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SAN BEDA COLLEGE OF LAW

Case Digests in Taxation I 3D 2014-2015 Atty. Dante R. Bravo

Nature and Characteristics of Taxation and Taxes. Classifications and Distinctions. Limitations on Power of Taxation. Situs of Taxation and Double Taxation. Forms of Escape of Taxation. Exemptions.

Nature, Construction, Application and Sources of Tax Laws. Doctrines. Tax Laws and Regulations. Tax Administration and Enforcement. Tax Remedies. Local Taxation. Real Property Taxation. Tariff and

Custom Laws. Donor’s Tax. Estate Tax. Value-Added Tax

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Concept, Nature, and Characteristics of Taxation and Taxes 1) COMMISSIONER OF INTERNAL REVENUE vs. CEBU PORTLAND CEMENT COMPANY G.R. No. L-29059 December 15, 1987

FACTS:

By virtue of a decision of the Court of Tax Appeals as modified on appeal by the Supreme Court, the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company the amount of P 359,408.98, representing overpayments of ad valorem taxes on cement produced and sold by it after October 1957.

Following denial of motions for reconsideration filed by both parties, private respondent moved for a 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 P 4,789,279.85 plus 28% surcharge.

The Court of Tax Appeals granted the motion, holding that the alleged sales tax liability of the private respondent was still being questioned and therefore could not be set-off against the refund.

In his petition to review the said resolution, the Commissioner of Internal Revenue claims that the refund should be charged against the tax deficiency of the private respondent on the sales of cement under Section 186 of the Tax Code. He adds that enforcement of the said tax deficiency was properly effected through his power of distraint of personal property under Sections 316 and 318 of the said Code and, moreover, the collection of any national internal revenue tax may not be enjoined under Section 305, subject only to the exception prescribed in Rep. Act No. 1125.

For its part, the private respondent claims that the alleged sales tax deficiency could not as yet be enforced against it because the tax assessment was not yet final, the same being still under protest and still to be definitely resolved on the merits.

ISSUE: Whether or not the judgment debt can be enforced against private respondent’s outstanding sales tax liability despite the latter being under protest

HELD: YES

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. That is the reason why, save for the exception already noted, 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.

It goes without saying that this injunction is available not only when the assessment is already being questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the administrative level. There is all the more reason to apply the rule here because it appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still due from the private respondent.

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2) COMMISSIONER OF INTERNAL REVENUE vs. ALGUE G.R. No. L-28896 February 17, 1988

FACTS:

The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. Agreeing with Algue, the Court of Tax Appeals 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.

ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns

HELD: NO

The SC agreed with the respondent court that the amount of the promotional fees was not excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord with the following provision of 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.

The Solicitor General is correct when he says that 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. 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.

3) C.N. HODGES VS. MUNICIPAL BOARD OF THE CITY OF ILOILO G.R. No. L-18276 January 12, 1967

FACTS:

On June 13, 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33, series of 1960, pursuant to the provisions of Republic Act No. 2264, known as the Local Autonomy Act, requiring any person, firm, association or corporation to pay a sales tax of 1/2 of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale of the motor vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has been paid. It is expressly required therein that the payment of the municipal tax shall be a requirement for registration and transfer of ownership, the

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tax to be paid in the office of the city treasurer, and that the tax receipt shall be made part of the documents to be presented to the Motor Vehicles Office.

C. N. Hodges, who was engaged in the business of buying and selling second-hand motor vehicles in the City of Iloilo, is one of those affected by the enactment of the ordinance, and believing that the same is invalid for having been passed in excess of the authority conferred by law upon the municipal board, he filed on June 27, 1960 a petition for declaratory judgment with the Court of First Instance of Iloilo praying that said ordinance be declared void ab initio, and that the City of Iloilo be ordered to refund to him the amounts he was required to pay thereunder without prejudice to determining its validity in an appropriate action.

The court a quo rendered a decision holding that part of the ordinance which requires the owner of a used motor vehicle to pay a sales tax of 1/2 of 1% of the selling price is valid, but the portion thereof which requires the payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office is invalid for being repugnant to Section 2(h) of Republic Act 2264.

ISSUE: Whether or not the ordinance is valid even with regard to the portion which requires the payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office of said city

HELD: YES

It is true that the tax in question is in the form of a percentage tax on the proceeds of the sale of a second-hand motor vehicle which comes within the prohibition of Section 2 of Republic Act 2264; but the prohibition only refers to municipalities and municipal districts and does not comprehend chartered cities as the City of Iloilo.

As to the portion which requires the payment of the tax as a condition precedent for the registration of the sale, the court a quo 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 in the light viewed by the court a quo 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 property (Union Refrigerator Transit Co. v. Com., 26 S. Ct. 36, 199 I [2nd] 160). 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.

4) ASSOCIATION OF CUSTOMS BROKERS, INC. VS. MUNICIPALITY BOARD OF THE CITY OF MANILA G.R. No. L-4376 May 22, 1953 FACTS:

On March 24, 1950, the Municipal Board of the City of Manila passed Ordinance No. 3379. 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, challenged the validity of said ordinance 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 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.

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ISSUE: Whether or not the ordinance is valid

HELD: NO

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.

The ordinance in question falls under the foregoing rules. 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.

The ordinance also 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. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

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Classifications and Distinctions

5) ESSO STANDARD EASTERN, INC. VS. CIR G.R. Nos. L-28508-9, July 7, 1989

FACTS:

In CTA Case No. 1251, petitioner 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. Also claimed as ordinary and necessary expenses in the same return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office. The CIR later granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the margin fees paid.

In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in the amount of P367,994.00, plus 18% interest thereon of P66,238.92 for a total of P434,232.92. The deficiency arose from the disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit remittances to its New York head office.

ESSO settled this deficiency assessment by applying the tax credit of P221,033.00 representing its overpayment on its income tax for 1959 and paying under protest the additional amount of P213,201.92. Thereafter, it claimed the refund of P39,787.94 as overpayment on the interest on its deficiency income tax. The CIR denied the claims of ESSO 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 which also denied petitioner’s claim for refund.

ISSUES:

1) Whether or not the margin fees are taxes

2) Whether or not the margin fees are necessary and ordinary business expenses deductible from its gross income

HELD:

1) NO. 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. We conclude then that the margin fee was imposed by the State in the exercise of its police power and not the power of taxation.

2) NO. Based on the statutory test of deductibility, 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. The mere allegation of the taxpayer that an item of expense is ordinary and necessary does not justify its deduction.

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. The term 'ordinary' does not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them often; the payment may be unique or non-recurring to the particular taxpayer affected.

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Since the margin fees in question were incurred for the remittance of funds to petitioner's Head Office in New York, which is 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.

6) PROGRESSIVE DEVELOPMENT CORPORATION vs. QUEZON CITY G.R. No. L-36081 April 24, 1989 Facts:

The City Council of QC passed Ordinance No. 9236, the Market Code of QC, which imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC. Under Sec. 4 of the said ordinance, in case of

failure of the owners of the market spaces to pay the tax for three consecutive months, the City shall revoke the permit of the privately-owned market to operate.

Progressive Development Corp, owner and operator of Farmer’s Market, filed a petition for prohibition against QC on the ground that the tax imposed by the Market Code was in reality a tax on income, which the municipal corporation was prohibited by law to impose.

Respondent contends that the tax on gross receipts was 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. Issue: Whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively, of a license fee.

Held:

It is a license fee. A LICENSE FEE is imposed in the exercise of the police power primarily for purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of raising revenues.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 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.

In this case, the Farmers’ Market is a privately-owned market established for the rendition of service to the general public. It warrants close supervision and control by the City for the protection of the health of the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the buying public, etc.

Since the purpose of the ordinance is primarily regulation and not revenue generation, the tax is a license fee. The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax does not, by itself,

convert the license tax into a prohibited tax on income.

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7) PHILIPPINE AIRLINES, INC. v. EDU G.R. No. L- 41383, August 15, 1988 FACTS:

The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After paying under protest, PAL demanded refunds invoking the ruling in Calalang v. Lorenzo, where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., to the effect 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 a complaint against Edu and National Treasurer Ubaldo Carbonell. The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified the case to the Supreme Court. Issue: Whether or not motor vehicle registration fees are considered as taxes. 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. The motor vehicle registration fees are actually taxes intended for additional revenues of the government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program.

It is quite apparent that vehicle registration fees were originally simple exceptional. 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, we rule 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.

8) VILLEGAS v. HIU CHIONG TSAI PAO HO G.R. No. L-29646, November 10, 1978 Facts:

On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city ordinance was also signed by then Manila Mayor Antonio J. Villegas.

Section 1 of the said city 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.

Hiu Chiong Tsai Pao Ho, filed a petition with the CFI of Manila to declare City Ordinance No. 6537 as null and void

for being 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.

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Issue: Whether or not City Ordinance No. 6537 is a tax or revenue measure. Held:

Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive

9) COMPAÑIA GENERAL DE TABACOS DE FILIPINAS vs. CITY OF MANILA, ET AL. G.R. No. L-16619, June 29, 1963

Facts:

Tabacalera, as 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's action for refund is 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 — amounting to the sum of P15,208.00 — 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

Issue: Whether or not Tabacalera may claim for a refund. Held: No. 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. (Section 18

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[p], Republic Act 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, 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. (Section 10 [o], Republic Act No. 409, as amended.). Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. As held in City of Manila vs. Inter-Island Gas Service Inc., 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.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which — it is obvious — 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.

10) AMERICAN MAIL LINE, ET AL vs. CITY OF BASILAN, ET AL. G.R. No. L-12647 May 31, 1961 Facts:

On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180, the pertinent provision of the ordinance states:

"Section 1 (D). 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 1/2 centavo (P.005) per registered gross ton of the vessel for the first twenty-four (24) hours, or part thereof, and for succeeding hours, or part thereof, PROVIDED, that maximum charge shall not exceed, seventy-five pesos (P75.00) per day, irrespective of the greater tonnage of the vessels."

Appellees are foreign shipping companies licensed to do business in the Philippines, with offices in Manila. Their vessels call at Basilan City and anchor in the bay or channel within its territorial waters. As the city treasurer assessed and attempted to collect from them the anchorage fees prescribed in the aforesaid amendatory ordinance, they filed the present action for Declaratory Relief to have the courts determine its validity. Upon their petition the lower court issued a writ of preliminary injunction restraining appellants from collecting or attempting to collect from them the fees prescribed therein.

Issue: Whether the City of Basilan has the authority to enact Ordinance 180 and to collect the anchorage fees prescribed therein. Held:

Under paragraph (a) transcribed above, it is clear that the City of Basilan may only levy and collect taxes for general and special purposes in accordance with or as provided by law; in other words, the city of Basilan was not granted a blanket power of taxation. The use of the phrase "in accordance with law" — which, in our opinion, means the same as "provided by law" — clearly discloses the legislative intent to limit the taxing power of the City.

Appellants also argue 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. In this connection 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.

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In the case of Cu Unijeng vs. Patstone, it was held that 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. In Manila Electric Co. vs. Auditor General, it was also held that the regulatory fee "must be more than sufficient to cover the actual cost of inspection or examination as nearly as the same can be estimated. If it were possible to prove in advance the exact cost, that would be the limit of the fee.

The fees required intended for revenue purposes. In the first place, being cased upon the tonnage of the vessels, the fees have no proper or reasonable relation to the cost of issuing the permits and the cost of inspection or surveillance. In the second place, 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. 11) OSMENA vs. ORBOS G.R. No. 99886, March 31, 1993

FACTS:

Under PD 1956 issued by President Marcos, a special account in the General Fund is to be created and designated as Oil Price Stabilization Fund (OPSF). Such fund was designed to reimburse oil companies for cost increases arising from exchange rate adjustments in the world market prices of crude oil and petroleum products. Said PD has undergone amendments by virtue of subsequent EOs which empowered the Energy Regulatory Board (ERB) to approve the increase the prices or fees of fuel, oil and petroleum products, the amount of increase or fees shall accrue to the OPSF. Other EOs alsoauthorized the investment of the fund in government securities and expanded the grounds for reimbursement to oil companies for possible cost underrecovery by oil companies. The amount of underrecoveryis left to the Ministry of Finance’s determination. Senator Osmeña assails the constitutionality of PD 1956, as amended, on the ground that the fees or additional prices imposed by ERB and accruing to the OPSF are in the nature of taxes imposed under the undue delegation of legislative power to tax.

ISSUE:

Were the fees or increase in amounts of oil, fuel or petroleum products prices imposed by ERB and accruingto the OPSF in the nature of taxes in the exercise of undue delegation of legislative power to tax?

HELD:

No. Although the fees collected are in the nature of a taxes, said collected taxes, however, are not taxes in the pure exercise of the taxing powerbut taxeslevied primarily in the exercise of the police power of the State, it being for regulatory purpose.

Further, there was no undue delegation of legislative power to tax inasmuch as the challenged law sets forth a determinable standard which guides the exercise of the power granted to the ERB. Moreover, the express purpose for which the imposts are permitted and the general objectives and purposes of the fund are readily discernible, and they constitute a sufficient standard upon which the delegation of power may be justified. Same is in accordance with the requisites for valid delegation of power, as follows: (1) completeness of the law in itself (it must set forth the policy to be executed by the delegate) and (2) existence of fixedstandard with limits that are sufficiently determinate or determinable.

12) REPUBLIC OF THE PHILIPPINES vs. BACOLOD-MURCIA MILLING CO. G.R. Nos. L-19824, L-19825 and 19826, July 9, 1966

FACTS:

This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one controlling ownership and management, from a decision of the Court of First

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Instance of Manila finding them liable for special assessments under Section 15 of Republic Act (RA) No. 632. RA 632 is the charter of the Philippine Sugar Institute, (Philsugin), a semi-public corporation created for the purpose of conducting research work for the sugar industry in all its phases to reduce the cost of sugar production, among others.Under Section 15 of said RA, there shall be levied on the annual sugar production a tax of 10 cents [P0.10] per picul of sugar to be collected for a period of 5 years beginning the crop year 1951-1952, to be borne by the sugar cane planters and the sugar centrals in the proportion of their corresponding milling share. Said levy shall constitute a lien on their sugar quedans and/or warehouse receipts. Under section 16 of said RA, the proceeds of the levy shall constitute the "Sugar Research and Stabilization Fund," a special fund available solely and exclusively for the use of Philsugin. The defendants-appellants refused to pay the amounts dueto the following, among others: (a) alleged misapplication of special fund upon purchase of Insular Sugar Refinery by Philsugin, for which they were not benefitted; (b)such wasan unconstitutional special assessmentlevied “exclusively” for the aid and support of the sugar industry and not for public purpose; and (c) their refusal to continue paying the assessment under RA 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special assessment" and an ordinary tax.

ISSUE:

Was the levy for the Philsugin Fund an exercise of the power of taxation?

HELD:

No. The levy for the Philsugin Fund is neither an exercise of the power of taxation, nor an imposition of special assessment, but the exercise of the sovereign police power for the general welfare of the entire country, hence, no private citizen may lawfully resist.

Further, the view of the appellants herein, therefore, that they were not benefited by the unsuccessful operation of the refinery in question is not entirely accurate.Philsugin's experience alone of running a refinery is already a gain to the entire industry. That the operation resulted in a financial loss is by no means an index that the industry did not profit therefrom, as other farms of a different nature may have been realized.

Nonetheless, the Supreme Court finds for the appellee, as follows: The appellants' refusal to continue paying the

assessment under RA 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special assessment" and an ordinary tax. The purpose of the former is to finance the improvement of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof while the purpose of an ordinary tax, on the other hand, is to provide the Government with revenues needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment.

13) VICTORIAS MILLING CO., Inc. vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL G.R. No. L-21183, September 27, 1968

FACTS:

The municipal council of Victorias approved Ordinance No. 1, series of 1956, which amended 2 municipal ordinances, and increased the rates of municipal license taxes on sugar operators and refineries; and as to sugar refineries, it increased the rates of license taxes as well as the range of graduated schedule of annual output capacity.Victorias Milling Co., Inc., an entity operating a sugar central and sugar refinery in the Municipality of Victorias, filed suit asking judgement to declare the ordinance as null and void since (a) the municipality has no authority to impose tax in the guise of regulatory measure; (b) there was pre-emption; (c) the tax was unreasonable; (d) discriminatory (Victorias Milling being the only sugar central and sugar refinery operator; and (e ) imposed double taxation.

ISSUE:

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(a) Was Ordinance No. 1, series of 1956 promulgated in the exercise of municipality's regulatory power or as a revenue measure?

(b) Was there pre-emption? (c) Was the tax imposed unreasonable? (d) Was the ordinance discriminatory? (e) Was there double taxation?

HELD:

(a) Was Ordinance No. 1, series of 1956 promulgated in the exercise of municipality's regulatory power or as a revenue measure?

The ordinance was promulgated not in the exercise of the municipality's regulatory power but as a revenue measure — a tax on occupation or business. The authority of municipalities to impose such tax other than percentage and other taxes wasexpressly granted and stated under Section 1 of Commonwealth Act 472.

Under Standard Vacuum vs. Antigua, the Supreme Court held that the graduated license tax imposed by an ordinance in is an “occupation tax”, imposed not under the police or regulatory power of the municipality but by virtue of its taxing power for purposes of revenue, and is in accordance with the last part of Section 1 of Commonwealth Act No. 472, hence, valid.

(b) Was there pre-emption?

None. Pre-emption in the matter of taxationis an instance where the national government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field and primarily rests upon the intention of Congress. Should Congress allow municipal corporations to cover fields of taxation it already occupies, preemption will not apply.

In the case at bar, Commonwealth Act 472 specifically allowed municipal councils to tax persons engaged in "the same businesses or occupation" on which "fixed internal revenue privilege taxes" are "regularly imposed by the National

Government", hence, there is no pre-emption.

(c )Was the tax imposed unreasonable?

No. The ordinance imposed graduated rates based on annual output capacity. Where the output capacity is 1,750,001 or more bags, the maximum tax shall be P40,000. Considering the capital investment of P26millionand annual net income of Victorias Milling ranging from P3million to P7million,the tax amount is reasonable.

(d )Was the ordinance discriminatory?

No. The ordinance does not single out Victorias Milling as the only object of the ordinance and was made to apply to any sugar central or sugar refinery which may happen to operate in the municipality, hence, not discriminatory.

(e ) Was there double taxation?

None. Tax imposed on raw sugar is different on the tax imposed on sugar refineries. For double taxation aka "direct duplicate taxation” to exist, the same property or person must be taxed twice by the same taxing jurisdiction.

14) LUTZ vs. ARANETA (WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue)

G.R. No. L-7859, December 22, 1955

FACTS:

Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA567 or the Sugar Adjustment Act. Lutz

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contended that the Sugar Adjustment Act was unconstitutional for being levied in aid and support of the sugar industry exclusively, hence, not for public purpose. Under section 6 of said act, taxes collected from sugar producers are intended for the rehabilitation and stabilization of the threatened sugar industry.

ISSUE:

Is the Sugar Adjustment Act unconstitutional and levied not for public purpose?

HELD:

No. The Sugar Adjustment Act is constitutional and levied for public purpose. The protection and promotion of the sugar industry is a matter of public concern. It follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion.

Levy of tax on the sugar producers themselves is not a proper ground of complaint. It is rational that the tax be obtained from those who are to be benefited from the expenditure of the funds derived from it.

Also, it is inherent in the power to tax that a state be free to select the subjects of taxation. Inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.The legislative discretion must be allowed fully play, subject only to the test of reasonableness. Taxation may be made the implement of the state's police power.

15) PCGG VS. COJUANGCO (REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) vs COCOFED, et al. and BALLARES, et al, EDUARDO M. COJUANGCO JR. and the SANDIGANBAYAN)

G.R. No. 147062-64, December 14, 2001

FACTS:

On the premise that vast resources of the government have been amassed by former President Marcos, his immediate family, relatives, and close associates both here and abroad, the Presidential Commission on Good Government (PCGG), various EOs were enacted to assist the President in the recovery of the ill-gotten wealth thus accumulated whether located in the Philippines or abroad.Pursuant to these EOs, the PCGG implemented numerous sequestrations of allegedly ill-gotten companies and assets. Among the properties sequestered by the PCGG were shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of the alleged "1million coconut farmers," the so-called Coconut Industry Investment Fund companies (CIIF companies) and Cojuangco Jr.

The money used by the stockholders to purchase the sequestered UCPB shares came from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the coconut levy funds. The CCSF was established by P.D. 276 and mandated the "Stabilization Fund Levy" of P15 on the first sale of every 100 kilograms of copra resecada or equivalent product. Per PD 276 and its amendatory decrees, coconut levy funds were intended to subsidize the sale of coconut-based products at prices set by the Price Control Council in order to stabilize the price of edible oil and other coconut oil-based products for the benefit of consumers.

Cojuangco filed a motion with the anti-graft court to allow them to still hold elections and continue to vote for the Board of

Directors of UCPB notwithstanding the sequestration. Sandiganbayan and PCGG, however, contend that the registered stockholders have no voting rights since the shares were purchased with coconut levy funds which were affected with public interest.

ISSUE:

Do the coconut levy funds partake of the nature of taxes, hence, of public character?

HELD:

Yes. The 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.

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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 for the following reasons:

(a) Levies were imposed on the coconut farmers based on sold kilograms of copra or its equivalent in other coconut products.These were not voluntary payments or donations by the people but were enforced contributions exacted on pain of penal sanctions, such as fines, imprisonment or cancellation of license to operate, at the discretion of the Court.

(b) The coconut levies were imposed pursuant to PD No. 276 issued by former President Marcos who was then exercising legislative powers.

(c) The coconut levies were clearly imposed for public purpose. These were collected to advance the government's avowed policy of protecting the coconut industry. The Court takes judicial notice of the fact that the coconut industry is one of the great economic pillars of our nation, and coconuts and their byproducts occupy a leading position among the country's export products and that it gives employment to thousands of Filipinos, among others. Even the very laws governing the coconut levies (PD Nos. 276 and its amendatory decrees) treat them as special funds for a specific public purpose under a

special account in the National Treasury.

Therefore, it is the Republic who can exercise voting rights on those shares until and unless private respondents are able to demonstrate, that the UCPB shares have legitimately become private.

16) PASCUAL VS. THE SECRETARY OF PUBLIC WORKS G.R. No. L-10405 December 29, 1960

FACTS: In 1954, Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", appropriated P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals. Such project would traverse the Antonio Subdivision, owned by private respondent Zulueta, who was then a Senator. Petitioner Pascual assails the constitutionality of R.A. 920, on the ground that the appropriation of P85,000.00 therein made by Congress would greatly enhance or increase the property of Zulueta. And that the Congress was made to believe that the projected feeder roads in question were "public roads and not private streets of a private subdivision". Respondents moved to dismiss the petition on the ground that Petitioner had no locus standi nor did the petition state a cause of action.

Trial court dismissed the petition; ruling that since the donation made by Respondent Zulueta to the Government was subject to a condition, i.e. that the Government of the Republic of the Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever…” which is onerous, the donation in question is a contract; therefore, since petitioner herein, because his "interest are not directly affected" thereby has no locus standi; and that, accordingly, the appropriation in question "should be upheld" and the case dismissed.

ISSUE: Whether or not appropriation made by the Congress is valid

HELD: NO. In accordance with the rule that the taxing power must be exercised for public purposes only, money raised by taxation can be expended only for public purposes and not for the advantage of private individuals.

Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public purpose.

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public.

Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition, for the

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purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.

17) OSMEÑA vs. ORBOS GR No. 99886, March 31, 1993 " To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies that the legislature determines matter of principle and lays down fundamental policy." FACTS: Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956, as amended by EO 137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose additional amounts on petroleum products which proceeds shall accrue to the Oil Price Stabilization Fund (OPSF) established for the reimbursement to ailing oil companies in the event of sudden price increases. The petitioner avers that the collection on oil products establishments is an undue and invalid delegation of legislative power to tax. Further, the petitioner 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. It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the State. ISSUE: Is there an undue delegation of the legislative power of taxation? HELD: None. 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 as 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." With regard to the alleged undue delegation of legislative power, 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, P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund.

18) PEPSI COLA BOTTLING COMPANY VS MUNICIPALITY OF TANAUAN

G.R. NO. L-31156 FACTS: Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality approved Ordinance No. 23 which 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.” In December 1962, the Municipality also approved Ordinance No. 27 which 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 of volume capacity.” Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances impose percentage or specific taxes. Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of taxing powers to local government units; that allowing local governments to tax companies like Pepsi Cola is confiscatory and oppressive. The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance No. 23, hence there is no double taxation.

ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is double taxation.

