaged in the manufacture of soap, edible oil, margarine and other similar
products. Petitioner maintains a “bodega” in the municipality of Jagna, where it stores copra purchased in the
municipality and ships the same for its manufacturing and other operations. In 1954, the Municipal Council of
Jagna enacted Ordinance 4, imposing storage fees of all exportable copra deposited in the bodega within the
jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid the municipality,
allegedly under protest, storage fees. In 1964, it filed suit, wherein it prayed that the Ordinance be declared
inapplicable to it, and if not, that it be declared ultra vires and void.
ISSUE:
Whether the Ordinance is void, as it amounts to double taxation.
HELD:
The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon municipalities by
Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the Ordinance is actually a
municipal license tax or fee on persons, firms and corporations exercising the privilege of storing copra within
the municipality’s territorial jurisdiction. Such fees imposed do not amount to double taxation. For double
taxation to exist, the same property must be taxed twice, when it should be taxed but once. A tax on the
company’s products is different from the tax on the privilege of storing copra in a bodega situated within the
territorial boundary of the municipality.
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106
Pepsi-Cola Bottling Company vs. Municipality of Tanauan
G.R. No. L-31156 February 27, 1976]
Digest by: HATOL, Michelle Marie.
PONENTE: MARTIN, J.:
FACTS:
In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264 (Local Autonomy
Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance Nos. 23 and 27 issued
by the Municipality of Tanauan, Leyte as null and void.
Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked. On the other hand, Municipal Ordinance No. 27 levies
and collects on soft drinks produced or manufactured within the territorial jurisdiction of the municipality a
tax of one centavo (P0.01) on each gallon of volume capacity. The tax imposed in both Ordinances Nos. 23 and
27 is denominated as “municipal production tax.”
ISSUE:
1. Is Section 2 of R.A. 2264 an undue delegation of the power of taxation?
2. Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or specific taxes?
HELD:
1. NO. The power of taxation is purely legislative and cannot be delegated to the executive or judicial
department of the government without infringing upon the theory of separation of powers. But as an exception,
the theory does not apply to municipal corporations. Legislative powers may be delegated to local
governments in respect of matters of local concern.
2. NO. The Municipality of Tanauan discovered that manufacturers could increase the volume contents of each
bottle and still pay the same tax rate since tax is imposed on every bottle corked. To combat this scheme,
Municipal Ordinance No. 27 was enacted. As such, it was a repeal of Municipal Ordinance No. 23. In the
stipulation of facts, the parties admitted that the Municipal Treasurer was enforcing Municipal Ordinance No.
27 only. Hence, there was no case of double taxation.
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Villanueva, Et Al., v City of Iloilo
[L-22405. December 28, 1968]
Digest by:JHOCSON, Maria Alexandria B.
PONENTE: Castro, J.
FACTS:
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as
follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged
in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement
house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and
constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian
Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios
Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, “it not
appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted
to the City of Iloilo by its Charter.”
On January 15, 1960 the municipal board of Iloilo City believing that with the passage of RA 2264 (Local
Autonomy Act), it had acquired the authority or power to enact an ordinance similar to that previously
declared by this Court as ultra vires, enacted Ordinance 11, series of 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses,
aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are
owners of ten apartments. Each of the appellees’ apartments has a door leading to a street and is rented by
either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a
dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod,
Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not impose tenement or
apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and
Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza,
Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio
Villanueva has likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint,
respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960,
be declared “invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of
the equal protection clause of the Constitution,” and that the City be ordered to refund the amounts collected
from
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them under the said ordinance.
On March 30, 1966, the lower court rendered judgment declaring the ordinance illegal on the grounds that (a)
“RA 2264 does not empower cities to impose apartment taxes,” (b) the same is “oppressive and unreasonable,”
for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only
double taxation, but treble at that and
(d) it violates the rule of uniformity of taxation.
ISSUE:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement
taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
HELD:
1. No. While it is true that the plaintiffs-appellees are taxable under Sec. 182 (A) (3)
(s) of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in
question, the argument against double taxation may not be invoked. The same tax may be imposed by the
national government as well as by the local government. There is nothing inherently obnoxious in the exaction
of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political
subdivision thereof. The contention that the plaintiffs-appellees are doubly taxed because they are paying the
real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a wellsettled rule that a license tax may be levied upon a business or occupation although the land or property used
in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in
a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being
in no sense a double tax. “In order to constitute double taxation in the objectionable or prohibited sense the
same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within
the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or
character of tax.” It has been shown that a real estate tax and the tenement tax imposed by the ordinance,
although imposed by the same taxing authority, are not of the same kind or character. At all events, there is no
constitutional prohibition against double taxation in the Philippines. It is something not favored, but is
permissible, provided some other constitutional requirement is not thereby violated, such as the requirement
that taxes must be uniform.”
2. Yes. RA 2264 confers on local governments broad taxing authority which extends to almost “everything,
excepting those which are mentioned therein,” provided that the tax so levied is “for public purposes, just and
uniform,” and does not transgress any constitutional provision or is not repugnant to a controlling statute.
Thus, when a tax, levied under the
PAGE
109
auth
ority
of a
city
or
muni
cipal
ordi
nanc
e, is
not
withi
n the
exce
ption
s and
limit
ation
s
afore
ment
ione
d,
the
same
com
es
withi
n the
ambi
t of
the
gene
ral
rule,
purs
uant
to
the
rules
of
expr
essio
uniu
s est
exclu
sio
alteri
us,
and
exce
ptio
firm
at
regul
um
in
casib
us
non
exce
pti.
The
appe
llees
stron
gly
maintai
n that
it is a
“prope
rty tax”
or “real
estate
tax,”
and not
a “tax
on
person
s
engage
d in
any
occupa
tion or
busines
s or
exercis
ing
privileg
es,” or
a
license
tax, or
a
privileg
e tax,
or an
excise
tax. It
is our
view
that
the tax
in
questio
n is not
a real
estate
tax. A
real
estate
tax is a
direct
tax on
the
owners
hip of
lands
and
buildin
gs or
other
improv
ements
thereo
n, not
speciall
y
exempt
ed, and
is
payabl
e
rega
rdles
s of
whet
her
the
prop
erty
is
used
or
not,
altho
ugh
the
valu
e
may
vary
in
acco
rdan
ce
with
such
facto
r.
The
tax is
usua
lly
singl
e or
indiv
isibl
e,
altho
ugh
the
land
and
build
ing
or
impr
ove
ment
s
erect
ed
there
on
are
asses
sed
sepa
ratel
y,
exce
pt
whe
n the
land
and
build
ing
or
improv
ements
belong
to
separat
e
owners
. It is a
fixed
propor
tion of
the
assesse
d value
of the
proper
ty
taxed,
and
require
s,
therefo
re, the
interve
ntion
of
assesso
rs. It is
collecte
d or
payabl
e at
appoin
ted
times,
and it
constit
utes a
superio
r lien
on and
is
enforce
able
against
the
proper
ty
subject
to such
taxatio
n, and
not by
impris
onmen
t of the
owner.
The tax
impose
d by
the
ordina
nce in
questio
n does
not
posses
s the
afore
state
d
attri
bute
s.
The
subje
ctmatt
er of
the
ordi
nanc
e is
tene
ment
hous
es
who
se
natu
re
and
esse
nce
are
expr
essly
set
forth
in
secti
on 2
whic
h
defin
es a
tene
ment
hous
e as
“any
build
ing
or
dwel
ling
for
renti
ng
spac
e
divid
ed
into
sepa
rate
apart
ment
s or
acce
ssori
as.”
The
Supr
eme
Court
defined
a
teneme
nt
house
as “any
house
or
buildin
g, or
portion
thereof
, which
is
rented,
leased,
or
hired
out to
be
occupie
d, or is
occupie
d, as
the
home
or
residen
ce of
three
familie
s or
more
living
indepe
ndently
of each
other
and
doing
their
cookin
g in the
premis
es or
by
more
than
two
familie
s upon
any
floor,
so
living
and
cookin
g, but
having
a
commo
n right
in the
halls,
stairwa
ys,
yard
s,
wate
rclose
ts, or
privi
es,
or
some
of
them
.”
Tene
ment
hous
es,
bein
g
nece
ssari
ly
offer
ed
for
rent
or
lease
by
their
very
natu
re
and
esse
nce,
there
fore
cons
titut
ea
disti
nct
form
of
busi
ness
or
calli
ng,
simil
ar to
the
hotel
or
mote
l
busi
ness,
or
the
oper
ation
of
lodgi
ng
houses
or
boardi
ng
houses.
The
lower
court
has
interch
angeab
ly
denomi
nated
the tax
in
questio
n as a
teneme
nt tax
or an
apartm
ent tax.
Called
by
either
name,
it is not
among
the
excepti
ons
listed
in
section
2 of the
Local
Autono
my Act.
3. No.
“A tax
is not a
debt in
the
sense
of an
obligati
on
incurre
d by
contrac
t,
express
or
implied
, and
therefo
re is
not
within
the
meanin
g of
constit
utional
or
statuto
ry
provi
sions
aboli
shin
g or
proh
ibitin
g
impr
ison
ment
for
debt,
and
a
statu
te or
ordi
nanc
e
whic
h
puni
shes
the
nonpay
ment
there
of by
fine
or
impr
ison
ment
is
not,
in
confl
ict
with
that
proh
ibitio
n.”
Nor
is
the
tax
in
ques
tion
a
poll
tax,
for
the
latte
r is a
tax
of a
fixed
amo
unt
upon
all
person
s, or
upon
all
person
s of a
certain
class,
residen
t
within
a
specifie
d
territor
y,
withou
t
regard
to their
proper
ty or
the
occupa
tions in
which
they
may be
engage
d.
Theref
ore, the
tax in
questio
n is not
oppres
sive in
the
manne
r the
lower
court
puts it.
On the
other
hand,
the
charter
of Iloilo
City
empow
ers its
munici
pal
board
to “fix
penalti
es for
violatio
ns of
ordina
nces,
which
shall
not
exceed
a fine
of
two
hund
red
peso
s or
six
mont
hs’
impr
ison
ment
, or
both
such
fine
and
impr
ison
ment
for
each
offen
se.”
4.
No.
This
Cour
t has
alrea
dy
ruled
that
tene
ment
hous
es
cons
titut
ea
disti
nct
class
of
prop
erty.
It
has
like
wise
ruled
that
“taxe
s are
unifo
rm
and
equa
l
whe
n
impo
sed
upon
all
PAGE
110
prop
erty
of
the
same
class
or
char
acter
withi
n the
taxin
g
auth
ority.
” The
fact,
there
fore,
that
the
own
ers
of
othe
r
class
es of
build
ings
in
the
City
of
Iloilo
do
not
pay
the
taxes
impo
sed
by
the
ordi
nanc
e in
ques
tion
is no
argu
ment
at all
agai
nst
unifo
rmit
y
and
equa
lity
of
the
tax
impo
sitio
n.
Neither
is the
rule of
equalit
y and
unifor
mity
violate
d by
the fact
that
teneme
nt
taxes
are not
impose
d in
other
cities,
for the
same
rule
does
not
require
that
taxes
for the
same
purpos
e
should
be
impose
d in
differe
nt
territor
ial
subdivi
sions at
the
same
time.
So long
as the
burden
of the
tax
falls
equally
and
imparti
ally on
all
owners
or
operat
ors of
teneme
nt
houses
similarl
y
classifi
ed or
situate
d,
equa
lity
and
unifo
rmit
y of
taxat
ion
is
acco
mpli
shed.
The
plain
tiffsappe
llees,
as
own
ers
of
tene
ment
hous
es in
the
City
of
Iloilo
,
have
not
shown
that
the tax
burden
is not
equally
or
unifor
mly
distrib
uted
among
them,
to
overthr
ow the
presum
ption
that tax
statute
s are
intende
d to
operat
e
unifor
mly
and
equally
.
PAGE
111
Victorias Milling Co., v Municipality of Victoria
[G.R. No. L-21183. September 27, 1968]
Digest by: JHOCSON, Maria Alexandria B.
PONENTE: Sanchez
FACTS:
Ordinance No. 1 is an amendment to two municipal ordinances separately imposing license taxes on operators
of sugar centrals and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates
of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of
graduated schedule of annual output capacity. The production of plaintiff Victorias Milling Co., Inc. in both its
sugar central and its sugar refinery located in the Municipality of Victorias comes within the items in the
schedule of Section 1(m) relating to sugar centrals and Section 2(m) covering sugar refineries of Ordinance No.
1, “An Ordinance Amending Ordinance No. 25, Series of 1953 and Ordinance No. 18, Series of 1947 on Sugar
Central by Increasing the Rates on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on
Capacity Annual Output Respectively”, with specific reference to the maximum annual license tax.
Plaintiff filed suit to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The trial court
held that “[t]here is no doubt that” the ordinance in question refers to license taxes or fees,” and that “[i]t is
settled that a license tax should be limited to the cost of licensing, regulating and surveillance.” It also ruled
that, “if the defendant has the power to tax the plaintiff for purposes of revenue, it may do so by proper
municipal legislation, but not in the guise of a license tax.”
Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the decision
denying the refund of the license taxes paid under protest in the amount of P280,000 covering the period from
the first quarter of 1957 to the second quarter of 1960; and balked at the court’s order limiting refund to “any
and all such license taxes paid under protest after notice of this decision.” Defendant, upon the other hand,
challenges the correctness of the court’s decision invalidating Ordinance No. 1, series of 1956.
ISSUE:
Whether or not there was double taxation.
HELD:
No. Double taxation has been otherwise described as “direct duplicate taxation.” For double taxation to exist,
“the same property must be taxed twice, when it should be taxed but once.” Double taxation has also been
“defined as taxing the same person twice by the same jurisdiction for the same thing.” With the foregoing
precepts in mind, we find no difficulty in saying that plaintiff’s argument on double taxation does not inspire
assent. First. The two taxes cover two different objects. Section 1 of the ordinance taxes a person operating
sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2, those taxed are the
operators of sugar refinery mills. One occupation or business is different from the
PAGE
112
othe
r.
Seco
nd.
The
disp
uted
taxes
are
impo
sed
on
occu
patio
n or
busi
ness.
Both
taxes
are
not
on
suga
r.
The
amo
unt
there
of
depe
nds
on
the
annu
al
outp
ut
capa
city of
the
mills
concer
ned,
regardl
ess of
the
actual
sugar
milled.
Plaintif
f’s
argume
nt
perhap
s could
make
out a
point if
the
object
of
taxatio
n here
were
the
sugar it
produc
es, not
the
busines
s of
produc
ing it.
PAGE
113
Compania General De Tabacos De Filipinas v City of Manila,
Et Al.
[G.R. No. L-16619. June 29, 1963]
Digest by: JHOCSON, Maria Alexandria B.
PONENTE: Dizon
FACTS:
Appellee Compania General de Tabacos de Filipinas (Tabacalera) filed this action in the Court of First Instance
of Manila to recover from appellants, City of Manila and its Treasurer, Marcelino Sarmiento (City) the sum of
P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the
third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license fees
prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of
general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816. In its
sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of 1954
to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is not
denied that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the
action represents the tax corresponding to the liquor sales aforesaid. In the year 1954, the City, through its
treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view
that liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance No. 3358 are not
subject to the wholesale and retail dealers’ taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816.
Upon learning of said opinion, appellee stopped including its sales of liquor in its quarterly sworn declarations
submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301, and 3816, and on December 3,
1957, it addressed a letter to the City Treasurer demanding refund of the alleged overpayment. As the claim
was disallowed, the present action was instituted.
ISSUE:
Is Tabacalera subjected to double taxation?
HELD:
No. The term “tax” generally applies to all kinds of exactions which become public funds. The term is often
loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are
commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under
the taxing power for the purpose of raising revenues.
Ordinance No. 3358 prescribes municipal license fees for the privilege to engage in the business of selling
liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter
power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally
manufactured (Section 18 [p], Republic Act
PAGE
114
409, as amended). The license fees imposed by it are essentially for purposes of regulation, and are justified,
considering that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and
must be subject to supervision or regulation by the state and by cities and municipalities authorized to act in
the premises.
On the other hand, Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise,
wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power
to tax dealers for the sale of such merchandise (Section
10 [o], Republic Act No. 409, as amended.).
Under Ordinance No. 3634 the word “merchandise” as employed therein clearly includes liquor. Aside from
this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., that the word “merchandise” refers to all
subjects of commerce and traffic; whatever is usually bought and sold in trade or market; goods or wares
bought and sold for gain; commodities or goods to trade; and commercial commodities in general.
Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which not
anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may endanger public
health and morals. On the other hand, what the three ordinances mentioned heretofore impose is a tax for
revenue purposes based on the sales made of the same article or merchandise. It is already settled in this
connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling
the same article, this not being in violation of the rule against double taxation.
PAGE
115
Province of Bulacan v Court of Appeals
[G.R. No. 126232. November 27, 1998]
Digest by: JHOCSON, Maria Alexandria B.
PONENTE: Romero
FACTS:
On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as “An
Ordinance Enacting the Revenue Code of the Bulacan Province.” which was to take effect on July 1, 1992.
Section 21 of the ordinance provides as follows: Sec. 21 Imposition of Tax. There is hereby levied and collected
a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and
other quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock
phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public
waters within its territorial jurisdiction.
Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated November 11, 1993, assessed private
respondent Republic Cement Corporation P2,524,692.13 for extracting limestone, shale and silica from several
parcels of private land in the province during the third quarter of 1992 until the second quarter of 1993.
Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on quarry
resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993. It
was denied by the Provincial Treasurer. Republic Cement then filed a petition for declaratory relief with the
RTC of Bulacan while the province filed a motion to dismiss Republic Cement’s petition, which was granted by
the trial court.
On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the
trial court’s dismissal of their petition. The Court referred the same to the Court of Appeals who ruled that the
Province did not have legal authority to impose and assess taxes on quarry resources extracted by RCC from
private lands.
ISSUE:
Whether or not the provincial government could impose taxes on stones, sand, gravel, earth and other quarry
resources extracted from private lands.
HELD:
No. Section 186 allows a province to levy taxes other than those specifically enumerated under the Code,
subject to the conditions specified therein. However, petitioners are still prohibited from imposing taxes on
stones, sand, gravel, earth and other quarry resources extracted from private lands. The tax imposed by the
Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity.
The Local Government Code provides:
Sec. 133. — Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise
provided herein, the exercise of the taxing powers
PAGE
116
of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:
xxx xxx xxx
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees
or charges on petroleum products;
xxx xxx xxx
A province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue
Code which provides:
Sec. 151. — Mineral Products. —
(A) Rates of Tax. — There shall be levied, assessed and collected on minerals, mineral products and quarry
resources, excise tax as follows:
xxx xxx xxx
(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market
value of the gross output thereof at the time of removal, in case of those locally extracted or produced; or the
values used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and valueadded tax, in the case of importation.
It is clearly apparent from the above provision that the NIRC levies a tax on all quarry resources, regardless of
origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on
stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the NIRC. The
province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from
public land because it is expressly empowered to do so under the LGC. As to stones, sand, gravel, earth and
other quarry resources extracted from private land, however, it may not do so, because of the limitation
provided by Section 133 of the Code in relation to Section 151 of the NIRC.
PAGE
117
Part I: General Principles
Forms of Escape from Taxation
Delpher Trades Corporation v. IAC and Hydro Pipes
Philippines
[G.R. No. L-69259.January 26, 1988]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Gutierrez, Jr.
FACTS:
Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of real estate in the Municipality of Polo. The
said co-owners leased to Construction Components International Inc. the same property and providing that
during the existence or after the term of this lease the lessor should he decide to sell the property leased shall
first offer the same to the lessee. The lessee Construction Components International, Inc. assigned its rights and
obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and
consent of lessors Delfin Pacheco and Pelagia Pacheco.
The contract of lease and the assignment of lease were annotated at he back of the title. The deed of exchange
was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby
the former conveyed to the latter the leased property together with another parcel of land also for 2,500 shares
of stock of defendant corporation with a total value of P1.5M.
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the
lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the
lot.
ISSUE:
Whether the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation
on the other was meant to be a contract of sale which, in effect, prejudiced the Hydro Phil’s right of first refusal
over the leased property included in the “deed of exchange”.
HELD:
No. By their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their
equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In
effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest
their properties and change the nature of their ownership from unincorporated to incorporated form by
organizing Delpher Trades Corporation to take control of their properties and at the same time save on
inheritance taxes. Its other advantages are continuous control of the property, tax exemption benefits, and
other inherent benefits in a corporation.
The “Deed of Exchange” of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership
PAGE
118
interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form
to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its
claim of a light of first refusal
PAGE
119
Heng Tong Textiles Co., Inc. v. CIR
[G.R. No. L-19737. August 26, 1968]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Makalintal
FACTS:
In 1952 the then Collector of Internal Revenue assessed against the petitioner deficiency sales taxes and
surcharges for the year 1949 and the first four months of 1950 in the aggregate sum of P89,123.58. The
deficiency taxes in question were assessed on importations of textiles from abroad. The goods were withdrawn
from Customs by Pan-Asiatic Commercial Co., Inc., which paid, in the name of the petitioner, the corresponding
advance sales tax. The assessment for the deficiency, however, was made against the petitioner, Heng Tong
Textiles Co., Inc. (now Philip Manufacturing Corporation) on the ground that it was the real importer of the
goods and did not pay the taxes due on the basis of the gross selling prices thereof.
ISSUE:
Whether the petitioner was guilty of fraud so as to warrant the imposition of a penalty of 50% on the
deficiency.
HELD:
No. The arrangement resorted to does not by itself alone justify the penalty imposed. Section 183 (a),
paragraph 3, of the Internal Revenue Code, as amended by Republic Act No. 253, speaks of willful neglect to file
the return or willful making of a false or fraudulent return. An attempt to minimize one’s tax does not
necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his liability by any means
which the law permits. “The intention to minimize taxes, when used in the context of fraud, must be proved to
exist by clear and convincing evidence amounting to more than mere preponderance, and cannot, be justified
by mere speculation. This is because fraud is never lightly to be presumed.” No such evidence is shown by the
record in the case of the herein petitioner. Its actuation is not incompatible with good faith on its part, that is,
with a genuine belief that by indorsing the goods to Pan-Asiatic Commercial so that the latter could, as it did,
take delivery thereof, Pan-Asiatic Commercial would in law be considered the importer. It may even be true, as
the petitioner insists, that it was Pan-Asiatic Commercial that financed the importations but placed them in the
name of the petitioner as a matter of accommodation, in which case the element of fraud would be ruled out,
although from the legal viewpoint and as far as the right of the Government to collect the taxes was concerned
the petitioner was the real importer and hence must shoulder the tax burden.
PAGE
120
CIR v. The Estate of Benigno Toda, Jr.
[G.R. No. 147188. September 14, 2004]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Davide
FACTS:
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding
capital stock, to sell the Cibeles Building. On 30 August 1989, 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. Three and a half years later Toda died. On 29 March 1994, the BIR sent an assessment notice
and demand letter to the CIC for deficiency income tax for the year 1989. On 27 January 1995, the Estate of
Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario Luza Bautista,
received a Notice of Assessment from the CIR for deficiency income tax for the year 1989. The Estate thereafter
filed a letter of protest. The Commissioner dismissed the protest. On 15 February 1996, the Estate filed a
petition for review with the CTA. In its decision the CTA held that the Commissioner failed to prove that CIC
committed fraud to deprive the government of the taxes due it. It ruled that even assuming that a preconceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. Hence,
the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a petition for
review with the Court of Appeals. The Court of Appeals affirmed the decision of the CTA, hence, this recourse.
ISSUE:
1. Whether this a case of tax evasion or tax avoidance.
2. Whether the period for assessment of deficiency income tax for the year 1989 prescribed.
3. Whether respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any?
HELD:
1. Yes. 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. 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 cannot be considered a legitimate
tax planning. Such scheme is tainted with fraud. Altonaga’s sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax shelter. The sale to him was merely a tax ploy, a
sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was
calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.
PAGE
121
2. No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read: “Sec. 269.
Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the case of a false or
fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding
in court after the collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection
thereof…” Put differently, in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3)
failure to file a return, the period within which to assess tax is ten years from discovery of the fraud,
falsification or omission, as the case may be.
3. Yes. 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. There are, however, certain instances in which personal liability may arise, to wit:
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.
It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and
voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987, 1988,
and 1989. When the late 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,” he thereby voluntarily held himself
personally liable therefor. Respondent estate cannot, therefore, deny liability for CIC’s deficiency income tax for
the year 1989 by invoking the separate corporate personality of CIC, since its obligation arose from Toda’s
contractual undertaking, as contained in the Deed of Sale of Shares of Stock.
PAGE
122
Part I: General Principles
Exemption from Taxation
Davao Gulf Lumber Corporation v. CIR
[G.R. No. 117359. July 23, 1998]
Digest by: JULIAN, Nicole Alora G.
PONENTE: Panganiban
FACTS:
From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and
manufactured mineral oils as well as motor and diesel fuels. Said oil companies paid the specific taxes imposed
on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by
the oil companies were eventually passed on to the petitioner in this case.
Petitioner filed before Respondent CIR a claim for refund in the amount of P120, 825.11, representing 25% of
the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its
operations as forest concessionaire.
On January 20, 1983, petitioner filed at the CTA a petition for review. The CTA rendered its decision finding
petitioner entitled to a partial refund of specific taxes in the reduced amount of P2, 923.15. In regard to the
other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under RA
1435, and not on the higher rates actually paid by petitioner under the NIRC.
ISSUE:
Whether or not petitioner is entitled to the refund of 25% of the amount of specific taxes it actually paid on
various refined and manufactured mineral oils.
HELD:
Yes, partially. At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of
RA 1435, which was enacted to provide means for increasing the Highway Special Fund.
A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other
hand, once the tax is unquestionably imposed, “[a] claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken.” Since the partial refund authorized under
Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the
grantee. Hence, petitioner’s claim of refund on the basis of the specific taxes it actually paid must expressly be
granted in a statute stated in a language too clear to be mistaken.
PAGE
123
Philippine Acetylene Co., Inc. v. Commissioner of Internal
Revenue and Court of Tax Appeals
[L-19707. August 17, 1967]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Castro
FACTS:
The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases, who made
various sales of its products to the National Power Corporation (Phil. Gov. Agency), and to the Voice of America
(US Gov. Agency). The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683,
on account of which the respondent Commission of Internal Revenue assessed against, and demanded from,
the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to the provisions of
Secs. 183 and 186 of the National Internal Revenue Code.
The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are
exempt from taxation. It asked for a reconsideration of the assessment and, failing to secure one, appealed to
the Court of Tax Appeals.
The court ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the
manufacturer and not on the buyer with the result that petitioner cannot claim exemption from the payment of
sales tax simply because NPC is exempt from the payment of all taxes. With respect to the sales made to the
VOA, the court held that goods purchased by the American Government or its agencies are exempt from the
payment of the sales tax under the agreement between the Philippines and that of the United States, provided
the purchases are supported by certificates of exemption.
ISSUE:
Whether petitioner is liable for the payment of tax on the sales it made to the NPC and the VOA because both
entities are exempt from taxation.
HELD:
Yes. The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or
producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. It may
indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a
part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to
the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the
amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount
of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the
seller more for the goods because of the seller’s obligation, but that is all and the amount added because of the
tax is paid to get the goods and for nothing else. Even if the NPC enjoys tax exemption by virtue of an act of
Congress, petitioner still has to pay the tax on the sales made.
PAGE
124
With
rega
rd to
petiti
oner’
s
sales
to
the
Voic
e of
Ame
rica,
the
provi
sions
of
the
agre
eme
nt
betw
een
the
Gove
rnm
ent
of
the
Phili
ppin
es
and
the
Gove
rnm
ent
of
the
Unit
ed
State
s,
provi
de
that
good
s
purc
hase
d
locall
y by
U.S.
civili
an
agen
cies
direc
tly
from
man
ufact
urer
s,
prod
ucers
or
import
ers
shall be
exempt
from
the
sales
tax,
provid
ed such
purcha
ses are
suppor
ted by
serially
umber
ed
Certific
ates of
Tax
Exempt
ion
issued
by the
vendee
agency.
Howev
er, we
find
nothin
g in the
langua
ge of
the
Agree
ment
to
warran
t the
general
exempt
ion
grante
d by
that
circula
r. The
agreem
ent
provid
es that
only
sales
made
“for
exclusi
ve use
in the
constru
ction,
mainte
nance,
operati
on or
defe
nse
of
the
base
s,” in
a
word
,
only
sales
to
the
quar
term
aster
, are
exe
mpt
unde
r
articl
eV
from
taxat
ion.
Sales
of
good
s to
any
othe
r
part
y
even
if it
be
an
agen
cy of
the
Unit
ed
States,
such as
the
VOA, or
even to
the
quarter
master
but for
a
differe
nt
purpos
e, are
not
free
from
the
payme
nt of
the tax.
We
hold,
therefo
re, that
sales to
the
VOA
are
subject
to the
payme
nt of
percent
age
taxes
under
section
186 of
the
Code.
PAGE
125
Commissioner of Internal Revenue v. Court of Appeals, Court
of Tax Appeals, and Ateneo de Manila University
[G.R. No. 115349. April 18, 1997]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Panganiban
FACTS:
Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches all over
the Philippines, one of which is the Institute of Philippine Culture (IPC), which has no legal personality separate
and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of
Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from
international organizations, private foundations and government agencies.
On July 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter
assessing private respondent the sum of P174,043.97 for alleged deficiency contractor’s tax, and an assessment
in the sum of P1,141,837 for alleged deficiency income tax, both for the fiscal year ended March 31, 1978.
Private respondent denied the liability by contesting the validity of the assessments. Petitioner further
modified the assessment for deficiency contractor’s tax by increasing the amount due to P193,475.55.