HELD: No. There is no undue delegation. The Constitution even allows such delegation. Legislative powers may be

delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local

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governmental agencies the power to tax. Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: “Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law.” Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Cola’s assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. 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 unlike in other jurisdictions. 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 VS. CITY OF BACOLOD

G.R. No. L-35726 July 21, 1982

FACTS:

Petitioner Social Security System, for operation purposes, maintains a five-storey building in Bacolod City occupying four parcels of land. Said lands and buildings were assessed for taxation. Petitioner failed to pay the realty taxes for the years 1968, 1969 and 1970. Consequently, the City of Bacolod levied upon said lands and buildings and declared them forfeited in its favor. In protest, petitioner wrote the city mayor through the city treasurer seeking reconsideration of the forfeiture proceeding on the ground that it is a government-owned and controlled corporation and as such, should be exempt from payment of real estate taxes. No action was however taken. Thereafter, petitioner filed an action in court for the nullification of the court proceedings. The court ruled that the properties of petitioner are not exempt from the payment of real property tax because these are not one of the exemptions under Section 29 of the Charter of Bacolod City and there is no other law providing for its exemption.

ISSUE:

Should the subject properties maintained by petitioner SSS be exempt from payment of real property tax?

RULING:

YES. Whether a government owned and controlled corporation is performing governmental or proprietary function is immaterial. Section 29 of the Charter of Bacolod City 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.

Further, P.D. 24 has amended the Social Security Act of 1954 expressly exempting the SSS from payment of any tax thereby removing all doubts as to its exemption.

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20) SEA-LAND SERVICES, INC. VS. COURT OF APPEALS G.R. NO. 122605 APRIL 30, 2001 FACTS:

Petitioner Sea-Land Service Incorporated (SEA-LAND), an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines 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. 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. However, before the said claim for refund could be acted upon by public respondent Commissioner of Internal Revenue, petitioner filed a petition for review with the Court of Tax Appeals (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. The CTA rendered its decision denying SEA-LAND’s claim for refund of the income tax it paid in 1984. 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 RP-US Military Bases Agreement. RULING:

No, The Supreme Court held that the petitioner is not included in the tax exemption provided in the RP-US Military Bases Agreement. It explained that although the Military Bases agreement provides that no US national 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 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.

21) COMMISSIONER OF INTERNAL REVENUE VS. MITSUBISHI METAL CORPORATION, ATLAS CONSOLIDATED

MINING AND DEVELOPMENT CORPORATION AND THE COURT OF TAX APPEALS

Facts: Atlas Consolidated entered into a loan and sales contract with Mitsubishi Corp. Mitsubishi agreed to extend a loan to

the latter undertook to sell to the former all the copper concetrates it will produce for 15 years. Mitsubishi applied for a loan

with Eximbank in order to comply with its contractual obligations. The total amount of the loans amounted to $20,000,000.

Interest payments were made by Atlas to Mitsubishi and the correspomdimg 15% tax thereon was withheld pursuant to

Section 24(b)(1) and Section 53 (2) of the NIRC as amended by PD 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 CIR,not having acted on thr claim, private respondents filed a petition for review with

respondent court. The respondent court promulgated its decision ordering petitioner to grant a tax credit in favor of Atlas.

The petitioner appealed. While the case was pending, Atlas again filed a claim for tax credit.

Issue: 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 and, therefore, exempt from withholding tax.

Held: 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.

Significantly, private respondents are not even among the entities which, under Section 29 (b) (7) (A) of the tax code, are

entitled to exemption and which should indispensably be the party in interest in this case. The taxability of a party cannot

be blandly glossed over on the basis of a supposed "broad, pragmatic analysis" alone without substantial supportive

evidence.

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While international comity is invoked in this case on the nebulous representation that the funds involved in the loans are

those of a foreign government, scrupulous care must be taken to avoid opening the floodgates to the violation of our tax

laws. Otherwise, the mere expedient of having a Philippine corporation enter into a contract for loans or other domestic

securities with private foreign entities, which in turn will negotiate independently with their governments, could be availed

of to take advantage of the tax exemption law under discussion.

22) THIRTY-FIRST INFANTRY POST EXCHANGE VS. POSADAS, JR.

Facts: The plaintiff was constituted as a post exchange in accordance with the army regulations and the laws of the united

states. It was designated for the accommodation, convenience and assistance of the personnel of the army. In the course

of its business transactions, the plaintiff made purchases of goods and merchandise from various diver merchants. The

defendant collected from said merchants taxes at 1 1/2% on the gross value of the goods. defendant persisted in

demamding and collecting such taxes. The merchants were then forced to increase cost of the goods being sold to plaintiff,

Issue: Whether or not the sales made by the merchants to the personnel of the plaintiff can be made subject to tax in the

Philippines?

Held: 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.

The rule is that 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. The tax laid upon Philippine merchants who sell to Army Post Exchanges does not interfere with the supremacy of the

United States Government, or with the operations of its instrumentality, the United States Army, to such an extent or in

such a manner as to render the tax illegal. The tax does not deprive the Army of the power to serve the Government as it

was intended to serve it, or hinder the efficient exercise of its power.

23) COMMISSIONER OF INTERNAL REVENUE VS MARUBENI CORPORATION

Facts: CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985 deficiency income,

branch profit remittance and contractor’s taxes from Marubeni Corp after finding the latter to have properly availed of the

tax amnesty under EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export trading, financing and construction, is duly

registered in the Philippines with Manila branch office. CIR examined the Manila branch’s books of accounts for fiscal year

ending March 1985, and found that respondent had undeclared income from contracts with NDC and Philphos for

construction of a wharf/port complex and ammonia storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes. CIR claims that the

income respondent derived were income from Philippine sources, hence subject to internal revenue taxes. On Sept 1986,

respondent filed 2 petitions for review with CTA: the first, questioned the deficiency income, branch profit remittance and

contractor’s tax assessments and second questioned the deficiency commercial broker’s assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that taxpayers who wished to

avail this should on or before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986.

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On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes under Title 3 and business tax under

Chap 2, Title 5 of NIRC, extended the period of availment to Dec 15, 1986 and stated those who already availed amnesty

under EO 41 should file an amended return to avail of the new benefits. Marubeni filed a supplemental tax amnesty return

on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the deficiency taxes. CA affirmed on

appeal.

Issue: Whether or not Marubeni is exempted from paying tax on the premise that it is entitled to the tax amnesty?

Held: Yes. CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception in Sec 4b of EO

41:

“Sec. 4. Exceptions.—The following taxpayers may not avail themselves of the amnesty herein granted: xxx b) Those with

income tax cases already filed in Court as of the effectivity hereof;”

Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a case had already been filed

and was pending before the CTA and Marubeni therefore fell under the exception. However, the point of reference is the

date of effectivity of EO 41 and that the filing of income tax cases must have been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with CTA on Sept 26, 1986. When

EO 41 became effective, the case had not yet been filed. Marubeni does not fall in the exception and is thus, not

disqualified from availing of the amnesty under EO 41 for taxes on income and branch profit remittance.

Also, due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of effectivity. The general

rule is that an amendatory act operates prospectively. 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.

Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the deficiency tax because

the income from the projects came from the “Offshore Portion” as opposed to “Onshore Portion”. It claims all materials and

equipment in the contract under the “Offshore Portion” were manufactured and completed in Japan, not in the Philippines,

and are therefore not subject to Philippine taxes.

CIR argues that since the two agreements are turn-key, they call for the supply of both materials and services to the client,

they are contracts for a piece of work and are indivisible. The situs of the two projects is in the Philippines, and the

materials provided and services rendered were all done and completed within the territorial jurisdiction of the Philippines.

Accordingly, respondent’s entire receipts from the contracts, including its receipts from the Offshore Portion, constitute

income from Philippine sources. The total gross receipts covering both labor and materials should be subjected to

contractor’s tax (a tax on the exercise of a privilege of selling services or labor rather than a sale on products).

Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in the Philippines because

some of them were completed in Japan (and in fact subcontracted) in accordance with the provisions of the contracts. All

services for the design, fabrication, engineering and manufacture of the materials and equipment under Japanese Yen

Portion I were made and completed in Japan. These services were rendered outside Philippines’ taxing jurisdiction and are

therefore not subject to contractor’s tax. Petition denied.

24) REAGAN VS. COMMISSIONER OF INTERNAL REVENUE

Facts: Petitioner questioned the payment of an income tax assessed on him by public respondent on an amount realized by

him on a sale of his automobile to a member of the US Marine Corps, the transaction having taken place at the Clark Field

Air Base. Petitioner contends that the base is outside Philippine territory and therefore beyond the jurisdictional power to

tax.

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Issue: Whether or not petitioner Reagan was covered by the tax exemption.

Held: The court ruled in the negative. The Philippines, as an independent and sovereign country, exercises its authority

over its entire domain. Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign

rights. It may allow another power to participate in the exercise of jurisdictional right over certain portions of its territory.

By doing so, it by no means follows that such areas become impressed with an alien character. The areas retain their status

as native soil. Clark Air Base is within Philippine territorial jurisdiction to tax, and thus, Reagan was liable for the income tax

arising from the sale of his automobile in Clark. The law does not look with favor on tax exemptions and that he who would

seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. Reagan

has not done so, and cannot do so.

25) TIU VS. COURT OF APPEALS

CONRADO L. TIU, JUAN T. MONTELIBANO JR. AND ISAGANI M. JUNGCO, PETITIONERS, VS. COURT OF

APPEALS, HON. TEOFISTO T. GUINGONA JR., BASES CONVERSION AND DEVELOPMENT AUTHORITY, SUBIC

BAY METROPOLITAN AUTHORITY, BUREAU OF INTERNAL REVENUE, CITY TREASURER OF OLONGAPO AND

MUNICIPAL TREASURER OF SUBIC, ZAMBALES, RESPONDENTS.

Facts: On 13 March 1992, Congress, with the approval of the President, passed into law Republic Act 7227 ("An Act

Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and

Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes.”). Section 12 thereof created the

Subic Special Economic Zone and granted thereto special privileges, such as tax exemptions and duty-free importation of

raw materials, capital and equipment to business enterprises and residents located and residing in the said zones. On 10

June 1993, President Ramos issued Executive Order (EO) 97 clarifying the application of the tax and duty incentives. On 19

June 1993, the President issued EO 97-A, specifying the area within which the tax-and-duty-free privilege was operative

(i.e. the secured area consisting of the presently fenced-in former Subic Naval Base). On 26 October 1994, Conrado L. Tiu,

Juan T. Montelibano Jr. and Isagani M. Jungco challenged before the Supreme Court the constitutionality of EO 97-A for

allegedly being violative of their right to equal protection of the laws, inasmuch as the order granted 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. In a Resolution dated 27 June 1995, the Supreme Court

referred the matter to the Court of Appeals, pursuant to Revised Administrative Circular 1-95. Incidentally, on 1 February

1995, Proclamation 532 was issued by President Ramos, delineating the exact metes and bounds of the Subic Special

Economic and Free Port Zone, pursuant to Section 12 of RA 7227. The Court of Appeals denied the petition as there is no

substantial difference between the provisions of EO 97-A and Section 12 of RA 7227, holding that EO 97-A cannot be

claimed to be unconstitutional while maintaining the validity of RA 7227; that the intention of Congress to confine the

coverage of the SSEZ to the secured area and not to include the entire Olongapo City and other areas rely on the

deliberations in the Senate; and that the limited application of the tax incentives is within the prerogative of the legislature,

pursuant to its "avowed purpose [of serving] some public benefit or interest. Tiu, et. al.’s motion for reconsideration was

denied, and hence, they filed a petition for review with the Supreme Court.

Issue: Whether there was a violation of the equal protection of the laws when EO 97-A granted tax and duty incentives

only to businesses and residents within the "secured area" of the Subic Special Economic Zone and denied such to those

who live within the Zone but outside such "fenced-in" territory.

Held: The EO 97-A is not violative of the equal protection clause; neither is it discriminatory. The fundamental right of

equal protection of the laws is not absolute, but is subject to reasonable classification. The classification occasioned by EO

97-A was not unreasonable, capricious or unfounded. It was based, rather, on fair and substantive considerations that were

germane to the legislative purpose. 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, and on the other hand, definitely

none of such magnitude. In the first, the economic impact will be national; in the second, only local. Even more important,

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at this time the business activities outside the "secured area" are not likely to have any impact in achieving the purpose of

the law, which is to turn the former military base to productive use for the benefit of the Philippine economy. There is, then,

hardly any reasonable basis to extend to them the benefits and incentives accorded in RA 7227. Additionally, it will be easier

to manage and monitor the activities within the "secured area," which is already fenced off, to prevent "fraudulent

importation of merchandise" or smuggling. The classification applies equally to all the resident individuals and businesses

within the "secured area." The residents, being in like circumstances or contributing directly to the achievement of the end

purpose of the law, are not categorized further. Instead, they are all similarly treated, both in privileges granted and in

obligations required. The equal-protection guarantee does not require territorial uniformity of laws. As long as there are

actual and material differences between territories, there is no violation of the constitutional clause. Herein, anyone

possessing the requisite investment capital can always avail of the same benefits by channeling his or her resources or

business operations into the fenced-off free port zone.

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Limitations on Power of Taxation

26) JOHN HAY PEOPLES ALTERNATIVE COALITION ET. AL. VS. LIM

G.R. No. 119775, October 24, 2003

FACTS:

Republic Act No. 7227 known as the “Bases Conversion and Development Act of 1992,” was enacted on March 13, 1992. It 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.

The act also created public respondent Bases Conversion and Development Authority (BCDA), vesting it with powers pertaining to the multifarious aspects of carrying out the ultimate objective of utilizing the base areas in accordance with

the declared government policy. R.A. No. 7227 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.

On August 16, 1993, BCDA entered into a Memorandum of Agreement and Escrow Agreement with private respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD), private corporations. Four months later BCDA, TUNTEX and ASIAWORD executed a Joint Venture Agreement whereby they bound themselves to put up a joint venture company.

The Baguio City government meanwhile passed a number of resolutions in response to the actions taken by BCDA, officially asked BCDA to exclude all the barangays partly or totally located within Camp John Hay from the reach or coverage of any plan or program for its development. The sanggunian sought from BCDA an abdication, waiver or quitclaim of its ownership over the home lots being occupied by residents of nine (9) barangays surrounding the military reservation. On July

5, 1994 then President Ramos issued Proclamation No. 420, which established a SEZ on a portion of Camp John Hay, allowing the said body to grant tax exemptions.

ISSUE:

Is PD 420, that established the SEZ and allowed the same to grant tax exemptions, unconstitutional?

HELD:

PD 420 is still valid, as a whole, but the second sentence of Section 3 is NULL AND VOID and is accordingly declared of no legal force and effect. Public respondents are hereby enjoined from implementing the aforesaid void provision.

The transformation of a portion of the area covered by Camp John Hay into a SEZ is not simply a re-classification of an area, a mere ascription of a status to a place. It involves turning the former US military reservation into a focal point for investments by both local and foreign entities. It is to be made a site of vigorous business activity, ultimately serving as a

spur to the country’s long awaited economic growth. R.A. No. 7227 declares, it is the government’s policy to enhance the benefits to be derived from the base areas in order to promote the economic and social development of Central Luzon in particular and the country in general. Like the Subic SEZ, the John Hay SEZ should also be turned into a “self- sustaining, industrial, commercial, financial and investment center.” More than the economic interests at stake, the development of Camp John Hay as well as of the other base areas unquestionably has critical links to a host of environmental and social concerns. Whatever use to which these lands will be devoted will set a chain of events that can affect one way or another the social and economic way of life of the communities where the bases are located, and ultimately the nation in general.

However the grant of tax immunity and financial incentives as contained in the second sentence of Section 3 of Proclamation No. 420 is unconstitutional for only the legislature may exempt an entity from taxation.

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Where part of a statute is void as contrary to the Constitution, while another part is valid, the valid portion, if separable from the invalid, may stand and be enforced. The Court found that the other provisions in Proclamation No. 420 converting a delineated portion of Camp John Hay into the John Hay SEZ are separable from the invalid second sentence of Section 3 thereof, hence they stand.

27) COCONUT REFINERS ASSOCIATION VS. CONVERSION AND DEVELOPMENT AUTHORITY G.R. No. 132527, July 29, 2005

FACTS:

This is a Petition for Prohibition and Injunction seeking to enjoin and prohibit the Executive Branch, through the public respondents Ruben Torres in his capacity as Executive Secretary, the Bases Conversion Development Authority (BCDA), the Clark Development Corporation (CDC) and the Subic Bay Metropolitan Authority (SBMA), from allowing, and the private

respondents from continuing with, the operation of tax and duty-free shops located at the Subic Special Economic Zone (SSEZ) and the Clark Special Economic Zone (CSEZ), and to declare the following issuances as unconstitutional, illegal, and void.Petitioners contend that the issuances are unconstitutional and void as they constitute executive lawmaking, and that they are contrary to Republic Act No. 7227 and in violation of the Constitution, particularly Section 1, Article III (equal protection clause), Section 19, Article XII (prohibition of unfair competition and combinations in restraint of trade), and Section 12, Article XII (preferential use of Filipino labor, domestic materials and locally produced goods).

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. The republic act ensures free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provides 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.

The governing body of the Clark Special Economic Zone shall likewise be established by executive proclamation with such powers and functions exercised by the Export Processing Zone Authority pursuant to Presidential Decree No. 66 as amended.

The policies to govern and regulate the Clark Special Economic Zone shall be determined upon consultation with the inhabitants of the local government units directly affected which shall be conducted within six (6) months upon approval of this Act.

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 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 February 23, 1998, petitioners thus filed the instant petition, seeking the declaration of nullity of the assailed issuances on the following grounds: first, that executive order violates purports an invalid delegation of power, that it violates the unequal protection clause and the prohibition against unfair competition and practices in restraint and trade, and that it violates RA 7227 itself.

ISSUE:

Are the declarations of the BCDA unconstitutional?

HELD:

1. The Issue on Executive Legislation

Petitioners claim that the assailed issuances (Executive Order No. 97-A; Section 5 of Executive Order No. 80; and Section 4 of BCDA Board Resolution No. 93-05-034) constitute executive legislation, in violation of the rule on separation of powers.

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While it is true that Section 12 (b) of Republic Act No. 7227 mentions only raw materials, capital and equipment, this does not necessarily mean that the tax and duty-free buying privilege is limited to these types of articles to the exclusion of consumer goods. It must be remembered that in construing statutes, the proper course is to start out and follow the true intent of the Legislature and to adopt that sense which harmonizes best with the context and promotes in the fullest manner the policy and objects of the Legislature.

Executive Order No. 97-A provides guidelines to govern the "tax and duty-free privileges within the Secured Area of the Subic Special Economic and Free Port Zone." Paragraph 1.6 thereof states that "(t)he sale of tax and duty-free consumer items in the Secured Area shall only be allowed in duly authorized duty-free shops."

The Court finds that the setting up of such commercial establishments which are the onlyones duly authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12 of Republic Act No. 7227 that ". . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments."

However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 ofExecutive Order 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 Section 12 of Republic Act 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."

Thus there is an invalid exdrcise of executive legislation.

2. Equal Protection of the Laws

Petitioners argue that the assailed issuance (Executive Order No. 97-A) is a vilolation of their right to equal protection of the laws, as enshrined in Section 1, Article III of the Constitution. To support this argument, they assert that private respondents operating inside the SSEZ are not different from the retail establishments located outside, the products sold being essentially the same. The only distinction, they claim, lies in theproducts’ variety and source, and the fact that private respondents import their items tax-free, to the prejudice of the retailers and manufacturers located

outside the zone.

Petitioners’ contention cannot be sustained. 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.27 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.28

Applying the foregoing test to the present case, this Court finds no violation of the right to equal protection of the laws. First, contrary to petitioners’ claim, substantial distinctions liebetween the establishments inside and outside the zone, justifying the difference in their treatment.

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.

3. Prohibition against Unfair Competition and Practices in Restraint of Trade

Petitioners next argue that the grant of special tax exemptions and privileges gave the private respondents undue advantage over local enterprises which do not operate inside the SSEZ, thereby creating unfair competition in violation of the constitutional prohibition against unfair competition and practices in restraint of trade.

The argument is without merit. Just how the assailed issuance is violative of the prohibition against unfair competition and practices in restraint of trade is not clearly explained in the petition. Republic Act No. 7227, and consequently Executive Order No. 97-A, cannot be said to be distinctively arbitrary against the welfare of businesses outside the zones. 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 its policies.

4. Preferential Use of Filipino Labor, Domestic Materials and Locally Produced Goods

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Lastly, petitioners claim that the questioned issuance (Executive Order No. 97-A) openly violated the State policy of promoting the preferential use of Filipino labor, domestic materials and locally produced goods and adopting measures to help make them competitive.

Again, the argument lacks merit. This Court notes that petitioners failed to substantiate their sweeping conclusion that the issuance has violated the State policy of giving preference to Filipino goods and labor. The mere fact that said issuance authorizes the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground.

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. Respondents are hereby enjoined from implementing the aforesaid void provisions. All portions of Executive Order No. 97-A are valid and effective, except the second sentences in paragraphs 1.2 and 1.3 of said Executive Order are hereby declared INVALID.

28) PROVINCE OF ABRA VS. HERNANDO

G.R. No. 49336, August 31, 1981

FACTS:

Sea-Land Service, Inc. (Sea-Land) is an American international shipping company licensed to do business in the Philippines. On April 15, 1987, the Company filed a claim of refund with the BIR with respect to the income tax paid on its income derived in 1984 from the transport of military goods and effects of U.S. military personnel assigned to the Subic Naval Base on the basis of the tax exemption provided in Article XII, par. 4, of the RP-US Military Bases Agreement.

Before the application could be acted upon by the CIR, the Company filed a petition for review with the CTA to toll the running of the prescriptive period. The CTA denied the claim for refund and the Court of Appeals affirmed said decision.

ISSUE:

Whether or not Sea-Land is entitled to claim the refund

HELD:

No. Laws granting exemption from tax are construed strictissimijurisagainst taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and to categorical to be misinterpreted.

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 contruction, 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 beinterpreted as directly related to the defense and security of the Philippine territories.

29) TOLENTINO VS. SECRETARY OF FINANCE GR 115455, October 30, 1995

FACTS:

The case consists of several suits which challenge the constitutionality of RA 7716 on various grounds.

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The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange of services. RA No. 7716 seeks to widen the tax base of the existing VAT system and enhance its administration by amending the NIRC.

Petitioners contend that the R.A. 7716 did not “originate exclusively” in the House of Representatives as required by Article 6, Section 24 of the Constitution. Although the bill was filed in the House of Representatives where it passed three readings and that afterward

it was sent to the Senate where after first reading it was referred to the Senate Ways and Means Committee, they complain that the Senate did not pass it on second and third readings. Instead what the Senate did was to pass its own version. Petitioner Tolentino adds that what the Senate committee should have done was to amend the bill by striking out thetext of the bill and substituting it with the text of the Senate’s version.

Another claim in the suit, by the Philippine Press Institute alleged that R.A. 7716 violates their press freedom and religious liberty, having removed them from the exemption to pay Value Added Tax. It is contended by the PPI that by removing the

exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional." PPI argued that the VAT is in the nature of a license tax.

Another petitioner, CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a progressive system of taxation." CREBA 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 contract.

Also, while R.A. No. 7716 exempts several transactions like the sale of agricultural products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted. It is also further contended that R.A. No. 7716 also violates Art. VI, Section 28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."

ISSUES:

(1) WON R.A. 7716 is unconstitutional for having “originated” from the Senate, and not theHouse of Representatives.

(2) WON VAT violates press freedom since this is in the nature of a license tax.

(3) WON RA 7716 impairs the obligations of contracts.

(4) WON RA 7716 classifies the transactions as covered or exempt without reasonable basis.

(5) WON RA 7716 violates Art. VI, §28(1)

HELD:

(1) 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.

While Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. It is also noted that because the Senate bill was a mere amendment of the House bill, the latter in its original form did not have to pass the Senate on second and three readings. It was enough that after it was passed on first

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reading it was referred to the Senate Committee on Ways and Means. Neither was it required that the Senate bill before the two bills could be referred to the Conference Committee.

(2) NO. A license tax, 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. However, 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 orproperties 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.

(3) Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense. Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority.

(4) The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the example given by petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax that the 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.

(5) Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. The VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No.

7716 merely expands the base of the tax. The validity of the original VAT Law upheld since the the sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%.

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." 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.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4, amending§103 of the NIRC). It is also further noted that the transactions which are subject to the VAT are those which involve goods and services which are used or

availed of mainly by higher income groups.

30) ABAKADA GURO PARTYLIST VS. ERMITA G.R. No. 168056, September 1, 2005

FACTS:

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005. They question the constitutionality of Sections 4,5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the 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

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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:

(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 oneand one-half percent (1 ½%).

ISSUES:

1. WON the grant of stand-by authority to the President to increase the VAT rate is an 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

2. Whether or not there is a violation of the due process and equal protection under ArticleIII Sec. 1 of the Constitution.