Unsatisfied, private respondent requested for a reconsideration and at the same time filed in the respondent
court a petition for review of the said letter-decision of the petitioner. While the petition was pending before
the respondent court, petitioner reduced the assessment for deficiency contractor’s tax to P46,516.41,
exclusive of surcharge and interest.
On July 1993, the respondent court ruled that the deficiency contractor’s tax assessment in the amount of
P46,516.41 exclusive of surcharge and interest for the fiscal year ended March 31, 1978 is cancelled.
ISSUE:
Whether Ateneo de Manila University, through its auxiliary unit or branch — the Institute of Philippine Culture
— performing the work of an independent contractor and, thus, subject to the three percent contractor’s tax
levied by then Sec. 205 of the NIRC.
HELD:
No. To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent
contractor be engaged in the business of selling its services. We find no evidence that Ateneo’s Institute of
Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and
independently of the academic purposes of the university.
The funds received by Ateneo’s Institute of Philippine Culture are not given in the concept of a fee or price in
exchange for the performance of a service or delivery of an object. Rather, the amounts are in the nature of an
endowment or donation given by IPC’s benefactors
PAGE
126
solel
y for
the
purp
ose
of
spon
sorin
g or
fundi
ng
the
rese
arch
with
no
strin
gs
attac
hed
whic
h are
taxexe
mpt.
Priva
te
resp
onde
nt is
man
date
d by
law
to
unde
rtake
rese
arch
activ
ities
to
main
tain
its
univ
ersit
y
statu
s.
Since
it
can
only
finan
ce a
limit
ed
num
ber
of
IPC’s
rese
arch
proje
cts,
private
respon
dent
occasio
nally
accepts
sponso
rship
for
unfund
ed IPC
researc
h
project
s from
interna
tional
organiz
ations,
private
founda
tions
and
govern
mental
agencie
s. It
bears
stressi
ng that
private
respon
dent is
a nonstock,
nonprofit
educati
onal
corpor
ation.
The
fact
that it
accepte
d
sponso
rship
for
IPC’s
unfund
ed
project
s is
merely
inciden
tal. For,
the
main
functio
n of the
IPC is
to
undert
ake
researc
h
proje
cts
unde
r the
acad
emic
agenda
of the
private
respon
dent.
PAGE
127
CaltexPhilippines, Inc.v.CommissiononAudit,Commissioner
Bartolome Fernandez and Commissioner Alberto Cruz
[G.R. No. [92585. May 8, 1992]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Davide, Jr.
FACTS:
In 1989, the COA sent a letter to Caltex directing it to remit to the OPSF its collection of the additional tax on
petroleum products authorized under Sec. 8 of P.D. No. 1956 and informing it that, pending such remittance, all
of its claims for reimbursement from the OPSF shall be held in abeyance. Thereafter, petitioner requested the
COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of
Energy Affairs since June 1987 up to March 1989. COA denied petitioner’s request for the early release of the
reimbursement certificates from the OPSF.
Petitioner submitted to the COA a proposal for the payment of the collections and the recovery of claims and
the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the proposal but
prohibiting petitioner from further offsetting remittances and reimbursements for the current and ensuing
years. Pursuant to this decision, the COA, on August 18, 1989, sent the a letter to Executive Director De la Paz of
the Office of Energy Affairs informing them that Caltex shall be required to remit to OPSF a certain amount
representing remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted
claims). In addition, the Commission authorizes the Office of Energy Affairs (OEA) to cause payment to Caltex of
its claims initially allowed in audit but the disallowance includes sales to NPC, Atlas and Marcopper. It reasoned
that for the sales to Atlas/Marcopper, LOI No. 1416 dated July 17, 1984 provides that “I hereby order and
direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect
due and payable by the copper mining companies in distress to the national and local governments.” It is their
opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has
no legal basis.
Petitioner filed an Omnibus Request for the Reconsideration of the decision contending that administrative
interpretations are legal and should be respected and applied unless declared null and void by courts or
repealed by legislation. The COA handed down Decision No. 1171 affirming the disallowance for recovery of
financing charges, inventory losses, and sales to Marcopper and Atlas.
ISSUE:
Whether petitioner has claim for reimbursement from its sales to NPC, Atlas, and Marcopper.
PAGE
128
HELD:
For sales to NPC, we find for the petitioner. The respondents themselves admit in their Comment that
underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the
payment of taxes; to prove this, respondents trace the laws providing for such exemption. The last law cited is
the Fiscal Incentives Regulatory Board’s Resolution No. 17-87 of 24 June 1987 which provides, in part, “that the
tax and duty exemption privileges of the National Power Corporation, including those pertaining to its
domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987.” In a
Memorandum issued on 5 October 1987 by the Office of the President, NPC’s tax exemption was confirmed and
approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the NPC is
evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support
the OPSF. The pertinent part of Section 2, Republic Act No. 6952 provides: “Application of the Fund shall be
subject to the following conditions:
(1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported crude oil and
finished petroleum products resulting from foreign exchange rate adjustments and/or increases in world
market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation (NPC); and (c) other cost underrecoveries incurred as may be finally decided by the Supreme
Court…”
For sales to ATLAS and MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416, dated 17 July 1984.
Pursuant to this LOI, then Minister of Energy issued Memorandum Circular No. 84-11-22 advising the oil
companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are among those
declared to be in distress.
LOI 1416 could not have intended to exempt said distressed mining companies from the payment of OPSF dues
for the following reasons: a) LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956
creating the OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on
February 25, 1987; b) LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with
the government’s effort to prevent the collapse of the copper industry. P.D No. 1956, as amended, was issued
for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or
changes in world market prices of crude oil and imported petroleum product’s; and c) LOI 1416 caused the
“suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by
the copper mining companies in distress to the Notional and Local Governments . . .” On the other hand, OPSF
dues are not payable by (sic) distressed copper companies but by oil companies. It is to be noted that the
copper mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in
the prices of oil products. While LOI 1416 suspends the payment of taxes by distressed mining companies, it
does not accord petitioner the same privilege with respect to its obligation to pay OPSF dues. Also, it is
apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil Code.
Therefore it has no binding force or effect as it was never published in the Official Gazette after its issuance.
PAGE
129
Even granting arguendo that LOI 1416 has force and effect, petitioner’s claim must still fail. Tax exemptions as
a general rule are construed strictly against the grantee and liberally in favor of the taxing authority. The
burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so
claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least
be within its purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and
MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the
payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to the
payment of OPSF dues.
PAGE
130
Luzon Stevedoring Corp. v. Court of Tax Appeals,
Commissioner of Internal Revenue
[L-30232. July 29, 1988]
Digest by: MAGAT, Kristianne Santiago
PONENTE: Paras
FACTS:
Petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine
parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a
tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review with
the Court of Tax Appeals, praying that it be granted the refund of the amount of P33,442.13. The Court of Tax
Appeals denied the various claims for tax refund. The Motion for Reconsideration was denied, hence, the
instant petition.
ISSUE:
Whether petitioner’s “tugboats” can be interpreted to be included in the term “cargo vessels” for purposes of
the tax exemption provided for in Sec. 190 of the NIRC.
HELD:
No. This Court has laid down the rule that as the power of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate,
must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may
be applied. The general rule is that any claim for exemption from the tax statute should be strictly construed
against the taxpayer.
In order that the importations in question may be declared exempt from the compensating tax, the following
requirements must be complied with: (1) the engines and spare parts must be used by the importer himself as
a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or
oceangoing navigation. The amendatory provisions of R.A. 3176 limit tax exemption from the compensating tax
to imported items to be used by the importer himself as operator of passenger and/or cargo vessel.
From the decision of the CTA, a tugboat is defined as a strongly built, powerful steam or power vessel, used for
towing and, now, also used for attendance on vessel. A tugboat is a diesel or steam power vessel designed
primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals.
A tug is a steam vessel built for towing, synonymous with tugboat. Hence, petitioner’s tugboats clearly do not
fall under the categories of passenger and/or cargo vessels.
The Court of Tax Appeals found that no evidence was adduced by petitioner-appellant that tugboats are
passenger and/or cargo vessels used in the shipping industry as an independent business. On the contrary,
petitioner-appellant’s own evidence supports the view
PAGE
131
that
it is
enga
ged
as a
steve
dore,
that
is,
the
work
of
unlo
adin
g
and
loadi
ng of
a
vess
el in
port;
and
towi
ng of
barg
es
cont
ainin
g
carg
oes
is a
part
of
petiti
oner’
s
unde
rtaki
ng as
a
steve
dore.
In
fact,
even
its
trade
nam
e is
indic
ative
that its
sole
and
princip
al
busines
s is
steved
oring
and
lighter
age,
taxed
under
Section
191 of
the
Nation
al
Interna
l
Revenu
e Code
as a
contrac
tor,
and not
an
entity
which
transp
orts
passen
gers or
freight
for hire
which
is taxed
under
Section
192 of
the
same
Code as
a
commo
n
carrier
by
water.
PAGE
132
National Development Company v. Commissioner Of Internal
Revenue
[L-53961. June 30, 1987]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Chico-Nazario
FACTS:
National Development Company (NDC) is a domestic corporation with principal offices in Manila. It entered
into contracts in Tokyo with several Japanese shipbuilding companies for the construction of twelve oceangoing vessels.
Initial payments were made in cash and through irrevocable letters of credit. Fourteen promissory notes were
signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the
Philippines. Thereafter, remaining payments and the interests thereon were remitted in due time by the NDC
to Tokyo. After the vessels were delivered, the NDC remitted to the shipbuilders in Tokyo the interest on the
balance of the purchase price. No tax was withheld. The Commissioner of Internal Revenue held that the
interest remitted to the Japanese shipbuilders on the unpaid balance of the purchase price of the vessels
acquired by petitioner is subject to income tax under the Tax Code. The petitioner argues that the Japanese
shipbuilders were not subject to tax under the Tax Code. Petitioner contends that the interest payments were
obligations of the Republic of the Philippines and that the promissory notes of the NDC were government
securities exempt from taxation under Section 29(b)[4] of the Tax Code.
ISSUE:
Whether petitioner should not be held liable due to the undertaking signed by the Secretary of Finance and
because the interest payments were obligations of the Republic of the Philippines and that the promissory
notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code as
alleged by petitioner.
HELD:
No. Petitioner should be held liable. There is nothing in Section 29(b)[4] of the Tax Code exempting the
interests from taxes. Furthermore in the said undertaking, petitioner has not established a clear waiver therein
of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and
unmistakably expressed. Any doubt concerning this question must be resolved in favor of the taxing power. It
is not the NDC that is being taxed. It was the income of the Japanese shipbuilders and not the Republic of the
Philippines that was subject to the tax the NDC did not withhold. In effect, therefore, the imposition of the
deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders.
PAGE
133
Manila Electric Company v. Misael P. Vera
[L-29987s and L-23847. October 22, 1975]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Palma
FACTS:
MERALCO is the holder of a franchise by the Municipal Board of the City of Manila to Mr. Charles M. Swift and
later assumed and taken over by petitioner to construct, maintain, and operate an electric light, heat, and
power system in the City of Manila and its suburbs. In two separate occasions, MERALCO imported copper
wires, transformers, and insulators for use in the operation of its business. The Collector of Customs, as Deputy
of Commissioner of Internal Revenue, levied and collected a compensating tax for the said importation.
MERALCO claims for a refund alleging that it was exempted from such compensating tax based on paragraph 9
of its franchise. The court stated that MERALCO’s claim for exemption from the payment of the compensating
tax is not clear or expressed. Hence, this appeal.
ISSUE:
Whether or not petitioner is exempted to pay compensating tax for its purchase or receipt of commodities,
goods, wares, or merchandise outside the Philippines.
HELD:
No. One who claims to be exempt from the payment of a particular tax must do so under clear and
unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer. In the
case at bar, the Court is not aware whether or not the tax exemption provisions contained in Par. 9, Part Two of
Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal franchise granted because
no admissible copy of Ordinance of the said Board was ever presented in evidence by the petitioner.
Furthermore there is no “plain and unambiguous terms” declaring petitioner MERALCO exempt from paying a
compensating tax on its imports of poles, wires, transformers, and insulators. The last clause of paragraph 9
merely reaffirms, what has been expressed in the first sentence that petitioner is exempted from payment of
property tax. A compensating tax is not a property tax but an excise tax imposed on the performance of an act,
the engaging in an occupation, or the enjoyment of a privilege.
PAGE
134
Ernesto M. Maceda v. Hon. Catalino Macaraig, Jr., et al.
[G.R. No. 88291. May 31, 1991 and G.R. No. 88291. June 8, 1993]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Nocon
FACTS:
Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic
power and the production of power from other sources. Several laws were enacted granting NPC tax and duty
exemption privileges such as taxes, duties, fees, imposts, charges and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities “directly or indirectly,” on all petroleum products used by
NPC in its operation. However P.D. No. 1931 withdrew all tax exemption privileges granted in favor of
government- owned or controlled corporations including their subsidiaries but empowered the President
and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the
exemption withdrawn. BIR ruled that the exemption privilege enjoyed the NPC under said section covers only
taxes for which it is directly liable and not on taxes, which are only shifted to it.
In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum products to NPC are tax-exempt,
regardless of the period of delivery. Thereafter, the FIRB issued several Resolutions in different occasions
restoring the tax and duty exemption privileges of NPC indefinite period due to the restoration of the tax
exemption privileges of NPC, NPC applied with the BIR for a “refund of Specific Taxes paid on petroleum
products. On August 6, 1987, the Secretary of Justice, Opinion opined that “the power conferred upon Fiscal
Incentives Review Board constitute undue delegation of legislative power and, therefore, unconstitutional.
However, respondents Finance Secretary and the Executive Secretary declared that “NPC under the provisions
of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products
purchased locally and used for the generation of electricity. Thereafter investigations were made for the refund
of the tax payments of the NPC, which includes Millions of pesos Tax refund. Petitioner, as member of the
Philippine Senate introduced as Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation,
to conduct a Formal and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil
Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their
Availing of the Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting
Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance.
ISSUE:
Whether or not respondent NPC is legally entitled to the questioned tax and duty refunds.
HELD:
Yes. In G.R. No. 88291 the Supreme Court ruled in favor of exempting NPC to the said taxes. Also, in G.R.No.
88291 the Supreme Court ruled in favor of respondents. NPC under the
PAGE
135
provi
sions
of its
Revi
sed
Char
ter
retai
ns its
exe
mpti
on
from
dutie
s and
taxes
impo
sed
on
the
petr
oleu
m
prod
ucts
purc
hase
d
locall
y
and
used
for
the
gene
ratio
n of
elect
ricity
.
Presi
denti
al
Decr
ee
No.
938
ame
nded
the
tax
exe
mpti
on of
NPC
by
simp
lifyin
g the
same
law
in
gene
ral
term
s. It
succinc
tly
exempt
s NPC
from
“all
forms
of
taxes,
duties,
fees,
impost
s, as
well as
costs
and
service
fees
includi
ng
filing
fees,
appeal
bonds,
supers
edeas
bonds,
in any
court
or
admini
strative
procee
dings.”
the
NPC
electric
power
rates
did not
carry
the
taxes
and
duties
paid on
the fuel
oil it
used.
The
point is
that
while
these
levies
were in
fact
paid to
the
govern
ment,
no part
thereof
was
recover
ed
from
the
sale
of
elect
ricity
prod
uced.
As a
cons
eque
nce,
as of
our
most
rece
nt
infor
mati
on,
some
P1.5
5B
in
clai
ms
repr
esen
t
amo
unts
for
whic
h the
oil
supp
liers
and
NPC
are
“outofpock
et.
Ther
e
woul
d
have
to be
speci
fic
orde
r to
the
Bure
aus
conc
erne
d for
the
resu
mpti
on of
the
proc
essing
of
these
claims.
constru
ed
against
the
taxpay
er. In
the
case at
bar, the
Court
is not
aware
whethe
r or not
the tax
exempt
ion
provisi
ons
contain
ed in
Par. 9,
Part
Two of
Act No.
484 of
the
Philipp
ine
Commi
ssion of
1902
was
incorp
orated
in the
munici
pal
franchi
se
grante
d
becaus
e no
admissi
ble
copy of
Ordina
nce of
the
said
Board
was
ever
present
ed in
eviden
ce by
the
petitio
ner.
Furthe
rmor
e
there
is no
“plai
n
and
una
mbig
uous
term
s”
decla
ring
petiti
oner
MER
ALC
O
exe
mpt
from
payi
ng a
com
pens
ating
tax
on
its
impo
rts of
poles
,
wire
s,
trans
form
ers,
and
insul
ators
. The
last
claus
e of
para
grap
h9
mere
ly
reaffir
ms,
what
has
been
express
ed in
the
first
senten
ce that
petitio
ner is
exempt
ed
from
payme
nt of
proper
ty tax.
A
compe
nsating
tax is
not a
proper
ty tax
but an
excise
tax
impose
d on
the
perfor
mance
of an
act, the
engagi
ng in
an
occupa
tion, or
the
enjoym
ent of a
privileg
e.
PAGE
136
Commissioner Of Internal Revenue v. John Gotamco & Sons,
Inc. and The Court of Tax Appeals
[L-31092. February 27, 1987]
Digest by: MAGBUHOS, Denise Dianne A.
PONENTE: Yap
FACTS:
The World Health Organization (WHO for short) is an international organization that has a regional office in
Manila. An agreement was entered into between the Republic of the Philippines and the said Organization on
July 22,1951. Section 11 of that Agreement provides, inter alia, that “the Organization, its assets, income and
other properties shall be: (a) exempt from all direct and indirect taxes.” The WHO decided to construct a
building to house its own offices, as well as the other United Nations offices stationed in Manila. A bidding was
held for the building construction. The WHO informed the bidders that the building to be constructed belonged
to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore
their bids “must take this into account and should not include items for such taxes, licenses and other payments
to Government agencies.” Thereafter, the construction contract was awarded to John Gotamco & Sons, Inc.
(Gotamco for short). Subsequently, the Commissioner of Internal Revenue sent a letter of demand to Gotamco
demanding payment of for the 3% contractor’s tax plus surcharges on the gross receipts it received from the
WHO in the construction of the latter’s building. WHO. The WHO issued a certification that the bid of John
Gotamco & Sons, should be exempted from any taxes in connection with the construction of the World Health
Organization office building because such can be considered as an indirect tax to WHO. However, The
Commissioner of Internal Revenue contends that the 3% contractor’s tax is neither a direct nor an indirect tax
on the WHO, but a tax that is primarily due from the contractor, and thus not covered by the tax exemption
agreement.
ISSUE:
Whether or not the said 3% contractor’s tax imposed upon petitioner is covered by the “direct and indirect tax
exemption” granted to WHO by the government.
HELD:
Yes. The 3% contractor’s tax imposed upon petitioner is covered by the “direct and indirect tax exemption”
granted to WHO. Hence, petitioner cannot be held liable for such contractor’s tax. The Supreme Court explained
that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay
them; while indirect taxes are those that are demanded in the first instance from one person in the expectation
and intention that he can shift the burden to someone else. While it is true that the contractor’s tax is payable
by the contractor, however in the last analysis it is the owner of the building that shoulders the burden of the
tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an
indirect tax against the WHO because, although it is payable by the petitioner, the latter can shift its burden on
the WHO.
PAGE
137
Commissioner Of Internal Revenue v. Court of Appeals and
YMCA
[G.R. No. 124043. October 14, 1998]
Digest by: MALAMUG, Jena Lemienne Mae A.
PONENTE: Pabganiban
FACTS:
Young Men’s Christian Association of the Philippines, Inc. (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. For the income earned from leasing its facilities
to small shop owners and the operation of the parking lot, the commissioner of internal revenue (CIR) issued
an assessment for deficiency income tax, deficiency expanded withholding taxes on rentals and professional
fees and deficiency withholding tax on wages. YMCA protested to the assessment claiming that it is exempted
from the income on rentals of small shops and parking fees. The Court of Tax Appeals (CTA) and the Court of
Appeals (CA) ruled in favor of YMCA, holding that the latter is tax exempted on income it derived from renting
out its real property on the ground that the income is not collected for profit but is merely incidental to its
operation. Hence this petition for review on certiorari.
ISSUE:
Whether or not the income derived from rentals of real property owned by the YMCA is subject to income tax
under the National Internal Revenue Code (NIRC) and the Constitution.
HELD:
Yes. Under Section 27 of the NIRC, 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 the income is used- whether for profit of for lofty non-profit purposes. This is
contrary to the argument of YMCA that the income from the properties must arise from activities conducted for
profit before it may be considered taxable. On the other hand, YMCA in invoking Article VI, Section 28 of
paragraph 3 of the Constitution, failed to prove by 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
actually, directly and exclusively for educational purposes. The school system, under the Education Act of 1982,
is synonymous with formal education, which refers to the hierarchically structured and chronological 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. With regard to the second
requirement, YMCA did not submit proof of the proportionate amount of the subject income that was actually,
directly and exclusively used for educational purposes.
PAGE
138
Nitafan vs. Commissioner of Internal Revenue
[G.R. No. L-78780. July 23, 1987]
Digest by: MALAMUG, Jena Lemienne Mae A.
PONENTE: Melencio-Herrera
FACTS:
David Nitafan, Wenceslao Polo and Maximo Savellano, Jr., duly appointed and qualified judges of the Regional
Trial Court, seek to prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial
Officer of the Supreme Court from making any deduction of withholding taxes from their salaries. They submit
that “any tax withheld from their emoluments or compensation as judicial officers constitutes a decrease or
diminution of their salaries, contrary to the provision of Section 10, Article VIII of the Constitution mandating
that during their continuance in office, their salary shall not be decreased. In addition, said contention was in
line with the ruling on Perfecto vs. Meer and Endencia vs. David, declaring the salaries of members of the
Judiciary exempt from payment of the income tax and considered such payment as a diminution of their
salaries during their continuance in office.
ISSUE:
Whether or not the salaries of Justices and Judges are subject to income tax law.
HELD:
Yes. The payment of income tax, which is applicable to all income earners, by Justices and Judges does not fall
within the constitutional protection against decrease of their salaries during their continuance in office. The
true intent of the framers of the 1987 Constitution was to make the salaries of members of the Judiciary
taxable. The matter of tax exemption from tax of the salary of justices violates the principles of the uniformity
of taxation and the principle of equal protection of the law.
PAGE
139
Province of Abra vs. Hernando
[G.R. No. L-49336. August 31, 1981]
Digest by: MALAMUG, Jena Lemienne Mae A.
PONENTE: Fernando
FACTS:
The Province of Abra sought to tax the real properties of Roman Catholic Bishop of Bangued, Inc. However, the
latter was desirous of being exempted from real estate tax claiming that the properties including their produce
are actually, directly and exclusively used by them for religious or charitable purposes. They invoked Section
17, paragraph 3, Article VII of the 1973 Constitution. The declaratory relief prayed was granted by the CFI
presiding judge Hon. Harold Hernando without any hearing. Hence, this instant petition for certiorari and
mandamus by the Province of Abra.
ISSUE:
Whether or not the properties of Roman Catholic Bishop of Bangued, Inc. must be shown to have been actually
and directly used for religious or charitable purposes to be exempted from real estate tax.
HELD:
Yes. To be exempt under the Constitution, lands, buildings and improvements of religious and charitable
institutions must not only be exclusively but also actually and directly used for religious and charitable
purposes.
PAGE
140
Commissioner of Internal Revenue vs. Mitsubishi Metal
Corporation
[G.R. No. 54908. January 22, 1990]
Digest by:MALAMUG, Jena Lemienne Mae A.
PONENTE: Regalado
FACTS:
Atlas Consolidated Mining and Developmentt Corporation(Atlas)entered into a Loan and Sales Contract with
Mitsubishi Metal Corporation. Under the said contract, in consideration of the loan amounting to
$20,000,000.00, Atlas undertook to sell all the copper concentrates produced by the new concentrator to
Mitsubishi. Thereafter, application of Mitsubishi for a loan with the Export-Import Bank of Japan was granted
subject to the condition that Mitsubishi would use the amount as a loan to Atlas and as a consideration for
importing copper concentrates from Atlas. Pursuant to the contract, Atlas made interest payments to
Mitsubishi for the years 1974 and 1975. The corresponding 15% tax thereon was withheld pursuant to Section
24(b) (1) and Section 53 (b) (2) of the National Internal Revenue Code. A claim for tax credit was then made by
herein private respondents so that the amount previously withheld be applied against their existing and future
tax liabilities. But the Commissioner of Internal Revenue failed to act on the claim for tax credit. On the other
hand, the Court of Tax Appeals granted a tax credit to Atlas declaring that Mitsubishi was a mere agent of
Eximbank, which is a financing institution owned and controlled and financed by the Japanese Government.
Hence, this petition for review.
ISSUE:
1. Whether or not Mitsubishi is a mere conduit of Eximbank which will then be
considered as the creditor whose investments in the Philippines on loans are exempt from taxes under the
code.
2. Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross
income taxation pursuant to Section 29 (b) (7) (A) of the tax code.
HELD:
1. No. The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential
reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the contract of
loan and Atlas as the seller of the copper concentrates. While the loans were secured by Mitsubishi as a loan to
and in consideration for importing copper concentrates from Atlas, the fact remains that it was a loan by
Eximbank of Japan to Mitsubishi and not to Atlas. The transaction between Mitsubishi and Eximbank of Japan
was a distinct and separate contract from that entered into by Mitsubishi and Atlas.
2. No. The provision of the National Internal Revenue Code relied upon is Section 29
(b) (7) (A), 6 which excludes from gross income: “(A) Income received from their investments in the
Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in
the Philippines by (1) foreign governments, (2) financing institutions
PAGE
141
own
ed,
contr
olled
, or
enjo
ying
refin
anci
ng
from
them
, and
(3)
inter
natio
nal
or
regio
nal
finan
cing
instit
ution
s
esta
blish
ed
by
gove
rnm
ents.
”
Here
in
priva
te
resp
onde
nts
are
not
even
amo
ng
the
entiti
es
whic
h,
unde
r
Secti
on
29
(b)
(7)
(A)
of
the
tax
code,
are
entitl
ed to
exe
mption
and
which
should
indispe
nsably
be the
party
in
interes
t in this
case. It
is a
settled
rule
that
that
laws
grantin
g
exempt
ion
from
tax are
constru
ed
strictis
simi
juris
against
the
taxpay
er and
liberall
y in
favor
of the
taxing
power.
Taxatio
n is the
rule
and
exempt
ion is
the
excepti
on. The
taxabili
ty of a
party
cannot
be
blandly
glossed
over on
the
basis of
a
suppos
ed
“broad,
pragma
tic
analysi
s”
alon
e
with
out
subs
tanti
al
supp
ortiv
e
evid
ence.
PAGE
14
2
31s
t
Inf
ant
ry
Po
st
Exc
ha
ng
ev
Po
sad
as
[G.R.
No.
3340
3
Sept
emb
er 4,
1930
]
Dige
st
by: :
MAN
ALO,
Sam
anth
a
Grac
e N.
PON
ENT
E:
Malc
olm
FAC
TS:
Petit
ioner
is a
post
exch
ange
in
acco
rdan
ce
with
the
Arm
y
Regu
latio
ns
and
the
laws
of the
US. It is
designe
d for
the
accom
modati
on,
conven
ience
and
assista
nce of
the
Army’s
person
nel. All
the
goods
purcha
sed are
intende
d for
resale
and are
in fact
resold
to the
officers
,
soldier
s and
civilian
employ
ees of
the
Army,
and
their
family.
The net
procee
ds
derived
from
the
resale
do not
accrue
to the
general
funds
of the
US but
are
used
for the
better
ment of
the
Army
person
nel.
The
Exchan
ge
mad
hants
e
who
purc
made
hase
the
s of
sales of
vario
the
us
commo
and
dities,
diver
etc.
se
taxes at
com
the
modi
rate of
ties,
½% on
good
the
s,
gross
ware
value
s and
in
merc
money
hand
of the
ise
commo
from
dities,
vario
etc.
us
sold by
merc
them
hant
to the
s of
Exchan
the
ge. It
Phili
intends
ppin
to
es.
collect
The
the
CIR
same
colle
from
ctor,
the
herei
Exchan
n
ge. The
resp
Exchan
onde
ge
nt,
made a
have
formal
colle
legal
cted
protest
from
.
the
ISSUE
said
:
merc
Whether or not a tax may be levied by the Government of the Philippine Islands on sales made by merchants to
Post Exchanges of the United States Army in the Philippines.
HELD:
Yes. Philippine law as thus enacted and expressly confirmed by the Congress, makes particular mention of the
persons exempt from this tax, without, however, including in the enumeration commercial transactions with
Army Post Exchanges. The sale of merchandise through the post exchanges to the individuals of the United
States Army and Navy are not goods sold and delivered directly to the United States Army or Navy for the
actual use or issue by the Army or Navy and are therefore, not exempt from the payment of the internal
revenue tax imposed by the law.
Since no law of the Congress forbids the taxation of merchants who deal with Army Post Exchanges, and since
the Congress has legalized the applicable law, and in doing so has granted no immunity from taxation to
merchants who deal with Army Post Exchanges, the Congress has permitted such transactions with Army Post
Exchanges, on the assumption that Post Exchanges are agencies of the United States, to be taxed by the
Philippine Government.
PAGE
143
PLDT v City of Davao
[G.R. No. 143867. August 22, 2001]
Digest by: : MANALO, Samantha Grace N.