3. WON the questioned provisions violate Article VI, Section 28(1) of the Constitution whichstates in part that “The Congress shall evolve a progressive system of taxation.”

HELD:

1. No. There is no undue delegation of legislative power to tax. The legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority. While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends.

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.

2. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment,valuation and collection, the State’s power is entitled to presumption of validity. As a rule,the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.

3. Progressive taxation is built on the principle of the taxpayer’s ability to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected. The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. Theprinciple of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in the Tolentino case, that the constitutional provision has beeninterpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much aspossible, indirect taxes should be minimized.’

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions, while granting exemptions to other transactions.

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31) MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. VS. DEPARTMENT OF FINANCE SECRETARY G.R. No. 108524, Nov. 10, 1994 Facts: This is a petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials the VAT on the sale of copra by members of the petitioner organization. Petitioner is a domestic corporation whose members, individually or collectively, are engaged in the buying and selling copra in Misamis Oriental. Respondents are departments of the executive branch of the government charged with the generation of funds and the assessment, levy and collection of taxes and other imports. Respondent Commissioner on Internal Revenue issued Circular classifying copra as an agricultural non-food product and declaring it exempt from VAT if sale is made by the primary producer. Petitioner contends that prior to the issuance of Revenue Memo Circular, which implemented the VAT ruling 190-90, copra was classified as agricultural food product under NIRC Sec. 103 (b). Section 103 states the following transactions exempt from value-added tax: a. Sale of non-food agricultural, marine and forest products in their original state by the primary producer of owner of the land where the same are produced; b. sale or importation in their original state of agricultural an marine food products, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption and breeding stock and generic material thereof. Petitioner further alleged as well that the BFAD, which classified copra as an agricultural food, and not the BIR is the competent government agency to determine the proper classification of food products. They also contend that RMC 47-91 is counterproductive and violative of due process and equal protection clause Issue: Is there a violation of due process and equal protection clause in the distinction of VAT exemption between copra farmers/producers and traders/dealers? Held: No. In interpreting the NIRC provisions, it must be given a strict construction consistent with the rule that tax exemptions must be strictly construed against the tax payer and liberally in favour of the state. As the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. The ruling was made in the exercise of his power under Section 245 of the NIRC to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes. RMC 47-91 is neither discriminatory nor violative of due process and equal protection clause because there is a material difference between coco 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. Thus, there is a reasonable basis of classifying them differently. 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 case of agricultural food products, their sale in their original state is exempt at all stages of production or distribution. The argument that the classification of copra as agricultural non-food product is counterproductive is a question of wisom or policy which should be addressed to respondent officials and to Congress. Petition is dismissed. 32) COMMISONER OF INTERNAL REVENUE VS. CA AND FORTUNE TOBACCO CORP. G.R. No. 119761, Aug. 29, 1996 Facts: The private respondent is engaged in the manufacture of different brands of cigarettes. The Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. The initial position of the CIR was to classify 'Champion,' 'Hope,' and 'More' 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 the BIR that “Champion was an original Fortune register and a local brand. Ad valorem taxes were imposed on these cigarettes. RA No. 7654, was enacted and became effective on 03 July 1993. It amended Section 142(c)(1) of the NIRC. Revenue Memorandum Circular No. 37-93 ("RMC 37-93") Reclassification of Cigarettes Subject to Excise Tax, was issued by the BIR.

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It classified Hope, More, and Chamption cigarettes as locally manufactured bearing a foreign brand subject to the 55% ad valorem tax on cigarettes. Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was denied. The following day, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. Fortune Tobacco then filed a petition for review with the CTA. The CTA and the CA upheld the position of Fortune Tobacco and adjudged RMC No. 37-93 as defective. ISSUE: Is the issuance of RMC 37-93 violative of due process? RULING: Yes. It should be understood that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds or increase the burden to those governed, it behooves the agency to accord at least to those directly affected a chance to be heard and be duly informed before the new issuance is given force and effect. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. The Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance. Petition is dismissed. 33) COMMISSIONER OF INTERNAL REVENUE vs. LINGAYEN GULF OF ELECTRIC POWER G.R. No. L-23771 August 4, 1988 FACTS: This is an appeal from the decision of CTA absolving the respondent taxpayer from liability for the deficiency percentage, franchise, and fixed taxes and surcharges assessed against it for the years 1946-1954 and 1959-1961. The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant serving the adjoining municipalities of Lingayen and Binmaley, 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. Section 10 of these franchises provides that “said grantee shall pay 2% of their gross earnings obtained thru this privilege.” On November 21, 1955, the BIR assessed and demanded from the private respondent the total amount of P19,293.41 representing deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954 as prescribed in Sec. 259 of the NIRC, instead of the lower rates as provided in the municipal franchises. It was protested by the private respondent and requested for a conference with a view of settling amicably. The CIR denied the request and was later elevated to the CTA. Pending the hearing of the said cases, R.A. No. 3843 was passed on June 22, 1963, granting to the private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same municipalities of Pangasinan. Section 4 thereof provides that: In consideration of the franchise and rights hereby granted, the grantee shall pay into the Internal Revenue Office of each Municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the gross receipts from electric current sold or supplied under this franchise. 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: Is Section 4 of R.A. No. 3843 unconstitutional for being violative of the "uniformity and equality of taxation" clause of the Constitution? RULING: No. 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

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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 private respondent’s municipal franchises were obtained under Act No. 6672 but this has been replaced by a new legislative franchise, RA 3843. It identified the power plant as falling within the class of power plants in Act no. 3636 providing benefits of tax reduction, which applies to respondent’s power plant. The new law effected the transfer of a taxable property from one class to another. The Court does not have the authority to inquire into the wisdom of such act. The 5% franchise tax rate in Section 259 of NIRC was never intended for a universal application. It also allows payment of taxes at lower rates when the charter granting the franchise precludes the imposition of a higher tax. Charters or special laws granted and enacted by the Legislature are in the nature of private contracts. They do not constitute a part of the machinery of the general government. The law shall also be given retroactive effect as it expressly provides that it shall be effective upon the date the original franchise was granted. The franchise was approved on February 24, 1948 and before such date, private respondent was liable for payment of percentage and fixed taxes as seller of light, heat and power. However, private respondent already paid P34,184.36 from 1946-1961, which was more than what was rightfully due from it. Hence, it should no longer be made to pay for the deficiency. Petition is dismissed. 34) KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN vs. HON. BIENVENIDO TAN, CIR G.R. No. 81311 June 30, 1988 FACTS: This petition seeks to nullify Executive Order No. 273 issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), 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. The Solicitor General prays for the dismissal of the petition for failure of the petitioners to show justification for the exercise of judicial powers, that only the requisite that the constitutional question should be raised at the earliest opportunity has been complied with. He also questions the legal standing of the peitioners who are merely asking for the opinion of the Court, there being no justiciable controversy to be resolved. ISSUE: Is EO 273 unconstitutional for being violative of due process and equal protection clause? RULING: No. The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with the aggregate gross annual sales exceeding P20,000 to his purchase of goods and services, unless exempt. Small corner sari-sari stores are consequently exempt from its application. VAT is computed at the rate of 0% or 10% of the gross selling price of the goods or gross receipts realized from the sale of services. The framers of EO 273 aimed to rationalize the system of taxing good and services, simplify administration, and make the tax system more equitable, to enable the country to attain economic recorvey. 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 petitioners 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. The disputed sales tax is also equitable as it only applies to every seller, with the aggregate gross annual sales exceeding P20,000 to his purchase of goods and services. The Court also finds no merit in the contention that EO 273 and new Section 103 (r) of the NIRC unduly discriminates against customs brokers. Section 103 provides for transactions exempt from VAT: (r) for service performed in the exercise of profession or calling (except customs broker) subject to the occupation tax under Local Tax Code, and professional services performed by registered general professional services. The phrase “except customs brokers” is not meant to discriminate, it is to complement Section 102, which makes customs brokers subject to a payment of VAT and to distinguish them from other professionals who are subject under the Local Tax Code. The EO 273 amended Section 174 and abolished percentage tax and replaced it with VAT. Petition is dismissed.

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35) ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner of BIR, et al. G.R. No. L-59431 July 25, 1984 FACTS: The challenged posed in this suit for declaratory relief or prohibition proceeding on the validity of Section 1 of Batas Pambansa Blg. 135 which 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 section as arbitrary amounting to class legislation, oppressive and capricious in character. For the petitioner there is transgression of both the equal protection and due process clause as well as the rule requiring uniformity in taxation. ISSUE: Is Section 1 of BP 135 is violative of due process and equal protection clause? RULING: No. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is a source of bulk of public funds. To paraphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability are of the essence. The power to tax is an attribute of sovereignty. The Constitution as the fundamental law overrides any legislative or executive act that runs counter to it. The injury is centered on the question whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that the arc not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. Due process and equal protection was not violated. Petition is dismissed.

36) VILLEGAS vs. HIU CHIONH TSAI PAO HO G.R. No. L-29646 November 10, 1978

FACTS: The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila. Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

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. 6

In this petition, Hiu Chiong Tsai Pao Ho contended that: 1) Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in taxation; and 2) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their rights to life, liberty and property and therefore, violates the due process and equal protection clauses of the Constitution. 7

Respondent Judge issued the writ of preliminary injunction and rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary injunction. 8

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

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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 Ordinance No. 6573 is valid and constitutional

Ruling: The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a

reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive

The ordinance in question violates the due process of law and equal protection rule of the Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life without due process of law. This guarantee includes the means of livelihood. The shelter of protection under the due process and equal protection clause is given to all persons, both aliens and citizens.

37) VILLANUEVA vs. CITY OF ILOILO G.R. No. L-26521 December 28, 1968

FACTS:

The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees on tenement houses. 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, 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."

The municipal board of Iloilo City, believing, obviously, 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 this Court as ultra vires,

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.

By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva. Eusebio Villanueva has likewise been paying real estate taxes on his property.

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 them under the said ordinance.

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The lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 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.

The appellees strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.

The appellees also argue that there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." .

Issues:

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. Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act?

Ruling: The the tax in question is not a real estate tax. A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor.

It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner.

"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."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the Philippines.24 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."25.

This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare 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.32 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.33 The plaintiffs-appellees, as owners of tenement houses in

the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.

38) PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES vs. CITY OF BUTUAN G.R. No. L-22814 August 28, 1968

FACTS:

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal

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board and its City Treasurer. Plaintiff — seeks to recover the sums paid by it to the City of Butuan — hereinafter referred to as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof.

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities in the Province of Agusan.

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount

4. That the plaintiff filed the foregoing complaint for the recovery of the total amount paid under protest on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional.

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers.

Issue: Whether Ordinance No. 110, as amended by Ordinance No. 122is valid and constitutional

Ruling: 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."

... — Definition of the Term Consignee or Agent. — For purposes of this Ordinance, a consignee of agent shall mean any person, association, partnership, company or corporation who acts in the place of another by authority from him or one entrusted with the business of another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale.

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.

Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax.

It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation.5 The classification made in the exercise of this authority, to be valid, must, however, be reasonable6 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.7

These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax.

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39) ORMOC SUGAR COMPANY, INC. vs. TREASURER OF ORMOC CITY G.R. No. L-23794 February 17, 1968

FACTS:

The Municipal Board of Ormoc City passed 1 Ordinance No. 4, Series of 1964, imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries." 2

Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte, a complaint against the City of Ormoc as well as its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is unconstitutional for being violative of the equal protection clause (Sec. 1[1], Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution), aside from being an export tax forbidden under Section 2287 of the Revised Administrative Code. It further alleged that the tax is neither a production nor a license tax which Ormoc City under its charter and under Section 2 of Republic Act 2264, otherwise known

as the Local Autonomy Act, is authorized to impose; and that the tax amounts to a customs duty, fee or charge in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax is on both the sale and export of sugar.

The defendants asserted that the tax ordinance was within defendant city's power to enact under the Local Autonomy Act and that the same did not violate the afore-cited constitutional limitations. The Court of First Instance rendered a decision that upheld the constitutionality of the ordinance and declared the taxing power of defendant chartered city broadened by the Local Autonomy Act to include all other forms of taxes, licenses or fees not excluded in its charter.

Appellant questions the authority of the defendant Municipal Board to levy such an export tax, in view of Section 2287 of the Revised Administrative Code which denies from municipal councils the power to impose an export tax.

Subsequently, however, Section 2 of Republic Act 2264 effective June 19, 1959, gave chartered cities, municipalities and municipal districts authority to levy for public purposes just and uniform taxes, licenses or fees.

Issue: Whether constitutional limits on the power of taxation, specifically the equal protection clause and rule of uniformity of taxation, were infringed.

Ruling: 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.

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.

40) LUTZ vs. ARANETA G.R. No. L-7859 December 22, 1955 FACTS: The case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

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

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constitutiontally levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case directly to this Court (Judiciary Act, section 17).

Issue: Whether the taxes imposed by Commonwealth Act No. 567 is valid and constitutional

Ruling: 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. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), 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.

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objective 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 the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived 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" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).

41) ASSOCIATION OF CUSTOMS BROKERS, INC. VS. MUNICIPAL BOARD [G.R. No.L-4376. May 22, 1953]

FACTS: Petitioners in this case challenge the validity of Ordinance No. 3379 ("An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila") on the following grounds: (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) that it constitutes double taxation. The respondents in their defense, states that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under charter, and that, the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation. The CFI of Manila sustained the validity of the ordinance and dismissed the petition.

ISSUE: Whether or not the ordinance levies a license tax hence beyond the power of the municipal board.

HELD: Yes. The disputed ordinance was passed by the Municipal Board under the authority conferred by section 18 (p) of RA No. 409. Said section 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." It is contended by the respondents that this power is broad enough to confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city limits. 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. Under the said law, 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 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. When section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it can only refers to property tax as a different interpretation would make it repugnant to the Motor Vehicle Law. The disputed ordinance provides in its section 1 that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively for the repair, maintenance and improvement of its streets and bridges."

While as a rule an ad valorem tax is a property tax, 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. While the ordinance title 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.

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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 by Act No. 3992 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. The ordinance also 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. Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void.

42) EASTERN THEATRICAL CO., INC VS. ALFONSO G.R. No.L-1104. May 31, 1949

FACTS: Petitioners, corporations engaged in the motion picture business, impugns the validity of Ordinance No. 2958 (“An

Ordinance Imposing a Fee on the Price of Every Admission Ticket Sold by Cinematographs, Theaters, Vaudeville Companies, Theatrical Shows and Boxing Exhibition and Providing for Other Purposes”) enacted by the Municipal Board of the City of Manila. The complaint assailed the validity of the said ordinance on the ground that the Municipal Board of Manila exceeded and over-stepped the power granted it the Charter of the City of Manila, among others. Defendants allege as affirmative defenses that the ordinance was passed by the Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the license fee for and regulate the business of theatrical performances public exhibition circus and other performances and places of amusement. They also allege that since May 1, 1946, when the ordinance in question took effect plaintiffs have been charging the theater-going public increased prices for admission to the cinematographs owned and operated to the graduated tax imposed by said ordinance and as a result while refusing to pay said tax but at the same time collecting an amount equal to said tax plaintiffs have taken undue advantage of said ordinance to realized more profits. The CFI of Manila upheld the validity of the ordinance, thus the plaintiffs instituted an appeal.

ISSUE: Whether or not the Municipal Board of the City of Manila had the power to enact Ordinance No. 2958 under section 2444 (m) of the Revised administrative Code.

HELD: Yes, the Municipal Board has the power to enact the Ordinance. Appellants contend that the lower court erred in holding that under section 2444 (m) of the Revised administrative Code the Municipal Board of the City of Manila had the power to enact Ordinance No. 2958. The assumption of the plaintiff that the power granted to the City of Manila by section 2444(m) of the Revised Administrative Code is limited only to the authority to impose a tax on business, with exclusion of the power to impose a tax amusement is based on an arbitrary labeling of the kind of tax authorized by said section 2444(m).

The tax therein authorized cannot be defined as tax on business and cannot be restricted within a smaller scope than what is authorized by the words used, to the extent of excluding what plaintiffs describe as tax on amusement. The very fact that section 2444 (m) of the Revised Administrative Code includes theaters, cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances, public exhibition, circus and other performances and places of amusements, will show conclusively that the power to tax amusement is expressly included within the power granted by section 2444(m) of the Revised Administrative Code.

43) PHILIPPINE TRUST COMPANY VS. YATCO G.R. Nos. L-46255, 46256, 46259 and 46277-January 23, 1940

FACTS: The appellant banks challenged the constitutionality of Section 1499 (Tax on capital, deposits, and circulation of banks) of the Revised Administrative Code of 1917 principally on the grounds that it violates the rule regarding uniformity of taxation, and that it is discriminatory, and therefore, is in violation of the equal protection clause. Appellants maintain that although the foregoing provision is of general application and operates on all banks of the same kind doing business in the Philippines, the exemption of the National City Bank of New York from the impositions therein specifically provided, makes the law discriminatory and violates the rule of uniformity in taxation.

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ISSUE: Whether Section 1449 of the Revised Administrative Code is void for violating the rule of uniformity in taxation.

HELD: No. The exemption of an instrumentality of the Federal Government does not deprive the Commonwealth of the Philippines of the power to tax competitors of such instrumentality. The lack of uniformity in the result furnishes no ground of complaint. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. Section 1499 of the Revised Administrative Code applies uniformly to, and operates on, all banks in the Philippines without distinction and discrimination. The National City Bank of New York is exempted from such provision not solely because of being a federal instrumentality subject to the authority of Congress, but due to the principle that “a dependency may not tax its sovereign.” It must be noted that a state may impose a different rate of taxation upon a foreign corporation for the privilege of doing business within the state than it applies to its own corporations upon the franchise which the state grants in creating them. In every well-regulated and enlightened state or government, certain descriptions of property and also certain 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. The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable.

44) CHURCHILL VS CONCEPCION G.R. No. 11572. September 22, 1916

FACTS: Section 100 of Act No. 2339 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. The rate was later reduced to P2 by Act No. 2432, as amended by Act No. 2445, which was ratified by the Congress of the United States. The taxes imposed by Act No. 2432, as amended, were ratified by the Congress of the United States on March 4, 1915. The ratifying clause reads as follows: The internal-revenue taxes imposed by the Philippine Legislature under the law enacted by that body (Act No. 2432), as amended by the law enacted by it on… (Act No. 2445), are hereby legalized and ratified, and the collection of all such taxes heretofore or hereafter is hereby legalized, ratified and confirmed as fully to all intents and purposes as if the same had by prior Act of Congress been specifically authorized and directed. Meanwhile, Francis A. Churchill and Stewart Tait, co-partners 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 an action under section 140 of Act No. 2339 against the Collector of Internal Revenue to recover back the amount thus paid. It was alleged that the tax constitutes deprivation of property without compensation or due process of law, because it is confiscatory and unjustly discriminatory and the said tax is void for lack of uniformity, because it is not graded according to value; because the classification on which it is based on any reasonable ground; and furthermore, because it constitutes double taxation.

ISSUES: a) Whether the tax in question is confiscatory as to the business of the plaintiff b) Whether the tax is void for lack of uniformity or because it is not graded according to value or constitutes double taxation, or because the classification upon which it is based is mere arbitrary selection and not based on any reasonable grounds?

HELD:

No. The tax herein complained of falls far short of being confiscatory. Consequently, it cannot be held that the Legislature has gone beyond the power conferred upon it by the Philippine Bill in so far as the amount of the tax is concerned. It can be observed that there are other businessmen who are paying the tax without protest and presumably making a reasonable profit from their business. The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. It reaches to every trade or occupation; to every object of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in case of failure to discharge it, may be followed by seizure and sale or confiscation of property. No attribute of sovereignty is more pervading, and at no point does the power of the government affect more constantly and intimately all the relations of life than through the exactions made under it. b) No. The “rule of taxation” upon such signs is uniform throughout the island. It must be noted that a tax is uniform when it operates with the same force and effect in every place where the subject of it is found. "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. The law does not require taxes to be graded according to the value of the subject or subjects upon which they are imposed, especially those levied as privilege or occupation taxes. The fact that the land upon which the billboards are located is taxed at so much per unit and the billboards at so much per square meter does not constitute "double taxation." Double taxation, within the true meaning of that expression, does not necessarily affect its validity. It is not for the judiciary

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to say that the classification upon which the tax is based "is mere arbitrary selection and not based upon any reasonable grounds. The Legislature selected signs and billboards as a subject for taxation and it must be presumed that it, in so doing, acted with a full knowledge of the situation.

45) MERALCO VS. PROVINCE OF LAGUNA G.R. No. 131359. May 5, 1999

FACTS: MERALCO was granted franchise for the supply of electric light, heat and power in certain municipalities of the Province of Laguna. Republic Act No. 7160, otherwise known as the "Local Government Code of 1991," was enacted enjoining local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to this, respondent province enacted Laguna Provincial Ordinance No. 01-92, imposing franchise tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual receipts within the province. On the basis of the ordinance, respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520.628.42,under protest. A formal claim for refund was thereby sent by MERALCO. MERALCO, contended that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which reads: 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 XXX 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. The claim for refund of petitioner was denied. Petitioner MERALCO filed with the RTC a complaint for refund, with a prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order. The trial court dismissed the complaint.

ISSUE: Whether or not there was a violation of the constitutional limitation of non-impairment of contracts when the Province of Laguna imposed such ordinance.

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. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.

46) THE PROVINCE OF MISAMIS ORIENTAL vs. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY GR No. L-45355 January 12, 1990 FACTS:

Cagayan Electric Power and Light Company (CEPALCO) was granted a franchise under Republic Act No. 3247 to install, operate and maintain an electric light, heat and power system in Cagayan De Oro and its suburbs. This was later amended twice. First to include the municipalities of Tagoloan and Opol as provided by Republic Act No 3570 and second, to include the municipalities of Villanueva and Jasaan as provided by Republic Act 6020. These three laws provide that in consideration of the franchise granted, the grantee shall pay a franchise tax equal to three percent(3%) of the gross earnings for electric current sold under the franchise (2% goes to the national treasury and the 1% goes to the treasury of the Municipalities of Tagoloan, Opol, Villanueva and Jasaan, and CDO) provided that the 3% shall be in lieu of all taxes and assessments of whatever authority upon privileges and earnings, income, franchise and poles, wires, transformers, and insulators of the grantee from which taxes and assessments the grantee is hereby expressly exempted. In 1973, the local tax code (PD231) was promulgated. Section 9 of such provides that:

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Sec. 9. Franchise Tax.—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.

Pursuant to the PD, the Province of Misamis Oriental enacted provincial revenue ordinance no. 19 imposing a franchise tax of ½% on businesses enjoying franchise. The provincial Treasurer demanded payment from CEPALCO, at first the latter refused but in view of the opinion of the provincial discal, CEPALCO paid under protest. The ruling of the Provincial Fiscal was appealed to the Sec of Justice who reversed it and ruled in favor of CEPALCO. The case was brought to the Secretary of Finance who affirmed the opinion of the Secretary of Justice. The province filed in the CFI, a complaint for declaratory relief, praying, among others, that the court exercise its power to construe the Local Tax Code in relation to the franchise of CEPALCO and declare that the Local Tax Code has amended the franchise. CFI dismissed petition and ordered the province to return what was paid (P4,276.28). Hence this appeal. ISSUE: Whether the Local Tax Code has amended the franchise of CEPALCO. HELD: NO. There is no provision in PD231 expressly or impliedly amending or repealing RA 6020. The repugnancy must be clear before the court could decide if there was any amendment made since there is no express provision found in PD231 to that effect. A special and local statute applicable to a particular case is not appealed by a later statute which is general in terms, unless there is manifest intent to repeal or alter the special law. Presumption: special statutes are exceptions to the general law because they pertain to a special charter granted to meet a particular setof conditions and circumstances. The franchise expressly exempts it from payment of “all taxes of whatever authority” except the 3%. The phrase “shall be in lieu of all taxes...” were used in previous franchises and in these cases it was held that the franchises were indeed exempt from other taxes imposed on it except for what was stated in the franchise. In an earlier case, the phrase "shall be in lieu of all taxes and at any time levied, established by, or collected by any authority" found in the franchise of the Visayan Electric Company was held to exempt the company from payment of the 5% tax on corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan Electric Co. vs. David, 49 O.G. [No. 4] 1385). 47) CAGAYAN ELECTRIC POWER & LIGHT CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. L-60126 September 25, 1985 FACTS: The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is "in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted" (Sec. 3). On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for income tax all corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the "provisions of existing special or general laws to the contrary". Thus, franchise companies were subjected to income tax in addition to franchise tax. However, in petitioner's case, its franchise was amended by Republic Act No. 6020, effective August 4, 1969, by authorizing the petitioner to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the tax exemption in its original charter or neutralized the modification made by Republic Act No. 5431 more than a year before. By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue in a demand letter dated February 15, 1973 required the petitioner to pay deficiency income taxes for 1968-to 1971. The petitioner contested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but insisted on those for 1968 and 1969. ISSUE:

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Whether petitioner Cagayan Electric Power & Light Co., Inc. is liable for income tax amounting to P75,149.73 for the more than seven-month period of the year 1969 in addition to franchise tax and delinquency penalties.

HELD: NO. Petitioner is liable only for the tax proper and that it should not pay the delinquency penalties. The Tax Court acted correctly in holding that the exemption was restored by the subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted the said tax exemption. Hence, the petitioner is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by Republic Act No. 5431. It is relevant to note that franchise companies, like the Philippine Long Distance Telephone Company, have been paying income tax in addition to the franchise tax. However, it cannot be denied that the said 1969 assessment appears to be highly controversial. The Commissioner at the outset was not certain as to petitioner's income tax liability. It had reason not to pay income tax because of the tax exemption in its franchise. For this reason, it should be liable only for tax proper and should not be held liable for the surcharge and interest. 48) LEALDA ELECTRIC CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE & COURT OF TAX APPEALS G.R. No. L-16428 April 30, 1963 FACTS: In the year 1915, Julian M. Locsin Anson was granted a franchise to operate an electric light and power plant to supply electric current to the residents of the municipalities of Legaspi (now city) and Daraga, both in Albay province(Act No. 2475, as amended by Act No. 2620). Subsequently, he sold his franchise, certificate of public convenience and the electric plant operated thereunder, 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 petitioner on February 8, 1951, the franchise, certificate of public convenience and the electric plant operated thereunder, were transferred to it by said partnership. All these transactions were approved by the Public Service Commission. Since the year 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, because that was the same franchise tax paid by "lasdemasfranquicias y privilegios hoy existentes" (Art. 8, Act No. 2475), until October 1, 1946 when Section 259 of the National Internal Revenue Code was amended by Republic Act No. 39 which increased the franchise tax to 5%. Upon the approval of this amendatory act, petitioner 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. On a date not disclosed by the record, petitioner 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. From the tenor of a letter addressed to petitioner on January 8, 1954 by the Deputy Collector of Internal Revenue, we may infer that on October 27, 1953, the former had filed another 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 June 22, 1958, petitioner 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 January 20, 1947 to April 15, 1958. As no

definite action thereon was taken by respondent commission, 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 latter rendered the appealed decision holding petitioner "subject to pay the 5% franchise tax as prescribed in Section 259 of the National Internal Revenue Code, as amended by Republic Act No. 39" and, as a consequence, dismissing the petition for refund for lack of merit. In support of its contention that it is liable only for 2%, petitioner argues that Act No. 2475, as amended by Act No. 2620, granting the franchise to the original grantee, constitutes a private contract between the latter, on one hand and the

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Government, on the other, and as such, can not be amended, altered or repealed by Section 259 of the Tax Code, as amended by Republic Act No. 39. ISSUE: Whether petitioner should pay as franchise tax a sum equivalent to 2% only of its gross earnings or receipts. HELD: No. Petitioner is liable to pay the 5% franchise tax as prescribed in Section 259 of the National Internal Revenue Code, as amended by Republic Act No. 39 Firstly, petitioner's charter (Art. 11, Act No. 2475) contains an express provision to the effect that the same may be altered or repealed by the Congress of the United States - now of the Philippines. And, as already stated heretofore, the rate of the franchise tax petitioner had been paying under the provisions of Section 10 of Act 3686 was expressly amended by Act No. 39. Secondly, the franchises involved in the cases relied upon by petitioner differ substantially from petitioner's franchise in that those of the Visayan Electric Company and of the ManiIa Railroad Company specifically provided that the franchise tax which the grantees were required to pay was to be "in lieu of all taxes of any kind levied, established or collected by any authority whatsoever, now or in the future (Charter of the Visayan Electric, Art. 8, Act 3499), and, in the case of the charter of the Manila Railroad Company, Section 1, Subsection 12 of Act 1510, "in lieu of all taxes of every name and nature — municipal, provincial or central ..." Petitioner's charter, contains no such provision.. Petitioner's contention would, in effect, establish an exception in its favor from the provisions of Act No. 39. That would be improper, as tax exemptions are not to be presumed. The rate imposed by section 259 of the National Internal Revenue Code, as amended, being higher than that imposed in petitioner's charter, Act No. 1256, the petitioner has to pay the rate imposed by section 259 of the National Revenue Code. The rule in Manila Railroad Company vs. Rafferty, 40 Phil. 224; Philippine Railway Company vs. Collector of Internal Revenue, G.R. No. L-3859,25 March 1952; Visayan Electric Company vs. David, 49 Off. Gaz. 1385; and Carcar Electric & lce Plant vs. Collector of Internal Revenue, 53 Off. Gaz. 1068 cannot be invoked by the petitioner, because in the grantees' respective franchises there is a provision that 'such annual payments, when promptly and fully made by the grantee, shall be in lieu of all taxes of every name and nature — municipal, provincial or central — upon its capital stock, franchises, right of way, earnings, and all other property owned or operated by the grantee under this concession or franchise'. The petitioner's franchise, Act No. 1256, does not embody such exemption. 49) J. CASANOVAS vs. JNO S. HORD G.R. No. 3473 March 22, 1907 FACTS: The plaintiff brought this action against the defendant, the Collector of Internal Revenue, to recover the sum of P9,600, paid by him under protest as taxes on certain mining claims owned by him in the Province of Ambos Camarines. In January, 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of May, 1867, granted to the plaintiff certain mines in the said Province of Ambos Camarines, of which mines the plaintiff is now the owner. That there were valid perfected mining concessions granted prior to the 11th of April, 1899, is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section is as follows:

SEC. 134.On all valid perfected mining concessions granted prior to April eleventh, eighteen hundred and ninety-nine, there shall be levied and collected on the after January first, nineteen hundred and five, the following taxes:

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2. (a) On each claim containing an area of sixty thousand square meters, an annual tax of one hundred pesos; (b) and at the same rate proportionately on each claim containing an area in excess of, or less than, sixty thousand square meters.

3. On the gross output of each an ad valorem tax equal to three per centum of the actual market value of such output.

The defendant accordingly imposed upon these properties the tax mentioned in section 134, which tax, as has before been stated, plaintiff paid under protest. ISSUE: Whether this section 134 of Act 1189is valid. HELD: NO. The fact that this concession was made by the Government of Spain,and not by the Government of the United States, is not important. Ourconclusion is that the concessions granted by the Government of Spain to theplaintiff, constitute contracts between the parties; that section 134 of theInternal Revenue Law impairs the obligation of these contracts, and istherefore void as to them.We think that this section is also void because in conflict with section 60 of theact of Congress of July 1, 1902. This section is as follows:

That nothing in this Act shall be construed to effect the rights of anyperson, partnership, or corporation, having a valid, perfected miningconcession granted prior to April eleventh, eighteen hundred and ninety-nine, but all such concessions shall be conducted under the provisions of the law in force at the time they were granted, subject at all times tocancellation by reason of illegality in the procedure by which they wereobtained, or for failure to comply with the conditions prescribed asrequisite to their retention in the laws under which they were granted: Provided, That the owner or owners of every such concession shall causethe corners made by its boundaries to be distinctly marked withpermanent monuments within six months after this act has beenpromulgated in the Philippine Islands, and that any concessions, theboundaries of which are not so marked within this period shall be freeand open to explorations and purchase under the provisions of this act.

This section seems to indicate that concessions, like those in question, can becancelled onlyby reason of illegality in the procedure by which they wereobtained, or for failure to comply with the conditions prescribed as requisitefor their retention in the laws under which they were granted. There is nothingin the section which indicates that they can be cancelled for failure to complywith the conditions prescribed by subsequent legislation. In fact, the realintention of the act seems to be that such concession should be subject to theformer legislation and not to any subsequent legislation. There is no claim inthis case that there was any illegality in the procedure by which theseconcessions were obtained, nor is there any claim that the plaintiff has notcomplied with the conditions prescribed in the said royal decree of 1867. The judgment of the court below is reversed, and judgment is ordered in favorof the plaintiff and against the defendant for P9,600, with interest thereon, at6 per cent, from the 21st day of February, 1906, and the costs of the Court of First Instance. No costs will be allowed to either party in this court. 50) AMERICAN BIBLE SOCIETY vs. CITY OF MANILA G.R. No. L-9637 April 30, 1957 FACTS: Petitioner American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Philippine agency established in Manila in November, 1898. Respondent City of Manila, on the other hand, is a municipal corporation with powers that are to be exercised in conformity with the provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila. American Bible Society has been distributing and selling bibles and/or gospel portions throughout the Philippines and translating the same into several Philippine dialect. The City Treasurer of Manila informed American Bible Society that it was violating several Ordinances for operating without the necessary permit and license, thereby requiring the corporation to secure the permit and license fees covering the period from the fourth quarter of 1945 to second quarter of 1953. To avoid closing of its business, American Bible Society paid the City of Manila its permit and license fees under protest. American Bible filed a complaint, questioning the constitutionality and legality of the Ordinances 2529 and 3000, and prayed

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for a refund of the payment made to the City of Manila. They contended that they had been in the Philippines since 1899 and were not required to pay any license fee or sales tax and it never made any profit from the sale of its bibles. ISSUE: Whether American Bible Society is liable to pay sales tax for the distribution and sale of bibles RULING: NO. Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or entity engaged in any of the business, trades or occupation enumerated under Sec. 3 must obtain a Mayor’s permit and license from the City Treasurer, American Bible Society’s business is not among those enumerated. It seems clear, therefore, that because Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee, it is powerless to license or tax the business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff. The defendant is ordered to return to plaintiff the sum of P5,891.45 unduly collected from it.

51) ABRA VALLEY COLLEGE, INC vs. AQUINO G.R. No. L-39086 June 15, 1988 ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,respondents.

FACTS: Petitioner College was the duly registered owner of the parcel of land, upon which the school premises were erected. Due to non-payment of real estate taxes, Notice of Seizure and Notice of Sale were issued by Respondents Municipal and Provincial Treasurers in satisfaction of the debts. Petitioner College then filed a complaint for the annulment and declaration of nullity of the orders. Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Private Respondents, on the other hand, contend that the subject property lots its protection from liability as the second level was used as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and it was also for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation

ISSUE: Whether or not the subject properties are exclusively used for educational purposes and, in the affirmative, are absolutely exempted from payment of real estate taxes.

HELD: NO. CFI correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.

The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus —

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).

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The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose—educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

52) COMMISSIONER OF INTERNAL REVENUE vs. BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS OF THE PROTESTANT EPISCOPAL CHURCH IN THE U.S.A. and THE COURT OF TAX APPEALS G.R. No. L-19445 August 31, 1965

FACTS: The Missionary District received from the Missionary Society in the United States various shipments of materials, supplies, equipment and other articles intended for use in the construction and operation of St. Luke’s Hospital, among others. On these shipments, the Commissioner of Internal Revenue levied and collected the total amount of P118,847 as compensating tax. Respondent Bishop filed claims for refund of the amount he had paid on the ground that under Republic Act No. 1916, the materials and articles received by him were exempt from the payment of compensating tax.

The CIR denied respondent's claim for refund on the ground that St. Luke's Hospital was not a charitable institution, as it is a hospital that admits patients, which pursuant to D.O. No. 18 issued by the Sec. of Finance is not a charitable institution. Therefore, was not exempt under the law. After trial, the Tax Court rendered a decision holding the shipments exempt from taxation.

ISSUE: Whether or not St. Luke's Hospital is a charitable institution and, therefore, exempt from taxation.

HELD: YES. This Court has already held that 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 donee must be a 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. (Commissioner v. Church of Jesus Christ "New Jerusalem," G.R. No. L-15772, Oct. 31, 1961)

The elements are clearly established: (1) The materials and supplies were purchased by the Missionary Society with money obtained from contributions from other people who should be considered the real donors; (2) Respondent Bishop is admitted to be a corporation sole duly registered with the Securities and Exchange Commission and that the Missionary District is a "duly incorporated and established religious society." They are, therefore, entities separate and distinct from the Missionary Society and (3) The various deeds of donation state in paragraph 3 that the "Missionary Society is a non-profit organization and derives its support from voluntary contributions."

Again, it should be enough to point out that the admission of pay patients does not detract from the charitable character of a hospital, if, as in the case of St. Luke's Hospital, its funds are devoted exclusively to the Maintenance of the institution (Cf., e.g., Herrera v. Quezon City Board of Assessment Appeals, G.R. No. 15270, September 30, 1961). The Secretary of Finance cannot limit or otherwise qualify the enjoyment of this exemption granted under Republic Act No. 1916 in implementing the law

53) LLADOC vs. COMMISSIONER OF INTERNAL REVEFNUE G.R. No. L-19201 June 16, 1965

FACTS: The M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose intended.Donor M.B. Estate, Inc., filed the donor's gift tax

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return. The respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals.

Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions of the Constitution.

CTA affirmed the decision of the CIR.

ISSUE: Whether or not payment of donee’s tax exempted

HELD: NO.

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 (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of which on property used exclusively for religious purposes, 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 (supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied.

54) HERRERA vs. QUEZON CITY BOARD OF ASSESSMENT APPEALS G.R. No. L-15270 September 30, 1961

FACTS: Petitioners were authorized to establish and operate the "St. Catherine's Hospital",Petitioners requested 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. After an inspection of the premises in question and after a careful study of the case, the exemption from real property taxes was granted effective the years 1953, 1954 and 1955. Subsequently, however, the City Assessor notified petitioners that the aforesaid properties were re-classified from exempt to "taxable" and thus assessed for real property taxes effective 1956. This was by reason that Petitioners also operate within the hospital’s premises a school, i.e. “St. Catherine’s School of Midwifery”

ISSUE: Whether or not the lot, building and other improvements occupied by the St. Catherine Hospital are exempt from the real property tax.

HELD: YES. The exemption in favor of property used exclusively for charitable or educational purposes is "not limited to property actually indispensable" therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are "incidental to and reasonably necessary for" the accomplishment of said purposes, such as, in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns and residents" (84 C.J.S., 621), such as "athletic fields," including "a farm used for the inmates of the institution" (Cooley on Taxation, Vol. 2, p. 1430). "In other words, where rendering charity is its primary object, and the funds derived from payments made by patients able to

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pay are devoted to the benevolent purposes of the institution, the mere fact that a profit has been made will not deprive the hospital of its benevolent character" (Prairie Du Chien Sanitarium Co. vs. City of Prairie Du Chien, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480).

Within the purview of the Constitutional exemption from taxation, the St. Catherine's Hospital is, therefore, a charitable institution, and the fact that it admits pay-patients does not bar it from claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income derived from pay-patients is devoted to the improvement of the charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from "out-charity patients" who come only for consultation.The existence of "St. Catherine's School of Midwifery", with an enrollment of about 200 students, who practice partly in St. Catherine's Hospital and partly in St. Mary's Hospital, which, likewise, belongs to petitioners herein, does not, and cannot, affect the exemption to which St. Catherine's Hospital is entitled under our fundamental law. On the contrary, it furnishes another ground for exemption. Seemingly, the Court of Tax Appeals was impressed by the fact that the size of said enrollment and the matriculation fee charged from the students of midwifery, aside from the amount they paid for board and lodging, including transportation to St. Mary's Hospital, warrants the belief that petitioners derive a substantial profit from the operation of the school aforementioned. Such factor is, however, immaterial to the issue in the case at bar, for "all lands, building and improvements used exclusively for religious, charitable or educational purposes shall be exempt from taxation," pursuant to the Constitution, regardless of whether or not material profits are derived from the operation of the institutions in question. In other words, Congress may, if it deems fit to do so, impose taxes upon such "profits", but said "lands, buildings and improvements" are beyond its taxing power.

55) BISHOP OF NUEVA SEGOVIA vs. QUEZON CITY BOARD OF ASSESSMENT APPEALS G.R. No. L-27588 December 31, 1927

FACTS: The plaintiff, the Roman Catholic Apostolic Church, possesses and owns a parcel of land in the municipality of San Nicolas, Ilocos Norte. On the south side is a part of the churchyard, the convent and an adjacent lot 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 churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a portion where formerly stood a tower, the base of which still be seen. As required by the defendants, the plaintiff paid, under protest, the land tax on the lot adjoining the convent and the lot which formerly was the cemetery with the portion where the tower stood.

The plaintiff filed this action for the recovery of the sum paid by way of real estate tax, alleging exemption in their favor.

ISSUE: Whether or not Petitioner is exempted from payment of real estate taxes on the adjacent lots to the church

HELD: YES.

The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home of the parties who presides over the church and who has to take care of himself in order to discharge his duties. In therefore must, in the sense, include not only the land actually occupied by the church, but also the adjacent ground destined to the ordinary incidental uses of man. Except in large cities where the density of the population and the development of commerce require the use of larger tracts of land for buildings, a vegetable garden belongs to a house and, in the case of a convent, it use is limited to the necessities of the priest, which comes under the exemption.lawphi1.net

In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it used for commercial purposes and, according to the evidence, is now being used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, which also comes within the exemption.

56) COMMISSIONER OF INTERNAL REVENUE VS. COURT OF TAX APPEALS AND YMCA GR No. 124043 October 14, 1998 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.

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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 derives 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 Tax 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 bases. 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 Tax Appeals, GR No. 117359 p. 15 July, 23, 1998). Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the YMCA "is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income." 37 We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. 57) LUNG CENTER OF THE PHILIPPINES V. QUEZON CITY GR No. 144104 June 29, 2004 Facts: Lung Center of the Philippines is a non-stock and non-profit entity established by virtue of PD No. 1823. It is the registered owner of the land on which the Lung Center of the Philippines Hospital is erected. A big space in the ground floor of the hospital 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. Also, a big portion on the right side of the hospital is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. When the City Assessor of Quezon City assessed both its land and hospital building for real property taxes, the Lung Center of the Philippines filed a claim for exemption on its averment that it is a charitable institution with a minimum of 60% of its hospital beds exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The claim forexemption was denied, prompting a petition for the reversal of the resolution of the City Assessor with the Local Board of Assessment Appeals of Quezon City, which denied the same. On appeal, the Central Board of Assessment Appeals of Quezon City affirmed the local board’s decision, finding that Lung Center of the Philippines is not a charitable institution and that its properties were not actually, directly and exclusively used for charitable purposes. Hence, the present petition for review with averments that the Lung Center of the Philippines is a charitable institution under Section 28(3), Article VI of the Constitution, notwithstanding that it accepts paying patients and rents out portions of the hospital building to private individuals and enterprises. Issue: Is the Lung Center of the Philippines a charitable institution within the context of the Constitution, and therefore, exempt from real property tax?

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Held: The Lung Center of the Philippines is a charitable institution. To determine whether an enterprise is a charitable institution 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, that character of the services rendered, the indefiniteness of the beneficiaries and the use and occupation of the properties. However, under the Constitution, in order to be entitled to exemption from real property tax, there must be clear and unequivocal proof that (1) it is a charitable institution and (2)its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. While portions of the hospital are used for 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 and enterprises. Exclusive is defined as possessed and enjoyed to the exclusion of others, debarred from participation or enjoyment. If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. 58) REPUBLIC BANK V. COURT OF TAX APPEALS AND THE COMMISSIONER OF INTERNAL REVENUE GR Nos. 62554-55 September 2, 1992 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. In a letter dated 6 October 1971, petitioner requested reconsideration of the assessment which respondent Commissioner denied in a letter dated 26 February 1973. 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. In a letter dated 16 May 1973, petitioner requested reconsideration of the assessment which respondent Commissioner denied in a letter dated 6 May 1974. 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, docketed as C.T.A. Case No. 2506, contesting the assessment for the taxable year 1969. On 3 July 1974, a similar petition, docketed as C.T.A. Case No. 2618. was filed contesting the assessment for the taxable year 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. Still not satisfied, petitioner filed this petition for review. Issue: Whether or not petitioner is correct in its contention that Section 126 Act No. 1459 (The Corporation Law), as amended by Art. 3610 has been repealed by Section 90 of the General Banking Act (RA No. 337) (i.e a whole new set of riles in regard to reserve requirements and reserve deficiencies of banks clearly show that it was the legislative intent to remove the regulation of the operations of banks under the ambit of the Corporation Law and to place them under the purview of Central Bank Act and the General Banking Act). Held: After a careful consideration of the facts of the case and the pertinent laws involved, We vote to deny the petition.

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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 the Central 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. While petitioner might have a point, the wisdom of this legislation is not the province of the Court. 11 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. 12 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, 13 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. 14 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. 59) PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORP. V. MUNICIPALITY OF JAGNA GR No. L-24265 December 28, 1979 Facts:

Plaintiff-appellant is a domestic corporation with principal offices in Manila. It is engaged in the manufacture of soap, edible oil, margarine and other similar products, and for this purpose maintains a "bodega" in defendant Municipality where it stores copra purchased in the municipality and therefrom ships the same for its manufacturing and other operations.

On December 13, 1957, the Municipal Council of Jagna enacted Municipal Ordinance No. 4, Series of 1957 (An Ordinance Imposing Storage Fees of All Exportable Copra Deposited in The Bodega Within the Jurisdiction of the Municipality of Jagna Bohol).

For a period of six years, from 1958 to 1963, plaintiff paid defendant Municipality, allegedly under protest, storage fees. Issue: Whether the ordinance of the Municipality of Jagna would amount to double taxation as contended by Petitioner. Held: Plaintiff's averment that the Ordinance, even if presumed valid, is inapplicable to it because it is not engaged in the business or occupation of buying or selling of copra but is only storing copra in connection with its main business of manufacturing soap and other similar products, and that to be compelled to pay the storage fees would amount to double taxation, does not inspire assent. The question of whether appellant is engaged in that business or not is irrelevant because the storage fee, as previously mentioned, is an imposition on the privilege of storing copra in a bodega within defendant municipality by persons, firms or corporations. Section 1 of the Ordinance in question does not state that said persons, firms or corporations should be engaged in the business or occupation of buying or selling copra. Moreover, by plaintiff's own

admission that it is a consolidated corporation with its trading company, it will be hard to segregate the copra it uses for trading from that it utilizes for manufacturing. Thus, it can be said that plaintiff's payment of storage fees imposed by the Ordinance in question does not amount to double 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. 9 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.

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60) PEPSI COLA BOTTLING COMPANY V. MUNICIPALITY OF TANAUAN GR No. L-31156 February 27, 1976 Facts: Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality approved Ordinance No. 23 which 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.” In December 1962, the Municipality also approved Ordinance No. 27 which 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 of volume capacity.” Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances impose percentage or specific taxes. Issue: Whether or not there is double taxation. Held: There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Cola’s assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. 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 unlike in other jurisdictions. 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. 61) EUSEBIO VILLANUEVA, ET AL. vs. CITY OF ILOILO G.R. No. L-26521 December 28, 1968

DOCTRINE: There can be no Double Taxation between a Municipal License Tax and Real Estate Tax involving the same property. The former being taxable and within the powers conferred in a Municipality under the Local Autonomy Act and only considered as a consequence of the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege, so long as the same is not included in the exceptions as provided by the act, and the latter being imposed by the National Internal Revenue Code. FACTS: The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees on tenement houses.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. The court ruled in favor of the spouses and declared that "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." After the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, the municipality of Iloilo City enacted Ordinance 11, otherwise known as “AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES”, containing the same tax impositions. The plaintiffs-appellees challenged again the validity of the said ordinance and contending that it is "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 them under the said ordinance.

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The lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 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: Whether Ordinance 11, series of 1960, of the City of Iloilo is illegal because it imposes double taxation. HELD: NO. The Supreme Court ruled that the said ordinance is valid and does not impose double taxation. Contrary to plaintiff-appellant’s contention, that the said tax constitutes double taxation because other than the required real estate tax under the National Internal Revenue Code that they are paying, they are now required to pay for another kind tax for the same property under said ordinance, SEC. 2 of the Local Autonomy Act confer 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. The Supreme Court then distinguish the two kinds of tax that has been imposed against plaintiff-appellees. That a real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. On the other hand, the tax that has been imposed against plaintiff-appellee under the Ordinance does not fall within the definition of a Real Estate Tax. It being clear in the title and the body of the ordinance that it is a municipal license tax on persons engaged in the business of operating tenement houses. It is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege, that clearly falls under those tax that may be imposed by the Municipality. 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. On the other hand, 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 exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions 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.