PONENTE: Mendoza
FACTS:
On 1999, PLDT applied for a Mayor’s Permit to operate its Davao Metro Exchange but respondent City of Davao
withheld action on the application pending payment by petitioner of the local franchise tax in the for the first to
the fourth quarter of 1999. Petitioner protested the assessment of the local franchise tax and requested a
refund of the franchise tax paid by it for the year 1997 and the first to the third quarters of 1998. It contented
that it was exempt from the payment of franchise tax by virtue of Sec 12 of RA 7082 which states that it “shall
pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other
telecommunications businesses 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 . . . ”
PLDT also became automatically covered by the tax exemption provisions of Public Telecommunications Policy
Act of the Philippines (RA 7925) particularly Sec. 23, providing for the equality of treatment in the
telecommunications industry, which took effect on March 1995. Accordingly, PLDT shall be exempt from the
payment of franchise and business taxes imposable by LGUs upon the effectivity of RA 7925.
The City Treasurer denied the protest and claim for tax refund of PLDT by virtue of an ordinance imposing a
tax on a business enjoying a franchise, at a rate of 75% on 1% of the gross annual receipts for the preceding
calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.
ISSUE:
Whether or not, after the withdrawal of its exemption by virtue of Sec. 137 of the LGC, petitioner has again
become entitled to exemption from local franchise tax.
HELD:
No. PLDT justifies its claim of exemption by strained inferences particularly on R.A. No. 7925. The term
“exemption” under Sec. 23 thereof is too general. The thrust of the law is to promote gradually the deregulation
of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing
field in the telecommunications industry. There is nothing in the language of Sec.23 nor in the proceedings of
both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates
the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been
withdrawn by the LGC.
In approving §23 of R.A. No. 7925 Congress did not intend it to operate as a blanket tax exemption to all
telecommunications entities. Applying the rule of strict construction of laws
PAGE
144
gran
ting
tax
exe
mpti
ons
and
the
rule
that
doub
ts
shou
ld be
resol
ved
in
favor
of
muni
cipal
corp
orati
ons
in
inter
preti
ng
statu
tory
provi
sions
on
muni
cipal
taxin
g
powers
, we
hold
that
§23 of
R.A.
No.
7925
cannot
be
conside
red as
having
amend
ed
petitio
ner’s
franchi
se so as
to
entitle
it to
exempt
ion
from
the
imposit
ion of
local
franchi
se
taxes.
PAGE
145
Sea Land Services, Inc. v CA
[G.R. No. 122605. April 30, 2001]
Digest by: : MANALO, Samantha Grace N.
PONENTE: Pardo
FACTS:
Sea Land entered into a contract with the United States Government to transport military household goods and
effects of U. S. military personnel assigned to the Subic Naval Base. During the 1984 taxable year, it filed with
the BIR the corresponding ITR and paid the income tax due thereon as required in Sec25 (a)(2) of the NIRC in
relation to the RP-US Tax Treaty. However, Sea Land claimed that it paid the same by mistake and a written
claim for refund was filed with the BIR. But before the refund could be acted upon by the CIR, Sea Land filed a
petition for review before the CTA to judicially pursue its claim for refund and to stop the running of the twoyear prescriptive period under the then Section 243 of the NIRC. The CTA denied its claim for refund.
ISSUE:
Whether or not the income that petitioner derived from services in transporting the household goods and
effects of U. S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RPUS Military Bases Agreement.
HELD:
No. Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine Government agreed to exempt
from payment of Philippine income tax nationals of the United States, or corporations organized under the laws
of the United States, residents in the United States in respect of any profit derived under a contract made in the
United States with the Government of the United States in connection with the construction, maintenance,
operation and defense of the bases.
It is obvious that the transport or shipment of household goods and effects of U. S. military personnel is not
included in the term “construction, maintenance, operation and defense of the bases.” Neither could the
performance of this service to the U. S. government be interpreted as directly related to the defense and
security of the Philippine territories.
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MERALCO v Province of Laguna
[G.R. No. 131359. May 5, 1999]
Digest by: : MANALO, Samantha Grace N.
PONENTE: Vitug
FACTS:
Prior to the enactment of the Local Government Code of 1991 (RA 7160), MERALCO has been granted a
franchise for the supply of electric power in various municipalities of Laguna. Upon enactment of the said code
enjoining LGUs to create their own sources of revenue and to levy taxes, it enacted Ordinance No. 01-92
imposing a tax on business enjoying a franchise “at a rate of 50%of 1% of the gross annual receipts xxx.”
Meralco paid the tax under protest.
A formal claim of refund was then sent by Meralco to the Provincial Treasurer 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. Section
1 of PD 551 provides that, “xxx 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.”
Such claim for refund was denied.
ISSUE:
Whether or not the imposition of a franchise tax under the 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.
HELD:
No. 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.
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.
PAGE
147
Tiu vs. Court of Appeals
[G.R. No. 127410. January 20, 1999]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Panganiban
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.” In
order the it 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, the Subic Special Economic Zone is given special privileges, one of which is that no taxes, local and
national, shall be imposed within the Subic Special Economic Zone.
On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO 97), clarifying that the tax
and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by
business enterprises into the SSEZ. And that 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.
The EO also provided that 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.
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.”
ISSUE:
Whether EO 97-A discriminated against them, without reasonable or valid standards, in contravention of the
equal protection guarantee.
HELD:
No. 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
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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.
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 as one of its policies is to encourage the active participation of the private sector
in transforming the Clark and Subic military reservations and their extensions into other productive uses. More
so, the law declared it a policy to develop the zone into a “self-sustaining, industrial, commercial, financial and
investment center.”
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: (1) a separate customs territory
within the zone, (2) tax-and-duty-free importations and
(3) restructured income tax rates on business enterprises within the zone.
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.
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.
PAGE
149
Mactan Cebu Interational Airport Authority vs. Marcos
[G.R. No. 120082. September 11, 1996]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Davide, Jr
FACTS:
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, 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.
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 and that unless otherwise provided, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy on
taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units.
The petitioner was compelled to pay its tax account “under protest” and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu. Respondent City, however, asserted that MCIAA is not
an instrumentality of the government but merely a governmentowned corporation performing proprietary
functions.
ISSUE:
Whether the MCIAA as an instrumentality of the government is exempted from payment of realty taxes as
imposed by the City of Cebu.
HELD:
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
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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.
The “taxes, fees or charges”, as provided by Section 133 of the Local Government Code, referred to are “of any
kind”; hence, they include all, unless otherwise provided by the LGC. 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 juridical persons, including
government-owned 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.
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.
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151
Commissioner of Internal Revenue v. Robertson
[G.R. No. L-70116-19, August 12, 1986]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Paras
FACTS:
Petition for Review of the consolidated decision dated 14 December 1984 of the Court of Tax Appeals
cancelling the assessments for deficiency income tax for taxable years 1969- 1972, inclusive of interests and
penalties against the respondents Frank Robertson (CTA Case No. 2735), James Robertson (CTA CASE No.
2736), Robert H. Cathey (CTA Case No. 2738) and John Garrison (CTA CASE No. 2739). Respondents are all
American Citizens who were all
assigned at the U.S. Naval Base, Subic Bay, Philippines.
The Court a quo after due hearing, rendered its judgment in favor of respondents cancelling and setting aside
the assessments for deficiency income taxes of respondents for the taxable years 1969-1972, inclusive of
interests and penalties. Pursuant to Article XII, Par. 2, of the RP-US Military Bases Agreement of 1947, quoted
as follows:
“2. No national of the United States serving in or employed in the Philippines in connection with the
construction, maintenance, operation or defense of the bases and residing in the Philippines by reason only of
such employment, or his spouse and minor children and dependent parents of either spouse, shall be liable to
pay income tax in the Philippines except in respect of income derived from Philippine sources or sources other
than the United states sources.”
Petitioner, to support his contentions, argues that the laws granting tax exemptions must be construed in
strictissimi juris against the taxpayer, and that the burden of proof is private respondents, Frank Robertson,
James W. Robertson, Robert H. Cathey and John L. Garrison to establish that their residence in the country is by
reason only of their employment in connection with the construction, maintenance, operation or defense of the
U.S.
ISSUE:
Whether the respondents were able to sufficiently discharge the burden of proof by establishing their
residence and employment.
HELD:
The law and the facts of the case are so clear that there is no room left for Us to doubt the validity of private
respondents’ defense. In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement
he must be a national of the United States employed in connection with the construction, maintenance,
operation or defense, of the bases, residing in the Philippines by reason of such employment, and the income
derived is from the U.S. Government (Art. XII par. 2 of PI-US Military Bases Agreement of 1947). Said
circumstances are all present in the case at bar.
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152
It bears repeating as so disclosed in the records that the petitioners together with families upon repatriation in
1945 had since acquired domicile and residency in the United States. And, obtained employment with the
United States Federal Service. Not until after several years of a hiatus, petitioners did return to the Philippines
not so much of honoring a pledge nor of sentimental journey but by reason of taking up assigned duties with
the United States military bases in the Philippines where they were gainfully employed by the U.S. Federal
Government.
It appeals too much of a stretch to hold petitioners straight-jacketed to an irreversible situs of birth constraint
and by reason thereof deny altogether any opportunity to a seren¬dipitous enjoyment of a tax relief accorded
in the Agreement. Such a random quirk of pirouette in the tax treatment falls sharply at odds with the shared
expectations of the high contracting parties. This Court will not deem itself authorized to depart from the plain
meaning of the tax exemption provision, so explicit in terms and so searching in extent.
PAGE
153
Basco v. PAGCOR
[G.R. No. 91649 May 14, 1991]
Digest by: : MEJIA, Daryll Margaret V.
PONENTE: Paras
FACTS:
The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated
January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 “to establish,
operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines.”
Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate
and centralize all games of chance authorized by existing franchise or permitted by law. To attain these
objectives PAGCOR is given territorial jurisdiction all over the Philippines.
It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal
Revenue and the Bureau of Customs.
But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is “null and void” for
being “contrary to morals, public policy and public order,” monopolistic and tends toward “crony economy”,
and is violative of the equal protection clause and local autonomy.
Petitioner refers to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from
paying any “tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature,
whether National or Local.” as violative of the principle of local autonomy.
ISSUE:
Whether the establishment of PAGCOR pursuant to P.D. 1869 constitutes a waiver of the right of the City of
Manila to impose taxes and legal fees and that the exemption clause in P.D. 1869 is violative of the principle of
local autonomy.
HELD:
Their contention stated hereinabove is without merit for the following reasons:
(a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, “the
Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it”. Its
“power to tax” therefore must always yield to a legislative act which is superior having been passed upon by
the state itself which has the “inherent power to tax”.
(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that “municipal
corporations are mere creatures of Congress” which has the power to
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“create and abolish municipal corporations” due to its “general legislative powers. Congress, therefore, has the
power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain
matters, it can also provide for exemptions or even take back the power.
Therefore, only the National Government has the power to issue “licenses or permits” for the operation of
gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of
“licenses or permits” is no longer vested in the City of Manila.
(d) 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 stocks are
owned by the National 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.
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.
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155
Republic of the Philippines v. Intermediate Appellate Court
[G.R. No. L-69344 April 26, 1991]
Digest by: : NIEVA, Aubin Arn R.
PONENTE: Grino- Aquino
FACTS:
The Republic through the Bureau of Internal Revenue instituted an action against the spouses Pastors for
deficiency income taxes for the years 1955 to 1959 in the amount of P17,117.08 with a 5% surcharge and 1%
monthly interest, and costs. The Pastors filed an answer admitting there was an assessment against them of
P17,117.08 for income tax deficiency but denying liability therefor. They contended that they had availed of the
tax amnesty under P.D.’s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes amounting to
P10,400 or 10% of their reported untaxed income under P.D. 23, P2,951.20 or 20% of the reported untaxed
income under P.D. 213, and a final payment on October 26, 1973 under P.D. 370 evidenced by the
Government’s Official Receipt No. 1052388. Consequently, the Government is in estoppel to demand and
compel further payment of income taxes by them.
The trial court rendered a decision on February 28, 1980, holding that the defendants spouses had settled their
income tax deficiency for the years 1955 to 1959, not under P.D.
23 or P.D. 370, but under P.D. 213, as shown in the Amnesty Income Tax Returns’ Summary Statement and the
tax Payment Acceptance Order for P2,951.20 with its corresponding official receipt, which returns also contain
the very assessment for the questioned years. By accepting the payment of the amnesty income taxes, the
Government, therefore, waived its right to further recover deficiency incomes taxes.
ISSUE:
Whether or not the tax amnesty payments made by the private respondents on October 23, 1973 bar an action
for recovery of deficiency income taxes under P.D.’s Nos. 23, 213 and 370.
HELD:
The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally
in favor of the taxpayer, for taxes, being burdens, are not to be presumed beyond what the applicable statute
(in this case P.D. 213) expressly and clearly declares.
Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct, since
the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes under
P.D. No. 213, and were granted not merely an exemption, but an amnesty, for their past tax failings, the
Government is estopped from collecting the difference between the deficiency tax assessment and the amount
already paid by them as amnesty tax.
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156
The finding of the appellate court that the deficiency income taxes were paid by the Pastors, and accepted by
the Government, under P.D. 213, granting amnesty to persons who are required by law to file income tax
returns but who failed to do so, is entitled to the highest respect and may not be disturbed except under
exceptional circumstances.
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157
Commissioner of Internal Revenue v. Court of Appels
[G.R. No. 108358 January 20, 1995]
Digest by: : NIEVA, Aubin Arn R.
PONENTE: Vitug
FACTS:
Executive Order No. 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later
amended to include estate and donor’s taxes and taxes on business, for the taxable years 1981 to 1985.
R.O.H. Auto Products Philippines, Inc., availed of the amnesty and filed, in October 1986 and November 1986,
its Tax Amnesty Return No. 34-F-00146-41 and Supplemental Tax Amnesty Return No. 34-F-00146-64-B,
respectively, and paid the corresponding amnesty taxes due.
Petitioner Commissioner of Internal Revenue, in a communication received by private respondent on 13
August 1986, assessed the latter deficiency income and business taxes for its fiscal years ended 30 September
1981 and 30 September 1982 in an aggregate amount of P1,410,157.71. The taxpayer wrote back to state that
since it had been able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled
and withdrawn. The contention of the petitioner was that the amnesty coverage was to be to include only
assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on 22
August 1986 and not to assessments theretofore made.
The CA ruled that in examining carefully the words used in Executive Order No. 41, as amended there is
nothing which justifies petitioner Commissioner’s ground for denying respondent taxpayer’s claim to the
benefits of the amnesty law.
ISSUE:
Whether or not said deficiency assessments in question were extinguished by reason or private respondent’s
availment of executive order no. 41 as amended by Executive Order no. 6.
HELD:
We agree with both the court of Appeals and court of Tax Appeals that Executive Order No. 41 is quite explicit
and requires hardly anything beyond a simple application of its provisions.
If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985 tax
liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so provided
in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been
designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by
it.
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158
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.
PAGE
159
Part I: General Principles
Nature , Construction,
Application & Sources of tax Laws
Hilado v. Commissioner of Internal Revenue
[G.R. No. L-9408. October 31, 1956.]
Digest by: : NIEVA, Aubin Arn R.
PONENTE: Bautista
FACTS:
On March 31, 1952, Petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein
he claimed, among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant
to General Circular No. V-123 issued by the Collector of Internal Revenue.
Through the collector, the secretary of finance issued general circular V-139 which revoked and declared void
circular V123. It provided that losses of property which occurred in world war II from fire, storms and
shipwreck or from other casualty like robbery of theft or embezzlement in the year of actual loss or destruction
of property. The deductions were later on disallowed.
ISSUE:
Can Hilado claim compensation for destruction of his property during the war under the laws in effect at that
time?
HELD:
Petitioner’s contention that during the last war and as a consequence of enemy occupation in the Philippines
“there was no taxable year” within the meaning of our internal revenue laws because during that period they
were unenforceable, is without merit.
Philippine Internal Revenue laws are not political in nature and as such were continued in force during enemy
occupation and in effect were actually enforced by the occupying government. Such tax laws are deemed to be
laws of the occupied territory and not of the occupying enemy. As of the end of 1945, there was no law which
Hilado could claim for the destruction of his properties during the liberation of our country. Under the
Philippine rehabilitation act of 1948, the payment of claims by the War damage Commission depended upon its
discretion. Non-payment of which does not give rise to any enforceable right.
“Furthermore, it is a legal maxim, that excepting that of a political nature, ‘Law once established continues until
changed by some competent legislative power. It is not changed merely by change of sovereignty.’
“It seems too clear for serious argument that an administrative officer cannot change a law enacted by
Congress. A regulation that is merely an interpretation of the statute when once determined to have been
erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector
of internal revenue does not preclude or estop the government from collecting a tax which is legally due.”
PAGE
160
Misamis Oriental Assoc. of CoCo Traders, Inc. vs. Department
of Finance Secretary
[G.R. No. 108524 November 10, 1994]
Digest by: : NIEVA, Aubin Arn R.
PONENTE: Mendoza
FACTS:
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members,
individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner
alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which
implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the
National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution.
Under §103(a), as above quoted, the sale of agricultural non-food products in their original state is exempt
from VAT only if the sale is made by the primary producer or owner of the land from which the same are
produced. The sale made by any other person or entity, like a trader or dealer, is not exempt from the tax. On
the other hand, under §103(b) the sale of agricultural food products in their original state is exempt from VAT
at all stages of production or distribution regardless of who the seller is.
Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the
competent government agency to determine the proper classification of food products.
On the other hand, the respondents argue that the opinion of the BIR, as the government agency charged with
the implementation and interpretation of the tax laws, is entitled to great respect.
ISSUE:
Whether or not the contention of the Commissioner is correct.
HELD:
It is correct. we find no reason for holding that respondent Commissioner erred in not considering copra as an
“agricultural food product” within the meaning of § 103(b) of the NIRC. As the Solicitor General contends,
“copra per se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra
for food.” That previous Commissioners considered it so, is not reason for holding that the present
interpretation is wrong. The Commissioner of Internal Revenue is not bound by the ruling of his predecessors.
To the contrary, the overruling of decisions is inherent in the interpretation of laws.
Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of
the Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not,
although both sell copra in its original
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161
state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers.
The argument has no merit. There is a material or substantial difference between coconut farmers and copra
producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra,
the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as
there is a reasonable basis for classifying them differently.
is finally argued that RMC No. 47-91 is counterproductive because traders and dealers would be forced to buy
copra from coconut farmers who are exempt from the VAT and that to the extent that prices are reduced the
government would lose revenues as the 10% tax base is correspondingly diminished.
This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the primary
producer or owner of the land from which the same is produced, but in the case of agricultural food products
their sale in their original state is exempt at all stages of production or distribution. At any rate, the argument
that the classification of copra as agricultural non-food product is counterproductive is a question of wisdom or
policy which should be addressed to respondent officials and to Congress.
PAGE
162
Commissioner of Internal Revenue v. Court of Appeals
[G.R. No. 117982. February 6, 1997]
Digest by: : ONG, Fina N.
PONENTE: BELLOSILLO, J.:
FACTS:
The present case arose from the discrepancy in the taxable base on which the excise tax is to apply on account
of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated 4 October 1988 which excluded the VAT from the
tax base in computing the fifteen percent (15%) excise tax due; and, (2) BIR Ruling 017-91 dated 11 February
1991 which included back the VAT in computing the tax base for purposes of the fifteen percent (15%) ad
valorem tax.
Alhambra industries, Inc. (Alhambra) is a domestic corporation engaged in the manufacture and sale of cigar
and cigarette products. On May 7, 1991 private respondent received a letter dated April 26, 1991 from the
Commissioner of Internal Revenue assessing its deficiency Ad Valorem Tax (AVT) in the total amount of
P488,396.62, inclusive of increments, on the removals of cigarette products from their place of production
during the period Nov. 2, 1990 to January 22, 1991.
Alhambra filed protest against amount assessed by the CIR, however, it was denied by the latter at the same
time increasing the amount assessed to P520,835.29. Alhambra filed a petition for review with the CTA, despite
payment under protest the amount of P520,835.29. On December 1, 1993, CTA ordered petitioner to refund
said amount to Alhambra.
ISSUE:
The main contention is whether the new ruling should be given retroactive effect thus, in effect revoking the
tax exemption given to the petitioner in the first BIR ruling.
HELD:
The court held in the negative. In its ruling, it states that well-entrenched is the rule that rulings and circulars,
rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive
application if to so apply them would be prejudicial to the taxpayers.
Section 246 provides for the Non-retroactivity of rulings.- “Any revocation,
modification, or reversal of any rules and regulations promulgated in accordance with the preceding section or
any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given
retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in
the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in
any document required of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered by
the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or c) where
the taxpayer acted in bad faith.”
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163
Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it
would be assessed deficiency excise tax as bad faith is also absent.
PAGE
164
Commissioner of the Internal Revenue vs. Lingayen Gulf
Electric Power Co., Inc.
[GR L-23771, 4 August 1988]
Digest by: : ONG, Fina N.
PONENTE: Sarmiento, J:
FACTS:
Lingayen Gulf Electric Power operates an electric power plant serving the municipalities of Lingayen and
Binmaley, Pangaisnan, pursuant to municipal franchise granted it by the respective municipal councils. The
franchises provided that the grantee shall pay quarterly to the Provincial Treasury of Pangasinan 1% of the
gross earnings obtained through the privilege for the first 20 years (from 1946), and 2% during the remaining
15 years of the life of the franchise. In 1948, the Philippine President approved the franchise (RA 3843). In
1955, the BIR assessed and demanded against the company deficiency franchise taxes and surcharges for the
years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from 1948 to 1954. The company
asked for a reinvestigation, which was denied.
ISSUE:
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.
HELD:
The court held in negative. 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 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.
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ABS-CBN Broadcasting Corporation v. Court of Tax Appeals
[G.R. No. L-52306 October 12, 1981]
Digest by: : ONG, Fina N.
PONENTE: MELENCIO-HERRERA, J.:
FACTS:
ABS-CBN is engaged in the business of telecasting local as well as foreign films acquired from foreign
corporations not engaged in trade or business within the Philippines. The applicable law with the income tax of
non-resident corporations is section 24 (b) of the National Internal Revenue Code, as amended by Republic Act
No. 2343 dated June 20, 19598. On April 12, 1961, in implementation of said provision, the CIR issued General
Circular No. V-334. Pursuant to the foregoing, ABS-CBN dutifully withheld and turned over to the BIR the
amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade or
business within the Philippines. The last year that ABS-CBN withheld taxes pursuant to the foregoing Circular
was in 1968.
On June 27, 1968, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 %
and revising the tax basis from “such amount” referring to rents, etc. to “gross income.”
On February 8, 1971, the CIR issued Revenue Memorandum Circular No. 4-71, revoking General Circular No. V334, and holding that the latter was “erroneous for lack of legal basis,” because “the tax therein prescribed
should be based on gross income without deduction whatever.
On the basis of this new Circular, CIR issued against ABS-CBN a letter of assessment and demand requiring
them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968
and film royalty as of the end of 1968 in the total amount of P525,897.06.
ISSUE:
Whether or not respondent can apply General Circular No. 4—71 retroactively and issue a deficiency
assessment against petitioner in the amount of P 525, 897.06 as deficiency withholding income tax for the
years 1965, 1966, 1967 and 1968.
HELD:
The court held in negative. Sec. 338-A (now Sec. 327) of the Tax Code applies in this case. Rulings or circulars
promulgated by the CIR have no retroactive application where to so apply them would be prejudicial to
taxpayers. The retroactive application of Memorandum Circular No. 4-71 prejudices ABS-CBN since:
a) It was issued only in 1971, or 3 years after 1968, the last year that petitioner had withheld taxes under
General Circular No. V-334.
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b) The assessment and demand on petitioner to pay deficiency withholding income tax was also made three
years after 1968 for a period of time commencing in 1965.
c) ABS-CBN was no longer in a position to withhold taxes due from foreign corporations because it had already
remitted all film rentals and no longer had any control over them when the new Circular was issued.
And in so far as the enumerated exceptions (to non-retroactivity) are concerned, ABSCBN does not fall under
any of them.
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167
Philippine Bank of Communications v. Commissioner of
Internal Revenue
[G.R. No. 112024. January 28, 1999]
Digest by: : ONG, Fina N.
PONENTE: Quisumbing
FACTS:
The case is about the validity of the administrative guidelines issued by the commissioner of internal revenue
altering the 2-year prescriptive period imposed by law to 10-year prescriptive period. Petitioner, Philippine
Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws,
filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the
total income tax of P5,016,954.00 by applying PBCom’s tax credit memos for P3,401,701.00 and P1,615,253.00,
respectively. Subsequently, however, PBCom suffered net loss of P25,317,228.00, thereby showing no income
tax liability in its Annual Income Tax Returns for the year-ended December 31, 1985. For the succeeding year,
ending December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no
tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and
remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. On August
7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of
P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees
from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition
for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA
Case No. 4309 entitled: “Philippine Bank of Communications vs. Commissioner of Internal Revenue.”
The CTA decided in favor of the BIR on the ground that the Petition was filed out of time as the same was filed
beyond the two-year reglementary period. A motion for Reconsideration was denied and the appeal to Court of
Appeals was likewise denied. Thus, this appeal to Supreme Court.
ISSUE:
Whether or not Revenue Regulations No. 7-85 which alters the reglementary period from two (2) years to ten
(10) years is valid.
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HELD:
RR 7-85 altering the 2-year prescriptive period imposed by law to 10-year prescriptive period is invalid.
Administrative issuances are merely interpretations and not expansions of the provisions of law, thus, in case
of inconsistency, the law prevails over them. Administrative agencies have no legislative power.
“When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two
years to ten years on claims of excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law;
rather it issued guidelines contrary to the statute passed by Congress.”
“It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of
more specific and less general interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not
countenance administrative issuances that override, instead of remaining consistent and in harmony with, the
law they seek to apply and implement.”
“Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its
officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the
Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec.
230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not
be given weight for to do so would, in effect, amend the statute.”
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169
Part I: General Principles
Power TO Tax Involves The Power To
Destroy
Commissioner of Internal Revenue vs. Tokyo Shipping Co.,
Ltd.
[G.R. No. L-68252. May 26, 1995]
Digest by: : ONG, Ruth Ann
PONENTE: Puno
FACTS:
Private respondent, Tokyo Shipping Co. Ltd, is a foreign corporation represented in the Philippines by
Soriamont Steamship Agencies, Inc. It owns and operates tramper vessel M/V Gardenia. In December 1980,
NASUTRA chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. On December 23,
1980 Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, paid the required income and
common carrier’s taxes in the sum total of P107,142.75 based on the expected gross receipts of the vessel.
Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981,
NASUTRA and private respondent’s agent mutually agreed to have the vessel sail for Japan without any cargo.
Claiming the pre-payment of income and common carrier’s taxes as erroneous since no receipt was realized
from the charter agreement private respondent instituted a claim for tax credit or refund of the sum of
P107,142,75 before petitioner Commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act
promptly on the claim, hence, on May 14, 1981, private respondent filed a petition for review before public
respondent CTA.
Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are
presumed to have been collected in accordance with law; that in an action for refund, the burden of proof is
upon the taxpayer to show that taxes are erroneously or illegally collected and the taxpayer’s failure to sustain
said burden is fatal to the action for refund; and that claims for refund are construed strictly against tax
claimants.
After trial, respondent tax court decided in favor of the private respondent.
ISSUE:
Whether or not private respondent is entitled to a refund of the taxes it pre-paid to the government.
HELD:
A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against
the taxpayer. Likewise, there can be no disagreement with petitioner’s stance that private respondent has the
burden of proof to establish the factual basis of its claim for tax refund.
The court cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of
ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE CENTAVOS
(P107,142.75) erroneously prepaid by private respondent.
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170
The tax was paid way back in 1980 and despite the clear showing that it was erroneously paid, the government
succeeded in delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of
litigation, the money that will be finally refunded to the private respondent is just worth a damaged nickel. This
is not, however, the kind of success the government, especially the BIR, needs to increase its collection of taxes.
Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR should refund without any
unreasonable delay what it has erroneously collected.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with
caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the “hen that lays the golden egg.” And, in order to maintain the general
public’s trust and confidence in the Government this power must be used justly and not treacherously.
PAGE
171
Reyes vs. Almanzor
[L-49839-46 April 26, 1991]
Digest by: : ONG, Ruth Ann
PONENTE: Paras
FACTS:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta.
Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants
were paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the
National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units or of lands on which another’s dwelling is located, where such rentals do not
exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10%
thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its
effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease.
On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to
increase monthly rentals below P300.00 and by indefinitely suspending the aforementioned provision of the
Civil Code, excepting leases with a definite period. Consequently, the Reyeses, petitioners herein, were
precluded from raising the rentals and from ejecting the tenants. In 1973, respondent City Assessor of Manila
re-classified and reassessed the value of the subject properties based on the schedule of market values duly
reviewed by the Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax
rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals.
They averred that the reassessments made were “excessive, unwarranted, inequitable, confiscatory and
unconstitutional” considering that the taxes imposed upon them greatly exceeded the annual income derived
from their properties. They argued that the income approach should have been used in determining the land
values instead of the comparable sales approach which the City Assessor adopted.
The Board of Tax Assessment Appeals, however, considered the assessments valid.
ISSUE:
Whether or not income approach is the method to be used in the tax assessment and not the comparable sales
approach.
HELD:
By no stretch of the imagination can the market value of properties covered by PD
20 be equated with the market value of properties not so covered. In the case at bar, not even factors
determinant of the assessed value of subject properties under the comparable sales approach were presented
by respondent namely:
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1. That the sale must represent a bonafide arm’s length transaction between a willing seller and a willing buyer
2. The property must be comparable property.
As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that these
properties are comparable.
Taxes are lifeblood of government, however, such collection should be made in accordance with the law and
therefore necessary to reconcile conflicting interests of the authorities so that the real purpose of taxation,
promotion of the welfare of common good can be achieved.