62) VICTORIAS MILLING CO., INC. vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS

OCCIDENTAL

G.R. No. L-21183 September 27, 1968

DOCTRINE: 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." FACTS:

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The Municipality of Victorias in Negros Occidental enacted Ordinance 1, series of 1956, labeled as “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". Of importance are the provisions of Section 1(m) relating to sugar centrals and Section 2(m) covering sugar refineries with specific reference to the maximum annual license tax. Plaintiff-Appellant Victorias Milling Co., being both a Sugar Central and Sugar Refinery paid the aforesaid tax in protest and challenged the validity of the said Ordinance. The plaintiff-appellant assigned four points of error in the said ordinance. Among the four, the company alleges that the said ordinance that imposes tax against them are discriminatory because they are the only Sugar Central and at the same time a Sugar Refinery, and constitutes double taxation because they were taxed twice based on the same raw sugar that has been produced. ISSUE: Whether Ordinance 1, Series of 1956, is invalid for being discriminatory and it constitutes double taxation. HELD:

NO. The Supreme Court upheld the validity of the said Ordinance and reasoned out that the ordinance does not single out Victorias as the only object of the ordinance. Said ordinance is made to apply to any sugar central or sugar refinery which may happen to operate in the municipality. So it is, that the fact that plaintiff is actually the sole operator of a sugar central and a sugar refinery does not make the ordinance discriminatory. As to the second issue, the Court ruled that 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 other. Second. The disputed taxes are imposed on occupation or business. Both taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff's argument perhaps could make out a point if the object of taxation here were the sugar it produces, not the business of producing it. Thus, there is no double taxation.

63) COMPAÑIA GENERAL DE TABACOS DE FILIPINAS vs.CITY OF MANILA, ET AL.

G.R. No. L-16619 June 29, 1963

DOCTRINE:

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.

FACTS:

Compania General de Tabacos de Filipinas (Tabacalera), is a duly licensed first class wholesale and retail liquor dealer paid the City of Manila the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, a wholesale and retail dealer of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.

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 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.

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Tabacalera's action for refund is 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 — amounting to the sum of P15,208.00 — under the three ordinances mentioned heretofore is an overpayment made by mistake, and therefore refundable.

In its defense, the City of Manila raised four principal defenses, to wit: (a) The said amount was paid by the plaintiff voluntarily and without protest; (b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose from the plaintiff's neglect of duty; (c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and passed to the consumers; and (d) The said amount had been already expended by the defendant City for public improvements and essential services of the City government, the benefits of which are enjoyed, and being enjoyed by the plaintiff.

ISSUE: Whether there is an over payment made by the Tabacalera in paying both the Licensing Fees and Sales Tax in their Liquor products resulting in Double Taxation

HELD:

NO. The Supreme Court ruled that there is no over payment by Tabacalera. In resolving the primary defense made by the City, the court stated that 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.

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.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which — it is obvious — 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.

64) THE PROVINCE OF BULACAN, ET. AL. vs. THE HONORABLE COURT OF APPEALS, ET. AL.

G.R. No. 126232 November 27, 1998

DOCTRINE:

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.

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FACTS:

The SangguniangPanlalawigan of Bulacan passed Provincial Ordinance No. 3, known as "An Ordinance Enacting the Revenue Code of the Bulacan Province”. Section 21 of the said Ordinance provides that:

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.

Republic Cement paid 50% of the Tax Due under protest and challenge the authority of the Province to impose said tax on private lands.

In the Court of Appeals, Republic Cement and petitioners agreed to limit the issue for resolution to the question as to 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.

The Court of Appeals decided in favor of Republic Cement Corporation.

ISSUE:

Whether the Province has an authority to impose tax on quarry resources extracted by Republic Cement from private lands.

HELD:

NO. The Supreme Court ruled that the province has been given no such authority by the Local Government Code. It is clearly apparent from the law that 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.

Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived them of the power to create their sources of revenue, their assessment of taxes against Republic Cement being ultra vires, traversing as it does the limitations set by the Local Government Code.

Furthermore, Section 21 of Provincial Ordinance No. 3 is practically only a reproduction of Section 138 of the Local Government Code. A cursory reading of both would show that both refer to ordinary sand, stone, gravel, earth and other quarry resources extracted from public lands and does not include private lands.

65) DELPHER TRADES CORPORATION vs. INTERMEDIATE APPELLATE COURT

G.R. No. L-69259 January 26, 1988

DOCTRINE:

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 interests by the Pachecos to a third party. The Pacheco family

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merely changed their ownership from one form to another. The ownership remained in the same hands. It is considered as“Estate Planning” and the same is not prohibited. The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.

FACTS:

Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila). 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 and the letter has the priority to buy under similar conditions. Construction Components International Inc. then assigned all its rights to Hydro Pipes Philippines, Inc.

On January 3, 1976, a 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 located in Malinta Estate, Valenzuela, Metro Manila for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00

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.

The CFI of Bulacan ruled in favor of Hydro Pipes Philippines, Inc. and ordered to convey the property to Hydro Pipes who may offer to acquire the same.

ISSUE:

Whether the deed of exchange by the Pachecos with Delpher Trades Corporation constitutes a contract of sale that violates the right to first refusal of Hydro Pipes.

HELD:

NO. The Supreme Court ruled that 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 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 under the lease contract.

What the Pachecos did was mere “estate planning”. For the purposes of succession and to minimize the tax that may be imposed during succession proceedings. The said properties were transferred to the Corporation, which may be in existence for at least 50 years.

The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."

66) HENG TONG TEXTILE CO. VS. COMMISSIONER OF INTERNAL REVENUE

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 assessment was appealed to the Board of Tax Appeals, whence the case was transferred to the Court of Tax Appeals upon its organization in 1954, and there was affirmed in its decision dated February 28, 1952. The matter was thereafter elevated to this Court for review.

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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 under section 183(b) of the Internal Revenue Code. 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 or not it was guilty of fraud so as to warrant the imposition of a penalty of 50% on the deficiency.

RULING: Yes. Petitioner excepts to the conclusion of the Court of Tax Appeals and avers that the importation papers were

placed in the name of the petitioner only for purposes of accommodation, that is, to introduce the petitioner to textile

suppliers abroad; and that the petitioner was not in a financial position to make the importations in question. These

circumstances show nothing but a private arrangement between the petitioner and Pan-Asiatic Commercial, which in no way

affected the role of the petitioner as the importer. 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 wilful 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

67) COMMISSIONER OF INTERNAL REVENUE VS. TODA

G.R. NO. 147188 SEPTEMBER 14, 2004

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 15February 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 pre-conceived 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 to the SC

ISSUE: Whether or not this is a case of tax evasion or tax avoidance

RULING: 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.

Fraud in its general sense, “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another.”It is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonaga’s sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax

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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.

In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion.

Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. To permit the true nature of the transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress. To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC to RMI

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Exemption from Taxation

68) DAVAO GULF LUMBER CORP. VS COMMISSIONER OF INTERNAL REVENUE G.R. NO. 117359. JULY 23, 1998 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. Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153 and 156of the NIRC, petitioner elevated the matter to the Court of Appeals. The Court of Appeals affirmed the CTA Decision. Hence, this petition for review.

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. RULING: 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.

69) PHILIPPINE ACETYLENE CO., INC. VS. COMMISSIONER OF INTERNAL REVENUE G.R. No. L-19707 August 17, 1967 FACTS: The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. It made various sales of its products to the National Power Corporation and to the Voice of America an agency of the United States Government. 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 Sec.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. NPC enjoys a tax exemption by virtue of an act of Congress and the immunity would be impaired by the imposition of a tax on sales made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former. It invokes in support of its position a 1954 opinion of the Sec of Justice which ruled that NPC is exempt from payment of all taxes "whether direct or indirect."

ISSUE: Is the petitioner exempt from paying tax on sales it made to the 1) NPC and the 2) VOA because both entities are exempt from taxation? RULING: 1) No. SC hold that 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. Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible. 2) No. Only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under Article V from taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are not free from the payment of the tax

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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 ispaid to get the goods and for nothing else. (Philippine Acetylene Co. vs.Blaquera, GR L-13728, 1962). But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser. 70) COMMISSIONER OF INTERNAL REVENUE VS. COURT OF APPEALS AND ATENEO DE MANILA UNIVERSITY G.R. No. 115349. April 18, 1997 FACTS: Ateneo de Manila is an educational institution with auxiliary units and branches all over the Philippines. One such auxiliary unit 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 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor's tax the value of which was later on, upon private respondent’s request for reinvestigation, reduced to P46,516.41,Unsatisfied, Private respondent filed in the Court of Tax Appeals a petition for review of the said letter-decision of the petitioner which rendered a decision in its favor and ordered the tax assessment cancelled.

ISSUE:Is 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 Section 205 of the National Internal Revenue Code? RULING: No, The Supreme Court held that Ateneo de Manila University is not subject to the contractor’s tax. It explained that 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. The Court, however, found 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. Moreover, the Court of Tax Appeals accurately and correctly declared that the “funds received by the Ateneo deManila University are technically not a fee. They may however fall as gifts or donations which are tax-exempt" as shown by private respondent's compliance with the requirement of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational institution

71) CALTEX PHILIPPINES VS. COMMISSION ON AUDIT [GR 92585. 8 MAY 08, 1992]

Facts: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax on petroleum products authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offseting remittances and reimbursements for the current and ensuing years. Caltex moved for reconsideration.

Issue: Whether or not the amounts due from Caltex to the OPSF may be offsetted against Caltex’ outstanding claims from said funds.

Held: The court held no. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence o fgovernment; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A tax payer may not offset taxes due from the claims that he may have against the government. Taxes cannot be thes ubject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

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Thus, the amounts due to OPSF by petitioner Caltex cannot be offsetted against the latter’s outstanding claims from OPSF.

72) LUZON STEVEDORING VS. CTA [G.R. NO. L-30232. JULY 29, 1988.]

Facts: Luzon Stevedoring Corp., in 1961 and 1962, imported various engine parts and other equipment for the repair and maintenance of its tugboats for which it paid the assessed compensating tax under protest. Unable to secure a tax refund from the Commissioner of Internal Revenue, it filed a Petition for Review with the Court of Tax Appeals , praying among others, that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals, however, denied the various claims for tax refund. Petitioner then filed in the Supreme Court and contends that tugboats are embraced and included in the term cargo vessel under the tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax.

Issue: Whether or not tugboats are included in term cargo vessels which would in effect entitle petitioner exemption from compensating tax.

Held: The court held no. The corporation’s tugboats do not fall under the categories of passenger or cargo vessels to avail of the exemption from compensation tax in Section 190 of the Tax Code. It is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms. It may be further noted that the amendment of Section 190 of Republic Act 3176 was intended to provide incentives and inducements to bolster the shipping industry and not the business of stevedoring, in which the corporation is engaged in.

As the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or diminution 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. More specifically stated, any claim for exemption from the tax statute should be strictly construed against the taxpayer.

Thus, Luzon Stevedoring Corp. is not exempt from compensating tax under Section 190, and is therefore not entitled to refund.

73) NATIONAL DEVELOPMENT CO. VS. CIR [G.R. NO. L-53961. JUNE 30, 1987.]

Facts: The National Development Company entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. The purchase price was to come from the proceeds of bonds issued by the Central Bank. Initial payments were made in cash and through irrevocable letters of credit. 14 promissory notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines. The vessels were eventually completed and delivered to the NDC in Tokyo. The NDC remitted to the shipbuilders in Tokyo the total amount ofUS$4,066,580.70 as interest on the balance of the purchase price. No tax was withheld by petitioners. The Commissioner then held the NDC liable on such tax in the total sum of P5,115,234.74. After negotiations failed, the BIR served on the NDC a warrant of distraint and levy to enforce collection of the claimed amount. The NDC went to the Court

of Tax Appeals. The BIR was sustained by the CTA thus their appeal in the SC. The petitioner argues that the Japanese shipbuilders were not subject to tax under Section 37 of the Tax Code making Japanese shipbuilders liable to tax on the interest remitted to them by petitioners because all the related activities — the signing of the contract, the construction of the vessels, the payment of the stipulated price, and their delivery to the NDC — were done in Tokyo. Additionally, in the said promissory notes issued by the government, an undertaking was made to the effect that the due an punctual payment of the principal and interest is guaranteed. Thus the Philippines could not collect taxes on the interest remitted.

Issue: Whether or not the interest paid by petitioners to Japanese shipbuilders is subject to tax under Section 37 of the Tax Code despite the fact that the transaction was made outside the Philippines.

Held: The Court held yes. The Japanese shipbuilders were liable to tax on the interest remitted to them under Section 37 of the Tax Code (Income from sources within the Philippines). The interest paid by NDC, which is admittedly a resident of the Philippines, is on the promissory notes issued by it. The interest remitted to the Japanese shipbuilders in Japan in 1960,

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1961 and 1962 on the unpaid balance of the purchase price of the vessels acquired by NDC is interest derived from sources within the Philippines subject to income tax under the then Section 24(b)(1) of the National Internal Revenue Code. The law, however, does not speak of activity (i.e. the signing of the contract, the construction of the vessels, the payment of the stipulated price, and their delivery to the NDC, which were done in Tokyo) but of “source” (which is the NDC). NDC is a domestic and resident corporation with principal offices in Manila.

Anent the issue concerning the undertaking, the court held that there is nothing in the undertaking exempting the interests from taxes. Petitioner has not established a clear waiver 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.

Additionally the court held NDC liable for failing to withhold the tax on the interest due to its creditor. The NDC is not the one being taxed. The tax was due on the interests earned by the Japanese shipbuilders. It was the income of these companies 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. Such liability is imposed by Section 53(c) of the Tax Code. In the present case, NDC was remiss in the discharge of its obligation as the withholding agent of the government and so should be held liable for its omission.

Thus the interest paid to Japanese shipbuilder is subject to income tax, despite the fact that the transaction(contract signing, etc.) was made outside the Philippines, which, as a consequence, makes NDC liable for being remiss in its duty in failing to withhold the levy on the said interest.

74) MERALCO VS. VERA [GR L-29987. OCTOBER 22, 1975]

Facts: Meralco is the holder of a franchise to construct, maintain, and operate an electric light, heat , and power system in the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received from abroad copper wires, transformers, and insulators for use in the operation of its business. The Collector of Customs, as deputy of the Commissioner of Internal Revenue, levied and collected a compensating tax. Meralco claimed for refund for the said years, but such claims were either not acted upon or denied by the Commissioner which prompted them to file in the Court of Tax Appeals. Petitioner bases its claim for exemption from the compensating tax on poles, wires, transformers and insulators

purchased by it from abroad on paragraph 9 of its franchise which states in its opening sentence that "the grantee shall be liable to pay the said taxes upon its real estate buildings, plant (not including poles, wires, transformers and insulators), machinery and personal property as other persons are or may be hereinafter required by law to pay.” The Court of Tax Appeals, however, denied petitioner’s claim ruling that MERALCO's claim for exemption from the payment of the compensating tax is not clear or expressed. Issue: Whether Meralco is exempt from payment of a compensating tax on poles, wires, transformers and insulators imported by it for use in the operation of its electric light, heat, and power system. Held: The court held no. Meralco is not exempt from paying the compensation tax provided for in Section 190 of the Tax Code, the purpose of which is to “place casual importers, who are not merchants on equal for ring with established merchants who pay sales tax on articles imported by them.” Meralco’s claim for exemption from payment of the compensating tax is not clear or expressed, contrary to the rule that “exemptions from taxation are highly disfavored in law, and he who claims exemption must be able to justify his claim by the clearest grant of organic or statute law.” Tax exemption are strictly construed against the taxpayer, they being highly disfavored and may almost be said to be “odious to

the law.” When exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. Thus petitioner Meralco is not exempted from payment of compensating tax. 75) MACEDA VS. MACARAIG, JR. [GR NO. 88291 MAY 31, 1991] Facts: Senator Maceda sought to nullify certain actions of respondents including in particular the Fiscal Incentives Review Board (FIRB) for exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358, RA 6395 and PD 380 expressly granted NPC exemptions from all taxes whether direct or indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs including the NPC but granted the President and/or the Secretary of Finance by recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the latter law granting

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authority to restore certain tax exemptions, FIRB issued a resolution restoring the tax and duty exemption privileges of the NPC. The actions of the respondents were thus questioned by the petitioner particularly on the issue concerning exemption from indirect tax. Petitioner contends, thatthe latest amendment to the NPC charter by PD 938, revoked and repealed the exemption of NPC from indirect taxation was. Petitioner points out thatthe deletion of the phrases "directly or indirectly" and "on all petroleum products used by the Corporation …" meant that the exemption from indirect taxes was withdrawn by P.D. No. 938.Petitioner further states that the exemption of NPC provided PD 938 Sec. 13 regarding the payments of "all forms of taxes, etc." cannot be interpreted to include indirect tax exemption. Petitioner emphasizes the principle in taxation that the exception contained in the tax statutes must be strictly construed against the one claiming the exemption, and that the rule that a tax statute granting exemption must be strictly construed against the one claiming the exemption is similar to the rule that a statute granting taxing power is to be construed strictly, with doubts resolved against its existence. Issue: Whether or not the restoration of NPC’s tax exemption privilege was valid and legal particularly the tax exemption on indirect taxes. Held: The court held yes. In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property "exemption is the rule and taxation the exception."The court held that it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision or instrumentality. The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax liability of such agencies. Anent petitioner’s contention concerning the exemption of NPC from indirect taxes under Section 13 of R.A. No. 6395 and P.D. No. 380, is deemed repealed by P.D. No. 938 when the reference to it was deleted, the court found no merit, ruling that repeal by implication is not favored unless it is manifest that the legislature so intended and legislative intent must be ascertained. NPC is a non-profit public corporation created for the general good and welfareto improve the quality of life of the people pursuant to the State policy embodied in Section E, Article II of the 1987 Constitution.From the very beginning of its corporate existence, NPC enjoyed preferential tax treatment to enable it to pay its debts and obligations. It is evident from the provision of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect taxes as provided for under R.A. No. 6895 and P.D. No. 380 if it is to attain its goals.The tax exemption is intended not only to insure that the NPC shall continue to generate electricity for the country but more importantly, to assure cheaper rates to be paid by consumers. Thus the resolution restoring NPC’s tax exemption privileges including exemption from payment of indirect taxes is valid and legal.

76) CIR VS. JOHN GOTAMCO AND SONS, ET.AL.

[G.R. NO. NO. L-31092 FEBRUARY 27, 1987]

Facts: The World Health Organization (WHO for short) is an international organization which 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

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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 not 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.

77) COMMISSIONER OF INTERNAL REVENUE V. COURT OF APPEALS AND YMCA

G.R.NO.L-124043 OCTOBER 14, 1998

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.

In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in

the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA.

Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:

ISSUE:

Whether or not the YMCA is exempted from rental income derived from the lease of its properties

RULING

Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the

exemption does not apply to income derived "xxx 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 xxx" We agree with the commissioner.

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code.

78) NITAFAN VS. CIR [GR L-78780, 23 JULY 1987] Facts: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to continue the deduction ofwithholding taxes from salaries of the Justices of the Supreme Courtand other members of the

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judiciary. This was affirmed by theSupreme Court en banc on 4 December 1987. Petitioners are the duly appointed and qualified Judges presiding over Branches 52, 19 and 53, respectively, of the RTC, National Capital Judicial Region, all with stations in Manila. They 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. With the filing of the petition, the Court deemed it best to settle the issue through judicial pronouncement, even if it had dealt with the matter administratively. Issue: Whether or not members of the Judiciary are exempt fromincome taxes. Held: NO. Intent to delete express grant of exemption of income taxes to members of Judiciary The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers. This intent was somehow and inadvertently not clearly set forth in the final text of the Constitution as approved and ratified in February, 1987 (infra, pp. 7-8). Although the intent may have been obscured by the failure to include in the General Provisions a proscription against exemption of any public officer or employee, including constitutional officers, from payment of income tax, the Court since then has authorized the continuation of the deduction of the withholding tax from the salaries of the members of the Supreme Court, as well as from the salaries of all other members of the Judiciary. The Court hereby makes of record that it had then discarded the ruling in Perfecto vs. Meer and Endencia vs. David. The 1973 Constitution has provided that “no salary or any form of emolument of any public officer or employee, including constitutional officers, shall be exempt from payment of income tax (Section 6, Article XV)” which was not present in the 1987 Constitution. The deliberations of the 1986 Constitutional Commission relevant to Section 10, Article VIII (The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of judges of lower courts shall be fixed by law. During their continuance in office, their salary shall not be decreased), negate the contention that the intent of the framers is to revert to the original concept of “non-diminution” of salaries of judicial officers. Equality of branches of government effected by modifications in provision. The term “diminished” be changed to “decreased” and that the words “nor subjected to income tax” be deleted so as to give substance to equality among the three branches in the government. A period (.) after “decreased” was made on the understanding that the salary of justices is subject to tax. With the period, the doctrine in Perfecto vs. Meer and Endencia vs. David is understood not to applyanymore. Justices and judges are not only the citizens whose income have been reduced in accepting service in government and yet subjected to income tax. Such is true also of Cabinet members and all other employees. Constitutional construction adopts the intent of the framers and people adopting the law. The ascertainment of the intent is but in keeping with the fundamental principle of constitutional construction that the intent of the framers of the organic law and of the people adopting it should be given effect. The primary task in constitutional construction is to ascertain and thereafter assure the realization of the purpose of the framers and of the people in the adoption of the Constitution. It may also be safely assumed that the people in ratifying the Constitution were guided mainly by the explanation offered by the framers. In the case at bar, Section 10, Article VIII is plain that the Constitution authorizes Congress to pass a law fixing another rate of compensation of Justices and Judges but such rate must be higher than that which they are receiving at the time of enactment, or if lower, it would be applicable only to those appointed after itsapproval. It would be a strained construction to read into the provision an exemption from taxation in the light of the discussion in the Constitutional Commission.

79) PROVINCE OF ABRA VS. HERNANDO

Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of Bangued. The

bishop claims tax exemption from real estate tax, through an action for declaratory relief. A summary judgment was made

granting the exemption without hearing the side of the Province of Abra.

Issue: Whether the properties of the Bishop of Bangued are tax-exempt.

Held: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as tehy

should not only be “exclusively” but also “actually” and “directly” used for religious purposes. Herein, the judge accepted at

its face the allegation of the Bishop instead of demonstrating that there is compliance with the constitutional provision that

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allows an exemption. There was an allegation of lack of jurisdiction and of lack of cause of action, which should have

compelled the judge to accord a hearing to the province rather than deciding the case immediately in favor of the Bishop.

Exemption from taxation is not favored and is never presumed, so that if granted, it must be strictly construed against the

taxpayer. There must be proof of the actual and direct use of the lands, buildings, and improvements for religious (or

charitable) purposes to be exempted from taxation.

The case was remanded to the lower court for a trial on merits.

80) CIR VS. MITSUBISHI METAL CORPORATION G.R. NO. L-54908. JANUARY 22, 1990

Facts: On April 17, 1970, Atlas Consolidated Mining and Development Corporation entered into a Loan and Sales Contract with Mitsubishi Metal Corporation, a Japanese corporation licensed to engage in business in the Philippines, for purposes of the projected expansion of the productive capacity of the former's mines in Toledo, Cebu. Under said

contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of $20,000,000.00, United States currency. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates produced for a period of fifteen (15) years. Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank) for purposes of its obligation under said contract. Its loan application was approved on May 26, 1970 in the equivalent sum of $20,000,000.00 in United States currency at the then prevailing exchange rate. The records in the Bureau of Internal Revenue show that the approval of the loan by Eximbank to Mitsubishi was 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, and that Mitsubishi had to pay back the total amount of loan by September 30, 1981. Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the latter totaling 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.

Issue: Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29 of the tax code and, therefore, exempt from withholding tax.

Held: The court ruled in the negative. Eximbank had nothing to do with the sale of the copper concentrates since all that Mitsubishi stated in its loan application with the former was that the amount being procured would be used as a loan to and in consideration for importing copper concentrates from Atlas. Such an innocuous statement of purpose could not have been intended for, nor could it legally constitute, a contract of agency. The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the sole creditor of ATLAS, the former being the owner of the $20 million upon completion of its loan contract with EXIMBANK of Japan. It is settled a rule in this jurisdiction that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which the petitioners have failed to discharge. Significantly, private respondents are not among the entities which, under Section 29 of the tax code, are entitled to exemption and which should indispensably be the party in interest in this case.

81) 31ST INFANTRY POSTAL EXCHANGE V. POSADAS [G.R. No. 33403 September 4, 1930] Facts: The plaintiff, has been constituted as a post exchange in accordance with the Army Regulations (of which the court may take judicial notice) and the laws of the United States. The said plaintiff Exchange is designed for the accommodation, convenience, and assistance of the personnel of the Army. All of the goods sold to and purchased by the said plaintiff Exchange are resoldto the officers, soldiers and the civilian employees of the Army, and their families. Such goods consist largely of sundry articles for personal use, such as soaps, shaving materials, and other toilet articles, and other goods generally found in a well-stocked general store. Such purchases and resales, though fully authorized by law and the Army Regulations, are not specifically required by statutory enactment. The net proceeds derived from all such resales do not accrue to the general funds of the United States, but are used for the betterment of the condition of the enlisted personnel of the Army, to the end that thereby the morale and efficiency of the armed forces of the United States may be improved and increased.