The power to tax “is an attribute of sovereignty”. In fact, it is the strongest of all the powers of government. But
for all its plenitude the power to tax is not unconfined as there are restrictions. Adversely effecting as it does
property rights, both the due process and equal protection clauses of the Constitution may properly be invoked
to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1903
dictum of Chief Justice Marshall that “the power to tax involves the power to destroy.” The web or unreality
spun from Marshall’s famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: “The
power to tax is not the power to destroy while this Court sits. So it is in the Philippines.”
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173
Commissioner of Internal Revenue vs. Algue
[G.R. No. L-28896 February 17, 1988]
Digest by: : ONG, Ruth Ann
PONENTE: Cruz
FACTS:
Phil. Sugar Estate appointed Algue Inc. as its agent to sell its land, factory & oil manufacturing process.
Pursuant to said authority, Alberto Guevarra & four (4) other individuals worked for the formation of
Vegetable Oil Investment Corporation (VOIC) by inducing investors. After VOIC was incorporated, it bought the
properties being sold by Phil. Sugar Estate (PSE). For the sale, PSE paid 125, 000 as commission to Algue Inc.
who, in turn, paid 75, 000 to the individual agents, leaving a balance of 50, 000 as net income of Algue Inc. for
which it now seeks deduction being a legitimate business expense. The Collector of Internal Revenue
disallowed such deduction saying that it was fictitious and it was not an ordinary reasonable or necessary
business expense.
ISSUE:
Whether or not the CIR correctly disallowed the 75, 000 deduction claimed by Algue, Inc. as legitimate business
expense.
HELD:
The Tax Code provides: SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions (a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or
other compensation for personal services actually rendered; and Revenue Regulations No. 2, Section 70 (1),
reading as follows: SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses
paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or
other compensation for personal services actually rendered.
The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact,
payments purely for service. This test and deductibility in the case of compensation payments is whether they
are reasonable and are, in fact, payments purely for service. This test and its practical application maybe
further stated and illustrated as follows: Any amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders.
Practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for
similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the
officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the
excessive payments are a distribution of earnings upon the stock.
The Court ruled that the 125, 000 paid by Algue Inc. to the five (5) individuals were
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174
legitimate fees for actual services rendered, that is, the creation of the VOIC and the sale of the properties of
Phil. Sugar Estate and hence, allowed as deduction.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the
other hand, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good,
may be achieved.
PAGE
175
Part I: General Principles
Set-off Of Taxes
Philex Mining Corp. vs. Commissioner of Internal Revenue
[G.R. No. 125704. August 28, 1998]
Digest by: : ONG, Ruth Ann
PONENTE: Romero
FACTS:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CAG.R. SP No. 36975 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995
ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of
1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the
2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of
P123,821,982.52.
In a letter dated August 20, 1992, Philex protested the demand for payment of the tax liabilities stating that it
has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount
of P119,977,037.02 plus interest. Therefore, these claims for tax credit/refund should be applied against the
tax liabilities.
In reply, the BIR, in a letter dated September 7, 1992, found no merit in Philex’s position. Since these pending
claims have not yet been established or determined with certainty, it follows that no legal compensation can
take place. Hence, he BIR reiterated its demand that Philex settle the amount plus interest within 30 days from
the receipt of the letter.
In view of the BIR’s denial of the offsetting of Philex’s claim for VAT input credit/ refund against its exercise tax
obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. In the course of the
proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied
to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter’s tax obligation of
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest. The Court of Tax Appeals ruled that taxes cannot be subject to set-off on
compensation since claim for taxes is not a debt or contract.
ISSUE:
Can taxes be subject to set-off?
HELD:
Taxes cannot be the subject for compensation for simple reason that the government and the tax payer are not
mutual creditors and debtors of each other. Debts are due in the government in its’ corporate capacity while
taxes are due to the government in its’ sovereign
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176
capacity. A tax payer cannot refuse to pay his taxes when they fall due simply because he has a claim against
the government that the collection of the tax is contingent on the result of the law suit it filed against the
government.
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177
Francia v. Intermediate Appellate Court
[G.R. No. L-67649. June 28, 1988]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE: Gutierrez, Jr.
FACTS:
On October 15, 1977, a 125 square meter portion of Francia’s property was expropriated by the Republic of the
Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his
property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential
Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00.
In this petition, Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October
15, 1977.
ISSUE:
Whether Francia’s tax obligation may be subject to compensation by operation of law.
HELD:
No. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy
the requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the
other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
A taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the
governmental body not included in the tax levy.
Government and taxpayer are not mutually creditors and debtors of each other’ under
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178
Article 1278 of the Civil Code and a “claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.
There are other factors which compel us to rule against the petitioner. The tax was due to the city government
while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by
the national government for the 125 square meter portion of his lot was deposited with the Philippine National
Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September
28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that
he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy
matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at
public auction.
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179
Commissioner of Internal Revenue v. Itogon-Suyoc Mines,
Inc.
[G.R. No. L-25299. July 29, 1969]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE: Fernando
FACTS:
Respondent Itogon-Suyoc Mines filed on January 13, 1961, its income tax return for the fiscal year 1959-1960.
It declared a taxable income of P114,368.04 and a tax due thereon amounting to P26,310.41, for which it paid
on the same day, the amount of P13,155.20 as the first installment of the income tax due. On May 17, 1961,
petitioner filed an amended income tax return, reporting therein a net loss of P331,707.33. It thus sought a
refund from the Commissioner of Internal Revenue.
On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the fiscal year 19601961, setting forth its income tax liability to the tune of P97,345.00, but deducting the amount of P13,155.20
representing alleged tax credit for overpayment of the preceding fiscal year 1959-1960. Petitioner
Commissioner of Internal Revenue assessed against the respondent the amount of P1,512.83 as 1% monthly
interest on the aforesaid amount of P13,155.20 from January 16, 1962 to December 31, 1962. The basis for
such an assessment was the absence of legal right to deduct said amount before the refund or tax credit thereof
was approved by petitioner Commissioner of Internal Revenue.
ISSUE:
Whether petitioner has the legal right to deduct the overpaid amount before the refund or tax credit thereof is
approved by the Commissioner of Internal Revenue.
HELD:
Yes. The National Internal Revenue Code provides that interest upon the amount determined as a deficiency
shall be assessed and shall be paid upon notice and demand from the Commissioner of Internal Revenue at the
specified. It is made clear, however, in an earlier provision found in the same section that if in any preceding
year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not yet refunded, may be
deducted from the tax to be paid.
There is no question respondent was entitled to a refund. Instead of waiting for the sum involved to be
delivered to it, it deducted the said amount from the tax that it had to pay. That it had a right to do according to
the law. It is true a doubt could have arisen due to the fact that as of the time such a deduction was made, the
Commissioner of Internal Revenue had not as yet approved such a refund. It is an admitted fact though that
respondent was clearly entitled to it, and petitioner did not allege otherwise. Nor could he do so. Under all the
circumstances disclosed therefore, the applicability of the legal provision allowing such a deduction from the
amount of the tax to be paid cannot be disputed.
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180
What is therefore sought to be avoided is for the taxpayer to make use of funds that should have been paid to
the government. Here, in view of the overpayment for the fiscal year 1959- 1960, the sum of P13,155.20 had
already formed part of the public funds. It cannot be said, therefore, that respondent taxpayer was guilty of any
delay enabling it to utilize a sum of money that should have been in the government treasury.
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181
Domingo v. Garlitos
[G.R. No. L-18994. June 29, 1963]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE: Labrador
FACTS:
In Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674 this Court declared as final and executory
the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to
P40,058.55 issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled “In the matter
of the Intestate Estate of the Late Walter Scott Price.” In order to enforce the claims against the estate the fiscal
presented a petition for the execution of the judgment. The petition was, however, denied by the respondent
which held that the execution is not justifiable as the Government is indebted to the estate under
administration in the amount of P262,200.
Respondent ordered that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of
Internal Revenue be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona
K. Price, in this estate, the balance to be paid by the Government to her without further delay.
ISSUE:
Whether the claim by the Government against the estate may be deducted from its debt to the estate and
whether compensation may take place
HELD:
Yes. The court having jurisdiction of the estate had found that the claim of the estate against the Government
has been recognized and an amount of P262,200 has already been appropriated for the purpose by a
corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for
inheritance taxes and the claim of the intestate for services rendered have already become overdue and
demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance
with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the
concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by
operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors
are not aware of the compensation.
PAGE
182
Republic of the Philippines v. Mambulao Lumber Company
[G.R. No. L-17725. February 28, 1962]
Digest by: : OSOTEO, Maureen Kascha L.
PONENTE:Barrera
FACTS:
Defendants have a liability for forest charges to the Republic of the Philippines which amounts aggregate to
P4,802.37. While from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the
Republic of the Philippines P8,200.52 for ‘reforestation charges’ and for the period commencing from April 30,
1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for ‘reforestation
charges’ pursuant to Section 1 of Republic Act 115.
It is the contention of the defendant Mambulao Lumber Company that since the Republic of the Philippines has
not made use of those reforestation charges collected from it for reforesting the denuded area of the land
covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at
least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines
for reforestation charges.
ISSUE:
Whether the sum paid for reforestation charges may be set-off or applied to the payment of forest charges
owed by defendant to the Government
HELD:
No. Appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on
compensation is inapplicable. Under Article 1278, NCC, compensation should take place when two persons in
their own right are creditors and debtors of each other. With respect to the forest charges which the defendant
Mambulao Lumber Company has paid to the government, they are in the coffers of the government as taxes
collected, and the government does not owe anything, crystal clear that the Republic of the Philippines and the
Mambulao Lumber Company are not creditors and debtors of each other, because compensation refers to
mutual debts.
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes
of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are
they a proper subject of recoupment since they do not arise out of the contract or transaction sued on.
The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands
for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is
that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the
positive acts of the government,
PAGE
183
to
the
maki
ng
and
enfo
rcing
of
whic
h,
the
pers
onal
cons
ent
of
indiv
idual
taxp
ayer
s is
not
requi
red.
If the
taxp
ayer
can
prop
erly
refus
e to
pay
his
tax
whe
n
calle
d
upon
by
the
Colle
ctor,
beca
use
he
has a
clai
m
agai
nst
the
gove
rnm
ental
body
whic
h is
not
inclu
ded
in
the
tax
levy,
it is
plain
that
some
legitim
ate and
necess
ary
expend
iture
must
be
curtaile
d. If the
taxpay
er’s
claim is
dispute
d, the
collecti
on of
the tax
must
await
and
abide
the
result
of a
lawsuit
, and
meanw
hile the
financi
al
affairs
of the
govern
ment
will be
thrown
into
great
confusi
on. (47
Am.
Jur.
766767.)
PAGE
184
Pa
rt
I:
G
en
eral
Prin
cipl
es
Taxpayer Suit
Anti-Graft League of the Philippines v. San Juan
[G.R. No. 97787. August 1, 1996]
Digest by: PADUA, Julie Ann E.
PONENTE:Romero
FACTS:
On March 20, 1975, President Ferdinand E. Marcos issued Presidential Decree (PD) No. 674, establishing the
Technological Colleges of Rizal and which also directed the Provincial Board of Rizal (the Board) to provide
funds for the purchase of a site and the construction of the necessary structures thereon. Consequently, the
Province of Rizal (Province) bought four parcels of land located in Ugong Norte, Pasig from Ortigas & Co., Ltd.
(Ortigas). However, the projected construction never materialized because of the decimation of the Province’s
resources brought about by the creation of the Metro Manila Commission (MMC) in 1976.
Twelve years later, with the said property lying idle and the Province needing funds to propel its 5-year
Comprehensive Program, the Board passed Resolution No. 87-205 dated October 15, 1987 authorizing the
Governor to sell the property. The said property was eventually sold to Valley View Realty Development
Corporation (Valley View) for a total of P134,523,900.00.
On May 10, 1988, after learning about the sale, Ortigas, filed an action for recission of contract plus damages
with preliminary injunction against the Province (Civil Case No. 55904) alleging that the latter violated one of
the terms of the contract - that the land will be utilized solely for the construction of the Rizal Technological
Colleges and the Rizal Provincial Hospital.
On April 21, 1988, the new provincial officials of the Board adopted Resolution No. 8865 which provided for the rescission of the sale between the Province and Valley View on the ground that the
sale was prejudicial to the former. Consequently, Valley View filed Civil Case no. 55913 against the Province for
specific performance and damages. However, the said case was dismissed because the parties executed a
compromise agreement.
On March 20, 1989, Civil Case No. 55904 was resolved through execution of a compromise agreement between
the Province and Ortigas. Under the said agreement, the Province agreed to reconvey the property to Ortigas at
a price of P432,398,250.00 payable within two years at an annual interest rate of 14%. The said amount was
higher than the market values separately determined by Asian Appraisal Inc. and the Provincial Appraisal
Committee. Hence, this petition for certiorari.
ISSUE:
Whether or not the present action is a taxpayer’s suit and that the petitioner has legal standing to question the
transaction entered into by the Board and Ortigas.
PAGE
185
HELD:
No. In order to constitute a taxpayer’s suit, two requisites must be met, namely, that public funds are disbursed
by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed,
and that the petitioner is directly affected by the alleged ultra vires act.
In the said case, the first requirement was not present because the petitioner never referred to such purchase
as an illegal disbursement of public funds but focused on the alleged fraudulent reconveyance of said property
to Ortigas because the price paid was lower than the prevailing market value of neighboring lots. Since
petitioner failed to show that there was unlawful spending of public money, he, even as a taxpayer, cannot
question the transaction validly executed by and between the Province and Ortigas simply because he is not
privy to the contract. Therefore, petitioner has no locus standi.
PAGE
186
Joya v. Presidential Commission on Good Government
[G.R. No. 96541. August 24, 1993]
Digest by: PADUA, Julie Ann E.
PONENTE:Bellosillo
FACTS:
On August 9, 1990, Mateo A.T. Caparas, then Chairman of the Presidential Commission on Good Governance
(PCGG), wrote then President Corazon C. Aquino, requesting her for authority to sign the proposed
Consignment Agreement between the Republic of the Philippines through PCGG and Christie, Manson and
Woods International, Inc. (CHRISTIE’s) concerning the scheduled sale on January 11, 1991 of eighty-two (82)
Old Masters Paintings and antique silverware seized from Malacañang and the Metropolitan Museum of Manila
alleged to be part of the ill-gotten wealth of the late President Marcos, his relatives and cronies.
On August 15, 1990, PCGG, through Chairman Caparas, signed the Consignment Agreement with CHRISTIE’s.
According to the agreement, PCGG shall consign to CHRISTIE’S for sale at public auction the eighty-two (82)
Old Masters Paintings then found at the Metropolitan Museum of Manila as well as the silverware contained in
seventy-one (71) cartons in the custody of the Central Bank of the Philippines, and such other property as may
subsequently be identified by PCGG and accepted by CHRISTIE’S to be subject to the provisions of the
agreement.
On October 26, 1990, the Commission on Audit (COA) through then Chairman Eufemio
C. Domingo submitted to President Aquino the audit findings and observations of COA on the said Consignment
Agreement to the effect that: (a) the authority of former PCGG Chairman Caparas to enter into the Consignment
Agreement was of doubtful legality; (b) the contract was highly disadvantageous to the government; (c) PCGG
had a poor track record in asset disposal by auction in the U.S.; and, (d) the assets subject of auction were
historical relics and had cultural significance, hence, their disposal was prohibited by law.
On November 15, 1990, PCGG through its new Chairman David M. Castro, wrote President Aquino to refute the
allegations of Domingo. On the same date, Director of National Museum Gabriel S. Casal issued a certification
that the items subject of the Consignment Agreement did not fall within the classification of protected cultural
properties and did not specifically qualify as part of the Filipino cultural heritage. Hence, this petition.
However, the public auction proceeded as scheduled and the proceeds of $13,302,604.86 were turned over to
the Bureau of Treasury.
ISSUE:
1. Whether or not the petition can be allowed as a taxpayer’s suit.
2. Whether or not the properties subject for public auction constitute as public properties.
PAGE
187
HELD:
1. No. Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the
government. A taxpayer’s suit can prosper only if the governmental acts being questioned involve
disbursement of public funds upon the theory that the expenditure of public funds by an officer of the state for
the purpose of administering an unconstitutional act constitutes a misapplication of such funds, which may be
enjoined at the request of a taxpayer.
In the said case, the action cannot be considered as a taxpayer’s suit because the petitioners are not challenging
any expenditure involving public funds but the disposition of what they alleged to be public properties.
2. No. The paintings were donated by private persons from different parts of the world to the Metropolitan
Museum of Manila Foundation, a non-profit and non-stock corporation established to promoted non-Philippine
arts, wherein Former First Lady Imelda Marcos is the chairman. Accordingly, the ownership of the paintings
legally belongs to the foundation or corporation or the members thereof.
On the other hand, the pieces of antique silverware were given to the Marcos couple as gifts from friends and
dignitaries from foreign countries on their silver wedding and anniversary. The confiscation of these
properties by the Aquino administration does not mean that the ownership of these paintings has
automatically passed on the government without complying with constitutional and statutory requirements of
due process and just compensation.
PAGE
188
Lozada v. Commission on Elections
[G.R. No. 88866. February 18, 1991]
Digest by: PADUA, Julie Ann E.
PONENTE:De Castro
FACTS:
Jose Mari Eulalio C. Lozada together with Romeo B. Igot filed a petition for mandamus compelling the
Commission on Elections (COMELEC) to hold a special election to fill up the vacancies in the Interim Batasang
Pambansa. The petition was based on Section 5 (2), Article VIII of the 1973 Constitution which provides:
“In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the
Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to
elect the Member to serve the unexpired term.”
COMELEC opposes the petition alleging, substantially, that 1) petitioners lack standing to file the instant
petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain
this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan
Pambansa.
ISSUE:
1. Whether or not petition may be considered as a taxpayer’s suit.
2. Whether or not the Supreme Court can compel the COMELEC to hold a special election.
HELD:
1. No. A taxpayer’s suit may be allowed only when an act complained of, which may include a legislative
enactment of statute, involves the illegal expenditure of public money.
In the said petition, it was not alleged the tax money is being illegally spent rather the act complained of was
the inaction of COMELEC to call a special election. Further, since the asserted harm is a “generalized grievance”
shared in substantially equal measure by all or a large class of citizens, the petitioners have no locus standi.
2. The SC’s jurisdiction over the COMELEC is only to review by certiorari the latter’s decision, orders or rulings
pursuant to Section 11, Article XI IC of the new Constitution, to wit:
“Any decision, order, or ruling of the Commission may be brought to the Supreme Court on certiorari by the
aggrieved party within thirty days from his receipt of a copy thereof.”
However, in this case, there was no decision, order or ruling of the COMELEC which is
PAGE
189
sought to be reviewed by this Court under its certiorari jurisdiction, which is the only known provision
conferring jurisdiction or authority on the Supreme Court over the COMELEC.
Further, the holding of special elections in several regional districts where vacancies exist, would entail huge
expenditure of money. Only the Batasang Pambansa can make the necessary appropriation for the purpose,
and this power may neither be subject to mandamus by the courts much less may COMELEC compel the
Batasang Pambansa to exercise its power of appropriation. From the role Batasang Pambansa has to play in the
holding of special elections, which is to appropriate the funds for the expenses thereof, it would seem that the
initiative on the matter must come from the said body, not the COMELEC, even when the vacancies would occur
in the regular not interim Batasang Pambansa. The power to appropriate is the sole and exclusive prerogative
of the legislative body, the exercise of which may not be compelled through a petition for mandamus.
Moreover, the provision of Section 5(2), Article VIII of the Constitution was intended to apply to vacancies in
the regular National Assembly, now Batasang Pambansa, not to the Interim Batasang Pambansa.
PAGE
190
Part I:
Tax Laws & Regulations
Commissioner of Internal Revenue v. S.C. Johnson
[G.R. No. 127105. June 25, 1999]
Digest by: PADUA, Julie Ann E.
PONENTE:Gonzaga-Reyes
FACTS:
S.C. Johnson and Son, Inc. (S.C. Johnson), a domestic corporation organized and operating under the Philippine
laws, entered into a license agreement with SC Johnson and Son, United States of America (USA), a non-resident
foreign corporation based in the U.S.A. pursuant to which the [respondent] was granted the right to use the
trademark, patents and technology owned by the latter including the right to manufacture, package and
distribute the products covered by the Agreement and secure assistance in management, marketing and
production from SC Johnson and Son, U. S. A.
For the use of the trademark or technology, S.C. Johnson was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which
S.C. Johnson paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00.
On October 29, 1993, S.C. Johnson filed with the International Tax Affairs Division (ITAD) of the BIR a claim for
refund of overpaid withholding tax on royalties arguing that the preferential tax rate of 10% withholding tax
should apply to the S.C. Johnson pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article 13
Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2) (b)].” However, the
Commissioner did not act on said claim for refund resulting in the filing of a petition for review before the
Court of Tax Appeals (CTA).
On May 7, 1996, the CTA rendered its decision in favor of S.C. Johnson and ordered the Commissioner of
Internal Revenue (CIR) to issue a tax credit certificate amounting to P963,266.00 representing overpaid
withholding tax on royalty payments. The CIR thus filed a petition for review with the Court of Appeals but the
latter affirmed in too the CTA ruling; hence, this petition for review.
ISSUE:
Whether or not S. C. Johnson should be entitled to the “most-favored nation” tax rate of 10% on royalties as
provided in the RP-US Tax Treaty in relation to the RP-West German Tax Treaty.
HELD:
No. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting.
Article 24 of the RP-Germany Tax Treaty, expressly allows crediting against German income and corporation
tax of 20% of the gross amount of royalties paid under the law of the Philippines. On the other hand, Article 23
of the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double taxation, does not
provide for similar
PAGE
191
crediting of 20% of the gross amount of royalties paid.
The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable
than that which has been or may be granted to the “most favored” among other countries. The most favored
nation clause is intended to establish the principle of equality of international treatment by providing that the
citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the
most favored nation. The essence of the principle is to allow the taxpayer in one state to avail of more liberal
provisions granted in another tax treaty to which the country of residence of such taxpayer is also a party
provided that the subject matter of taxation, in this case royalty income, is the same as that in the tax treaty
under which the taxpayer is liable. Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b) of the RPWest Germany Tax Treaty, above-quoted, speaks of tax on royalties for the use of trademark, patent, and
technology. The entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for
royalties) would derogate from the design behind the most grant equality of international treatment since the
tax burden laid upon the income of the investor is not the same in the two countries. The similarity in the
circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment precisely
to underscore the need for equality of treatment.
Further, since the RP-US Tax Treaty does not give a matching tax credit of 20% for the taxes paid to the
Philippines on royalties as allowed under the RP-West Germany Tax Treaty, S.C. Johnson cannot be deemed
entitled to the 10% rate granted under the latter treaty for the reason that there is no payment of taxes on
royalties under similar circumstances.
PAGE
192
Part I:
Tax Remedies
St. Stephen’s Association and St. Stephen’s Girls School
v. The Collector of Internal Revenue
[G.R. No. L-11238. August 21, 1958]
Digest by: PALATTAO, Claudine M.
PONENTE: Reyes, J.B.L.
FACTS:
On January 21, 1950, the petitioner St. Stephen’s Association turned over the amount of P9,252.48 to the St.
Stephen’s Chinese Girls School, and the transfer of funds was entered in the ledger and cash book of the School
as a “donation” from the Association. Having come across the book entry in a routine inspection of the books of
the School, an examiner of the Bureau of Internal Revenue reported the donation to the Collector and
thereafter, the Collector of Internal Revenue sent petitioners his Assessment Notice No. GA-3008-50 dated
October 15, 1954, demanding the payment of the amounts of P98.70 and P699.07 as donor’s and donee’s gift
taxes on the donation in question, including surcharges and interests.
On November 13, 1954, petitioners wrote the Collector a letter requesting the cancellation and withdrawal of
the assessment notice in question on the ground that the amount of P9,252.48 was erroneously entered by the
bookkeeper as a donation from the Association to the School, when the truth was that said amount was
obtained by the former by means of small contributions from the public and allocated to the School for its
maintenance. On April 21, 1955, petitioners received a letter from the Collector dated April 6, 1955, denying
the request embodied in their letter of November 13, 1954, and insisting that the assessment in question be
paid. On May 9, 1955, petitioners filed their reply to the Collector’s letter of April 6, 1955, rebutting the
arguments of the Collector in support of the assessment, and asking for its reconsideration. On July 25, 1955,
petitioners received the letter of the Collector dated July 11, 1955, again denying their request that the
assessment in question be cancelled and withdrawn, and stating in its last paragraph that:
This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax
Appeals within the same period, in accordance with the provisions of Republic Act No. 1125.
On August 15, 1955, the respondent court promulgated a resolution dismissing the petition for lack of
jurisdiction. The resolution was premised on the court’s findings that the period for petitioners’ appeal started
to run from their receipt of the assessment notice in question; that said period was interrupted by the filing of
petitioners’ two requests for the cancellation of the assessment, but started to run again when said requests
were denied; and that from November 12, 1954, when petitioners received the assessment notice, to August
13, 1955, when they filed their petition for review, deducting the time when their two requests for cancellation
were pending with the respondent Collector, 37 days had elapsed and therefore, their petition was filed out of
time and did not confer jurisdiction upon the respondent court. From this resolution of dismissal, petitioners
appealed to this Court.
PAGE
193
ISSUE:
Whether the period for appeal to the respondent court must be computed from the time petitioners received
the decision of the respondent on the disputed assessment and not from the time they received said
assessment.
HELD:
Yes. The period for appeal to the respondent court in this case must be computed from the time petitioners
received the decision of the respondent Collector of Internal Revenue on the disputed assessment, and not
from the time they received said assessment.
We believe the respondent court erred in holding that the assessment in question is the respondent Collector’s
decision or ruling appealable to it, and that consequently, the period of thirty days prescribed by section 11 of
Republic Act No. 1125 within which petitioner should have appealed to the respondent court must be counted
from its receipt of said assessment. Where a taxpayer questions an assessment and asks the Collector to
reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment
becomes a “disputed assessment” that the Collector must decide, and the taxpayer can appeal to the Court of
Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment, in accordance with
paragraph (1) of section 7, Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax
Appeals to review “decisions of the Collector of Internal Revenue in cases involving disputed assessment . . .”
PAGE
194
Advertising Associates, Inc. v. Court of Appeals
and Commissioner of Internal Revenue
[G.R. No. L-59758. December 26, 1984]
Digest by: PALATTAO, Claudine M.
PONENTE: Aquino, J.
FACTS:
The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor’s tax for
1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its
income from billboards and neon signs.
The basis of the assessment is the fact that the taxpayer’s articles of incorporation provide that its primary
purpose is to engage in general advertising business. Its income tax returns indicate that its business was
advertising.
The taxpayer requested the cancellation of the assessments in its letters of September
13 and November 21, 1974. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of
issuing two warrants of distraint, directing the collection enforcement division to levy on the taxpayer’s
personal properties as would be sufficient to satisfy the deficiency taxes. The warrants were served upon the
taxpayer on April 18 and May 25, 1978.
Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to the requests of the taxpayer
for the cancellation of the assessments and the withdrawal of the warrants of distraint. He justified the
assessments by stating that the rental income of Advertising Associates from billboards and neon signs
constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency
taxes within ten days from receipt of the demand; otherwise, the Bureau would enforce the warrants of
distraint. He closed his demand letter with this paragraph:
This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the Court of Tax
Appeals within 30 days from receipt of this letter.
Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition
for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the warrants of
distraint.
The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the
Commissioner’s appealable decisions. Since Advertising Associates appealed from the decision of May 23,
1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court.
PAGE
195
ISSUE:
Whether or not the petition for review was filed on time
HELD:
Yes. The petition for review was filed on time. The reviewable decision is that contained in Commissioner
Plana’s letter of May 23, 1979 and not the warrants of distraint.
No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the
Commissioner’s final decision within the meaning of section 7 of Republic Act No. 1125. The Commissioner
said so. He even directed the taxpayer to appeal it to the Tax Court.
The directive is in consonance with this Court’s dictum that the Commissioner should always indicate to the
taxpayer in clear and unequivocal language what constitutes his final determination of the disputed
assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in
administrative action.
PAGE
196
Commissioner of Internal Revenue v. Isabela Cultural
Corporation
[G.R. No. 135210. July 11, 2001]
Digest by: PALATTAO, Claudine M.
PONENTE: Panganiban, J.
FACTS:
In an investigation conducted on the 1986 books of account of respondent, petitioner had the preliminary
finding that respondent incurred a total income tax deficiency of P9,985,392.15, inclusive of increments. Upon
protest by respondent’s counsel, the said preliminary assessment was reduced to the amount of P325,869.44.
On February 23, 1990, respondent received from petitioner an assessment letter, dated February 9, 1990,
demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded
withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to
December 31, 1986.
On February 9, 1995, respondent received from petitioner a Final Notice Before Seizure, dated December 22,
1994. In said letter, petitioner demanded payment of the subject assessment within ten (10) days from receipt
thereof. Otherwise, failure on its part would constrain [petitioner] to collect the subject assessment through
summary remedies.
Respondent considered said final notice of seizure as petitioner’s final decision. Hence, the instant petition for
review filed with this Court on March 9, 1995.
The CTA having rendered judgment dismissing the petition, respondent filed the instant petition anchored on
the argument that petitioner’s issuance of the Final Notice Before Seizure constitutes its decision on
respondent’s request for reinvestigation, which the respondent may appeal to the CTA.
ISSUE:
Whether or not the Final Notice Before Seizure dated February 9, 1995 against respondent constitutes the final
decision of the CIR appealable to the CTA.