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The said plaintiff, through plaintiff David L. Hardee, as Exchange Officer, and his predecessors in that office, has, during the past several years, made many purchases of various and diverse commodities, goods, wares, and merchandise from various merchants in the Philippine Islands, and is continuing to do so. The defendant, Juan Posadas, Jr., Collector of Internal Revenue of the Philippine Islands, and his predecessors in that office, have collected from the merchants who made the sales of such goods to the plaintiff, taxes at the rate of one and one-half per centum on the gross value in money of the goods sold by them to the plaintiff, based on the actual prices at which the sales were made. According to the plaintiff, demand and collection of taxes by the defendant on the sales of such goodssold to and bought by the plaintiff willresult in the increase the cost thereof to the plaintiff by at least the amounts of such taxes demanded and collected if the defendant is not commanded to desist and refrain from collecting such taxes. 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: Yes. Taxes have been collected from merchants who make sales to Army Post Exchanges since 1904. Similar taxes are paid by those who sell merchandise to the Philippine Government through the Bureau of Supply. This, There has been a long acquiescence in the imposition of the sales tax on vendors of merchandise to Army Post Exchanges. Furthermore, such a cooperative store in the Army is akin to a private business enterprise and is not withdrawn from taxation, not to mention as well the lack of standing of the plaintiff. It must be understood as well that, thetax laid upon Philippine merchants who sell to Army Post Exchanges do not interfere with the supremacy of the United States Government, or with the operations of the United States Armyto such an extent or in such a manner as to render the tax illegal. The tax imposed does not deprive the Army of the power to serve the Government or hinder the efficient exercise of its power. Therefore, the Army Post Exchange, although an agency within the United States Army, cannot secure exemption from taxation for merchants who make sales to the Post Exchange. 82) PHILIPPINE LONG DISTANCE TELEPHONE CO. V. CITY OF DAVAO [G.R. No. 143867. March 25, 2003] Facts: Petitioner paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid “in lieu of all taxes on this franchise or earnings thereof” pursuant to R.A. No. 7082 amending its charter, Act. No. 3436.The exemption from “all taxes on this franchise or earnings thereof” was subsequently withdrawn by R.A. No. 7160 (Local Government Code of 1991), which also gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The City of Davao then, enacted Ordinance No. 519, Series of 1992, providing a tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City. In 1995, Congress enacted R.A. No. 7925 (Public Telecommunications Policy of the Philippines) which provided that, “Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises.”In January 1999, PLDT applied for a mayor’s permit to operate its Davao Metro Exchange, and was required to pay the local franchise tax amounting to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what it had paid as local franchise tax for the year 1997 and for the first to the third quarters of 1998. PLDT filed a petition in the RTC of Davao which dismissed its petition for exemption. Issue: Whether or not PLDT should be exempt from paying the local franchise tax? Held: No. The rule is that tax exemptions should be granted only by clear and unequivocal provision of law “expressed in a language too plain to be mistaken.”If, as PLDT contends, the word “exemption” in R.A. No. 7925 means “tax exemption” and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, “clear and unequivocal” way of communicating the legislative intent. Furthermore, the Court stresses that term “exemption” in § 23 of R.A. No. 7925 does not mean tax exemption. The term

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refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission (NTC) as provided within the same statute. As for the argument of the petitioner, that the rule of strict construction of tax exemptions does not apply to this case because the “in lieu of all taxes” provision in its franchise is more a tax exclusion than a tax exemption, the Court decides that such is contrary to the uniform course of decisions which consider “in lieu of all taxes” provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be interpreted strictly against the taxpayer and in favor of the taxing authority applies. 83) SEA-LAND SERVICE INC. V. CA [G.R. No. 122605 April 30, 2001] Facts: Sea-Land Service Incorporated (SEA-LAND), an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the U.S. Government to transport military household goods and effects of U.S. 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 such year, 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. A written claim for refund was filed by SEA-LAND with the BIR on 15 April 1987 claiming that it had paid such income tax by mistake. However, before theclaim for refund could be acted upon by the Commissioner of Internal Revenue, SEA-LAND 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. On 21 February 1995, CTA rendered its decision denying SEA-LAND’s claim for refund of the income tax it paid in 1984.On March 30, 1995, petitioner appealed from the decision of the CTA to the Court of Appeals. On October 26, 1995, the CA dismissed the petitioner's appealand affirmed the decision of the CTA in toto. 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 RP-US Military Bases Agreement? Held: No. According to the Court, laws granting exemption from tax are construed strictly against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception thus, he who seeks to be thus exempted must justify it by words too plain to be mistaken and too categorical to be misinterpreted. A reading ofArticle XII (4) of the RP-US Military Bases Agreement shows that, 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. The business of the petitioner of transporting household goods and effects of U.S. Military personnel is not included in the terms, "construction, maintenance, and operation," nor could it be considered for defense. The purpose of tax exemption "is some public benefit or interest, which the lawmaking body considers sufficient to offset the monetary loss entailed the grant of the exemption." The transport of household goods and personal effects of U. S. military personnel does not directly contribute to the defense and security of the Philippines. Thus, no such exemption exists in the present case in favor of the petitioner.

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84) MANILA ELECTRIC CO. V. PROVINCE OF LAGUNA [G.R. NO. 131359. MAY 5, 1999] Facts: On various dates, certain municipalities of the Province of Laguna issued franchises in favor of petitioner MERALCO for the supply of electric light, heat and power within their areas. On January 19, 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 September 12, 1991, Republic Act No. 7160 (Local Government Code of 1991) was enacted to take effect on January 1, 1992 allowing local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Thus, respondent province enacted Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, providing for a local franchise tax, at a rate of fifty percent (50%) of one percent (1%) of the gross annual receipts. Pursuant to this, respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment.Petitioner MERALCO paid the tax under protest which then amounted to P19,520,628.42.A formal claim for refund wassent by MERALCO to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance.MERALCO contends that the imposition of a franchise tax under the said insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which states that, “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..." Both the Governor of Laguna and the RTC denied MERALCO's petition exemption. Issue: Whether or not MERALCO is exempted from paying the local franchise tax? Held: The 1991 Code explicitly authorizes provincial governments, notwithstanding “any exemption granted by any law or other special law, to impose a tax on businesses enjoying a franchise in accordance with Section 137 thereof. At the same time section 193 thereof withdraws tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, upon the effectivity of the LGC. Furthermore, the Court has held in a previous case, that the phrase "in lieu of all taxes"has 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 LGC all exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim liability for the local tax. Furthermore, the Court states that a franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Article XII, Section 11, of the 1987 Constitutionis 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. 85) TIU V. CA [G.R. No. 127410. January 20, 1999] Facts: On March 13, 1992, Congress, with the approval of the President, passed into law RA 7227 entitled “An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes.” Section 12 thereof created the Subic Special Economic Zone (SSEZ) and granted thereto special privileges, particularly tax exemption within the secured area of the SSEZ wherein a continuing investment of 250,000 dollars was required. On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO 97), clarifying the application of the tax and duty incentives thus making the exemption 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.Nine days after, the President issuedEO 97-A specifying the area within which the tax-and-duty-free privilege was operative, limiting the exemption within the fenced-in former Subic Naval Base as the only completely tax and duty-free area in the SSEFPZ (Subic Special Economic and Free Port Zone). The petitioners challenged before the Supreme Court the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. The Supreme Court referred the matter to the Court of Appeals which dismissed the complaint. On

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February 1, 1995, Proclamation No. 532 was issued by President Ramoss delineating the exact metes and bounds of SSEFPZ. Issue: Whether or not the delineation made by EO 97-A violates the equal protection clause of the Constitution for limiting the privileges provided by RA 7227 to the Subic Naval Base? Held: No. Petitioners contend that the SSEZ encompasses (1) the City of Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly occupied by the Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within which the special privileges granted to the entire zone would apply to the present “fenced-in former Subic Naval Base” only, thereby excluding the residents of the first two components of the zone from enjoying the benefits granted by the law thus, discriminating against themwithout reasonable or valid standards, in contravention of the equal protection guarantee. The Court however holds that the purpose of RA 7227 is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives to attract and encourage local and foreign investors. Among such enticements are:(1) a separate customs territory within the zone, (2) tax-and-duty-free importations, (3) restructured income tax rates on business enterprises within the zone, (4) no foreign exchange control, (5) liberalized regulations on banking and finance, and (6) the grant of resident status to certain investors and of working visas to certain foreign executives and workers.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 and thus, national economic impact. On the other hand, definitely none of such magnitude and in only a local impact. The business activities outside the “secured area” are not likely to have any impact in achieving the purpose of the law, thus providing hardly any reasonable basis to extend to them the benefits and incentives accorded in RA 7227. The Court further states, "It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws.As long as there are actual and material differences between territories, there is no violation of the constitutional clause. And of course, anyone, including the petitioners, possessing the requisite investment capital can always avail of the same benefits by channeling his or her resources or business operations into the fenced-off free port zone." 86) MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY VS. MARCOS

G.R. No. 120082 September 11, 1996

FACTS:

Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to "principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the LahugAirport in Cebu City, . . . and such other Airports as may be established in the Province of Cebu . .. . (Sec. 3, RA 6958). 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. 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 aforecitedSection 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units. Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193and 234 of the Local Governmental Code that took effect on January 1, 1992.

ISSUE:

Whether the City of Cebu has the power to impose taxes on the petitioner?

RULING:

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Yes. Petition is denied. As a general rule, the power to tax is an incident of sovereigntyand is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy." Verily, taxation is a destructive power which interferes with the personal and property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer.A claim of exemption from tax payment must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations.

There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution.

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for theexercise by local government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation.Section 234 of LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and juridical persons, including government owned and controlled corporations, except as provided therein.Since the last paragraph of Section 234 unequivocally withdrew, upon the affectivity of the LGC, exemptions from real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has been withdrawn.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax,in light of the forgoing 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 thelast paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlieradverted to, applies to the petitioner.

87) CIR VS. ROBERTSON, ET. AL

G.R. Nos. 70116-19 August 12, 1986

FACTS:

This is a Petition for Review of the consolidated decision involving similar orIdentical fact situations on a question involving the scope of the tax exemption provision inArticle 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.

The petitioners are citizens of the United States; holders of American passports and admitted as Special Temporary Visitors under Section 9 (a) visa of the Philippine Immigration Act of 1940, as amended; civilian employees in the U.S. Military Base in the Philippines in connection with its construction, maintenance, operation, and defense; and incomes are solely derived from salaries from the U.S. government by reason of their employment in the U.S. Bases in the Philippines.

Petitioner, to support his contentions, argues that the laws granting tax exemptionsmust be construed instrictissimijuris against the taxpayer, and that the burden of proof is on private respondents, Frank Robertson, James W. Robertson, Robert J. Cathey and John L. Garrison to establish that their residence in the country is by reason only of

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their employment in connection with the construction, maintenance, operation or defense of the U.S. Bases in the Philippines as provided for under Article XII, Par. 2 of the RP-US MilitaryBases Agreement of 1947.

ISSUE:

Whether the respondents are exempted form tax in accordance with the RP-US Military Bases Agreement of 1974?

RULING:

Yes. The law and the facts of the case are clear. 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.

As ruled by the lower court: We find nothing in the said treaty provision that justified the lifting of the tax exemption privilege of the petitioners (private respondents herein). Respondent (petitioner herein) has grafted a meaning other than that conveyed by the plain and clear tenor of the Agreement. An examination of the words used and the circumstances in which they were used, shows the basic intendment "to exempt all U.S. citizens working in the Military Bases from the burden of paying Philippine Income Tax without distinction as to whether born locally or born in their country of origin." 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. The situation of the petitioners is of no different mold as of the rest of the U.S. civilian employees who continued to enjoy the benefits of tax exemption under the Agreement. It appears 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 serendipitous enjoyment of a tax relief accorded in the Agreement. Such a random quirk of pirouette in the tax treatment fags 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. This does not however foreclose the possibility of petitioners' coming to roost in the country contingent upon the termination of their tour of duty, but only then may the bridge be crossed for tax purposes.

88) BASCO VS. PAGCOR

G.R. No. 91649 May 14, 1991

FACTS:

Petitioners attorneys HumbertoBasco, EdilbertoBalce, Socrates Maranan and Lorenzo Sanchez filed the instant petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter — PD 1869, because of the following reasons:

1. It is allegedly contrary to morals, public policy and order;

2. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law because it waived the Manila City government's right to impose taxes and license fees, which is recognized by law;

3. Because of such waiver, the law has intruded into the local government's right to impose local taxes and license fees, in contravention of the constitutionally enshrined principle of local autonomy;

4. It violates the equal protection clause of the constitution in that it legalizes PAGCOR— conducted gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices;

5. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free enterprise and privatization; and

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6. It is contrary to the declared national policy of the "new restored democracy" and the people's will as expressed in the 1987 Constitution is said to have a "gambling objective" and therefore is contrary to Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987Constitution

ISSUE:

(1) Whether or not petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the Chairman of the Committee on Laws of the City Council of Manila), can question and seek the annulment of PD 1869

(2) Whether or not PD 1869 should be annuled

RULING:

(1) Yes. Petitioners have sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of. And even if, strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised.

(2) No. A statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. Also, Gambling in all its forms, unless allowed by law, is generally prohibited. The prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power. Regulating and centralizing gamblingoperations in one corporate entity — the PAGCOR, was beneficial not just to theGovernment but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896. Thus, the contention of petitioners have no 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; 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 because municipal corporations are mere creatures of Congress which has the power to create and abolish municipal corporations due to its general legislative powers. 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.

c. As early as 1975, the City of Manila's power to impose license fees on gambling has long been revoked. Itwas vested exclusively on the National Government.

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.

e. The power of local government to "impose taxes and fees" is always subject to

"limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization". It does not make local governments sovereign within the state or an "imperium in imperio" because local governments can only be an intra sovereign subdivision of one sovereign nation. As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy, which concerns wisdom. It is therefore a political question. What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local governments.

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f. PD 1869 is not violative of the equal protection clause. The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101Phil. 1155). A law does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution. Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869 for one, unconstitutional.

g. Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D.1869. If, indeed, PD 1869 runs counter to the government's policies then it is for theExecutive Department to recommend to Congress its repeal or amendment. The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power. On the issue of "monopoly," however, the Constitutionprovides that the “State shall regulate or prohibit monopolies when public interest sorequires. xxx (Art. XII, National Economy and Patrimony) As the provision is worded, monopolies are not necessarily prohibited by the Constitution. The state must still decide whether public interest demands that monopolies be regulated or prohibited. Again, this is a matter of policy for the Legislature to decide.

h. On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12(Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles and, policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and effectuate such principles.

Every law has in its favor the presumption of constitutionality. Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a doubtful

and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt. Petitioners have failed to overcome the presumption. The dismissal of this petition is therefore, inevitable.

89) REPUBLIC OF THE PHILIPPINES VS. IAC

G.R. No. 69344. April 26, 1991

FACTS:

Republic of the Philippines, through the BIR, commenced an action in the CFI to collect from the spouses Antonio Pastor and Clara Reyes-Pastor (private respondents) deficiency income taxes for the years 1955 to 1959 with surcharge and monthly interest, and costs. The Pastors filed an answer admitting that there was an assessment against them for income tax deficiency but denying liability therefor. They contended that they had availed of the taxamnesty under P.D.’s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxesamounting of their reported untaxed income under P.D. 23, and a final payment on October 26, 1973 under P.D. 370, as evidenced by the Government’s Official Receipt. The CFI held that the Pastors 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.

The Government appealed to the IAC, alleging that the Pastors were not qualified to avail of the tax amnesty under P.D. 213 for the benefits of that decree are available only to persons who had no pending assessment for unpaid taxes, as provided in Revenue Regulations Nos.8-72 and 7-73. Since the Pastors did in fact have a pending assessment against them, theywere precluded from availing of the amnesty granted in P.D.’s Nos. 23 and 213. The Government further argued that “tax exemptions should be interpreted strictissimijuris against the taxpayer. The IAC rendered a decision dismissing the Government’s appeal and holding that the payment of deficiency income taxes by the Pastors under PD. No. 213, and the acceptance thereof by the Government, operated to divest the latter of its right to further recover deficiency income taxes from the former pursuant to the existing deficiency tax assessment against them.

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ISSUE:

Whether the tax amnesty payments made by the private respondents bar an actionfor recovery of deficient income taxes under P.D.’s Nos. 23, 213 and 370

RULING:

Yes. The Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. The finding of the IAC 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. 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 strictisimijuris for taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly declares.

90) COMMISSIONER OF INTERNAL REVENUE VS. CA

G.R. No. 108358. January 20, 1995

FACTS:

On August 22, 1986, during the period when the President of the Republic still wielded legislative powers, EO 41 was promulgated declaring a one-time tax amnesty on unpaidincome taxes, later amended by EO 64 to include estate and donor’s taxes and taxes onbusiness, for the taxable years 1981 to 1985. Availing itself of the amnesty, R.O.H. Auto Products Philippines Inc. (private respondent), filed, in October 1986 and November 1986, its Tax Amnesty Return 34-F-00146-41 and Supplemental Tax Amnesty Return 34-F-00146-64-B, respectively, and paid the corresponding amnesty taxes due. Prior to this availment, the Commissioner of Internal Revenue (CIR) assessed deficiency income and business taxes of R.O.H. for its fiscal years ended September 30, 1981 and September 30,1982 in an aggregate amount of P1,410,157.71. R.O.H. wrote back to state that since it hadbeen able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The request was denied by the CIR on the ground that Revenue Memorandum Order 4-87, dated February 9, 1987, implementing EO 41, had construed the amnesty coverage to include only assessments issued by the BIR after the promulgation of the EO 22 August 22, 1986 and not to assessments theretofore made.

R.O.H. appealed the CIR’s denial to the CTA. Ruling for R.O.H., the tax court held that theCommissioner failed to present any case or law which proves than an assessment can withstand or negate the force of a tax amnesty. CA affirmed.

ISSUE:

Whether the position taken by the Commissioner coincides with the meaning and intent of E.O. 41

RULING:

No. The period of the amnesty was later extended to December 5, 1986 from 31 October1986 by E.O. 54, dated 04 November 1986, and, its coverage expanded under E.O. 64, dated17 November 1986, to include estate and honors taxes and taxes on business. If, as the CIR argues, E.O. 41 had not been intended to include 1981-1985 tax liabilities

already assessed (administratively) prior to August 22, 1986, the law could have simply so provided in its exclusionary clauses. It did not. Thus, 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. The taxable periods covered by the amnesty include the years immediately preceding the1986 revolution during which time there had been persistent calls for civil disobedience,most particularly in the payment of taxes, to the martial law regime. It should be understandable then that those who ultimately took over the reigns of government following the successful revolution would promptly provide for a broad, and not a confined, tax amnesty. 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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Nature, Construction, Application and Sources of Tax Laws

91) HILADO V. COLLECTOR OF INTERNAL REVENUE

[100 Phil. 188. October 31, 1956]

FACTS

Hilado filed his income tax return wherein he claimed the amount of P12,387.65 as a deductible item from his gross income pursuant to the Collector of Internal Revenue’s General Circular No. V-123, issued pursuant to certain rules laid down by the Secretary of Finance.

Subsequently, the new Secretary of Finance, through the CIR, issued General Circular No. V-139 which revoked General Circular No. V-123 and laid down the rule that property losses which occurred during the World War II are deductible in the year of actual loss/destruction of said property. As a consequence, the P12,387.65 was disallowed as a deduction from petitioner’s gross income for 1951 and the CIR demanded from him the payment of P3,546 as deficiency

income tax for the year.

ISSUE

Whether the Secretary of Finance acted with valid authority in revoking General Circular No. V-123 and approving in lieu thereof, General Circular No. V-139.

HELD

Yes. The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of a statute by those administering it is not binding on their successors if the latter becomes satisfied that a different construction should be given. General Circular No. V-123, having been issued on a wrong construction by the law, cannot give rise to a vested right that can be invoked by a taxpayer. A vested right cannot spring from a wrong interpretation.

An administrative officer cannot change a law enacted by Congress. Once a regulation which merely interprets a

statute is determined erroneous, it becomes a nullity. The CIR’s erroneous construction of the law does not preclude or stop the Government from collecting a tax legally due. Under Art. 2254 of the Civil Code, no vested/acquired right can arise from acts/omissions which are against the law or which infringe upon the rights of others.

92) MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. V. DEPARTMENT OF FINANCE SECRETARY [G.R. No. 108524. November 10, 1994] 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 Sec. 103(b) of the NIRC, the sale of agricultural food

products in their original state is exempt from VAT at all stages of production or distribution. 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 challenges RMC No. 47-91 on various grounds. ISSUES 1. Whether the BIR is the proper the competent government agency to determine the proper classification of food products. 2. Whether RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution. HELD

The court, as to the first issue, ruled in the affirmative. The BIR, as the government agency charged with the implementation and interpretation of the tax laws, is entitled to great respect. In interpreting Section 103 of the NIRC, the Commissioner of Internal Revenue correctly gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state. The ruling was made by the Commissioner of

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Internal Revenue in the exercise of his power under § 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.” With regard to the second issue, the court ruled in the negative. Petitioner likewise claims that RMC No. 47-91 is violative of the equal protection clause 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. 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. It is not true that oil millers are exempt from VAT. Pursuant to sec. 102 of the NIRC, they are subject to 10% VAT on the sale of services. 93) COMMISSIONER OF INTERNAL REVENUE V. COURT OF APPEALS [February 6, 1997]

FACTS The main question in this case is: “is the income derived from rentals of real property owned by Young Men’s

Christian Association of the Philippines (YMCA) – established as “a welfare, educational and charitable non-profit corporation” – subject to income tax under the NIRC and the Constitution? In 1980, YMCA earned an income of P676,829 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators and P44k form parking fees. ISSUE Is the rental income of the YMCA taxable? HELD

Yes. The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Sec. 27 of the NIRC; court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. The said provision mandates that the income of exempt organizations (such as YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Private respondent is exempt from the payment of property tax, but nit income tax on rentals from its property.

94) COMMISSIONER OF INTERNAL REVENUE V. LINGAYEN GULF ELECTRIC POWER CO., INC.

[August 4, 1988] FACTS

The respondent taxpayer 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. Bureau of Internal Revenue (BIR) assessed against and demanded from the private respondent deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954 as prescribed in Section 259 of the National Internal Revenue Code, instead of the lower rates as provided in the municipal franchises. Respondent submits that R.A. No. 3843 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. Court of tax Appeals ruled in favor of respondent.

ISSUE Whether or not Section 4 of R.A. No. 3843, assuming it is valid, could be given retroactive effect so as to render uncollected taxes in question which were assessed before its enactment.

HELD YES. Appealed decision was affirmed. 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 private respondents municipal

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franchises were obtained under Act No. 667 of the Philippine Commission, but these original franchises have been replaced by a new legislative franchise, i.e. R.A. No. 3843.

Given the validity of said law, it should be applied retroactively so as to render uncollectible the taxes in question which were assessed before its enactment. The question of whether a statute operates retrospectively or only prospectively depends on the legislative intent. In the instant case, Act No. 3843 provides that “effective … upon the date the original franchise was granted, no other tax and/or licenses other than the franchise tax of two per centum on the gross receipts … shall be collected, any provision to the contrary notwithstanding.” Republic Act No. 3843 therefore specifically provided for the retroactive effect of the law.

95) ABS-CBN BROADCASTING CORP. V. COURT OF TAX APPEALS

[G.R. No. L-52306. October 12, 1981]

FACTS During the period pertinent to this case, petitioner corporation was 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. for which petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals. In implementing Section 4(b) of the Tax Code, the Commissioner issued General Circular V-334. Pursuant thereto, ABS-CBN Broadcasting Corp. dutifully withheld and turned over to the BIR 30% of ½ of the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. The last year that the company withheld taxes pursuant to the Circular was in 1968. On 27 June 1908, 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.” In 1971, the Commissioner issued a letter of assessment and demand for deficiency withholding income tax for years 1965 to 1968. The company requested for reconsideration; where the Commissioner did not act upon. ISSUE Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be retroactively applied. HELD

Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply them would be prejudicial to taxpayers. Herein ,the prejudice the company of the retroactive application of Memorandum Circular 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. 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. The company was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and had no longer control over them when the new circular was issued. Insofar as the enumerated exceptions are concerned, the company does not fall under any of them.