HELD:
Yes. Respondent points out that the Final Notice Before Seizure should be considered as a denial of its request
for reconsideration of the disputed assessment. The Notice should be deemed as petitioner’s last act, since
failure to comply with it would lead to the distraint and levy of respondent’s properties, as indicated therein.
We agree with respondent. In the normal course, the revenue district officer sends the taxpayer a notice of
delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the
delinquency. If the taxpayer disagrees with or wishes to protest
PAGE
197
the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefor, and submitting
such proof as may be necessary. That letter is considered as the taxpayer’s request for reconsideration of the
delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed
assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for
review.
The Final Notice Before Seizure cannot but be considered as the commissioner’s decision disposing of the
request for reconsideration filed by respondent, who received no other response to its request. Not only was
the Notice the only response received; its content and tenor supported the theory that it was the CIR’s final act
regarding the request for reconsideration. The very title expressly indicated that it was a finalnotice prior to
seizure of property. The letter itself clearly stated that respondent was being given “this LAST OPPORTUNITY”
to pay; otherwise, its properties would be subjected to distraint and levy.
Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may
nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon
180 days after submission thereof.
In this case, the said period of 180 days had already lapsed when respondent filed its request for
reconsideration on March 23, 1990, without any action on the part of the CIR. Lastly, jurisprudence dictates
that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or
protested assessment.
In the instant case, the second notice received by private respondent verily indicated its nature - that it was
final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration.
Having admitted as a fact private respondent’s request for reconsideration, petitioner must have passed upon
it prior to the issuance of the Final Notice Before Seizure.
PAGE
198
Surigao Electric, Co., Inc. and Arturo Lumanlan v. Municipality
of Surigao
[G.R. No. L-22766. August 30, 1968]
Digest by: PALATTAO, Claudine M.
PONENTE: Fernando, J.
FACTS:
On June 18, 1960, Congress further amended the Public Service Act, one of the changes introduced doing away
with the requirement of a certificate of public convenience and necessity from the Public Service Commission
for “public services owned or operated by government entities or government-owned or controlled
corporations,” but at the same time affirming its power of regulation,1 more specifically as set forth in the next
section of the law, which while exempting public services owned or operated by any instrumentality of the
government or any government-owned or controlled corporations from its supervision, jurisdiction and
control stops short of including “the fixing of rates.”
Petitioner Surigao Electric Co., Inc., a legislative franchise holder, and petitioner Arturo Lumanlan to whom, on
February 16, 1962, the rights and privileges of the former as well as its plant and facilities were transferred,
challenge the validity of the order of respondent Public Service Commission, dated July 11, 1963, wherein it
held that it had “no other alternative but to approve as it did approve the tentative schedule of rates submitted
by the applicant,” the other respondent herein, the Municipality of Surigao.
Citing the above amendments introduced by Republic Act No. 2677, respondent Commission stated thus: “A
municipal government or a municipal corporation such as the Municipality of Surigao is a government entity
recognized, supported and utilized by the National Government as a part of its government machinery and
functions; a municipal government actually functions as an extension of the national government and,
therefore, it is an instrumentality of the latter; and by express provisions of Section 14(e) of Act 2677, an
instrumentality of the national government is exempted from the jurisdiction of the PSC except with respect to
the fixing of rates. This exemption is even clearer in Section 13(a).”
ISSUE:
Whether or not a municipal government can directly maintain and operate an electric plant without obtaining a
specific franchise for the purpose and without a certificate of public convenience and necessity duly issued by
the Public Service Commission.
HELD:
Yes. We sustain the Public Service Commission. It would be to erode the term “government entities” of its
meaning if we are to reverse the Public Service Commission and to hold that a municipality is to be considered
outside its scope.
Petitioners seek refuge in the legislative franchise granted them. Whatever privilege may be claimed by
petitioners cannot override the specific constitutional restriction that no
PAGE
199
franchise or right shall be granted to any individual or corporation except under a condition that it shall be
subject to amendment, alteration or repeal by Congress. Such amendment or alteration need not be express; it
may be implied from a latter act of general applicability, such as the one now under consideration.
Reference by petitioners to the statute providing the procedure for the taking over and operation by the
government of public utilities, in their view “to further strengthen [their] contention”, as to the commission of
this alleged error is unavailing, even if such statute were applicable, which it is not. What is to be regulated by
this enactment is the exercise of eminent domain, which is a taking of private property for public use upon the
payment of just compensation. There is here no taking. There is here no appropriation. What was owned before
by petitioners continue to remain theirs. There is to be no transfer of ownership.
Rather, a municipal corporation, by virtue of Commonwealth Act No. 2677, may further promote community
welfare by itself engaging in supplying public services, without the need of a certificate of public convenience. If
at all then, the exercise of this governmental prerogative comes within the broad, well-nigh, undefined scope of
the police power. It is not here, of course, the ordinary case of restraint on property or liberty, by the
imposition of a regulation. What the amendatory act in effect accomplishes is to lend encouragement and
support for the municipal corporation itself undertaking an activity as a result of which, profits of a competing
private firm would be adversely affected.
PAGE
200
Yabes vs. Flojo
[G.R. NO. L-46954 JULY 20, 1982]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: Concepcion, Jr.
FACTS:
Doroteo Yabes of Calamaniugan Cagayan, who was for sometime an exclusive dealer of products of the
International Harvester Macleod, Inc., received on or about May 1, 1962, a letter from the Commissioner of
Internal Revenue dated March 27, 1962, demanding payment of the amount of P15,976.81, as commercial
broker’s fixed and percentage taxes plus surcharges to which Yabes protested on the ground that his
agreements with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence
not liable for such kind of taxes. To give time for the Commissioner to study the case and several other cases
similar thereto, Yabes filed, a tax waiver on October 20, 1962, extending the period of prescription to
December 31, 1967; Doroteo Yabes died on March 13, 1963 and no estate proceedings were instituted for the
settlement of his estate. On March 14, 1966, the Court of Tax Appeals decided the Constantino “test” case. The
CTA ruled that agreements entered into by Constantino with the International Harvester Macleod, Inc. were of
purchase and sale, and not of agency, hence no commercial broker’s fixed and percentage fees could be
collected,however this Court reversed the Court of Tax Appeals and ruled in favor of the Commissioner of
Internal Revenue. The heirs of Doroteo Yabes filed a revised waiver further extending the period of
prescription to December 31, 1970 as requested by the Commissioner. Thereafter, no word was received by
the petitioners or their lawyers during the interim of more than three (3) years, but on January 20, 1971,
petitioners as heirs of the deceased Doroteo Yabes received the summons and a copy of the complaint filed by
the Commissioner on December 4, 1970 with the Court of First Instance of Cagayan which seeks to collect from
the petitioners the sum of P 15,976.82, as deficiency commercial broker’s fixed and percentage taxes, including
surcharges and interest thereon, due from Yabes by reason of the latter’s income derived from transactions as
dealer of the products of the International Harvester Macleod, Inc.;
Taking the complaint as the final decision of the Commissioner on the disputed assessment against the
deceased taxpayer Doroteo Yabes, petitioners filed on February 12, 1971, a petition for review of said disputed
assessment with the CTA. Petitioners filed on the same day their answer to the complaint before the Court of
First Instance of Cagayan and alleged, by way of special defense, that the CTA has exclusive jurisdiction of the
action and that there is another action of the same nature between the parties relating to the same assessment
pending before the Court of Tax Appeals
ISSUE:
WON the assessment made by the Commissioner has already become final thereby giving jurisdiction to CFI of
Cagayan.
PAGE
201
HELD:
No. The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against
the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final
and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned
conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the
Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case. Petitioners
received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20,
1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12,
1971, well within the thirty-day prescriptive period under Section
11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal
any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters
arising under the National Internal Revenue Code.
For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the
complaint filed in Civil Case No. IIPAGE
202
Commissioner of Internal Revenue v. Algue
[G.R. No. L-28896 February 17, 1988]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: CRUZ, J.
FACTS:
Private respondent, a domestic corporation engaged in engineering, construction and other allied activities,
received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes
for the years 1958 and 1959. Algue on the other hand was appointed as agent of the Philippine Sugar Estate
Development Company. On January 18, 1965, Algue filed a letter of protest or request for reconsideration, on
the assessment made by the Commissioner disallowing the P75, ooo deductions on their gross income which
letter was stamp received on the same day in the office of the petitioner, which, however, was missing. Atty.
Guevara, private respondent’s counsel produced his file copy and gave a photostat to BIR agent Ramon Reyes,
who deferred service of the warrant. On April 7, 1965, Atty. Guevara was finally informed that the BIR was not
taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier
sought to be served. Sixteen days later, Algue filed a petition for review of the decision of the Commissioner of
Internal Revenue with the CTA.
ISSUE:
1. WON 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.
2. WON the appeal of the private respondent from the decision of the Collector of Internal Revenue was made
on time and in accordance with law.
HELD:
1. No. The CTA correctly 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. These were collected by the Payees
for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent
purchase of the properties of the Philippine Sugar Estate Development Company. 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 workers. There is no dispute that the payees duly reported their respective shares of the fees in their
income tax returns and paid the corresponding taxes thereon. The CTA also found, after examining the
evidence, that no distribution of dividends was involved. It was clearly shown that payments were not made in
one lump sum but periodically and in different amounts as each payee’s need arose.
The court also held that the amount of the promotional fees was not excessive. The total commission paid by
the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00
was 60% of the total commission.
PAGE
203
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. This finding of the respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions —
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on
any trade or business, including a reasonable allowance for salaries or other compensation for personal
services actually rendered; …
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a reasonable allowance for salaries or other compensation
for personal services actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case
of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This
test and its practical application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not
deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is
likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in
such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely
that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of
earnings upon the stock .......... (Promulgated Feb. 11, 1931,
30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they
its controlling stockholders. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to
venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos.
This was no mean feat and should be, as it was, sufficiently recompensed.
2. On the issue of time, according to RA No. 1125, the appeal may be made within thirty days after receipt of the
decision or ruling challenged. It is true that as a rule the warrant
PAGE
204
of
distr
aint
and
levy
is
“pro
of of
the
finali
ty of
the
asses
sme
nt”
and
rend
ers
hope
less
a
requ
est
for
reco
nsid
erati
on,”
bein
g
“tant
amo
unt
to an
outri
ght
deni
al
there
of
and
mak
es
the
said
requ
est
dee
med
rejec
ted.”
But
there
is a
speci
al
circu
msta
nce
in
the
case at
bar
that
preven
ts
applica
tion of
this
accepte
d
doctrin
e. The
proven
fact is
that
four
days
after
the
private
respon
dent
receive
d the
petitio
ner’s
notice
of
assess
ment, it
filed its
letter
of
protest
. This
was
appare
ntly
not
taken
into
accoun
t
before
the
warran
t of
distrai
nt and
levy
was
issued
becaus
e such
protest
could
not be
located
.
PAGE
205
Commissioner of Internal Revenue v. Union Shipping
Corporation and the CTA
[G.R. No. L-66160 May 21, 1990]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: PARAS, J.
FACTS:
In a letter dated December 27, 1974 petitioner Commissioner of Internal Revenue assessed against Yee Fong
Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total sum of P583,155.22 as
deficiency income taxes due for the years 1971 and 1972. Said letter was received on January 4, 1975, and in a
letter dated January 10, 1975 received by petitioner on January 13, 1975, private respondent protested the
assessment. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served
on private respondent’s counsel, Clemente Celso, on November 25, 1976. In a letter dated November 27, 1976
(Exhibit “D”), received by petitioner on November 29, 1976 private respondent reiterated its request for
reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of
Distraint and Levy.
Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of
Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila and
docketed as Civil Case No. 120459 against private respondent. Petitioner contends that the warrant of distraint
and levy was issued after respondent corporation filed a request for reconsideration of subject assessment,
thus constituting petitioner’s final decision in the disputed assessments. Petitioner argues therefore that the
period to appeal to the Court of Tax Appeals commenced to run from receipt of said warrant on November 25,
1976, so that on January 10, 1979 when respondent corporation sought redress from the Tax Court,
petitioner’s decision has long become final and executory. On January 10, 1979, private respondent filed with
respondent court its Petition for Review of the petitioner’s assessment of its deficiency income taxes.
CTA ruled in favor of respondent. Hence, this petition.
ISSUE:
WON the issuance of a warrant of distraint and levy by the Commissioner in this case is proof of the finality of
an assessment
HELD:
No. There appears to be no dispute that petitioner did not rule on private respondent’s motion for
reconsideration but on the contrary left private respondent in the dark as to which action of the Commissioner
is the decision appealable to the CTA. Had he categorically stated that he denies private respondent’s motion
for reconsideration and that his action constitutes his final determination on the disputed assessment, private
respondent without needless difficulty would have been able to determine when his right to appeal accrues
and the resulting confusion would have been avoided.
PAGE
206
Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on
the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when
private respondent received the summons on the civil suit for collection of deficiency income on December 28,
1978 that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in
effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So.
that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed
a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.
Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code
since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd., a
non-resident taxpayer. As correctly ruled by the CTA, “if an individual or corporation like the petitioner in this
case, is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally
liable or obligated to pay the so-called withholding tax on income claimed by Yee Fong Hong, Ltd.”
PAGE
207
Philippine Journalists, Inc v. Commissioner of Internal
Revenue
[G.R. No. 162852 December 16, 2004]
Digest by: PALATTAO, Rose Angelie T.
PONENTE: YNARES-SANTIAGO, J.
FACTS:
The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December
31, 1994 which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting
tax credits for the year, petitioner paid the amount of P10,247,384.00. From the examination of petitioner’s
books of accounts, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and
compromise penalty.
Upon an informal conference called upon by the Commissioner, petitioner’s Comptroller, Lorenza Tolentino,
executed a “Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC) The
document “waived the running of the prescriptive period provided by Sections 223 and 224 and other relevant
provisions of the NIRC and consented to the assessment and collection of taxes which may be found due after
the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and
other relevant provisions of the NIRC, until the completion of the investigation” After which, petitioner was
found to have a tax delinquency, thus, BIR issued assessment/ demand from him. Hence, petitioner filed a
petition for review with the CTA.
CTA ruled in favor of petitioner and held that the Waiver of the Statute of Limitation is without any binding
effect on the petitioner because it is an unlimited waiver, it does not contain a definite expiration date which is
required under RMO No. 20-90. Secondly, the waiver failed to state the date of acceptance by the Bureau which
under the aforequoted RMO should likewise be indicated. Finally, petitioner was not furnished a copy of the
waiver required by RMO No. 20-90. On appeal to the CA, however, the CTA judgment was reversed on the
ground that the defects mentioned by CTA were merely formal in nature and ruled that only decisions of the
BIR, denying the request for reconsideration or reinvestigation may be appealed to the CTA. Mere assessment
notices which have become final after the lapse of the thirty (30)-day reglementary period are not appealable.
ISSUE:
1.WON the CTA has jurisdiction to determine whether the warrant of distraint or levy was illegally issued and
that no assessment was issued because it was based on an invalid waiver of the statutes of limitations.
2. WON the waiver of the statute of limitations was valid as to toll the prescriptive
period.
PAGE
208
HELD:
1. Yes. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides for the
jurisdiction of that special court:
SEC. 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by
appeal, as herein provided (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal
Revenue;
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of
Internal Revenue on matters relating to assessments or refunds. It gives the CTA the jurisdiction to determine
if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations
was validly effected.
2. NO. The second issue focuses on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on the
requisites of a valid waiver of the statute of limitations. The NIRC, under Sections 203 and 222, provides for a
statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the
interest of the taxpayer against unreasonable investigation. Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that
it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of
time. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as
erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period
to issue an assessment and collect the taxes due is extended to a date certain.
The Waiver of Statute of Limitations, signed by petitioner’s comptroller on September 22, 1997 is not valid and
binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed
date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus,
petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC. The waiver is also defective
from the government side because it was signed only by a revenue district officer, not the Commissioner, as
mandated by the NIRC and RMO No. 20-90.
The waiver is NOT unilateral act of the taxpayer but is in fact and in law an agreement between the taxpayer
and the BIR. When the petitioner’s comptroller signed the waiver on September 22, 1997, it was not yet
complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90
only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the
taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the
acceptance by the BIR and the perfection of the agreement.
PAGE
209
The waiver is therefore incomplete and defective and thus the three-year prescriptive period was not tolled or
extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-00075794 issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same
manner, Warrant of Distraint and/ or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also
null and void for having been issued pursuant to an invalid assessment.
PAGE
210
COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE
GLOBAL COMMUNICATION
[ GR No. 167146. October 31, 2006]
Digest by: PAMATMAT, John Red C.
PONENTE: Chico-Nazario, J.
FACTS:
On April 15, 1991, the respondent corporation filed its annual income tax return for taxable year 1990.
Sometime in 1992, officials of the Bureau of Internal Revenue (BIR), acting on the authority given by the
Commissioner of Internal Revenue (CIR), sought to examine the books of account and other accounting records
of the respondent. The respondent was requested by the Bureau to produce and present some documents to
which the former failed. Consequently, respondent received a Preliminary Assessment notice for deficiency
income tax in the amount of P118,271,672.00 and on that following day received a Formal Assessment Notice
with the same amount stated. This prompted the respondent, through its counsels, to file formal protests
against the Formal assessment notice and requested for the cancellation of the same as it lacks factual and legal
basis. The CIR denied the protest and affirmed in toto the assessment after eight years counting from the
period to which the assessment was presumably issued.
As a consequence thereof, the respondent filed a petition for review with the Court of Tax Appeals (CTA) which
favored respondent on the ground of prescription, as the letters filed by the respondent did not toll the running
of the prescriptive period as it did not constitute a request for investigation. Motion for reconsideration was
denied from the same court and was affirmed by the same court en banc.
ISSUE:
Whether or not the letters filed by the respondent constitute request for an investigation so as to toll the
running of the prescriptive period.
HELD:
No. The law prescribed a period of three years from the date the return was actually filed or from the last date
prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a
national internal revenue tax. The three-year period for collection of the assessed tax began to run on the date
the assessment notice had been released, mailed or sent by the BIR. The assessment, in this case, was
presumably issued on
14 April 1994 since the respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997.
However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial
proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment
was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the
three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.
Among the exceptions provided by the section 224, and invoked by the CIR as a ground
PAGE
211
for
this
petiti
on, is
the
insta
nce
whe
n the
taxp
ayer
requ
ests
for a
reinv
estig
ation
whic
h is
gran
ted
by
the
Com
missi
oner.
How
ever,
this
exce
ption
does
not
appl
y to
this
case
since
the
resp
onde
nt
neve
r
requ
este
d for
a
reinv
estig
ation
.
More
impo
rtant
ly,
the
CIR
coul
d not
have
cond
ucte
da
reinv
estig
ation
where,
as
admitt
ed by
the CIR
in its
Petitio
n, the
respon
dent
refused
to
submit
any
new
eviden
ce. In
the
present
case,
the
separat
e
letters
of
protest
dated 6
May
1994
and 23
May
1994
are
request
s for
reconsi
deratio
n. The
CIR’s
allegati
on that
there
was a
request
for
reinves
tigatio
n is
inconc
eivable
since
respon
dent
consist
ently
and
categor
ically
refused
to
submit
new
eviden
ce and
cooper
ate
in
any
reinv
estig
ation
proc
eedi
ngs.
Hence,
the
petitio
n is
denied.
PAGE
212
RIZAL COMMERCIAL BANKING CORP. v. COMMISSIONER OF
INTERNAL REVENUE
[GR No. 168498, June 16, 2006]
Digest by: PAMATMAT, John Red C.
PONENTE: Ynares-Santiago, J.
FACTS:
On July 5, 2001, a formal letter of demand was received by petitioner Rizal Commercial Banking Corporation
(RCBC) from respondent Commissioner of Internal Revenue (CIR) for its tax liabilities amounting to
P53,998,428.29 and P47,717,952.76 for Gross onshore tax and Documentary stamp tax, respectively. This
prompted RCBC to file a protest letter/request for reconsideration/reinvestigation by virtue of section 228 of
NIRC. However, this protest was ignored by the respondent, hence a petition for review with the Court of Tax
Appeals (CTA) for the cancellation of the assessments was filed. Unfortunately for the petitioner, the petition
was dismissed on the ground that it was filed beyond the 30-day period following the lapse of 180 days from
petitioner’s submission of documents in support of the protest. There was no motion for reconsideration or
appeal on the part of the petitioner thus the resolution became final and executory and consequently, an entry
of judgement was made.
ISSUE:
Whether or not the period of the petitioner in protesting the assessment has already prescribed as provided for
under section 228.
HELD:
Yes. As provided under section 228, Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court
of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise the decision shall become final, executory and demandable. Following the periods
provided for under section 228, from July 20, 2001, that is, the date of petitioner’s filing of protest, it had until
September 18, 2001 to submit relevant documents and from September 18, 2001, the Commissioner had until
March 17, 2002 to issue his decision. As admitted by petitioner, the protest remained unacted by the
Commissioner of Internal Revenue. Therefore, it had until April 16, 2002 within which to elevate the case to
this court. Thus, when petitioner filed its Petition for Review on April 30, 2002, the same is outside the thirty
(30) period.
PAGE
213
OCEANIC WIRELESS NETWORK, INC. v. COMMISSIONER OF
INTERNAL REVENUE
[GR No. 148380. December 9, 2005]
Digest by: PAMATMAT, John Red C.
PONENTE: Azcuna, J.
FACTS:
The bureau of Internal Revenue (BIR) sent deficiency tax assessments for the taxable year of 1984 amounting
to P8,644,998.71 to herein petitioner, Oceanic wireless Network Inc. This prompted the petitioner to file
protest against the tax assessments and requested a reconsideration or cancellation of the same to the
Commissioner of Internal Revenue (CIR). The Chief of the BIR Accounts Receivable and Billing Division, Mr.
Severino Buot, then acting in behalf of the CIR denied the request for reinvestigation because there was failure
to submit necessary supporting papers and at the same time reiterating the tax assessment. The said letter also
requests the petitioner to pay the amount within ten days, failure of which will prompt the Chief to refer the
matter to Collection Enforcement Division for the issuance of a warrant of distraint and levy. Disregarding the
request, the petitioner failed to pay the amount hence issuance of the corresponding warrants of distraint
and/or garnishment and levy followed.
Consequently, petitioner filed a petition for review with the Court of Tax Appeals (CTA) to question the
issuance of the warrants which was dismissed on the ground that the petition was filed beyond the 30-day
period from the time the demand letter from the Chief was presumably received. The petitioner, on its motion
fro reconsideration, assails that the demand letter cannot be considered as the final decision of the CIR on its
protest because the same was signed by a mere subordinate and not the CIR, hence there was no personal
determination as regards the merits of the case.
ISSUE:
Whether or not the demand letter issued and signed by a subordinate officer acting as the CIR is deemed final
and executor.
HELD:
Yes. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested
assessment. The determination on whether or not a demand letter is final is conditioned upon the language
used or the tenor of the letter being sent to the taxpayer. In this case, the letter of demand dated January 24,
1991, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioner’s
request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and
requested its payment. Failure to do so would result in the “issuance of a warrant of distraint and levy to
enforce its collection without further notice.” In addition, the letter contained a notation indicating that
petitioner’s request for reconsideration had been denied for lack of supporting documents. Moreover, the
general rule is that the Commissioner of Internal Revenue may
PAGE
214
delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot,
however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC)
enumerated in Section 7 and nothing in this section speaks of the nondelegation of issuing a demand letter by
the Chief.
Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within the
reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and
denying its request for reconsideration which constituted the final determination by the Bureau of Internal
Revenue on petitioner’s protest. Being a final disposition by said agency, the same would have been a proper
subject for appeal to the Court of Tax Appeals.
\
PAGE
215
Fishwealth v. Commissioner of Internal Revenue
[GR No. 179343, January 21, 2010]
Digest by: PAMATMAT, John Red C.
PONENTE: Carpio-Morales, J.
FACTS:
A letter of authority dated May 16, 2000 was issued by the respondent Commissioner of Internal Revenue
(CIR) ordering the examination of the internal revenue taxes for the taxable year 1999 of petitioner. Such
investigation yielded that the petitioner is liable for P2,395,826.88 worth of taxes. Subsequently, the petitioner
settled the liability.
The respondent again investigated the books of accounts of the petitioner and by reason of which issued a
subpoena duces tecum requiring the petitioner to submit what is asked of by the respondent. Petitioner, on the
other hand, requests the cancellation of such subpoena on the ground that the same set of documents had
already been examined.
Respondent issued a final assessment of notice which was received and contested by the petitioner. Such letter
of protest was subsequently denied by the respondent and requested the immediate payment thereof. A
petition for review was filed before the CTA and CTA en banc by the petitioner which were both dismissed on
the ground that it was filed out of time.
ISSUE:
Whether or not the petition was filed out of time
HELD:
Yes. As provided under section 228, xxx If the protest is denied in whole or in part, or is not acted upon within
one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or
from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable.
In the case at bar, petitioner’s administrative protest was denied by Final Decision on Disputed Assessment
dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the abovequoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent’s denial of its protest to
the CTA.
PAGE
216
Part II:
Local Taxation
Lung Center of the Philippines vs. Quezon City
[G.R. No. 144104. June 29, 2004]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Callejo, Sr.
FACTS:
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established in 1981 by virtue
of Presidential Decree No. 1823. It is the registered owner of a parcel of land located in Quezon City.
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.
In 1993, both the land and the hospital building of the petitioner were assessed for real property taxes.
Accordingly, tax declarations are issued for the land and hospital building. The petitioner filed a Claim for
Exemption but the same was denied and held the petitioner liable for property taxes.
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 respondent 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.
ISSUE:
1. Whether or not the petitioner is a charitable institution
2. Whether or not the real properties of the petitioner are exempt from real property
taxes.
PAGE
217
HELD:
The petition is partially granted.
1. Yes. The petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. 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.
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.
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 out- patient, 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.
2. No. 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.
Under Section 2 of Presidential Decree No. 1823, 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.
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 tax-exempt purposes.
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.
PAGE
218
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. 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.
PAGE
219
Philippine Rural Electric Cooperatives vs. The Secretary,
DILG
[G.R. No. 143076. June 10, 2003]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Puno
FACTS:
A class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized
and existing under P.D. No. 269 who are members of petitioner Philippine Rural Electric Cooperatives
Association, Inc. (PHILRECA). P.D. No. 269 provides the electric cooperatives exemption from payment of
income taxes, national and local government and municipal taxes and fees among others.
From 1971 to 1978, in order to finance the electrification projects envisioned by P.D. No. 269, the Philippine
Government, acting through the National Economic Council (now National Economic Development Authority)
and the NEA, entered into 6 loan agreements with the government of the USA through the United States Agency
for International Development (USAID) with electric cooperatives. The 6 loan agreements involved a total
amount of approximately US$86,000,000.00. These loan agreements are existing until today.
Petitioners contend that they are exempt from payment of local taxes, including payment of real property tax.
With the passage of the Local Government Code, however, they allege that their tax exemptions have been
invalidly withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local Government Code on
the ground that the said provisions discriminate against them, in violation of the equal protection clause.
Further, they submit that the said provisions are unconstitutional because they impair the obligation of
contracts between the Philippine Government and the United States Government.
ISSUE:
Whether or not Sections 193 and 234 of the Local Government Code are unconstitutional for being in violation
of the equal protection and non-impairment of rights clause
HELD:
No. There is no violation of the equal protection clause because there is reasonable classification under the
Local Government Code to justify the different tax treatment between electric cooperatives covered by P.D. No.
269, as amended, and electric cooperatives under R.A. No. 6938 with respect the capital contribution of its
members and extent of governmental control over cooperatives. Electric cooperatives under R.A. No. 6938
have their members make equitable contributions to the capital required and maintain autonomy from the
State. On the other hand, electric cooperatives under P.D. No. 269 do not require equitable contributions to
capital and grants the National Electrification Administration the power to control and take over the
management and operation of cooperatives registered under it upon the happening of certain events.
PAGE
220
Also, there is no violation of non-impairment clause. The loan agreement does not grant any tax exemption in
favor of the borrower or the beneficiary either on the proceeds of the loan itself or the properties acquired
through the said loan. It simply states that the loan proceeds and the principal and interest of the loan, upon
repayment by the borrower, shall be without deduction of any tax or fee that may be payable under Philippine
laws as such tax or fee will be absorbed by the borrower with funds other than the loan proceeds. This only
means that whatever taxes imposed by the Philippines, if any, will be paid by the borrower and cannot be
shifted to the lender. Thus, the withdrawal by the Local Government Code of the tax exemptions previously
enjoyed by the petitioners does not impair the obligation of the borrower, the lender or the beneficiary under
the loan agreements as in fact, no tax exemption is granted therein.
PAGE
221
City Assessor of Cebu City vs. Association of Benevola de
Cebu
[G.R. No. 152904. June 8, 2007]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Velasco, Jr.
FACTS:
Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit organization and is the owner of
Chong Hua Hospital (CHH) in Cebu City. In the late 1990’s, respondent constructed the CHH Medical Arts
Center (CHHMAC).
Petitioner City Assessor of Cebu City assessed the CHHMAC building as “commercial” at the assessment level of
35% for commercial buildings, and not at the 10% special assessment currently imposed for CHH and its other
separate buildings—the CHH’s Dietary and Records Departments. He further ascertained that it is not a part of
the CHH building but a separate building which is actually used as commercial clinic/room spaces for renting
out to physicians and, thus, classified as “commercial.”
On the other hand, respondent contended that CHHMAC building is actually, directly, and exclusively part of
CHH and should have a special assessment level of 10% as provided under City Tax Ordinance LXX.
Respondent asserted that the CHHMAC building is similarly situated as the buildings of CHH, housing its
Dietary and Records Departments, are completely separate from the main CHH building and are imposed the
10% special assessment level. In fine, respondent argued that the CHHMAC, though not actually indispensable,
is nonetheless incidental and reasonably necessary to CHH’s operations.