96) PHILIPPINE BANK OF COMMUNICATIONS VS. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 112024 January 28, 1999

Facts:

Petitioner PBCom, a commercial banking corporation organized under Philippine laws, filed quarterly income tax returns for the first and second quarters of 1985 and paid a total income tax of 5,016,954 pesos. The taxes due were settled by applying PBCom’s tax credit memos which led BIR to issue Tax Debit Memos. However, PBcom suffered losses so that upon filing Annual Income Tax Returns for 1986, they reported such loss and declared no tax payable for the year. During the two years though, PBCom earned rental income from leased properties. These lessees withheld and remitted to the BIR withholding creditable taxes in 1985 and 1986. In 1987, PBCom requested from the CIR tax credit for overpayment of taxes in first and second quarter of 1985. In 1988, PBCom also claimed a refund of creditable taxes withheld by their lessees from property rentals in 1985 and 1986. Pending such investigation with the CIR, petitioners filed a Petition for Review before the Court of Tax Appeals. The CTA rendered a decision which denied the tax refund or credit stating that such was filed beyond the two year reglementary period provided for by law. As for the claim of refund in 1986, the amount was also denied to them on the assumption that it was automatically credited by PBCom against its tax payment in the

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succeeding year. A petition for review was filed with the Court of Appeals which affirmed the decision. Hence, this petition. Petitioner contends that its claims for refunds and tax credits are not barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85. The circular states that the overpaid income taxes are not covered by the 2 year prescriptive period under the tax code and that taxpayers may claim such amount with the BIR within ten years under 1144 of the Civil Code. Petitioner also argues that the government is barred from asserting a decision contrary to its declared circular if it would result to an injustice to taxpayers. Petitioner also claims that rulings or circulars promulgated by the CIR shall have no retroactive effect if it would be prejudicial to taxpayers. The CIR contends, however, that the 2 year prescriptive period for filing tax cases in court concerning income tax payments of corporations is reckoned from the date of filing the Finals Adjusted Income Tax Return which is done on April 15 following the close of the calendar year. It sates that since such was filed by petitioner for the taxable year of 1985 was supposed to be filed on April 15, 1986, the petitioner only had until April 15, 1988. When petitioner filed the case, such was only done in November 18, 1988 beyond the time prescribed by law.

Issue: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner’s reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years.

Held:

No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law.

The principle is that “taxes are the lifeblood of the nation.” The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the

prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected:

xx In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment xx

The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. 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 legislated guidelines contrary to the statute passed by Congress. The Revenue memorandum-circulars are considered administrative rulings 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.

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. Article 8 of the Civil Code recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer

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Certain Doctrines in Taxation

POWER TO TAX INVOLVES POWER TO DESTROY

97) COMMISSIONER OF INTERNAL REVENUE VS. TOKYO SHIPPING CO. LTD

G.R No. L-68252 May 26, 1995

Facts:

Tokyo Shipping is a foreign corporation represented by Soriamont Steamship Agencies. It owns and operates tramper vessel M/V Gardenia. NASUTRA chartered Gardenia to load 16,500 metric tons of raw sugar in the Philippines. Mr. Lising, who was the operations manager of Soriamont, paid the required income and common carrier’s taxes based on expected gross receipts of the vessel. Upon arriving at Port of Iloilo, the vessel did not find any sugar for loading. Nasutra and private respondent’s agent agreed to have the vessel sail to 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 before the CIR. The CIR failed to act promptly on the claim so a petition for review was filed before the Court of Tax Appeals. According to petitioner, the taxes were presumed to have been collected in accordance with the law, that in an action for refund, the burden of proof is upon the taxpayer to show that the taxes were erroneously or illegally collected. The CIR also stated that claims for tax refunds are strictly construed against the taxpayer. The CTA ruled in favor of private respondents. Hence, this petition for review by petitioners.

Issue: whether or not the private respondent was able to prove that it derived no receipts from its charter agreement, and hence is entitled to a refund of the taxes it pre-paid to the government.

Held:

Yes. Pursuant to section 24 (b) (2) of the National Internal Revenue, a resident foreign corporation engaged in the transport of cargo is liable for taxes depending on the amount of income it derives from sources within the Philippines. Thus, before such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from the Philippines.

We agree with petitioner that 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 respondent court held that sufficient evidence has been adduced by the private respondent proving that it derived no receipt from its charter agreement with NASUTRA.

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.

98) REYES VS. ALMANZOR

G.R. Nos. L-49839-46 April 26, 1991

Facts:

J.B.L Reyes, Edmundo and Milagros are owners of a land in Tondo and Santa Cruz which are leased and occupied as dwellings by tenants. They were paying monthly rentals not exceeding 300 pesos. In 1971, the National Legislature enacted R.A 6359 prohibiting for one year from its effectivity an increase in monthly rentals of dwelling units or lands, where such rentals do not exceed 300 pesos a month but allowing an increase of rent of more than 10% thereafter. The act also

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suspended par. 1 of Article 1673 of the Civil Code for two years from its effectivity by disallowing ejectment of lessees upon the expiration of the usual legal period of lease. PD No. 20 amended 6359 by making absolute the prohibition to increase the monthly rental below 300 and indefinitely suspending the provision of the Civil Code, excepting leases with a definite period. In 1973, the 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 entailed an increase in the corresponding tax rates which prompted the 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 also stated that the income approach should have been used in determining land values instead of the comparable sales approach which was adopted. The board of Tax Assessment appeals however considered the assessment as valid. The decision appealed to the Central Board of Assessment appeals was affirmed. Hence, this petition. 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, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new assessed values at levels so high and successive that the resulting annual real estate taxes would admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under P.D. 20. On the other hand, the 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

Issue: Whether or not the court erred in applying the Comparable Sales Approach.

Held:

Yes. The Supreme Court said that both the "Comparable Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal for taxation purposes. However, it is conceded that the propriety of one as against the other would of course depend on several factors. Hence, it has been stressed that the assessors, in finding the value of the property, have to consider all the circumstances and elements of value and must exercise a prudent discretion in reaching conclusions.

Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be uniform, but must also be equitable and progressive. Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate. Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected.

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 "In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to confiscation of property.

The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed.

Finally 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.

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Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. However, 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 taxations, which is the promotion of the common good, may be achieved. 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.

By the public respondents' own computation the assessment by income approach would amount to only P10.00 per sq. meter at the time in question. Hence, respondent Board of Assessment Appeals of Manila and the City Assessor of Manila were ordered to make a new assessment by the income approach method to guarantee a fairer and more realistic basis of computation

99) COMMISSIONER OF INTERNAL REVENUE VS. ALGUE

G.R No. L-28896February 17, 1988

Facts:

Algue is a domestic corporation engaged in engineering, construction and other activities who received a letter from the CIR assessing it for 83,183.85 pesos as delinquency income taxes for the years 1958 and 1959. Algue filed a letter of protest. A warrant of distraint and levy was presented to Algue who refused to receive it since there was a pending protest. There was no action by the BIR of such protest. Hence, a petition for review was filed with the Court of Tax Appeals. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. 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.

Issue: whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns.

Held:

No. The petitioner had originally claimed these promotional fees to be personal holding company income but later conformed to the decision of the respondent court rejecting this assertion. The amount was earned through the joint efforts of the persons among whom it was distributed It has been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr and others worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. 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 Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends was involved.

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. 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.

The Solicitor General is correct when he says that 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. 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

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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.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. 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. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

Hence, claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.

SET-OFF OF TAXES

100) PHILEX MINING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 125704 August 28, 1998

Facts:

The Bureau of Internal Revenue sent a 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. Philex, however, protested the demand for payment of tax liabilities stating that it had pending claims for VAT input credit/refund for the taxes it paid for from years 1989-1991. Therefore, the tax credits and refunds should be applied against tax liabilities. BIR responded finding no merit in Philex’s position. Philex then raised the issue to the Court of Tax Appeals. In the course of proceedings, BIR issued a tax credit certificate which it applied to the total tax liabilities of Philex which lowered their tax obligation. Despite such reduction of liabilities, the CTA still ordered Philex to pay the remaining balance of their liability stating that for legal compensation to take place, both obligations must be liquidated and demandable. The claims of petitioner however are still pending litigation. Hence, the debt of petitioner cannot be offset by their unliquidated claim. The CTA also stated that such cannot be offset because a tax is not a debt. However, later on in time, petitioner VAT input credit/refund was granted so they wanted such to offset the excise tax liabilities.

Issue: Whether or not the petitioner could offset the credit/refund to his tax liabilities?

Held:

No. taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other.

There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction. “We have consistently ruled that 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 tax cannot await the results of a lawsuit against the government.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. Hence, a tax does not depend upon the consent of the taxpayer. If any payer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system

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101) ENGRACIO FRANCIA V. INTERMEDIATE APPELLATE COURT, AND HO FERNANDEZ

G.R. No. L-67649 June 28, 1988 Facts: Petitioner Francia was the registered owner of house and lot in Pasay. A portion said property was, however, expropriated by the Republic of the Philippines (RP). Since Francia was unable to pay his real estate taxes from 1963 to 1977, said property was sold at a public auction by the City Treasurer of Pasay by virtue of Real Property Tax Code to satisfy said tax delinquency. Private respondent Fernandez was the highest bidder for the property. Later, Francia received a notice of hearing concerning a land registration case filed by Fernandez, seeking cancellation of Francia’s title to said property, and the issuance on his name of a new title. This prompted Francia to file a complaint to annul the auction sale in court. The trial court, however, dismissed the complaint. Respondent IAC affirmed the trial court’s decision on appeal. Hence, Francia filed this petition for review, contending that IAC made an error of judgment in not holding his obligation to pay for his supposed tax delinquency was set-off by the amount which the RP is indebted to the former from the expropriation proceedings. Issue: Can tax obligations be set-off by operation of law? Ruling: No. Jurisprudence has been consistent in ruling that 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. This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where it was stated that internal revenue taxes cannot be the subject of compensation for the reason that government and taxpayer are not mutually creditors and debtors of each other under 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." In view of the foregoing, Francia’s claim of set-off is clearly without legal basis. There are other factors that compelled the court to rule against Francia: The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount that the RP was indebted to Francia for the expropriated portion of the latter’s property was already paid, which was in fact deposited with the Philippine National Bank long before the sale at public auction of the remaining property. Notice of the deposit was received by Francia, and he admitted in his testimony that he knew about the amount deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. IAC’s decision is affirmed. Petition is dismissed. 102) COMMISSIONER OF INTERNAL REVENUE V. ITOGON-SUYOC MINES, INC., AND COURT OF TAX APPEALS G.R. No. L-25299 July 29, 1969 Facts: Respondent mining corporation Itogon-Suyoc filed its income tax return for fiscal 1960-1961, setting forth its actual tax liability but deducting right away an amount that represent alleged tax credit for overpayment of the preceding fiscal year 1959-1960. Later, petitioner CIR assessed against Itogon-Suyoc an amount of monthly interest on the aforesaid deducted amount, which was considered as tax delinquency, the basis of which was the absence of legal right of Itogon-Suyoc to deduct said amount before the refund or tax credit thereof was approved by CIR. This prompted Itogon-Suyoc to raise the issue before respondent CTA, which favored Itogon-Suyoc, and absolved the latter from paying the said monthly

interest. Hence, CIR filed this petition for review. Issue: Should there first be an approval by the CIR of any tax refund or credit before the same may be set-off against tax obligations? Ruling: No. Section 51 (d) of 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 CIR at the specified. It is made clear, however, in Section 51 (a) par. 1 of the same Code 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.

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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. CTA’s decision is affirmed. 103) DOMINGO VS. GARLITOS G.R. No. L-18994 June 29, 1963 Facts: By virtue of RA No. 2700, a contract between Respondent Simeona and Director ZoiloCastrillo, and a note from Carlos Garcia, Castrillo was directed to pay Simeona an amount to the Leyte Cadastral Survey, Inc, which was represented by Simeona as administratrix. Later, in the case Melecio Domingo v. Hon. Judge S. Moscoso, the Supreme Court declared as final and executory the order issued by the CFI of Leyte for the payment by the subject estate of the estate and inheritance taxes, charges, and penalties in special proceedings entitled “In the matter of the Intestate Estate of the Late Walter Scott Price.” To execute said claims, the fiscal presented a petition to said court for the execution of judgment. This was, however, denied by respondent judge, holding that the execution is not justifiable as the Government is indebted to the estate under administration, and ordered that the payment of inheritance taxes be deducted from the amount due and payable to the administratrix. Hence, petitioner filed this petition for certiorari and mandamus against respondent judge, seeking to annul that latter’s said orders and for the latter to execute the judgment in favor of the Government against the subject estate for internal revenue taxes. Issue: In view of foregoing facts, was there a valid compensation in this case between the estate and the Government? Ruling: Yes. Compensation 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. In this case, the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and the amountwas already appropriated for the purpose by a corresponding law, which was RA 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. Hence, compensation takes place, and there is no longer a right to execute the judgment for taxes against the subject estate. Furthermore, the ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodialegis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. Petition is dismissed. The proper remedy of petitioner is appeal. 104) REPUBLIC OF THE PHILIPPINES V. MAMBULAO LUMBER COMPANY, ET AL. G.R. No. L-17725 February 28, 1962 Facts: From 1947 to 1956, respondent company Mambulao paid to petitioner RP reforestation charges, pursuant to Section 1 of RA No. 115, which provides for payment of an amount in addition to regular forest charges under the National Internal Revenue Code for each timber removed or cut out from any public forest for commercial purposes, the amount of which to be used for reforestation. Owing forest charges to the RP from the period of 1952 until 1953 and with the contention that RP has not made use of those restoration charges collected from it for reforesting the denuded area of the land covered by its license, Mambulao wrote the Director of Forestry in 1957, requesting that its account with the bureau be credited with all the reforestation charges imposed by it from 1947 to 1956. Said director answered, quoting the opinion of Secretary of Justice, to the effect that it had no discretion to extend the time for paying reforestation charges, and also explained why not all denuded areas are being reforested. When the case was brought to the trial court, the latter favored the RP, ordering Mambulao to pay its charges with interest. Hence, Mambulao interposed this appeal.

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Issue: Can the principle of compensation under the New Civil Code be applied in this case, such that the amount paid by Mambulao as reforestation charges from 1947 to 1956 be set off or applied to the payment of the amount as forest charges from 1952 to 1953 due and owing from the latter to the RP? Ruling: No. The weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, cannot be the subject of set-off or compensation. The reason 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, to the making and enforcing of which, the personal consent of individual taxpayers is not required. If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion (47 Am. Jur. 766-767). Furthermore, note that there is nothing in Section 1 of RA No. 115 that requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the licensee's area may or may not be reforested at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Petition is dismissed. The trial court’s decision is affirmed TAXPAYER’S SUIT 105) THE ANTI-GRAFT LEAGUE OF THE PHILIPPINES V. PROVINCIAL VICE GOVERNOR REYNALDO SAN JUAN G.R. No. 97787 August 1, 1996 Facts: Pursuant to PD No. 674, which directed the Provincial Board of Rizal (Board) to provide funds for the purchase of site and construction for necessary structure of the newly established Technological Colleges of Rizal (RTCR), the Province of Rizal (Province) was able to negotiate with respondent Ortigas for the acquisition of four parcels of land in Pasig. The construction, however, never materialized due to the decimation of the Province’s resources. Later, the property lying idle, and the Province needing funds for a different program, the then incumbent Board passed a Resolution authorizing the Governor to sell the said property. It was eventually sold to Valley View Realty Corporation (Valley View). This prompted Ortigas to file an action for rescission of contract against the Province, contending that the latter violated the terms of the contract by selling the subject property which were intended to be utilized solely as site for construction of RTCR and a hospital. Meanwhile, the new provincial officials issued a Resolution for the rescission of the deed of sale between the Province and Valley View. Due to this, Valley View filed an action for specific performance and damages, which was dismissed since the parties executed a compromise agreement. The complaint filed by Ortigas was also resolved through compromise agreement, which indicates that the Province agreed to reconvey the subject property to Ortigas for an amount higher than the market value as assessed. Petitioner then filed this petition for certiorari, seeking nullification of the compromise agreement and annulment of the trial court’s judgment. Issue: Is this a taxpayer’s suit? Ruling: No. To constitute a taxpayer’s suit, two requisites must be met, namely, (1) 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 (2) that the petitioner is directly affected by the alleged ultra vires act. In the case at bar, disbursement of public funds was only made when the Province bought the lands from Ortigas pursuant to PD No. 674. Petitioner never referred to such purchase as an illegal disbursement of public funds but focused on the alleged fraudulent reconveyance of subject property to Ortigasin the compromise agreement because the price paid was lower than the prevailing market value of neighboring lots. The first requirement, therefore, which would make this petition a taxpayer’s suit is absent. Undeniably, as a taxpayer, petitioner would somehow be adversely affected by an illegal use of public money. When, however, no such unlawful spending has been shown, as in the case at bar, petitioner, even as a taxpayer, cannot question the transaction validly executed by and between the Province and Ortigas for the simple reason that it is not privy to said

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contract. In other words, petitioner has absolutely no cause of action, and consequently no locus standi, in the instant case. Petition is dismissed.

106) JOYA, ET AL. VS. PCGG GR No. 96541. August 24, 1993 Facts: Mateo Caparas, then Chairman of the PCGG, through the authority granted by then Pres. Aquino, signed a Consignment Agreement allowing Christie’s of New York to auction off Old Masters Paintings and the 18th and 19th century silverware alleged to be part of the ill-gotten wealth of Pres. Marcos, his relatives, and cronies, for and in behalf of RP. 35 petitioners in this Special Civil Action for Prohibition and Mandamus with Prayer for Preliminary Injunction and/or Restraining Order sought to enjoin PCGG from proceeding with the auction sale which nevertheless proceeded on schedule. Petitioners claim that, as Filipino citizens, taxpayers, and artists deeply concerned with the preservation and protection of the country’s artistic wealth and that the paintings and silverware are public properties collectively owned by them and the people in general to view and enjoy as great works of art alleging that they have been deprived of their right to public property without due process of law, they have the legal personality to restrain the respondents who are acting contrary to their public duty to conserve the artistic creations as mandated by Sec. 14-18 of Art. XIV of the Constitution and RA 4846. Issue: Whether the petition complies with the legal requisites for the Court to exercise its power of judicial review over this case. Held: NO. Petitioners failed to show that they have the legal standing, i.e. a personal and substantial interest in the case such that they have sustained or would sustain direct injury as a result of the governmental act that is being challenged, because they are not the legal owners of the artworks/silverwares or that the valued pieces have become publicly owned since such artworks are in fact owned by the Metropolitan Museum of Manila Foundation, a non-profit, non-stock corporation established to promote non-Philippine arts and the silverwares were in fact gifts to the Marcos couple on their silver wedding anniversary. The mandamus suit cannot prosper because what the petitioners seek is the enjoining of an official act because it is constitutionally infirmed not because they are after the fulfillment of a positive duty required of the respondent public officials which is the only ground for a writ of mandamus to be issued. The taxpayers’ suit cannot prosper as well since the items in question were acquired from private sources and not with public money.

107) LOZADA vs. THE COMMISSION ON ELECTIONS G.R. No. L-59068 January 27, 1983 Facts: Lozada together with Igot filed a petition for mandamus compelling the COMELEC to hold an election to fill the vacancies in the Interim Batasang Pambansa (IBP). They anchor their contention on Sec 5 (2), Art 8 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: Whether or not the petitioner has legal standing to file a suit.

HELD: As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a statute.

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Tax Remedies 1) ST. STEPHEN'S ASSOCIATION and ST. STEPHEN'S CHINESE GIRLS SCHOOLvs. THE COLLECTOR OF INTERNAL REVENUE

G. R. NO. L-11238 AUGUST 21, 1958

Facts: Petitioner St. Stephen's Association is a non-stock corporation organized for the purpose of supporting and maintaining school or schools. The petitioner 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".

The Collector of Internal Revenue sent petitioners his Assessment Notice 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.

Petitioners wrote the CIR a letter requesting the cancellation and withdrawal of the assessment notice in question. However

the CIR denied the request.

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.

Issue: Whether or not petitioner filed the appeal within the prescribed period provided by RA 1125 or 30 days within receipt of final decision.

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.

Statement appearing in his letter of July 11, 1955, it is evident that the respondent Collector himself considered said letter as his final decision in the case, hence his warning that the same would become final in thirty days unless petitioners appealed to the Court of Tax Appeals within the same period. Prior to his letter-decision of July 11, 1955, then, the Collector must have held the matter under advisement and considered his preceding rulings as merely tentative in character, pending his final determination and resolution of the merits of the arguments of fact and law submitted by petitioners in support of their requests for the cancellation and withdrawal of the assessment. This must have been the reason why, in said letter-decision of July 11, 1955, the Collector included an express statement that said decision was to become final in thirty days unless appealed from within the same period; and it must also have been for this reason that, throughout the proceedings in the respondent Collector never claimed that petitioners' appeal was filed out of time, and it was the Tax Court that motu proprio dismissed the petition because it believed it was not filed within the period provided by Republic Act No. 1125.

Respondents assert that the Collector of Internal Revenue can not enlarge or extend the period for appeal under section 11 of Republic Act No. 1125. This is not, however, a case where the respondent Collector had enlarged or extended the period

for appeal to the respondent Court; this is simply a case where the Collector did not reach a final decision on the matter pending before him until July 11, 1955, when he released his letter-decision of the same date. Petitioners having filed their appeal on the 19th day from the receipt of this decision, their appeal was filed on time and the respondent Court erred in dismissing the same for lack of jurisdiction.

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2) ADVERTISING ASSOCIATES, INC. vs. COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE

G. R. NO. L-59758 DECEMBER 25, 1984

Facts: Advertising Associates alleged that it sold in 1949 its advertising agency business to Philippine Advertising Counsellors. It contends that it is a media company, not an advertising company. It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., realty dealer's tax for leasing billboards and electric signs and 3% contractor's tax for repairing electric signs.

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 on its income from billboards and neon signs. Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of July 12 and September 16,1974.

The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21, 1974. However the commissioner refused. More than a year later, Acting Commissioner 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.

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.

Issue: Whether or not the collection of tax had already prescribed.

Held: Petitioner's last contention is that the collection of the tax had already prescribed. Section 332 of the 1939 Tax Code, now section 319 of the 1977 Tax Code, Presidential Decree No. 1158, effective on June 3, 1977, provides that the tax may be collected by distraint or levy or by a judicial proceeding begun 'within five years after the assessment of the tax".

The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency assessments herein. The warrants of distraint were served upon it on April 18 and may 25,1978 or within five years after the assessment of the tax. Obviously, the warrants were issued to interrupt the five-year prescriptive period. Its enforcement was not implemented because of the pending protests of the taxpayer and its requests for withdrawal of the warrants which were eventually resolved in Commissioner Plana's letter of May 23, 1979.

It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint to interrupt the running of the statute of limitations. He gave the taxpayer ample opportunity to contest the assessments but at the same time safeguarded the Government's interest by means of the warrants of distraint.

3) COMMISSIONER OF INTERNAL REVENUE vs. ISABELA CULTURAL CORPORATION

G.R. NO. 135210 JULY 11, 2001

Facts: Isabela Cultural Corporation (ICC), a domestic corporationreceived an assessment notice for deficiency income tax and expanded withholding tax from BIR. It arose from the disallowance of ICC’s claimed expense for professional and security services paid by ICC; as well as the alleged understatement of interest income on the three promissory notes due from Realty Investment Inc. Thedeficiency expanded withholding tax was allegedly due to the failure of ICC to withhold 1% e-withholding tax on its claimed deduction for security services.

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ICC sought a reconsideration of the assessments. Having received a final notice of assessment, it brought the case to CTA, which held that it is unappealable, since the final notice is not a decision. CTA’s ruling was reversed by CA, which was sustained by SC, and case was remanded to CTA. CTA rendered a decision in favor of ICC. It ruled that the deductions for professional and security services were properly claimed, it said that even if services were rendered in 1984 or 1985, the amount is not yet determined at that time. Hence it is a proper deduction in 1986. It likewise found that it is the BIR which overstate the interest income, when it applied compounding absent any stipulation.

Petitioner appealed to CA, which affirmed CTA, hence the petition.

Issue: Whether or not the expenses for professional and security services are deductible.

Held: No. One of the requisites for the deductibility of ordinary and necessary expenses is that it must have been paid or incurred during the taxable year. This requisite is dependent on the method of accounting of the taxpayer. In the case at bar, ICC is using the accrual method of accounting. Hence, under this method, an expense is recognized when it is incurred. Under a Revenue Audit Memorandum, when the method of accounting is accrual, expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed in the succeeding year.

The accrual of income and expense is permitted when the all-events test has been met. This test requires: 1) fixing of a right to income or liability to pay; and 2) the availability of the reasonable accurate determination of such income or liability. The test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at its disposal the information necessary to compute the amount with reasonable accuracy.

From the nature of the claimed deductions and the span of time during which the firm was retained, ICC can be expected to have reasonably known the retainer fees charged by the firm. They cannot give as an excuse the delayed billing, since it could have inquired into the amount of their obligation and reasonably determine the amount.