ISSUE:
Whether or not the medical arts center built by Chong Hua Hospital to house its doctors a separate commercial
establishment or an appurtenant to the hospital
HELD:
Yes. The CHH Medical Arts Center (CHHMAC) is an integral part of CHH. It is definitely incidental to and
reasonably necessary for the operations of Chong Hua Hospital.
It is undisputed that the doctors and medical specialists holding clinics in CHHMAC are those duly accredited
by CHH, that is, they are consultants of the hospital and the ones who can treat CHH’s patients confined in it.
This fact alone takes away CHHMAC from being categorized as “commercial” since a tertiary hospital like CHH
is required by law to have a pool of physicians who comprises the required medical departments in various
medical fields.
The fact that the physicians are holding office in a separate building does not take away the essence and nature
of their services vis-à-vis the over-all operation of the hospital and the benefits to the hospital’s patients. Their
transfer to a more spacious and, perhaps, convenient place and location for the benefit of the hospital’s patients
does not remove them
PAGE
222
from being an integral part of the overall operation of the hospital.
Respondent’s charge of rentals for the offices and clinics its accredited physicians occupy cannot be equated to
a commercial venture, which is mainly for profit.
First, CHHMAC is only for its consultants or accredited doctors and medical specialists. Second, the charging of
rentals is a practical necessity: (1) to recoup the investment cost of the building, (2) to cover the rentals for the
lot CHHMAC is built on, and (3) to maintain the CHHMAC building and its facilities. Third, as correctly pointed
out by respondent, it pays the proper taxes for its rental income. And, fourth, if there is indeed any net income
from the lease income of CHHMAC, such does not inure to any private or individual person as it will be used for
respondent’s other charitable projects.
PAGE
223
City Government of San Pablo vs. Hon. Bienvenido Reyes
[G.R. No. 127708. March 25, 1999]
Digest by: PANGANIBAN, Rachelle P.
PONENTE: Gonzaga-Reyes
FACTS:
Act No. 3648 granted the Escudero Electric Services Company, a legislative franchise to maintain and operate
an electric light and power system in the City of San Pablo. Escudero’s franchise was transferred to MERALCO
under RA 2340.
Thereafter, RA 7160 (Local Government Code of 1991) took effect and authorizes the province/city to impose a
tax on business 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 realized within its jurisdiction. Hence, Ordinance No.56
was enacted.
Private respondent paid “under protest” and subsequently filed this action before the RTC to declare Ordinance
No. 56 null and void insofar as it imposes the franchise tax upon private respondent MERALCO and to claim for
a refund of the taxes paid.
The Court ruled in favor of MERALCO and upheld its argument that the LGC did not expressly or impliedly
repeal the tax exemption/incentive enjoyed by it under its charter.
ISSUE:
Whether or not there is an implied repeal by RA 7160 of the MERALCO franchise insofar as the latter impose a
2% tax “in lieu of all taxes and assessments of whatever nature”
HELD:
Yes. The explicit language of Section 137 which authorizes the province to impose franchise tax
“notwithstanding any exemption granted by any law or other special laws” is all- encompassing and clear. The
franchise tax is imposable despite any exemption enjoyed under special laws.
The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested
by the language used in Section 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the
existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges.
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 exlcusio alterius. Therefore, in the
absence of any provision of the Code to the contrary, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.
PAGE
224
FIRST PHILIPPINE INDUSTRIAL CORPORATION vs. COURT
OF APPEALS
[G.R. No. 125948 December 29, 1998]
Digest by: RAMOS, Marinel M.
PONENTE: Martinez
FACTS:
Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and
operate oil pipelines, originally granted in 1967 and renewed by the Energy Regulatory Board in 1992.
Sometime in January 1995, petitioner applied for a mayor’s permit with the Office of the Mayor of Batangas
City. However, before the mayor’s permit could be issued, the respondent City Treasurer required petitioner to
pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code
(LGC). After the City Treasurer assessed the business tax on the petitioner payable in four installments, the
petitioner paid only the 1st installment under protest. Then petitioner filed a letter-protest addressed to the
respondent City Treasurer, and claimed that their Company is exempt from paying tax on gross receipts for it
can be considered a transportation contractor and thus exempted from business tax under the LGC (Sec. 133).
The City Treasurer denied the protest contending that petitioner cannot be considered engaged in
transportation business, thus it cannot claim exemption under the LGC. Subsequently the petitioner filed with
the RTC of Batangas City a complaint for tax refund againsts respondents City of Batangas and Adoracion
Arellano in her capacity as City Treasurer. Respondents assert that pipelines are not included in the term
“common carrier” which refers solely to ordinary carriers such as trucks, trains, ships and the like.
Respondents further posit that the term “common carrier” under the said code pertains to the mode or manner
by which a product is delivered to its destination. RTC dismissed the complaint holding that tax exemptions are
to be strictly construed against the taxpayer, taxes being the lifeblood of the government. Exemption may
therefore be granted only by clear and unequivocal provisions of law. CA affirmed RTC’s decision.
ISSUE:
1. Whether or not the petitioner is a common carrier or a transportation contractor
2. Whether or not the exemption sought for by petitioner is not clear under the law.
HELD:
1. Yes. Petitioner is a common carrier. A “common carrier” may be defined, broadly, as one who holds himself
out to the public as engaged in the business of transporting persons or property from place to place, for
compensation, offering his services to the public generally. Art. 1732 of the Civil Code defines a “common
carrier” as “any person, corporation, firm or association engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering their services to the public.”
Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is
engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public
employment. It undertakes to carry for all persons indifferently,
PAGE
225
that
is, to
all
pers
ons
who
choo
se to
empl
oy
its
servi
ces,
and
trans
ports
the
good
s by
land
and
for
com
pens
ation
. The
fact
that
petiti
oner
has a
limit
ed
clien
tele
does
not
exclu
de it
from
the
defin
ition
of a
com
mon
carri
er.
Also,
the
defin
ition
of
“com
mon
carri
ers”
in
the
Civil
Code
mak
es no
disti
nctio
n as
to the
means
of
transp
orting,
as long
as it is
by
land,
water
or air.
It does
not
provid
e that
the
transp
ortatio
n of the
passen
gers or
goods
should
be by
motor
vehicle.
2. No.
Petitio
ner is
exempt
ed
from
payme
nt of
tax From
the
foregoi
ng
disquis
ition,
there is
no
doubt
that
petitio
ner is a
“comm
on
carrier
” and,
therefo
re,
exempt
from
the
busines
s tax as
provid
ed for
in
Section
133 (j),
of the
Local
Govern
ment
Code
. It is
clear
that
the
legisl
ative
inten
t in
exclu
ding
from
the
taxin
g
pow
er of
the
local
gove
rnm
ent
unit
the
impo
sitio
n of
busi
ness
tax
agai
nst
com
mon
carri
ers is
to
prev
ent a
dupli
catio
n of
the
socalle
d
“com
mon
carri
er’s
tax.”
Petitio
ner is
already
paying
three
(3%)
percent
commo
n
carrier’
s tax on
its
gross
sales/e
arnings
under
the
Nation
al
Interna
l
Revenu
e Code.
To tax
petitio
ner
again
on its
gross
receipt
s in its
transp
ortatio
n of
petrole
um
busines
s
would
defeat
the
purpos
e of the
Local
Govern
ment
Code.
PAGE
226
MANILA ELECTRIC COMPANY, vs. PROVINCE OF LAGUNA
[G.R. No. 131359. May 5, 1999]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Vitug
FACTS:
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 the enactment of Republic Act No. 7160, otherwise known as the “Local Government Code of 1991,” local
government units were enjoined to create their own sources of revenue,levy taxes, fees and charges, subject to
the limitations expressed therein, consistent with the basic policy of local autonomy. The province of Laguna,
then enacted Provincial Ordinance No. 01- 92, effective 01 January 1993, providing, in part, as follows:
“Sec. 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”
An amount of P19,520,628.42 was paid for tax under protest by petitioner MERALCO. The petitioner then sent
a formal claim for refund 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. Petitioner claims 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 provides “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
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 ivoked by the petitioner. A complaint was filed by petitioner
Meralco to the RTC for the refund of the amount paid for tax against the Province of Laguna and also Benito R.
Balazo, in his capacity as the Provincial Treasurer of Laguna. RTC dismissed the complaint and ruled that the
power to tax exercised by province of Laguna was valid.
PAGE
227
HELD:
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, x x x (to) impose a tax on businesses enjoying a franchise. 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. The Code, in addition, contains a general repealing clause in its Section
534 which states that “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.”
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.[14] 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.[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.
WHEREFORE, the instant petition is hereby DISMISSED.
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228
PHILIPPINE BASKETBALL ASSOCIATION vs. COURT OF
APPEALS
[G.R. No. 119122. August 8, 2000]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Purisima
FACTS:
Commissioner of Internal Revenue, herein respondent sent an assessment letter to the Philippine Basketball
Association, herein petitioner; for the payment of deficiency amusement tax. Such deficiency tax amounted to
P5, 864, 260.84 (including 25% surcharges and 25% interest for two years). On July 18, 1989, petitioner
contested the assessment by filing a protest with respondent Commissioner who denied the same on
November 6, 1989. The Court of Tax Appeals likewise denied the petition filed by petitioner. The decision of
CTA was appealed to Court of Appeals who affirmed the decision of CTA thus dismissing petitioner’s appeal.
Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973, transferred the power and
authority to levy and collect amusement taxes from the sale of admission tickets to places of amusement from
the national government to the local governments. Petitioner cited BIR Memorandum Circular No. 49-73
providing that the power to levy and collect amusement tax on admission tickets was transferred to the local
governments by virtue of the Local Tax Code; and BIR Ruling No. 231-86 which held that “the jurisdiction to
levy amusement tax on gross receipts from admission tickets to places of amusement was transferred to local
governments under P.D. No. 231, as amended.”8 Further, petitioner opined that even assuming arguendo that
respondent Commissioner revoked BIR Ruling No. 231-86, the reversal, modification or revocation cannot be
given retroactive effect since even as late as 1988 (BIR Memorandum Circular No. 8-88), respondent
Commissioner still recognized the jurisdiction of local governments to collect amusement taxes.
ISSUE:
1. Is the amusement tax on admission tickets to PBA games a national or local tax? Otherwise put, who between
the national government and local government should petitioner pay amusement taxes?
2. Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc. (VEI) subject to the payment of
amusement tax?
3. If ever petitioner is liable for the payment of deficiency amusement tax, is it liable to pay a seventy-five
percent (75%) surcharge on the deficiency amount due?
HELD:
The Court ruled that petitioner PBA is liable to pay amusement tax to the National Government, and not to the
Local Government, in accordance with the rates prescribed by P.D. 1959. It is therein provided that “the
proprietor, lessee or operator of professional basketball games” is required to pay amusement tax equivalent
to 15% of the gross receipts to the BIR, which payment is a national tax. Said payment of amusement tax is in
lieu of all other percentage taxes of whatever nature and description.
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While Section 13 of the Local Tax Code mentions “other places of amusement”, professional basketball games
are definitely not within its scope. Under the principle of ejusdem generis, where general words follow an
enumeration of persons or things, by words of a particular and specific meaning, such general words are not to
be construed in their widest extent, but are to be held as applying only to persons or things of the same kind or
class as those specifically mentioned.9 Thus, in determining the meaning of the phrase “other places of
amusement”, one must refer to the prior enumeration of theaters, cinematographs, concert halls and circuses
with artistic expression as their common characteristic. Professional basketball games do not fall under the
same category as theaters, cinematographs, concert halls and circuses as the latter basically belong to artistic
forms of entertainment while the former caters to sports and gaming.
Likewise erroneous is the stance of petitioner that respondent Commissioner’s issuance of BIR Ruling No. 2318612 and BIR Revenue Memorandum Circular No. 8-8813 — both upholding the authority of the local
government to collect amusement taxes — should bind the government or that, if there is any revocation or
modification of said rule, the same should operate prospectively.
It bears stressing that the government can never be in estoppel, particularly in matters involving taxes. It is a
well-known rule that erroneous application and enforcement of the law by public officers do not preclude
subsequent correct application of the statute, and that the Government is never estopped by mistake or error
on the part of its agents.
As regards to the second issue, the court finds the petitioner’s contention that income from the cession of
streamer and advertising spaces to VEI is not subject to amusement tax untenable. The questioned proviso may
be found in Section 1 of PD 1456 which states:
“SECTION 1. Section 268 of the National Internal Revenue Code of 1977, as amended, is hereby further
amended to read as follows:
‘Sec. 268. Amusement taxes. — There shall be collected from the proprietor, lessee or operator of cockpits,
cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai, race tracks and bowling
alleys, a tax equivalent to:
xxx xxx xxx
of their gross receipts, irrespective of whether or not any amount is charged or paid for admission. For the
purpose of the amusement tax, the term gross receipts’ embraces all the receipts of the proprietor, lessee or
operator of the amusement place. Said gross receipts also include income from television, radio and motion
picture rights, if any. (A person, or entity or association conducting any activity subject to the tax herein
imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.)”
(emphasis ours)
The foregoing definition of gross receipts is broad enough to embrace the cession of advertising and streamer
spaces as the same embraces all the receipts of the proprietor, lessee
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or operator of the amusement place. The law being clear, there is no need for an extended interpretation.
The last issue for resolution concerns the liability of petitioner for the payment of surcharge and interest on the
deficiency amount due. Petitioner contends that it is not liable, as it acted in good faith, having relied upon the
issuances of the respondent Commissioner. This issue must necessarily fail as the same has never been posed
as an issue before the respondent court. Issues not raised in the court a quo cannot be raised for the first time
on appeal.
All things studiedly considered, the Court rules that the petitioner is liable to pay amusement tax to the
national government, and not to the local government, in accordance with the rates prescribed by PD 1959.
WHEREFORE, the Petition is DENIED
PAGE
231
MANILA INTERNATIONAL AIRPORT AUTHORITY vs. CA
[G.R. No. 155650. July 20, 2006]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Carpio
FACTS:
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport
(NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of
the Manila International Airport Authority (“MIAA Charter), as amended. As operator of the international
airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter
transferred to MIAA approximately 600 hectares of land, including the runways and buildings (“Airport Lands
and Buildings”) then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no
portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically
approved by the President of the Philippines. On 21 March 1997, the Office of the Government Corporate
Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew
the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA then paid
some of the real estate tax already due.
Due to MIAA’s tax delinquency, the City of Parañaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at
public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA
thus sought a clarification of OGCC Opinion No. 061.
The OGCC issued Opinion no. 147, clarifying Opinion no. 061 which pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined
that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA.
However, MIAA points out that it cannot claim ownership over these properties since the real owner of the
Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the
Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are
devoted to public use and public service, the ownership of these properties remains with the State. The Airport
Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real
estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government
Code because the Airport Lands and Buildings
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are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot
tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not
inure to any public advantage, since in such a case the tax debtor is also the tax creditor.
ISSUE:
Whether or not the airport lands an buildings of MIAA are exempt from real estate tax.
HELD:
The court rule that MIAA’s Airport Lands and Buildings are exempt from real estate tax imposed by local
governments. First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by
the Republic of the Philippines and thus exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as
follows:
SEC. 2. General Terms Defined. - x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and
owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the
case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis
supplied)
A government-owned or controlled corporation must be “organized as a stock or non-stock corporation.” MIAA
is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital
stock divided into shares. MIAA has no stockholders or voting shares.
Section 234(a) of the Local Government Code exempts from real estate tax any real property owned by the
Republic of the Philippines. This exemption should be read in relation with Section 133(o) of the same Code,
which prohibits local governments from imposing “[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x.” The real properties owned by the Republic are titled
either in the name of the Republic itself or in the name of agencies or instrumentalities of the National
Government. The Administrative Code allows real property owned by the Republic to be titled in the name of
agencies or instrumentalities of the national government. Such real properties remain owned by the Republic
and continue to be exempt from real estate tax.
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The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses
its tax exemption only if the “beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.” MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the
Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of
the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from
real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is
subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a
consideration to a taxable person and therefore such land area is subject to real estate tax.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5
October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings
of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of
Parañaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax
delinquencies, issued by the City of Parañaque on the Airport Lands and Buildings of the Manila International
Airport Authority, except for the portions that the Manila International Airport Authority has leased to private
parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of
the Manila International Airport Authority.
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234
THE PROVINCE OF BULACAN vs. COURT OF APPEALS
[G.R. No. 126232 November 27, 1998]
Digest by: RECENO, Pia Mitzi P.
PONENTE: Romero
FACTS:
The Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as “An Ordinance
Enacting the Revenue Code of the Bulacan Province.” Section 21 of such code provides:
Sec. 21 Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the
locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited
to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of
seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction (Emphasis ours)
Pursuant thereto, the Provincial Treasurer of Bulacan, assessed private respondent Republic Cement
Corporation (hereafter Republic Cement) P2,524,692.13 for extracting limestone, shale and silica from several
parcels of private land in the province during the third quarter of 1992 until the second quarter of 1993.
Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on quarry
resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993.
The same was, however, denied by the Provincial Treasurer on January 17, 1994. Republic Cement,
consequently filed a petition for declaratory relief with the Regional Trial Court of Bulacan on February 14,
1994. The province filed a motion to dismiss Republic Cement’s petition, which was granted by the trial court
on May 13, 1993, which ruled that declaratory relief was improper, allegedly because a breach of the ordinance
had been committed by Republic Cement.
On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the
trial court’s dismissal of their petition. The Court, in a resolution dated July 27, 1994, referred the same to the
Court of Appeals. Due to its allegedly unpaid taxes, the Province of Bulacan issued a warrant of levy against
Republic Cement. Negotiations between Republic Cement and petitioners resulted in an agreement and modus
vivendi on December 12, 1994, whereby Republic Cement agreed to pay under protest P1,262,346.00, 50% of
the tax assessed by petitioner, in exchange for the lifting of the warrant of levy. CA ruled that Province of
Bulacan has no legal authority. Hence this petition.
ISSUE:
Whether or not the provincial government could impose and/or assess taxes on quarry resources extracted by
Republic Cement from private lands pursuant to Section 21 of Provincial Ordinance No. 3.
PAGE
235
HELD:
The petition is devoid of merit.
The appellate court, on the basis of Section 134, ruled that a province was empowered to impose taxes only on
sand, gravel, and other quarry resources extracted from public lands, its authority to tax being limited by said
provision only to those taxes, fees and charges provided in Article One, Chapter 2, Title One of Book II of the
Local Government Code. 11 On the other hand, petitioners claim that Sections 129 12 and 186 13 of the Local
Government Code authorizes the province to impose taxes other than those specifically enumerated under the
Local Government Code.
The Court of Appeals erred in ruling that a province can impose only the taxes specifically mentioned under the
Local Government Code. As correctly pointed out by petitioners, Section 186 allows a province to levy taxes
other than those specifically enumerated under the Code, subject to the conditions specified therein. A
province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code.
The National Internal Revenue Code levies a tax on all quarry resources, regardless of origin, whether extracted
from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and
other quarry resources, as the same are already taxed under the National Internal Revenue Code. The province
can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land
because it is expressly empowered to do so under the Local Government Code. As to stones, sand, gravel, earth
and other quarry resources extracted from private land, however, it may not do so, because of the limitation
provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code.
WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit and the decision of the
Court of Appeals is hereby AFFIRMED in toto.
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236
DRILON vs. LIM
[G.R. No. 112497 August 4, 1994]
Digest by: RAMOS, Marinel M.
PONENTE: Cruz
FACTS:
Filed before the Secretary of Justice are appeals of four oil companies and a taxpayer, seeking for the
declaration of Ordinance No. 7794, otherwise known as the Manila Revenue Code, null and void for noncompliance with the prescribed procedure in the enactment of tax ordinances and for containing certain
provisions as provided in Section 187 of the Local Government Code reading as follows: “Procedure For
Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. — The
procedure for approval of local tax ordinances and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the
enactment thereof; Provided, further, That any question on the constitutionality or legality of tax ordinances or
revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary
of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided,
however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after
receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the
appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.”
Hon. Franklin Drilon found the said ordinance violative of Sec. 187 of the LGC for the procedural requirements
for the enactment of tax ordinances as specified in the LGC had indeed not been observed.. In a petition for
certiorari filed by the City of Manila, the RTC of Manila revoked the Secretary’s resolution and sustained the
ordinance, holding inter alia that the procedural requirements had been observed. More importantly, it
declared Section 187 of the Local Government Code as unconstitutional because of its vesture in the Secretary
of Justice of the power of control over local governments in violation of the policy of local autonomy mandated
in the Constitution and of the specific provision therein conferring on the President of the Philippines only the
power of supervision over local governments.
ISSUE:
1. Whether or not Section 187 of the LGC is constitutional thus making Ordinance No. 7794 null and void
2. Whether or not there is compliance on the part of City of Manila in issuing Ordinance No. 7794
HELD:
1. Section 187 of the LGC is valid. Section 187 authorizes the Secretary of Justice to review only the
constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these
grounds. When he alters or modifies or sets aside a tax ordinance, he
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is not also permitted to substitute his own judgment for the judgment of the local government that enacted the
measure. Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his own version
of what the Code should be. He did not pronounce the ordinance unwise or unreasonable as a basis for its
annulment. He did not say that in his judgment it was a bad law. What he found only was that it was illegal. All
he did in reviewing the said measure was determine if the petitioners were performing their functions in
accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant
of powers to the city government under the Local Government Code. As we see it, that was an act not of control
but of mere supervision.
2. There is compliance with the procedural requirements for the enactment of the ordinance. In his resolution,
Secretary Drilon declared that there were no written notices of public hearings on the proposed Manila
Revenue Code that were sent to interested parties as required by Art. 276(b) of the Implementing Rules of the
Local Government Code nor were copies of the proposed ordinance published in three successive issues of a
newspaper of general circulation pursuant to Art. 276(a). No minutes were submitted to show that the
obligatory public hearings had been held. Neither were copies of the measure as approved posted in prominent
places in the city in accordance with Sec. 511(a) of the Local Government Code. Finally, the Manila Revenue
Code was not translated into Pilipino or Tagalog and disseminated among the people for their information and
guidance, conformably to Sec. 59(b) of the Code. Judge Palattao found otherwise. Posting of the ordinance as
approved is may be omitted and this omission does not affect its validity, considering that its publication in
three successive issues of a newspaper of general circulation will satisfy due process. It has also not been
shown that the text of the ordinance has been translated and disseminated, but this requirement applies to the
approval of local development plans and public investment programs of the local government unit and not to
tax ordinances.
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Part II:
Real Property Taxation
DAVAO SAWMILL CO., INC. vs. CASTILLO
[L-40411. August 7, 1935]
Digest by: RAMOS, Marinel M.
PONENTE: Malcolm
FACTS:
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine
Islands. It has operated a sawmill in the Sitio of Maa, barrio of Tigatu, municipality of Davao, Province of Davao.
However, the land upon which the business was conducted belonged to another person. On the land the
sawmill company erected a building which housed the machinery used by it. Some of the implements thus used
were clearly personal property, the conflict concerning machines which were placed and mounted on
foundations of cement. In the contract of lease between the sawmill company and the owner of the land there
appeared provisions which provides that on the expiration of the period agreed upon, all the improvements
and buildings introduced and erected by the party of the second part shall pass to the exclusive ownership of
the party of the first part without any obligation on its part to pay any amount for said improvements and
buildings. In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw,
Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action against the
defendant in that action; a writ of execution issued thereon, and the properties now in question were levied
upon as “personalty” by the sheriff. The plaintiff who was also the highest bidder proceeded to take possession
of the machinery and other properties described in the corresponding certificates of sale executed in its favor
by the sheriff of Davao. Petitioner claims that the property involved is a real property being mounted on
cement and that a public sale must be held.
ISSUE:
Whether or not the property in question is a personal property.
HELD:
The machinery is considered a personal property. As connecting up with the facts, it should further be
explained that the Davao Saw Mill Co., Inc., has on a number of occasions treated the machinery as personal
property by executing chattel mortgages in favor of third persons. One of such persons is the appellee by
assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of —
“1. Land, buildings, roads and constructions of all kinds adhering
to the soil; x x x x x x x x x 5. Machinery, liquid containers, instruments or implements
intended by the owner of any building or land for use in connection with any industry or trade being carried on
therein and which are expressly adapted to meet the requirements of such trade of industry.”
It must further be pointed out that while not conclusive, the characterization of the property as chattels by the
appellant is indicative of intention and impresses upon the
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property the character determined by the parties. It is machinery which is involved; moreover, machinery not
intended by the owner of any building or land for use in connection therewith, but intended by a lessee for use
in a building erected on the land by the latter to be returned to the lessee on the expiration or abandonment of
the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it was
held that machinery which is movable in its nature only becomes immobilized when placed in a plant by the
owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any person having only a
temporary right, unless such person acted as the agent of the owner.
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CITY OF BAGUIO vs. FERNANDO S. BUSUEGO
[L-29772. September 18, 1980]
Digest by: RAMOS, Marinel M.
PONENTE: Malcolm
FACTS:
A tax collection suit is instituted by the City of Baguio, against appellant Fernando S. Busuego, after it was
established that the defendant and the Government Service Insurance System (GSIS), a government
corporation, executed, by and between themselves, a “Contract to Sell” over a parcel of land although the
agreed purchase price for the property has not yet been fully paid and the GSIS has up to the present time, title
of the property in question but the defendant is using the same. It has also been established that under
Commonwealth Act No. 186, the GSIS as well as its property are exempt from payment of all types and kinds of
taxes; that the property involved in this case has been consistently assessed (amounting to P1,656) by the City
of Baguio in the name of the GSIS; and that demands were made on the defendant for payment of the aforesaid
taxes but said defendant refused and failed to pay the same. Also it was undisputed that defendant has paid the
amount of P287.80 for realty taxes due for the year 1963 and he is demanding for refund from petitioner.
The city court rendered judgment in favor of plaintiff sentencing defendant to pay the sum of P1,656.00.00
with legal interest from the filing of complaint on August 18, 1966 the same is fully paid. Upon appeal, CFI,
concluding that the contract entered into by the parties was a perfected contract of sale, likewise held that
defendant as owner was liable for the realty taxes on the property, and, therefore, likewise ordered defendant
to pay the same amount as adjudged by the city court.
Paragraph 2 of the contract entered into by the GSIS and the defendant-appellant manifests the latter’s
willingness at the signing thereof to pay and shoulder all taxes and assessments on the subject property and
insurance thereon during the term of the said contract. However, appellants purchaser after having voluntarily
paid taxes due on the property in the amount of P287.00 for the year 1963 backed out of his undertaking upon
discovering that section 28(c) of Commonwealth Act 186 exempts the GSIS from the payment of taxes. His
theory is that while title to the property has not passed to him, per paragraph 4 of the contract, and ownership
remains with the seller, there could not be any obligation to pay taxes on the property that should be assumed
by him as purchaser, since the owner-seller, in whom title remains, is exempt from taxes.
ISSUE:
Whether or not defendant-appellant, an installment purchaser of a parcel of land and its building and
improvements within a housing project belonging to the Government Service Insurance System (GSIS) liable to
pay realty taxes thereon from the time possession of such property was transferred to him, although pending
full payment of the purchase price the seller GSIS as a government corporation exempt from the payment of
taxes retains ownership and title over the property.
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HELD:
Defendant-Appellant is liable for the payment of Real Property Tax. The court of first instance may have erred
in pronouncing the “Contract to Sell” as a perfected contract of sale, contrary to its very terms that title
remained with the seller who undertook to execute a final deed of absolute sale and deliver to the purchaser
title to the property only after completion of the stipulated payments, but this is not decisive of the issue.
The delivery of possession by the seller GSIS to the purchaser was clearly with the intention of passing to the
latter the possession, use of and control over said property, and all the other attributes of ownership, short of
the naked ownership such that it included in said transfer the incidental obligation to pay the taxes thereon, for
nothing more was left to the GSIS except its right to receive full payment of the purchase price. The fact that in
the contract to sell the GSIS, although aware of its own exemption from taxation stipulated and exacted from
the purchaser the payment of taxes amounts to an interpretation on its part that such an immunity was not to
be transmitted to a private person who becomes the beneficial owner and user of the property. Verily, this
interpretative regulation by the administrative agency officially charged with the duty of administering and
enforcing Commonwealth Act 186 which contains the tax-exempting provision at issue carries great weight in
determining the operation of said provision.
The position taken by the GSIS is but in conformity with Section 40(a) of Presidential Decree No. 464 entitled
The Real Property Tax Code promulgated on May 20, 1974 which reads as follows: “Exemptions from Real
Property Tax. — The exemptions shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any
government-owned corporation so exempt by its charter; Provided, however, That this exemption shall not
apply to real property of the above-named entitles the beneficial use of which has been granted, for
consideration or otherwise, to a taxable person x x x.” Thus under this provision, while the GSIS may be exempt
from real estate tax the exemption does not cover property belonging to it “where the beneficial use thereof
has been granted for consideration or otherwise to a taxable person.” There can be no doubt that under the
provisions of the contract in question, the purchaser to whose possession the property had been transferred
was granted beneficial use thereof. It follows on the strength of the provision sec. 40(a) of PD 464 that the said
property is not exempt from the real property tax. While this decree just cited was still inexistent at the time
the taxes at issue were assessed on the herein appellant, indeed its above quoted provision sheds light upon
the legislative intent behind the provision of Commonwealth Act 186, pertaining to exemption of the GSIS from
taxes.
The end result is but in consonance with the established rule in taxation that exemptions are held strictly
against the taxpayer and liberally in favor of the taxing authority.
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Reyes, et al. v. Almanzor
[GR Nos. L-49839-46. April 26, 1991]
Digest by: REY, Floyd Ericson M.
PONENTE: Paras
FACTS:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta.
Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants paying
monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the National
Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in monthly
rentals of dwelling units or of lands on which another’s dwelling is located, where such rentals do not exceed
three hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The
said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity
thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. The Reyeses,
were precluded from raising the rentals and from ejecting the tenants.
In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties
based on the schedule of market values. The revision, as expected, entailed an increase in the corresponding
tax rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment
Appeals. They averred that the reassessments made were “excessive, unwarranted, inequitable, confiscatory
and unconstitutional” considering that the taxes imposed upon them greatly exceeded the annual income
derived from their properties. They argued that the income approach should have been used in determining
the land values instead of the comparable sales approach which the City Assessor adopted.
The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among others, the
summary of the yearly rentals to show the income derived from the properties. Respondent City Assessor, on
the other hand, submitted three (3) deeds of sale showing the different market values of the real property
situated in the same vicinity where the subject properties of petitioners are located.
The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners
maintain that the “Income Approach” method would have been more realistic for in disregarding the effect of
the restrictions imposed by P.D. 20 on the market value of the properties affected. On the other hand, Board of
Tax Assessment Appeals maintains that when income is affected by some sort of price control, the same is
rejected in the consideration and study of land values as in the case of properties affected by the Rent Control
Law for they do not project the true market value in the open market. Thus, respondents opted instead for the
“Comparable Sales Approach” on the ground that the value estimate of the properties predicated upon prices
paid in actual, market transactions would be a uniform and a more credible standards to use especially in case
of mass appraisal of properties
PAGE
243
ISSUE:
Whether or not the respondent Board was correct in adopting the Comparable Sales Approach method in fixing
the assessed value.
HELD:
No. Under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental Principle
to guide the appraisal and assessment of real property for taxation purposes is that the property must be
“appraised at its current and fair market value.” By no strength of the imagination can the market value of
properties covered by P.D. No. 20 be equated with the market value of properties not so covered. The former
has naturally a much lesser market value in view of the rental restrictions.
In the case at bar, not even the factors determinant of the assessed value of subject properties under the
“comparable sales approach” were presented by the public respondents, namely: (1) that the sale must
represent a bonafide arm’s length transaction between a willing seller and a willing buyer and (2) the property
must be comparable property. Consequently, it stands to reason that petitioners who are burdened by the
government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their properties.
PAGE
244
Pecson v. Court of Appeals
[G.R. No.105360. May 25, 1993]
Digest by: REY, Floyd Ericson M.
PONENTE: Quiason
FACTS:
Petitioner was the registered owner of a parcel of land in Quezon City consisting of 256 sq. meters and covered
by TCT No. 79912 of the Registry of Deeds of Quezon City. For non-payment of realty taxes, petitioner’s
property was sold at public auction on November 12, 1980 by respondent Regis. Notices of sale were sent to
petitioner at “No. 79 Paquita Street, Sampaloc, Manila,” and were published in the Times Journal on October 6,
13, and 30, 1980. A final notice to exercise the right of redemption dated September 14, 1981 was sent to
petitioner at “No. 79 Paquita Street, Sampaloc, Manila.” There being no redemption made after one-year from
the date of the auction sale, a Final Bill of Sale was executed on April 19, 1982 by respondent Regis in favor of
respondent Nepomuceno.
The Regional Trial Court, Quezon City, consolidated title in favor of respondent Nepomuceno and directed the
Register of Deeds of Quezon City to cancel TCT No. 79912 and issue a new one in lieu thereof, in the name of
respondent Nepomuceno. On October 25, 1983, respondent Nepomuceno executed a Deed of Absolute Sale on
the subject property in favor of respondents Tan and Nuguid for P103,000.00. On December 8, 1983, the
Register of Deeds of Quezon City cancelled Nepomuceno’s title to the property and issued TCT No. 308506 in
the names of respondents Tan and Nuguid.
Petitioner argues that respondent Regis sent the notices to him at “No. 79 Paquita St., Sampaloc, Manila” which
was not his address. He claims that his correct Manila address is “No. 1009 Paquita St., Sampaloc” and his
correct Quezon City address is “No. 79, Kamias Road, Quezon City.” He admits that on the dates the notices
were mailed, he was no longer residing in Manila but in Quezon City.
ISSUE:
Whether or not the requirements of posting and announcement of the sale under the Real Property Tax Code
were complied with.
HELD:
Yes. Under the said provisions of the law, notices of the sale of the public auction may be sent to the delinquent
taxpayer, either (i) at the address as shown in the tax rolls or property tax record cards of the municipality or
city where the property is located or (ii) at his residence, if known to such treasurer or barrio captain.
What appeared in the records of the Office of the City Treasurer of Quezon City as the address of petitioner was
“1009 Paquita, Manila,” and below the number 1009 was the number “79”. From this entry, one can deduce
that the taxpayer had transferred his residence to “No.
79 Paquita, Sampaloc, Manila” from “No. 1009 Paquita, Sampaloc, Manila”. In the register for
PAGE
245
the
tax
year
s
starti
ng
from
1982
(Exh.
S;
also
Exh.
3),
the
addr
ess
of
petiti
oner
was
reco
rded
as
“79
Paqu
ita,
Mla.”
The
Cour
t of
Appe
als
adva
nced
the
theo
ry
that
the
num
ber
“79”
was
furni
shed
by
petiti
oner
hims
elf,
basi
ng
its
concl
usio
n on
the
addr
ess
give
n by
petiti
oner
in
his
com
plaint,
which
was
“No. 79
Kamias
Road,
Quezon
City.”
Petitio
ner’s
content
ion
that he
would
have
receive
d the
notices
had
they
been
sent to
“No.
1009
Paquita
,
Sampal
oc,
Manila,
”
becaus
e the
occupa
nts
thereof
forwar
ded the
letters
addres
sed to
him to
his
Quezon
City
residen
ce,
loses
force
when
one
conside
rs that
the
Court
of First
Instanc
e of
Quezon
City
sent
him a
notice,
in
connec
tion
with
the
proc
eedi
ngs
for
the
cons
olida
tion
of
title,
at
“No.
1009
Paqu
ita
St.,
Sam
palo
c,
Mani
la,”
whic
h
rema
ined
“uncl
aime
d”.
The
petiti
oner
shou
ld
kno
w
that
if an
own
er
fails
to
pay
the
real
estat
e
taxes
on
prop
erty,
the
said
prop
erty
shall
be
sold
at
publi
c
aucti
on to
reco
ver
the
delinqu
ent
taxes.
When
petitio
ner’s
proper
ty was
sold at
a
public
auction
in
Decem
ber
1980,
the tax
delinqu
ency
must
have
accum
ulated
for
several
years.
It was
only on
July 12,
1982
that
the
order
for
consoli
dation
of title
in the
name
of
respon
dent
Nepom
uceno
was
issued
and it
was
only on
Decem
ber 8,
1983
that
the
title
over
the
proper
ty was
transfe
rred to
respon
dents
Tan
and
Nuguid
. All
thro
ugho
ut
thes
e
year
s,
petiti
oner
neve
r
displ
ayed
an
inter
est
in
payi
ng
the
real
estat
e taxes
on the
proper
ty.
Worse,
he
introdu
ced
improv
ements
thereo
n
withou
t
reporti
ng the
same
for tax
purpos
es
PAGE
246
Mathay, Jr. v. Macalincag
[G.R. No. 97618. December 16, 1993]
Digest by: REY, Floyd Ericson M.
PONENTE: Narvasa
FACTS:
Petitioner Mathay, a member of Congress and registered owner of lands in Quezon City, sought the perpetual
enjoinment, as unconstitutional and void, of “the schedule of market values prepared by respondent City
Assessor for all classes of real property situated in Quezon City” and the oppressive and excessive real estate
tax increases being implemented by respondents City Assessor and City Treasurer pursuant to the illegal
schedule of market values and unlawful approval, all in violation of the Constitution and laws.
The essential foundation of the petitioner’s thesis of the nullity of the schedule of market values is that it was
prepared by the respondent City Assessor alone, independently of the other City Assessors within the
Metropolitan Manila Area, this being in patent violation of the explicit requirement of Section 9 of Presidential
decree No. 921 which provides that “the Schedule of Values that will serve as the basis for the appraisal and
assessment for taxation purposes of real properties located within the Metropolitan Area shall be prepared
jointly by the City Assessors of the Districts created under Section one hereof, with the City Assessor of Manila
acting as Chairman”.
Similar actions were initiated before the Supreme Court by Rufino S. Javier, registered owner of real estate in
the Municipality of Pasig, against respondent Macalincag and the Municipal Assessor and the Municipal
Treasurer of Pasig, Metro Manila and by Consuelo Puyat - Reyes, a registered owner of real estate property in
the Municipality of Makati, against respondent Secretary of Finance acting through Macalincag, the Municipal
Assessor and the Municipal Treasurer of Makati.
The Supreme Court appointed the Central Board of Assessment Appeals “to take cognizance of the factual
issues raised in these cases by virtue of referral by this Court in the exercise of its extraordinary or certiorari
jurisdiction which should not be confused with its appellate jurisdiction over appealed assessment cases under
Section 36 of P.D. 464 otherwise known as the Real Property Tax Code. The Board is acting as a Courtappointed fact-finding commission to assist the Court in resolving the factual issues raised.”
ISSUE:
Whether or not the Schedule of Market Values prepared by respondent City Assessor
is void.
HELD:
Yes. The Board held that Section 9 of P.D. 921 is specific and mandatory. The undisputed fact that the City
Assessor of Quezon City solely prepared the Schedule of Market Values in question, without the participation of
the other City Assessors of Metropolitan Manila, with the
PAGE
247
City Assessor of Manila acting as Chairman, indicates that the said Schedule of Market Values was prepared
contrary to and unauthorized under Section 9 of P.D. 921 and its implementing rule on Section 1.02 of AR No.
7-77.
The conclusion is, therefore, inevitable that the said Schedule of Market Values, having been prepared by the
respondent City Assessor contrary to the express provision of and without authority under Section 9 is illegal
and therefore void. “An illegal act confers no rights, creates no duties, and in the eyes of the law, it is as if the
same had never existed. It can be slain at sight.” Such is the case of the questioned Schedule of Market Values,
which is hereby declared void and without force and effect. Therefore, the realty tax rates based on the
Schedule of Market Values are likewise void and unenforceable.
The Supreme Court agrees with the Board’s conclusion that the Schedules of Market Values for real properties
located in Quezon City, the Municipality of Pasig and the Municipality of Makati, respectively prepared solely by
the City Assessor of Quezon City, and the Municipal Assessors of Pasig and Makati, failed to comply with the
explicit requirements of Presidential Decree No. 921 in relation to the corresponding Administrative
Regulations promulgated by the Department of Finance (No. 7-77) on July 25, 1977, and are on that account
illegal and void.
PAGE
248
Patalinghug v. Court of Appeals
[G.R. No. 104786. January 27, 1994]
Digest by: REY, Floyd Ericson M.
PONENTE: Romero
FACTS:
On November 17, 1982, the Sangguniang Panlungsod of Davao City enacted Ordinance No. 363, series of 1982
otherwise known as the “Expanded Zoning Ordinance of Davao City,” which states that “A C-2 District shall be
dominantly for commercial and compatible industrial uses as provided xxx Funeral Parlors/Memorial Homes
with adequate off street parking space and provided that they shall be established not less than 50 meters from
any residential structures, churches and other institutional buildings”.
Acting on the complaint of several residents of Barangay Agdao, Davao City that the construction of petitioner’s
funeral parlor violated Ordinance No. 363, since it was allegedly situated within a 50-meter radius from the
Iglesia ni Kristo Chapel and several residential structures, the Sangguniang Panlungsod conducted an
investigation and found that “the nearest residential structure, owned by Wilfred G. Tepoot is only 8 inches to
the south ........... ” A
case was filed by the private respondents for the declaration of nullity of a building permit.
The lower court found that the residential building owned by Cribillo and Iglesia ni Kristo chapel are 63.25
meters and 55.95 meters away, respectively from the funeral parlor and that although the residential building
owned by certain Mr. Tepoot is adjacent to the funeral parlor, and is only separated therefrom by a concrete
fence, said residential building is being rented by a certain Mr. Asiaten who actually devotes it to his laundry
business with machinery thereon. However, on appeal, the Court of Appeals ruled that although the buildings
owned by Cribillo and Iglesia ni Kristo were beyond the 50-meter residential radius prohibited by Ordinance
363, the construction of the funeral parlor was within the 50-meter radius measured from the Tepoot’s
building.
The Appellate Court disagreed with the lower court’s determination that Tepoot’s building was commercial
and ruled that although it was used by Mr. Tepoot’s lessee for laundry business, it was a residential lot as
reflected in the tax declaration.
ISSUE:
Whether or not the declaration for taxation purposes should be binding even though the property has been
declared as a commercial area.
HELD:
No. A tax declaration is not conclusive of the nature of the property for zoning purposes. A property may have
been declared by its owner as residential for real estate taxation purposes but it may well be within a
commercial zone. A discrepancy may thus exist in the determination of the nature of property for real estate
taxation purposes vis-a-vis the determination of a property for zoning purposes.
PAGE
249
A tax
decla
ratio
n
only
enab
les
the
asses
sor
to
ident
ify
the
same
for
asses
sme
nt
level
s. In
fact,
a tax
decla
ratio
n
does
not
bind
a
provi
ncial
/city
asses
sor,
for
unde
r Sec.
22 of
the
Real
Estat
e Tax
Code
,
appr
aisal
and
asses
sme
nt
are
base
d on
the
actu
al
use
irres
pecti
ve of
“any
previ
ous
asses
sme
nt or
taxpay
er’s
valuati
on
thereo
n,”
which
is
based
on a
taxpay
er’s
declara
tion. In
fact, a
piece
of land
declare
d by a
taxpay
er as
residen
tial
may be
assesse
d by
the
provinc
ial or
city
assesso
r as
comme
rcial
becaus
e its
actual
use is
comme
rcial.
Even if
Tepoot’
s
buildin
g was
declare
d for
taxatio
n
purpos
es as
residen
tial,
once a
local
govern
ment
has
reclassi
fied an
area as
comme
rcial
that
determ
inati
on
for
zoni
ng
purp
oses
must
prev
ail.
PAGE
25
0
Ty, et. al. vs. Trampe
[G.R. No. 117577; December 1, 1995]
Digest by: RUAYA, Ronald S.
PONENTE: Panganiban
FACTS:
Herein petitioners Ty and MVR Picture Tube Inc. both own lands and buildings in the municipality
of Pasig. On January 1994, the Municipal Assessor of Pasig sent a notice of assesment with respect
to the petitioners properties within the municipality. Finding the new assessment to be higher than
previous assessments, petitioners sought the reconsideration of the assessor. At the same time,
petitioners sought before the Regional Trial presided by public respondent Judge Trampe for a
Petition for Prohibition with prayer for a restraining order and/or writ of preliminary injunction to
declare null and void the new schedule of values and the corresponding assessments and to enjoin
the collection of real estate taxes based on said assessments. However respondent denied the
petition and the subsequent motion for reconsideration.
Petitioners averred in the said petition that the new schedule of values and tax assessment be
declared void as it was solely done by the municipal assessor hence it did not comply with PD 921
requiring a jointly agreed schedule of values for assessment of the municipal assessor and the
assessors within the Assessment District. Moreover, they aver that the stark increase in the new
assessment reaching as high as 500% was oppressive and confiscatory. In denying the petition,
respondent judge ruled that the new schedule of values for assessment was valid since PD 921 was
already repealed by RA 7160 or Local Government Code and that the petitioners have also failed to
exhaust all administrative remedies in accordance to Sec. 226 and 252 of RA 7160 before filing a
suit before the courts.
Thus the petitioners filed a Petition for Review before the Supreme Court.
ISSUE:
Whether or not PD 921 was repealed by RA 7160, whether petitioners failed to exhaust all
administrative remedies before going to court and whether the new assessment can be deemed
oppressive and confiscatory?
HELD:
The Supreme Court found that PD 921 was neither expressly nor impliedly repealed by RA 7160,
the respondent failed to harmonize the provisions of PD 921 and RA 7160; the latter law sought to
provide autonomy and efficient functioning of the local governments while PD 921 ensured
efficiency and effectiveness in the assessment of real property in the Assessment Districts of Metro
Manila by requiring a jointly agreed schedule of values by all of the assessors in the district. As such,
it would be apropos to harmonize the two laws in line with the intent of these laws where the
autonomy of local governments may be enhanced as intended by RA 7160 by grouping themselves
together as is the case in PD 921 with regard to real estate assessments. By this harmonization,
both the preamble of P.D. 921 decreeing
PAGE
251
that the real estate taxes shall “not unduly burden the taxpayer” and the “operative principle of
decentralization” provided under Sec. 3, R.A. 7160 encouraging local government units to
“consolidate or coordinate their efforts, services and resources” shall be fulfilled.
As such, PD 921 still being an existing law, it is thus required that any schedule of values for new
assessment as proposed by a municipal assessor must be jointly agreed upon by other municipal,
city assessors of the Assessment District and any new schedule of values made solely by a
municipal assessor is illegal and void.
As to the issue of failure of petitioner to exhaust all administrative remedies, the Supreme Court
ruled that such requirement was not absolutely necessary in the case at bar since it was from the
start, purely a question of law and is thus within the ambit of the courts to remedy.
Having already decided upon the two prior issues, the SC no longer decided whether the new
schedule of values for tax assesment were oppressive or confiscatory amounting to being
unconstitutional. It is axiomatic that the constitutionality of a law, regulation, ordinance or act will
not be resolved by courts if the controversy can be, as in this case it has been, settled on other
grounds.
The Supreme Court ordered that the Decision and Order of respondent Judge be reversed and set
aside. And to declare as null and void the questioned Schedule of Market Values for properties in
Pasig prepared by respondent Assessor, as well as the corresponding assessments and real estate
tax increases based thereon; and enjoining the respondent Treasurer from collecting the real estate
tax increases made on the basis of said Schedule and assessments.
PAGE
252
Talento vs. Escalada
[G.R. No. 180884; June 27, 2008]
Digest by: RUAYA, Ronald S.
PONENTE: Ynares-Santiago
FACTS:
Private respondent Petron Corporation operates several machineries and equipment in Lamao,
Limay, Bataan. On June of 2007 the Provincial Assessor’s Office of Bataan delivered a notice of
revised assessment over the corporations machineries and equipment totalling to a tax liability of
Php 1, 731, 025, 403 for the period from 1994 to 2006. Petron sought an appeal with the Local
Board of Assessment Appeals on August 17, 2007 averring that the revised assessment included
items already declared and that the period covered by the assessment exceeded 10 years, which is
prohibited by the Local Government Code (LGC). Together with the said petition, Petron sought
approval of a surety bond amounting to some Php 1.2 billion. However on August 22, 2008, Petron
received from the Provincial Treasurer’s Office a letter of final notice of delinquent real property
tax with a warning that should Petron be unable to settle its tax liabilities, its properties shall be
levied and sold at public auction. Thus Petron sent a letter to the Provincial Treasurer stating that
any levy on thier property pending the LBAA would be premature, but the treasurer replied by
citing Sections 231 and 252 of the LGC whereby on a payment under protest by Petron will bar the
levy and sale of its property.
On September 2008, a warrant for levy was issued prompting Petron to seek its lifting with the
LBAA and posted the surety bond of Php 1.2 billion but the treasurer subsequently issued a notice
of sale of petron’s properties prompting Petron to seek for a TRO with the RTC. The RTC granted a
TRO provided Petron add some Php 500 million to the bond to be equivalent to its outstanding tax
liability. Treasure sought the TRO dissolution but was denied, hence petitioner treasurer sought
recourse before the Supreme Court through Rule 65 of the Rules of Court questionaing the issuance
of the TRO.
ISSUE:
Whether or not Provincial Treasurer acted accordingly in not supending the collection of the tax
liability of Petron and whether the TRO was properly issued?
HELD:
As to the issuance of the TRO, the Supreme Court found it to be an appropriate relief for Petron. As
established by law, a TRO may be issued if and when the conditions for its issuance are met as
required under Rule 58 Section 3 of the Rules of Court enumerating the grounds and also when the
following requisites are met: (1) the existence of a clear and unmistakable right that must be
protected; and (2) an urgent and paramount necessity for the writ to prevent serious damage. From
the facts shown, clearly the entire operation of Petron in Bataan hinges on the actions of the
provincial Treasurer since the value of the property sought to be levied amounted to Php 1.7 billion,
a significant amount that could undoubtedly hamper Petron’s existence in the area.
PAGE
253
Moreover, the recourse sought by petitioner before the Supreme Court was improper; resort to
Rule 65 is only available when all means of appeal are already availed of or are not available, in this
case, the petitioner has not sought reconsideration before the RTC that ordered the TRO nor did the
petitioner seek the proper remedy before the Court of Appeals through Rule 45. Although litigation
is not a battle of technicalities, the SC emphasized that that procedure must be followed for the
orderly and efficient administration of justice and is a matter of jurisdiction. In fact, petitioner was
also beyond the reglementary period to question the order.
With regard to the Provincial Treasurer’s continued enforcement of the levy despite the LBAA
appeal, the SC gave focus to the LBAA Rules of Procedure whereby it is stated in Section 7, Rule V
that:
“An appeal shall not suspend the collection of the corresponding realty taxes on the real property
subject of the appeal as assessed by the Provincial, City or Municipal Assessor, x x x. An appeal may
be entertained but the hearing
thereof shall be deferred until the corresponding taxes due on the real
property subject of the appeal shall have been paid under protest or
the petitioner shall have given a surety bond, x x x.”
Corollarily, Section 11 of Republic Act No. 9282, which amended Republic Act No. 1125 (The Law
Creating the Court of Tax Appeals) provides:
No appeal taken to the Court of Appeals from the Collector of Internal Revenue x x x shall suspend
the payment, levy, distraint, and/or sale of any
property for the satisfaction of his tax liability as provided by existing
law. Provided, however, That when in the opinion of the Court the collection
by the aforementioned government agencies may jeopardize the interest of
the Government and/or the taxpayer the Court at any stage of the
processing may suspend the collection and require the taxpayer either
to deposit the amount claimed or to file a surety bond for not more t h a n double the amount with
the Court.
Thus, although it is true that the LBAA or the courts generally cannot suspend the payment of taxes
even on appeal, however should a bond be posted, it is proper to suspend.
PAGE
254
FELS Energy Inc. vs. Province of Batangas
[G.r. No. 168557; February 16, 2007]
Digest by: RUAYA, Ronald S.
PONENTE: Callejo Sr.
FACTS:
POLAR Energy Inc., an electric company entered into a 5-year lease agreement with the National
Power Corporation (NPC), a GOCC, for the former to provide and operate diesel power barges to be
moored at Balayan Bay in Calaca, Batangas. In the said agreement, there is a stipulation whereby
the NPC shall be responsible for the payment of “all taxes, import duties, fees, charges and other
levies imposed by the National Government of the Republic of the Philippines or any agency or
instrumentality...” Thereafter, the rights of POLAR were assigned to petitioner company FELS
Energy Inc. On August 1995 FELS received an assessment of real property taxes for their power
barges from the Provincial Assessor of Batangas, thus prompting FELS to refer the matter to NPC
and reminded the latter of their supposed agreement for NPC to pay such taxes, at the same time,
FELS authorized NPC to represent it with regard to the assessment of the Provincial Assessor.
NPC sought a reconsideration with the Provincial Assessor which was denied, NPC petitioned the
Local Board of Assessment Appeals (LBAA) to set aside the Provincial Assessor’s assessment and to
declare the barges as non-taxable, but the LBAA declared they were real property for purposes of
taxation since they are installed at a specific location with a character of permanency. The LBAA
also pointed out that the owner of the barges-FELS, a private corporation-is the one being taxed,
not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and
assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and
cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time.
NPC now sought recourse from the Central Board of Assessment Appeals (CBAA) seeking to set
aside and lift the levy made upon the barges, initially the CBAA ruled favorably for NPC but
reversed itself and affirmed the LBAA decision prompting NPC as well as FELS to seek remedy
before the Court of Appeals who also affirmed the the CBAA’s decision primarily on the basis that
the period with which to file an appeal before the LBAA had lapsed and thus the right of the local
government to collect the taxes due with respect to the taxpayer’s property had become absolute.
ISSUE:
Whether or not FELS is liable to pay the real property taxes due for the power barges?
HELD:
Yes, FELS remains liable for the payment of the real property taxes for their power barges. On the
matter of prescription to appeal before the LBAA, it is clear in RA 7160 Sec. 226 that upon the
receipt of the notice of assessment, the 60-day period to appeal should the
PAGE
255
taxpayer wish to, begins and will run uninterrupted. It is not on the receipt of the denial of the
Provicial Assessor as claimed by petitioners since a recourse before the provncial assessor is not
the remedy sanctioned by law. The taxpayer’s failure to question the assessment in the LBAA
renders the assessment of the local assessor final, executory and demandable, thus, precluding the
taxpayer from questioning the correctness of the assessment, or from invoking any defense that
would reopen the question of its liability on the merits.
Moreover, contrary to FELS argument that the mistake of NPC in seeking recourse before the
provincial assessor instead of the LBAA does not bind them, their act of authorizing NPC to
represent them means they are bound and any subsequent action by FELS on the same matter is
barred by res judicata and forum-shopping. Thus the SC denied FELS petition and affirmed the CA’s
decision.
Nevertheless, the SC expounded on the taxability of the subject property-- the power barges are
deemed to be real property as defined in Article 415 (9) of the New Civil Code: “docks and
structures which, though floating, are intended by their nature and object to remain at a fixed place
on a river, lake, or coast” are considered immovable property. Thus, power barges are categorized
as immovable property by destination, being in the nature of machinery and other implements
intended by the owner for an industry or work which may be carried on in a building or on a piece
of land and which tend directly to meet the needs of said industry or work.
As to the contention that the power barges being leased by NPC are excempt from real propery tax
according RA7160, the SC explained that for such provision of RA 7160 to apply, the machinery
must be actually, directly and exclusively used by the government or its instrumentalities which is
not the situation in this case since it is still FELS who operate the power barges according to the
agreement. Moreover, the excemption contemplated in RA 7160 as can be applied in the case at bar
pertains only to excemption that NPC enjoys, such previlege does not extend to FELS which is a
private entity. Lastly, the rule on tax excemption applies; that there should be strict construction of
laws granting exemptions.
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Mactan Cebu Int’l Airport Authority vs. Marcos
[G.R. No. 120082; September 11, 1996]
Digest by: RUAYA, Ronald S.
PONENTE: Davide, Jr.
FACTS:
Herein petitioner Mactan Cebu International Airport Authority (MCIAA) was created by RA 6958 to
introduce a body that would undertake the operations and administration of airports in the
Province of Cebu. As provided in its charter; MCIAA is 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, x x x and such
other airports as may be established in the Province of Cebu x x x”. In line with its creation, Sec. 14
of RA 6958 provides: “The Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities x x x.” However, in
October 1994, the Office of the Treasurer of Cebu demanded from MCIAA the payment of real estate
taxes from its parcels of lands amounting to Php 2.2 million, and when a warrant for levy was
issued, MCIAA was forced to pay under protest. MCIAA argues that Sec. 14 of RA 6958 or its original
charter expressly provides that it is excempt form payment of real estate taxes. Moreover, MCIAA
further avers that RA 7160 or the Local Government Code (LGC) in particular Sec. 133 provides
that:
“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: x x x (o) Taxes, fees or
charges of any kind on the national government, its agencies a n d instrumentalities and local
government units.”
Hence, MCIAA avers that being a government intrumentality performing governmental functions,
then it falls under the exemption provided under Sec. 133. But such argument was to no avail when
it sought a Petition for Declaratory Relief before the respondent Judge Marcos of RTC Cebu City.
When MCIAA sought for reconsideration, the same was denied by respondent, primarily on the
premise that MCIAA does not qualify as an instrumentality of the government, hence it does not
qualify for excemption, and that the excemption granted to it by its charter was repealed by RA
7160 through Sections 193, 232 and 234 of the LGC.
ISSUE:
Whether or not MCIAA is excempted from paying real estate taxes in the city of Cebu based on its
charter and based on RA 7160’s excemptions?
HELD:
No, the Supreme Court held that the excemption granted by the legislature to MCIAA through its
charter has already been revoked. Such is the power to tax that it is unlimited but through
legislature, certain limitations may be imposed as well as certain prviliges such as excemptions.
However it is always subject to the decision of the legislature. In the case at bar, when legislature
enacted RA 7160, it intended to further increase the autonomy of
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local governments. One such autonomy is fiscal autonomy, thus the legislature has deligated it the
power to tax, in particular real estate taxes upon the properties within its jurisdiction. In giving
local government’s autonomy in imposing taxes, it expressly revoked the previous excemptions
granted to various agencies and GOCC’s, such as the provisions of Sec. 193, 232 and 234, which
upon closer scrutiny of the Supreme Court clearly shows that MCIAA’s excemption was revoked.
Section 133 provides the general excemptions while 193, 232 and 234 further specify those
agencies and instrumentalities that are specified to continue to enjoy excemptions, unfortunately
for MCIAA it is not one of those; the provision that previously included GOCC’s with tax
excemptions in its charters was no longer retained, nor does MCIAA qualify as an instrumentality as
it merely is a GOCC exerciseing proprietary functions.
This is further shown in the fact that in its charter, MCIAA is deemed a taxable person merely
enjoying excemption as per the provisions of its charter, but since it has been revoked, being a
taxable person still, MCIAA is thus subject to real estate tax.
The rule is that strict construction is used when it comes to tax excemption, clearly, had the
legislature intended MCIAA to continue to be excempted, it would have expressed so. Instead,
legislature intended to increase local fiscal autonomy, as such, it can only be the legislatures
intention to revooke the excemption so that the local government may benefit from the additional
income that it can gain from these entities such as MCIAA within their territory.
Thus, MCIAA’s petition is denied, the RTC’s decision is affirmed.
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SESBREÑO vs. CENTRAL BOARD OF ASSESSMENT APPEALS
[G.R. No. 106588. March 24, 1997]
Digest by: SANTOS, Maricar J.
PONENTE: Panganiban
FACTS:
Petitioner purchased from Estrella Benedicto Tan two (2) parcels of land.The conveyance included
“a residential house of strong materials constructed on the lots abovementioned” located in Cebu
City.
Thereafter, petitioner declared the real property constructed on the said lots for purpose of tax
assessment as a residential house of strong materials with a floor area of sixty (60) square meters.
Effective in the year 1980, the declared property was assessed by Respondent City Assessor of Cebu
City under Tax Declaration No. 02-20454 at a market value of P60,000.00 and an assessed value of
P36,900.00. The field inspectors of the Cebu City Assessor discovered that the real property
declared and assessed under Tax Declaration No. 02-20454 was actually a residential building
consisting of four (4) storeys with a fifth storey used as a roof deck. These findings were confirmed
by the Board of Commissioners in an ocular inspection conducted on the subject property.
Petitioner protested the new assessment for being “excessive and unconscionable,” 8 contending
that it was increased by more than 1,000% as compared to its previous market value of P60,000.00.
He questioned the new assessment before the Local Board of Assessment Appeals of Cebu City,
which however dismissed petitioner’s appeal. Hence, petitioner elevated his case to Respondent
Central Board of Assessment Appeals which ordered some modification. Petitioner then filed a
motion for reconsideration. During the hearing on said motion, the parties submitted a joint
manifestation or compromise agreement. The same was assailed by petitioner.
ISSUE:
Wheteher or not Respondent CBAA gravely erred in resolving the matter of back taxes which was
never raised in issue in the Local Board of Assessment Appeals of Cebu City or in the appeal by the
petitioner before the Central Board of Assessment Appeals (CBAA).
HELD:
The petition has no merit. The CBAA decision dared September 30, 1991 and the assailed
Resolution dated July 28, 1992 show that petitioner failed to pay under protest the tax assessed
against his property. This is a violation of Section 64 of Presidential Decree No. 464 20 which
requires that, before a court may entertain any suit assailing the validity of a tax assessment, the
taxpayer must first pay under protest the tax assessed against him. The said section provides:
Sec. 64. Restriction upon power of court to impeach tax. — No court shall entertain any suit
assailing the validity of tax assessed under this Code until the
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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 taxpayer; nor shall any court declare any portion of the tax
assessed under the provisions of 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. For the foregoing
lapses, if for no other, this case ought to be dismissed.
As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for
its consideration. 21 The Court has held in several cases, however, that an appellate court has an
inherent authority to review unassigned errors (1) which are closely related to an error properly
raised, or (2) upon which the determination of the error properly assigned is dependent, or (3)
where the Court finds that consideration of them is necessary in arriving at a just decision of the
case.
In the present case, we hold that Respondent CBAA did not err in considering the issue of back
taxes, the same being closely related to an error properly raised. Petitioner himself assailed the
subject assessment before the Respondent CBAA for being “excessive and unconscionable.” In
resolving this issue, Respondent CBAA was duty-bound to review the factual antecedents of the
case and to apply thereon the pertinent provisions of law. In the process, Respondent CBAA applied
Section 25 of PD 464 which had authorized the imposition of back taxes. In any event, consideration
of the question of the back taxes is essential to a just decision on the case, as will be shown below.
Section 24 merely lays down the general rule that assessments under PD 464 are to be given
prospective application. It cannot be construed in such a manner as to eliminate the imposition of
back taxes. If Section 24, instead of Section 25, were made to apply as suggested by petitioner, he
would in effect be excused from the payment of back taxes on the undeclared excess area of his
property. The Court, clearly, cannot allow a taxpayer evade his obligation to the government by
letting him pay taxes on property based on its gross undervaluation at P60,000.00, when the same
had then a current market value of P449,860.00.
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LOPEZ vs. CITY OF MANILA
[G.R. No. 127139. February 19, 1999]
Digest by: SANTOS, Maricar J.
PONENTE: QUISUMBING, J.:
FACTS:
Sec. 219 of Republic Act 7160 (R.A. 7160) or the Local Government Code of 1991 requires the
conduct of the general revision of real property as follows:
General Revision of Assessment 2 and Property Classification — The provincial, city or municipal
assessor shall undertake a general revision of real property assessments within two (2) years after
the effectivity of this Code and every three (3) years thereafter.
Mrs. Lourdes Laderas, the newly appointed City Assessor of Manila, received Memorandum Circular
No. 04-95 , from the Bureau of Local Government Finance, Department of Finance. This
memorandum relates to the failure of most of the cities and municipalities of Metropolitan Manila,
including the City of Manila, to conduct the general revision of real property.
In the year 1995, the increase in valuation of real properties compared to the year- 1979 market
values ranges from 600% to 3,330%, but the City Assessor’s office initially fixed the general average
of increase to 1,700%. Mrs. Laderas felt that the increase may have adverse reactions from the
public, hence, she ended up reducing the increase in the valuation of real properties to 1,020%.
With the implementation of Manila Ordinance No. 7894, the tax on the land owned by the petitioner
was increased by five hundred eighty percent (580%). With respect to the improvement on
petitioner’s property, the tax increased by two hundred fifty percent (250%).
As a consequence of these increases, petitioner Jaime C. Lopez, filed a special proceeding for the
declaration of nullity of the City of Manila Ordinance No. 7894 with preliminary injunction and
prayer for temporary restraining order (TRO). The petition alleged that Manila Ordinance No. 7894
appears to be “unjust, excessive, oppressive or confiscatory.”
As a result, Manila Ordinance No. 7905 reduced the tax increase of petitioner’s residential land to
one hundred fifty-five percent (155%), while the tax increase for residential improvement was
eighty-two percent (82%). The maximum tax increase on classified commercial estates is three
hundred percent (300%) but the tax increase on commercial land was only, two hundred eightyeight percent (288%), and seventy-two percent (72%) on commercial portion of the improvement.
The court directed the issuance of a writ of injunction and denied, in the meanwhile, the motion to
dismiss by the respondent.
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On October 24, 1996, the trial court granted the motion to dismiss filed by the respondent. The
dismissal order was justified by petitioner’s failure to exhaust the administrative remedies and that
the petition had become moot and academic when Manila Ordinance No. 7894 was repealed by
Manila Ordinance No. 7905.
ISSUE:
Whether or not the tax is excessive, oppressive or confiscatory.
HELD:
As a general rule, where the law provides for the remedies against the action of an administrative
board, body, or officer, relief to courts can be sought only after exhausting all remedies provided.
The reason rests upon the presumption that the administrative body, if given the chance to correct
its mistake or error, may amend its decision on a given matter and decide it properly. Therefore,
where a remedy is available within the administrative machinery, this should be resorted to before
resort can be made to the courts, not only to give the administrative agency the opportunity to
decide the matter by itself correctly, but also to prevent unnecessary and premature resort to
courts. 9 This rule, however, admits certain exceptions.
With regard to question on the legality of a tax ordinance, the remedies available to the taxpayers
are provided under Section 187, 226, and 252 of R.A. 7160.
Sec. 187 of R.A. 7160 provides, that the taxpayer may question the constitutionality or legality of tax
ordinance on appeal within thirty (30) days from effectivity thereof, to the Secretary of Justice. The
petitioner after finding that his assessment is unjust, confiscatory, or excessive, must have brought
the case before the Secretary of Justice for question of legality or constitutionality of the city
ordinance.
Under Section 226 of R.A. 7160, an owner of real property who in not satisfied with the assessment
of his property may, within sixty (60) days from notice of assessment, appeal to the Board of
Assessment Appeals.
Should the taxpayers question the excessiveness of the amount of tax, he must first pay the amount
due, in accordance with Section 252 of R.A. 7160. Then, he must request the annotation of the
phrase “paid under protest” and accordingly appeal to the Board of Assessment Appeals by filing a
petition under oath together with copies of the tax declarations and affidavits or documents to
support his appeal. 12
We have carefully scrutinized the record of this case and we found no cogent reason to depart from
the findings made by the trial court on this point. As correctly found by the trial court, the petition
does not fall under any of the exceptions to excuse compliance with the rule on exhaustion of
administrative remedies, to wit:
One of the reasons for the doctrine of exhaustion is the separation of powers which enjoins upon
the judiciary a becoming policy of non-interference with matters coming
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primarily within the competence of other department ..........
Sec. 212. Preparation of Schedule of Fair Market Values — Before any general revision of property
assessment is made pursuant to the provisions of this Title, there shall be prepared a schedule of
fair market values by the provincial, city and the municipal assessors of the municipalities within
the Metropolitan Manila Area for the different classes of real property situated in their respective
local government units [LGU] for enactment by ordinance of the sanggunian concerned. The
schedule of fair market values shall be published in a newspaper of general circulation in the
province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial
capitol, city or municipal hall and in two other conspicuous public places therein.
Sec. 221. Date of Effectivity of Assessment of Reassessment — All assessments or reassessments
made after the first (1st) day of January of any year shall take effect on the first (1st) day of January
of the succeeding year: Provided, however, That the reassessment of real property due to its partial
or total destruction, or to a major change in its actual use, or to any great and sudden inflation or
deflation of real property values, or to the gross illegality of the assessment when made or to any
other abnormal causes, shall be made within ninety (90) days from the date any such cause or
causes occurred, and shall take effect at the beginning of the quarter next following assessment.
The preparation of fair market values as a preliminary step in the conduct of general revision was
set forth in Section 212 of R.A. 7160, to wit: (1) The city or municipal assessor shall prepare a
schedule of fair market values for the different classes of real property situated in their respective
Local Government Units for the enactment of an ordinance by the sanggunian concerned. (2) The
schedule of fair market values shall be published in a newspaper of general circulation in the
province, city or municipality concerned or the posting in the provincial capitol or other places as
required by law.
It was clear from the records that Mrs. Lourdes Laderas, the incumbent City Assessor, prepared the
fair market values of real properties and in preparation thereof, she considered the fair market
values prepared in the calendar year 1992. Upon that basis, the City Assessor’s Office updated the
schedule for the year 1995. In fact, the initial schedule of fair market values of real properties
showed an increase in real estate costs, which rages from 600% — 3,330 % over the values
determined in the year 1979. However, after a careful study on the movement of prices, Mrs.
Laderas eventually lowered the average increase to 1,020%. Thereafter, the proposed ordinance
with the schedule of the fair market values of real properties was published in the Manila Standard
on October 28, 1995 and Balita on November 1, 1995. 18 Under the circumstances of this case, was
compliance with the requirement provided under Sec. 212 of R.A. 7160. Thereafter, on January 1,
1996, the Sanggunian approved Manila Ordinance No. 7894. The schedule of values of real
properties in the City of Manila, which formed an integral part of the ordinance, was likewise
approved on the same date.
Coming down to specifics, we find it desirable to lay down the procedure in computing the real
property tax. With the introduction of assessment levels, tax rates could be maintained,
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although tax payments can be made either higher or lower depending on their percentage
(assessment level) applied to the fair market value of property to derive its assessed value which is
subject to tax. Moreover, classes and values of real properties can be given proper consideration,
like assigning lower assessment levels to residential properties and higher levels to properties used
in business.
Although, we are in full accord with the ruling of the trial court, it is likewise necessary to stress
that Manila Ordinance No. 7905 is favorable to the taxpayers when it specifically states that the
reduced assessment levels shall be applied retroactively to January 1, 1996. The reduced
assessment levels multiplied by the schedule of fair market values of real properties, provided by
Manila Ordinance No. 7894, resulted to decrease in taxes. To that extent, the ordinance is likewise, a
social legislation intended to soften the impact of the tremendous increase in the value of the real
properties subject to tax. The lower taxes will ease, in part, the economic predicament of the low
and middle-income groups of taxpayers.
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264
CAGAYAN ROBINA SUGAR MILLING CO. vs. COURT OF APPEALS
[G. R. No. 122451. October 12, 2000]
Digest by: SANTOS, Maricar J.
PONENTE: QUISUMBING, J.:
FACTS:
The Assets Privatization Trust (APT) offered for sale all the assets and properties of the Cagayan
Sugar Corporation (CASUCO), which had been foreclosed and transferred to APT by the
Development Bank of the Philippines. The APT set the floor bid price for the said properties at three
hundred fifty five million pesos (P355,000,000.00). Petitioner, as the highest bidder, acquired the
aforesaid properties for a total price of P464,000,000.00.
Among the properties bought by petitioner were sugar mill machineries located at the CASUCO
millsite in Sto. Domingo, Piat, Cagayan. The market value of these machineries was pegged at
P391,623,520.00 and the assessed value was set at P313,298,820.00 under Tax Declaration No.
5355. The Provincial Assessor of Cagayan issued a “Notice of Assessment of Real Property” to
petitioner covering the machineries installed at the CASUCO millsite based on the market value of
P391,623,520.00 and the assessed value thereof at P313,298,820.00. Petitioner appealed the
assessment to the LBAA, on the ground that it was excessive, erroneous, and unjust. The LBAA
resolved that the basis of the market value for assessment purposes of the properties acquired by
petitioner should be the APT floor bid price of P355,000,000.00. The LBAA then deducted from this
amount the value of the land (P4,721,130.00), the total market value of the buildings
(P17,605,340.00), to derive the market value of the machineries, amounting to P332,673,530.00. By
further deducting the value of machineries not subject to real property tax, the LBAA fixed the
market value of the petitioner’s machineries at P260,327,060.00 for assessment purposes. The
LBAA ordered the Provincial Assessor of Cagayan to make the necessary amendments, as a result of
which Declaration No. 5514 was issued, putting the assessed value of petitioner’s machineries at
P208,261,650.00.
The petitioner filed with the CBAA an “Appeal of Assessment” identical with its earlier appeal. The
CBAA dismissed petitioner’s appeal on the ground that it was time-barred.
ISSUE:
Whether or not the Court of Appeals err in finding the assessment of petitioner’s machineries
proper and correct under the Real Property Tax Code.
HELD:
We note that the real property tax being assessed and collected against petitioner’s machineries is
for 1990. Hence, in this case, the applicable law is the Real Property Tax Code (P.D. No. 464), and
not the Local Government Code of 1991 (R.A. No. 7160).
We agree with petitioner that Section 28 of the Real Property Tax Code provides for a formula for
computing the current market value of machineries. However, Section 28 must
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be read in consonance with Section 3 of the said law, which defines “market value.” Under the latter
provision, the LBAA and CBAA were not precluded from adopting various approaches to value
determination, including adopting the APT “floor bid price” for petitioner’s properties. As correctly
pointed out by the CBAA and affirmed by the court a quo:Valuation on the basis of a floor bid price
is not bereft of any basis in law. One of the approaches to value is the Sales Analysis Approach or
the Market Data Approach where the source of market data for valuation is from offer of sales or
bids of real property. Valuation based on the floor bid price belongs to this approach, pursuant to
Section 3(n)…
Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer
having the burden of proving otherwise.[10] In the instant case, petitioner failed to show that the
use by the LBAA and CBAA of the APT floor bid price, pursuant to Section 3
(n) of the Real Property Tax Code was incorrect and done in bad faith. The method used by the
LBAA and CBAA cannot be deemed erroneous since there is no rigid rule for the valuation of
property, which is affected by a multitude of circumstances and which rules could not foresee nor
provide for. Worthy of note, petitioner has not shown that the current market value of its
properties would be significantly lower if its proposed formula is adopted. A party challenging an
appraiser’s finding of value is required not only to prove that the appraised value is erroneous but
also what the proper value is. Factual findings of administrative agencies, which have acquired
expertise in their field, are generally binding and conclusive upon the Court. The Court will not
presume to interfere with the intelligent exercise of the judgment of men specially trained in
appraising property.
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LIGHT RAIL TRANSIT AUTHORITY v. CENTRAL BOARD OF
ASSESSMENT APPEALS
[G.R. No. 12716. October 12, 2000]
Digest by: SANTOS, Maricar J.
PONENTE: PANGANIBAN
FACTS:
The LIGHT RAIL TRANSIT AUTHORITY (LRTA) is a government-owned and controlled corporation
created and organized under Executive Order No. 603, dated July 12, 1980 ‘x x x primarily
responsible for the construction, operation, maintenance and/or lease of light rail transit system in
the Philippines, giving due regard to the reasonable requirements of the public transportation of
the country. LRTA acquired real properties x x x constructed structural improvements, such as
buildings, carriageways, passenger terminal stations, and installed various kinds of machinery and
equipment and facilities for the purpose of its operations. It entered into a Contract of Management
with the Meralco Transit Organization (METRO) in which the latter undertook to manage, operate
and maintain the Light Rail Transit System owned by the LRTA subject to the specific stipulations
contained in said agreement, including payments of a management fee and real property taxes.
Respondent-Appellee City Assessor of Manila assessed the real properties of [petitioner], consisting
of lands, buildings, carriageways and passenger terminal stations, machinery and equipment which
he considered real property under the Real Property Tax Code, to commence with the year 1985.
Petitioner paid its real property taxes on all its real property holdings, except the carriageways and
passenger terminal stations including the land where it is constructed on the ground that the same
are not real properties under the Real Property Tax Code, and if the same are real property, these
are for public use/purpose, therefore, exempt from realty taxation, which claim was denied by the
Respondent-Appellee City Assessor of Manila.
Aggrieved by the action of the Respondent-Appellee City Assessor, filed an appeal with the Local
Board of Assessment Appeals of Manila. Appellee, herein, after due hearing , denied petitioner’s
appeal.The Court of Appeals held that petitioner’s carriageways and passenger terminal stations
constituted real property or improvements thereon and, as such, were taxable under the Real
Property Tax Code.
ISSUE:
Whether or not the Honorable Court of Appeals erred in not holding that the carriageways and
terminal stations of petitioner are not improvements for purposes of the Real Property Tax Code.
HELD:
The Petition has no merit. The Real Property Tax Code,[6] the law in force at the time of the assailed
assessment in 1984, mandated that “there shall be levied, assessed and collected
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in all provinces, cities and municipalities an annual ad valorem tax on real property such as lands,
buildings, machinery and other improvements affixed or attached to real property not hereinafter
specifically exempted.”[7]
The character of tax as a property tax must be determined by its incidents, and form the natural and
legal effect thereof. It is irrelevant to associate the carriageways and/or the passenger terminals as
accessory improvements when the view of taxability is focused on the character of the property.
The latter situation is not a novel issue as it has already been resolved by this Honorable Court in
the case of City of Manila vs. IAC (GR No. 71159, November 15, 1989) wherein it was held:
‘The New Civil Code divides the properties into property for public and patrimonial property (Art.
423), and further enumerates the property for public use as provincial road, city streets, municipal
streets, squares, fountains, public waters, public works for public service paid for by said
[provinces], cities or municipalities; all other property is patrimonial without prejudice to
provisions of special laws. (Art. 424, Province of Zamboanga v. City of Zamboanga,
22 SCRA 1334 [1968])
“The foregoing enumeration in law does not specify or include carriageway or passenger terminals
as inclusive of properties strictly for public use to exempt petitioner’s properties from taxes.
Precisely, the properties of petitioner are not exclusively considered as public roads being
improvements placed upon the public road, and this separability nature of the structure in itself
physically distinguishes it from a public road. Considering further that carriageways or passenger
terminals are elevated structures which are not freely accessible to the public, viz-a-viz roads which
are public improvements openly utilized by the public, the former are entirely different from the
latter.
Though the creation of the LRTA was impelled by public service -- to provide mass transportation
to alleviate the traffic and transportation situation in Metro Manila -- its operation undeniably
partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in
the furtherance of its proprietary objectives.[9] Indeed, it operates much like any private
corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented
commercial endeavor, its carriageways and terminal stations are patrimonial property subject to
tax, notwithstanding its claim of being a government- owned or controlled corporation.
Basis of Assessment Is Actual Use of Real Property. Under the Real Property Tax Code, real property
is classified for assessment purposes on the basis of actual use,[10] which is defined as “the
purpose for which the property is principally or predominantly utilized by the person in possession
of the property.
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Part II:
Tariff & Customs Laws
RODOLFO V. JAO V. COURT OF APPEALS
[G.R. No. 128314. May 29, 2002]
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: YNARES-SANTIAGO, J.
FACTS:
Rodolfo and Perico were the sons and heirs of Spouses Ignacio Jao Tayag and Andrea
v. Jao who died intestate on 1988 and 1989, respectively. The decedents left real estate, cash, shares
of stock and other personal properties. Perico then instituted a petition in RTC Quezon City (QC) for
the issuance of letters of administration over the estate of their parents, alleging among other
things, that his brother Roberto was dissipating the estate’s assets and was receiving rentals from
several properties without rendering the necessary accounting and forcibly opening vaults and
disposing of the cash and valuables therein. Rodolfo moved to dismiss (MTD) the petition on the
ground of improper venue. He alleged that the petition should have been instituted in Angeles City,
Pampanga (AC) where their mother used to run a bakery and truly reside. He submitted
documentary evidence previously executed by their parents such as income tax returns, voter’s
affidavits, statement of assets and liabilities, real estate tax payments, vehicle registration and
passports, all indicating that their residence was in AC. Perico countered that the residence at the
time of death was in QC, as their parents who were already undergoing medical treatment in the
Medical City in Mandaluyong have been staying in Rodolfo’s house in QC for four years and that in
their death certificates, Rodolfo himself, filled in as place of residence, his address in QC and
thereafter, affixed his signature. Rodolfo filed a rejoinder and asserted that he only put his address
as reference and that he did so by mistake and in good faith and further maintaining that it is AC
and not QC that should be the proper venue. Upon the failure of both parties to nominate for the
estate’s administrator, the court appointed Carlos Sundiam and denied Rodolfo’s MTD, further
ruling that he cannot disown his own representations by taking an inconsistent position on his own
admission. Via petition for Certiorari, Rodolfo appealed and the CA affirmed the denial. MFR was
also denied.
ISSUE:
Where should the settlement proceedings be had.
HELD:
The estate of an inhabitant of the Philippines shall be settled or letters of administration granted in
the proper court located in the province where the decedent resides at the time of his death. (Sec. 1,
Rule 73, RoC). Rodolfo’s contention invoking the case of Eusebio v. Eusebio was misplaced as the
facts therein differed from the case at bar. Unlike in Eusebio, there is substantial proof that the
decedents have transferred to R’s QC residence and other factors indicate that their stay was more
than temporary. Rodolfo failed to sufficiently refute Perico’s assertion that their elderly parents
stayed in R’s house for some three to four years before they died in the late 1980s. Furthermore, the
decedents’ respective death certificates state that they were both residents of Quezon City at the
time of their demise. Significantly, it was Rodolfo himself who filled up his late mother’s death
certificate. To the SC, this unqualifiedly shows that at that time, at least, R recognized his deceased
mother’s residence to be QC.
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TRANSGLOBE INTERNATIONAL, INC. V CA
G.R. No. 126634. January 25, 1999
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: BELLOSILLO, J.
FACTS:
A shipment from Hong Kong arrived at the port of Manila, aboard the S/S Seadragon. Its inward
foreign manifest indicated that it contained various hand tools. Acting on an information that the
shipment violated provisions of tariff and customs code, the Economic Intelligence and
Investigation Bureau (EIIB) agents seized the shipment while in transit to the container yard. The
EIIB recommended seizure of the shipment, and for which a warrant of seizure and distraint was
issued by the District Collector.
For failure of petitioner, to appear during the hearing despite due notice, collector decreed the
forfeiture of the shipment in favor of the government.
ISSUE:
Whether or not Transglobe is allowed to redeem the forfeited shipments.
HELD:
As a means of settlement under Sec. 2307, TCC, redemption of forfeited property is unavailing in 3
instances:
1. Where there is fraud;
2. Where the importation is absolutely prohibited;
3. Where the release of the property is contrary to law.
The fraud contemplated by law must be actual and not constructive. It must be intentional,
consisting of deception willfully and deliberately done or resorted to in order to induce another to
give up same right.
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ACTING COMMISSIONER OF CUSTOMS vs. COURT OF TAX
APPEALS
[G.R. No. 128314. May 29, 2002]
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: YNARES-SANTIAGO, J.
FACTS:
On 20 February 1980, Andrulis representing himself as an American businessman “on joint
ventures with his Filipino counterparts”, arrived in Manila and checked in at the Century Park
Sheraton Hotel. Two days later, or on 22 February 1980, he left the hotel surreptitiously without
paying for his bills in the amount of P2,000.00. Col. Felix Zerrudo, Chief Security Officer of the Hotel,
timely discovered the scheduled departure of Andrulis on that same day, and immediately tippedoff the Customs authorities on Andrulis’ intention to abscond. At the Manila International Airport
(MIA), the Customs authorities looked for Andrulis from among the passengers who were already
on board Philippine Airlines Flight No. 501 bound for Singapore. Apprehensive, Andrulis locked
himself inside the airplane’s comfort room. In the course of negotiations for him to come out, he
slipped through an opening bills worth US$300.00. Andrulis finally yielded to the authorities and
surrendered the luggage he was carrying which, when opened by the authorities, contained various
foreign currencies consisting of US$59,639.00; 53,100 Indonesian Rupiah, and Singapore $308.00.
A criminal charge was filed before the Office of the City Fiscal, Pasay City, for violation of CB
Circular No. 534 in relation to RA 265, the Central Bank Charter. The Assistant City Fiscal dismissed
the charge on the rationalization that the Government had failed to present evidence that the
currencies were not brought in by Andrulis.
ISSUE:
Who has the burden of proof in seizure or forfeiture proceedings..
HELD:
The requirement of the law that the existence of probable cause should first be shown before firing
of the forfeiture proceedings, had been fully met. When Andrulis was apprehended at the MIA and
was found to have in his possession the various foreign currencies, he could not produce the
required Central Bank authorization allowing him to bring them out of the country. This constituted
prima facie evidence of infringement of the provisions of CB Circular No. 534 and provided
sufficient basis for the seizure ‘of the said foreign exchange. Probable cause having been shown, the
burden of proof was upon Andrulis to establish that he fell within the purview of the exception
prescribed in the second paragraph of the aforequoted Section 3 of CB Circular No. 534 in that he
actually brought into the country the foreign currencies and was just taking them out. 7 This
burden, Andrulis had failed to satisfactorily discharge. The legal presumption in Section 5(j), Rule
131 of the Rules of Court and Article 541 of the Civil Code, relied upon by respondent Court, are of a
general character and cannot prevail over the specific provisions of the Tariff and Customs Code.
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271
CHEVRON PHILIPPINES, INC v. COMMISSIONER OF THE
BUREAU OF CUSTOMS
[G.R. No. 178759, August 11, 2008]
Digest by: VILLANUEVA, Jenno Antonio G.
PONENTE: Corona, J.
FACTS:
The importations subject of this case arrived from March 8, 1996 to April 10, 1996 but were
unloaded from the carrying vessels onto petitioner Chevron Philippines’ oil tanks over a period of
three days from the date of their arrival. Subsequently, the import entry declarations (IEDs) were
filed and 90% of the total customs duties were paid. The import entry and internal revenue
declarations (IEIRDs) of the shipments were from May 10, 1996 to June 21, 1996. Petitioner paid
the import duties at the rate of 3% as provided under RA 8180 (Downstream Oil Industry
Deregulation Act of 1996). Prior to the effectivity of RA 8180 on April 16, 1996, the rate of duty on
imported crude oil was 10%.
Respondent demanded payment of the difference between the 10% and 3% tariff rates on the
shipments but petitioner objected contending that the 3% tariff rate is applicable. It likewise raised
the defense of prescription against the assessment pursuant to Section 1603 of the Tariff and
Customs Code (TCC). However in the CTA en banc decision on 2007, it was held that it was the filing
of the IEIRDs that constituted entry under the TCC and since these were filed beyond the 30-day
period, they were not seasonably “entered” in accordance with Section 1301 in relation to Section
205 of the TCC. Consequently, they were deemed abandoned under Sections 1801 and 1802 of the
TCC. It was also held that petitioner committed fraud when it failed to file the IEIRD within the 30day period with the intent to “evade the higher rate.” Thus, petitioner was ordered to pay
respondent the total dutiable value of the oil shipments.
ISSUE:
1. Whether or not the term “entry” under Section 1301 in relation to Section 1801 of the TCC refers
to the IED or the IEIRD;
2. Whether or not the importations can be considered abandoned under Section 1801.
HELD:
1. BOTH. The term “entry” in customs law has a triple meaning. It means (1) the documents filed at
the customs house; (2) the submission and acceptance of the documents and (3) the procedure of
passing goods through the customs house. The IED serves as basis for the payment of advance
duties on importations whereas the IEIRD evidences the final payment of duties and taxes. The
operative act that constitutes “entry” of the imported articles at the port of entry is the filing and
acceptance of the “specified entry form” together with the other documents required by law and
regulations. There is no dispute that the “specified entry form” refers to the IEIRD. Section 205
defines the precise moment when the imported articles are deemed “entered.” Under the relevant
provisions of the TCC (Sec 205, 1301, 1802), both the IED and IEIRD should be filed within 30 days
from the date of discharge of the last
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package from the vessel or aircraft. As a result, the position of petitioner, that the import entry to be
filed within the 30-day period refers to the IED and not the IEIRD, has no legal basis.
2. YES. The law is clear and explicit. It gives a non-extendible period of 30 days for the importer to
file the entry which we have already ruled pertains to both the IED and IEIRD. Thus under Section
1801 in relation to Section 1301, when the importer fails to file the entry within the said period, he
“shall be deemed to have renounced all his interests and property rights” to the importations and
these shall be considered impliedly abandoned in favor of the government.
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