4) SURIGAO ELECTRIC, CO. vs. MUNICIPALITY OF SURIGAO and MUNICIPALITY OF SURIGAO G.R. No. L-22766 August 30, 1968 FACTS: 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. 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, 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." 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. The court affirmed the decision of the respondent Commission when it said that:

"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)."

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Petitioners seek refuge in the legislative franchise granted them. 10 Whatever privilege may be claimed by petitioners cannot override the specific constitutional restriction that no 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. Moreover, under a well-settled principle of American origin, one which upon the establishment of the Philippine Government under American tutelage was adopted here and continued under our Constitution, no such franchise or right can be availed of to defeat the proper exercise of the police power. An early expression of this view is found in the leading American case of Charles River Bridge v. Warren Bridge, an 1837 decision, the opinion being penned by Chief Justice Taney: "The continued existence of a government would be of no great value, if by implications and presumptions it was disarmed of the powers necessary to accomplish the ends of its creation; and the functions it was designed to perform, transferred to the hands of privileged Corporations. .. While the rights of private property are sacredly guarded, we must not forget that the community also have rights, and that the happiness and well-being of every citizen depend on their faithful preservation." 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. In the language of their own brief: "This Act provides for the procedure to be followed whenever the Government or any political subdivision thereof decides to acquire and operate a public utility owned and operated by any individual or private corporation." What is to be regulated, therefore, 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. 5) YABES vs. FLOJO G.R. No. L-46954 July 20, 1982 FACTS: Doroteo Yabes of Calamaniugan Cagayan, who was for sometime an exclusive dealer of products of theInternational 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

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ISSUE: Whether or not the assessment made by the Commissioner has already become final thereby giving jurisdiction to CFI of Cagayan. 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 Section11 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. II. 6) COMMISSIONER OF INTERNAL REVENUE vs. ALGUE, INC G.R. No. L-28896 February 17, 1988 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: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. HELD: 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. 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 provision of the Tax Code.

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7) COMMISSIONER OF INTERNAL REVENUE vs. UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS G.R. No. L-66160 May 21, 1990 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 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. 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. 8) PHILIPPINE JOURNALISTS, INC. vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 162852 December 16, 2004 FACTS: The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December31, 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

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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: Whether or not 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. HELD: 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.

9) CIR VS. PHILIPPINE GLOBAL SOLUTIONS October 31, 2006 Facts: Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April 1992, the CIR issued Letter of Authority No. 0002307, authorizing the appropriate BIR officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondent’s 1990 income tax liability. On 22 April 1992, respondent failed to present any document. On 21 April 1994, respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax in the amount of P118,271,672.00, inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the following day, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount of P118,271,672.00. Respondent asked for the cancellation of tax assessment. More than 8 years after the assessment was presumably issued, respondent received a copy of the order denying their request for the cancellation of tax assessment.

Respondent contended that the action of the BIR to collect is already barred by prescription. On the other hand, Petitioner claims that the running of prescriptive period is tolled by the protest letters filed by the respondent. Issue: Whether or not CIR’s right to collect from respondent is barred by prescription under Section 269(c) of the 1977 Tax Code. Ruling: YES. 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.

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The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest, peaceful, law-abiding citizens. Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law.

10) RIZAL COMMERCIAL BANKING CORPORATION V. CIR Facts: On July 5, 2001, petitioner Rizal Commercial Banking Corporation received a Formal Letter of Demand dated May 25, 2001 from the respondent CIR for its tax liabilities particularly for Gross Onshore Tax in the amount of P53,998,428.29 and Documentary Stamp Tax for its Special Savings Placements in the amount of P46,717,952.76, for the taxable year 1997.

On July 20, 2001, petitioner filed a protest letter/request for reconsideration/reinvestigation pursuant to Section 228 of the National Internal Revenue Code of 1997 (NIRC).

As the protest was not acted upon by the respondent, petitioner filed on April 30, 2002 a petition for review with the CTA for the cancellation of the assessments which was docketed as C.T.A. Case No. 6475. Respondent filed a motion to resolve first the issue of CTA’s jurisdiction, which was granted by the CTA in a Resolution dated September 10, 2003. The petition for review was dismissed because it was filed beyond the 30-day period following the lapse of 180 days from petitioner’s submission of documents in support of its protest

Petitioner did not file a motion for reconsideration or an appeal to the CTA En Banc from the dismissal of its petition for review. Consequently, the September 10, 2003 Resolution became final and executory on October 1, 2003 and Entry of Judgment was made on December 1, 2003.

Petitioner filed a Petition for Relief from Judgment on the ground of excusable negligence of its counsel’s secretary who allegedly misfiled and lost the September 10, 2003 Resolution.

Issue:

Whether or not the Relief from Judgement and motion for reconsideration sought by the Respondent should be granted.

Ruling:

NO. As provided in Section 228, the failure of a taxpayer to appeal from an assessment on time rendered the assessment final, executory and demandable. Consequently, petitioner is precluded from disputing the correctness of the assessment.

In Ker & Company, Ltd. v. Court of Tax Appeals, the Court held that while the right to appeal a decision of the Commissioner to the Court of Tax Appeals is merely a statutory remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as a condition precedent that the action to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure to comply therewith may be raised in a motion to dismiss.

In fine, the failure to comply with the 30-day statutory period would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessment.

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11) OCEANIC WIRELESS NETWORK V. CIR Facts: Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing Division of BIR National Office to decide and/or act with finality on behalf of the CIR on protests against disputed tax deficiency assessments. On March 1988 petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988. Acting in behalf of the BIR Commissioner, then Chief of BIR, reiterated the tax assessments while denying petitioner’s request for reinvestigation in a letterdated January 24, 1991 Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment. On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the collection of the tax assessments. This was docketed as CTA Case No. 4668. The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned from the time when the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division was presumably received by petitioner. Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991 cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere subordinate and not by the Commissioner himself.[ Issue: Whether or not a demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory and subject to an appeal to the Court of Tax Appeals. Ruling: Yes. 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. He cannot, however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC) enumerated in Section 7.

As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR Commissioner to delegate the

powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher.

Moreover, A request for reconsideration must be made within thirty (30) days from the taxpayer’s receipt of the tax deficiency assessment, otherwise, the decision becomes final, unappealable and therefore, demandable. A tax assessment that has become final, executory and enforceable for failure of the taxpayer to assail the same as provided in Section 228 can no longer be contested

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.

The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first be disputed by the

taxpayer and ruled upon by the Commissioner of Internal Revenue to warrant a decision from which a petition for review may be taken to the Court of Tax Appeals. Where an adverse ruling has been rendered by the Commissioner of Internal Revenue with reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within thirty (30) days after receipt thereof.

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12) FISHWEALTH CANNING CORPORATION V. CIR Facts: The respondent ordered the examination of internal revenue taxes for the taxable year of 1999 of petitioner corporation. The investigation disclosed that petitioner was liable in the amount of P2,395,826.88 representing income tax, value added tax (VAT), withholding tax deficiencies and other miscellaneous deficiencies. Petitioner eventually settled these obligations. Respondent reinvestigated petitioner’s books of accounts and other records of internal revenue taxes covering the same period for the purpose of which it issued a subpoena duces tecum requiring petitioner to submit its records and books of accounts. Petitioner requested the cancellation of the subpoena on the ground that the same set of documents had previously been examined. As petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint against petitioner for violation of Sections 5 (c) and 266 of the 1997 Internal Revenue Code. Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT deficiencies. Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which petitioner received on August 4, 2005. Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration dated August 31, 2005.

By a Preliminary Collection Letter dated September 6, 2005, respondent demanded payment of petitioner’s tax liabilities, drawing petitioner to file on October 20, 2005 a Petition for Reviewbefore the CTA.

In his Answer, respondent argued, among other things, that the petition was filed out of time which argument

the First Division of the CTA upheld and accordingly dismissed the petition.The CTA en banc also dismissed the petition.

Issue: Whether or not CTA En Banc was correct in holding that the petition filed before the CTA First Division as well

as that filed before it (CTA En Banc) was filed out of time.

Ruling: Yes. 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 above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondent’s denial of its protest to the CTA.

Section 228 of the 1997 Tax Code provides that an assessment: x x x 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 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. Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3,

2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA.

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Local Taxation

1) LUNG CENTER OF THE PHILIPPINES V. QUEZON CITY Facts: The petitioner owns a huge parcel of land. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government.

On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860. 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, and a petition was, thereafter, filed before the Local Board of Assessment Appeals. It was ruled that the petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real property tax exemption under the constitution and the law. The petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision of the CBAA.

Issue:

Whether the real properties of the petitioner are exempt from real property tax because it is deemed a charitable institution.

Ruling:

No. The Court finds that the petitioner is a charitable institution, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.

The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. “Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.”If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation.

The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name “Elliptical Orchids and Garden Center.” Indeed, the petitioner’s evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679,999.28 for 1992 from the said lessees.

The Court held 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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2) PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC. V. THE SECRETARY, DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT June 10, 2003 G.R. No. 143076 Facts: On May 23, 2000, petitioner Philippine Rural Electric Cooperatives Association (PHILRECA), an association of 119 electrical cooperatives in the country, filed a class suit seeking to annul as unconstitutional sections 193 and 234 of the Local Government Code on the ground that it violates the equal protection clause of the Constitution, among others.

Said sections provide:

Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

Sec. 234. Exemptions from real property tax. The following are exempted from payment of the real property tax:

d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons whether natural or juridical, including all government owned and controlled corporations are hereby withdrawn upon effectivity of this Code.

Petitioners argue that said provisions unduly discriminate against them who are duly registered cooperatives under P.D. No. 269, as amended, or the National Electrification Administration Decree, as opposed to those cooperatives registered under R.A. No. 6938 or the Cooperative Code of the Philippines. Allegedly, cooperatives registered under R.A. No. 6938 are singled out for tax exemption privileges under the Local Government Code whereas those registered under the NEA are not.

Issue: Do Section 193 and 234 of the Local Government Code violate the equal protection clause

Held: No. The equal protection clause means that “no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances. However, the equal protection clause is not violated by a law based on reasonable classification. Classification, to be reasonable, must 1) rest on substantial distinctions, 2) germane to the purposes of the law, 3) not be limited to existing conditions only, and 4) apply equally to all members of the same class.

There is reasonable classification in the case at bar.

First, substantial distinctions exist between cooperatives under P.D. No. 269 and cooperatives under R.A. No. 6938. There are characteristics present in cooperatives registered under R.A. 6938 which are absent in those created under P.D. No. 269.

In cooperatives envisioned under R.A. No. 6938, the members of the cooperative make equitable capital contributions to keep the cooperative afloat with the members accepting a fair share of the risks and benefits of the undertaking. On the other hand, cooperatives under P.D. 269 do not require the members thereof to make substantial distribution to the capital required. It is the government that puts in the capital, in most cases. Nowhere in P.D. 269 does it require cooperatives to make equitable contribution to capital.

Also, in cooperatives under the Cooperative Code, the principle of subsidiarity subsists. Thus, the government may only engage in development activities where cooperatives do not possess the capability nor the resources to do so and only upon the request of such cooperatives. On the other hand, P.D. 269 is replete with provisions which grant the National Electrification Administration, upon the happening of certain events, the power to control and take over the management and operations of cooperatives registered under it. The extent of government control over electric cooperatives covered by P.D. 269 is largely a function of the role of NEA as a primary source of funds of these electric cooperatives.

Second, the classification of tax exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy does not mean that the exercise of power by local governments is beyond regulation by Congress. Thus, while each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy. Section 193 is indicative of the

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legislative intent to vest broad taxing powers upon local government units and to limit exemptions from local taxation to entities specifically provided therein.

Also, in Mactan Cebu International Airport Authority v. Marcos, the Supreme Court held that the limited and restrictive nature of the tax exemption privileges under the Local Government Code is consistent with the State policy to ensure autonomy of local governments and the objective of the Local Government Code to grant genuine and meaningful autonomy to enable local government units to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The obvious intention of the law is to broaden the tax base of local government units to assure them of substantial sources of revenue.

Finally, Sections 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. Exemptions from local taxation, including real property tax, are granted to all cooperatives covered by R.A. No. 6938 and such exemptions exist for as long as the LGC and the provisions therein on local taxation remain good law.

3) CITY ASSESSOR OF CEBU CITY V. ASSOCIATION OF BENEVOLA DE CEBU June 8, 2007 G.R. No. 152904 Facts: Respondent Association of Benevola de Cebu, Inc is the owner of Chong Hua Hospital in Cebu City. In the late 1990’s, respondent constructed the CHH Medical Arts Center (CHHMAC). On April 17, 1998, a Certificate of Occupancy was issued to the center with a classification of “Commercial” Clinic.

Thereafter, petitioner 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. Aggrieved, respondent filed a letter petition with the Cebu City Local Board of Assessment Appeals for reconsideration asserting, in the main, that CHHMAC is part of CHH and ought to be imposed the same special assessment of 10%.

Issue: Whether or not the CHHMAC is entirely separate from the CHH to merit an assessment of 35% instead of the special assessment of 10% imposed upon CHH and its other buildings

Held: It is not separate from CHH. Thus, it should be given the special assessment of 10% instead of the 35% currently imposed upon it by the City Assessor of Cebu.

First, the CHHMAC is an integral part of CHH. It is undisputed that the doctors and medical specialists holding clinics in CHHMAC are those duly accredited by CHH. 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, like CHHMAC, 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.

Also, the fact that CHHMAC is a hundred meters from the main building does not denigrate from its being an integral part of CHH. The exemption in favour of property used exclusively for charitable or educational purposes is not limited to property actually indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. Verily, being an integral part of CHH, CHHMAC should be under the same special assessment level as that of the former.

Second, the fact that respondent charges rentals for the offices and clinics its accredited physicians occupy cannot be equated to a commercial venture which is mainly for profit. It must be noted that CHHMAC is only for CHH’s consultants or accredited doctors and medical specialists. Charging rentals is also a necessity to recoup the investment cost of the building, to cover the rentals for the lot CHHMAC is built on, and to maintain the building and its facilities. 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.

Given the foregoing, the CHHMAC, with operations being devoted for the benefit of CHH’s patients, it should be accorded the 10% special assessment.

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4) CITY GOVERNMENT OF SAN PABLO V. HON. BIENVENIDO REYES March 25, 1999 G.R. No. 127708 Facts: Act No. 3648 granted the Escudero Electric Service Company a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo and nearby municipalities. Under Republic Act No. 2340, the franchise was soon transferred in favour of respondent Manila Electric Company (MERALCO).

On January 1, 1992, the Local Government Code took effect. The said Code authorizes the province/city to impose a tax on business enjoying a franchise at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year realized within its jurisdiction. Thereafter, on October 5, 1992, the Sangguniang Panlungsod of San Pablo City enacted Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo. Its Section 2.09, Article D provides:

Sec. 2.09. Franchise Tax. There is hereby imposed a tax on business 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 the city.

Pursuant to the above provision, the City Treasurer sent to MERALCO a letter demanding payment of the aforesaid franchise tax. From 1994 to 1996, private respondent MERALCO paid under protest a total amount of P1,857,711.67.

Subsequently, MERALCO filed this action to declare Ordinance No. 56 as null and void insofar as it imposes the franchise tax upon private respondent and to claim for a refund of the taxes paid.

Issue: Whether or not the City of San Pablo may impose a local franchise tax pursuant to the LGC upon MERALCO which pays a tax equal to 2% of its gross receipts in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on savings or income.

Held: Yes. Sec. 534 of the LGC impliedly repealed the MERALCO franchise. Said provision provides:

Sec. 534 (f). Repealing Clause. All general and special law, acts, city charters, decrees, executive orders, proclamation 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.

Pertinently, Sections 137, 151 and 193 of the LGC provide:

Sec. 137. Franchise Tax. Notwithstanding any exemption granted by any law or other special law, the province may 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 based on the incoming receipts, or realized, within its territorial jurisdiction.

Sec. 151. Scope of Taxing Powers. Except as otherwise provided in this Code, the city, may levy the taxes, fees and charges which the province or municipality may impose: Provided, however, that the taxes, fee and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.

Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

Here, the petitions correctly rely on Sections 137 and 193 of the LGC to support their position that MERALCO’s tax exemption has been withdrawn. The explicit language of Section 137 is clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided, tax exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical, are withdrawn upon the effectivity of the LGC, the obvious import is to limit the exemptions to the three enumerated entities mentioned in the said section. Expressio unius est exclusio alterius. 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. The express

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withdrawal upon effectivity of the LGC of all exemptions, except only as provided therein, can no longer be invoked by MERALCO to disclaim liability for the local tax.

Private respondents further argue that the "in lieu of" provision contained in PD 551, Act. No. 3648 and RA 2340 does not partake of the nature of an exemption, but is a "commutative tax". This contention was raised but was not upheld in Cagayan Electric Power and Light Co. Inc. vs. Commissioner of Internal Revenue wherein the Supreme Court stated:

. . . Congress could impair petitioner's legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise . . .

. . . Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate tax payers not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's exemption from income tax . . .

5) FIRST PHILIPPINE INDUSTRIAL CORPORATION V. COURT OF APPEALS December 29, 1998 G.R. No. 125948 Facts: Petitioner is a grantee of a pipeline concession under R.A. No. 387, as amended, to contract, install and operate oil pipelines. 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. In order not to hamper its operations, petitioner paid the tax under protest for the first quarter of 1993.

On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer on the ground that being a pipeline operator, it is exempt from paying taxes under Section 133 of the LGC. Furthermore, the authority granted under Section 143 of the LGC does not include the power to levy on a transportation contractor of which petitioner is considered.

On March 8, 1994, the City Treasurer denied the protest on the ground that petitioner cannot be considered engaged in transportation business.

Issue: Whether or not petitioner is a common carrier or a transportation contractor and thus, is not included within the enumeration in Section 133 of contractors over whom the LGC may levy taxes

Held: Petitioner is a common carrier and as such is exempt from paying the local business tax. Article 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 definition, 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, that is, to all persons who choose to employ its services, and transports the goods by land and for a compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier.

Since petitioner is a common carrier, it is exempt from the business tax as provided for in Section 133 of the Local Government Code. The exemption is made so as to prevent a duplication of the so-called common carrier’s tax. Petitioner is already paying 3% 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 purposes of the LGC.

6) MANILA ELECTRIC COMPANY V. PROVINCE OF LAGUNA May 5, 1999 G.R. No. 131359 Facts: On various dates, certain municipalities of Laguna, by virtue of existing laws then in effect, issued resolutions granting franchise in favour of MERALCO for the supply of electric light, heat, and power within their concerned areas. On January 1, 1992, the Local Government Code took effect. Thereafter, the Provincial Government of Laguna enacted Laguna Provincial Ordinance No. 01-92 which provides in part:

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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.

Accordingly, the Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment. MERALCO paid the tax under protest. Thereafter, a formal claim for refund was paid by MERALCO claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. The same was, however, denied. Hence, MERALCO instituted the present petition.

Issue: Whether or not the franchise tax imposed by the Provincial Government of Laguna is valid notwithstanding the provisions of P.D. 551 and the contract between MERALCO and the different municipalities of Laguna

Held: Yes. It is worthy to note that local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or statute. Presently, Article X of the 1987 Constitution gives a general delegation of that power in favour local government units, thus:

Sec. 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions, and duties of local officials, and all other matters relating to the organization and operation of the local units.

Sec. 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.

Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not be 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 explicitly authorizes provincial governments, notwithstanding "any exemption granted by any law or other special law to impose a tax on businesses enjoying a franchise." Thus, Section 137 thereof provides:

Sec. 137. Franchise Tax — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.

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. Thus:

Sec. 193. Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

The Code, in addition, contains a general repealing clause in its Section 534; thus:

Sec. 534. Repealing Clause. — . . .

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(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly.

In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et al., the Court has held that the phrase in lieu of all taxes "have to give way to the peremptory language of the Local Government Code specifically providing for the withdrawal of such exemptions, privileges," and that "upon the effectivity of the Local Government Code all exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim liability for the local tax." In fine, the Court has viewed its previous rulings as laying stress more on the legislative intent of the amendatory law — whether the tax exemption privilege is to be withdrawn or not — rather than on whether the law can withdraw, without violating the Constitution, the tax exemption or not.

While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes of the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution 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.

7) PHILIPPINE BASKETBALL ASSOCIATION VS. COURT OF APPEALS G.R. NO. 13156 MAY 5, 1999 FACTS

PBA received a tax assessment from the BIR for deficiency on amusement taxes. Petitioner contested the assessment by filing a protest with respondent Commissioner who denied the same. Petitioner filed a petition for review with the Court of Tax Appeals questioning the denial by respondent Commissioner of its tax protest.On December 24, 1993, respondent CTA dismissed petitioner’s petition. Petitioner appealed the CTA decision to the Court of Appeals. Petitioners petition was also denied. Hence he raised the case to the Supreme court. Petitioner contends 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. ISSUE

Who between the national government and local government should petitioner pay amusement taxes? RULING

Sec. 13. Amusement tax on admission. -The province shall impose a tax on admission to be collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement xxx."

The foregoing provision of law in point indicates that the province can only impose a tax on admission from the proprietors, lessees, or operators oftheaters, cinematographs, concert halls, circuses and other places of amusement. The authority to tax professional basketball games is not therein included.

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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.

8) PROVINCE OF BULACAN vs. COURT OF APPEALS G.R.NO. 128232 NOVEMBER 27, 1998 FACTS On June 26, 1992, theSangguniangPanlalawiganof Bulacan passed Provincial Ordinance No. 3, known as "An Ordinance Enacting the Revenue Code of the Bulacan Province." 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 but was denied by the Provincial Treasurer on January 17, 1994. Republic Cement consequently filed a petition for declaratory relief with the RTC 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. In the interim, the Province of Bulacan issued a warrant of levy against Republic Cement, allegedly because of its unpaid tax liabilities. Negotiations between Republic Cement and petitioners resulted in an agreement and modus vivendi (temporary agreement) 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 had no legal authority. ISSUE W/N 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?

RULING No. The pertinent provisions of the Local Government Code are as follows:

Sec. 134. Scope of Taxing Powers. — Except as otherwiseprovided in this Code, the province may levy only the taxes, fees, and charges as provided in this Article. Sec. 158. Tax on Sand, Gravel and Other Quarry Resources. — The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as

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amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction. xxxxxxxxx

The CA 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 I, Chapter 2, Title 1 of Book II of the Local Government Code. On the other hand, petitioners claim that Sections 129 and 186 of the Local Government Code authorizes the province to impose taxes other than those specifically enumerated under the Local Government Code. The CA 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. However, in spite of this, province of Bulacan is 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 of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxxxxxxx (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; xxxxxxxxx

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.

9) MIAA V. COURT OF APPEALS G.R. No. 155650, July 20, 2006 Facts: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Parañaque City As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. 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. On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. The City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC 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. On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing

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real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings.But this was dismissed forhaving been filed out of time.Hence, MIAA filed this petit ion for review Issue: This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. (If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.) Held:

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

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 andinstrumentalities x xx." 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.

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 ataxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

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.29

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10) DRILON vs LIM

G.R. No. 112497 August 4, 1994

FACTS: The principal issue in this case is the constitutionality of 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.

Pursuant thereto, the Secretary of Justice had, on appeal to him of four oil companies and a taxpayer, declared Ordinance No. 7794, otherwise known as the Manila Revenue Code, null and void for non-compliance with the prescribed procedure in the enactment of tax ordinances and for containing certain provisions contrary to law and public policy. 1

In a petition for certiorari filed by the City of Manila, the Regional Trial Court 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:

The judgment of the lower court is reversed in so far as its declaration that Section 187 of the Local Government Code is unconstitutional but affirmed the said lower court’s finding that the procedural requirements in the enactment of the Manila Revenue Code have been observed.

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. 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.

An officer in control lays down the rules in the doing of an act. It they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority.

The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. In the opinion of the Court, Secretary Drilon did precisely this, and no more nor less than this, and so performed an act not of control but of mere supervision.

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Real Property Taxation

1) DAVAO SAW MILL CO. vs. CASTILLO G.R. No. L-40411 August 7, 1935 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 the following provision:

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; also, in the event the party of the second part should leave or abandon the land leased before the time herein stipulated, the improvements and buildings shall likewise pass to the ownership of the party of the first part as though the time agreed upon had expired: Provided, however, That the machineries and accessories are not included in the improvements which will pass to the party of the first part on the expiration or abandonment of the land leased.

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. No third party claim was filed for such properties at the time of the sales thereof as is borne out by the record made by the plaintiff herein.

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.

Issue:

What is the nature of the properties?

Held:

The machineries should be classified as personal properties. It must 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.

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. The distinction rests upon the fact that one only having a temporary right to the possession or enjoyment of property is not presumed by the law to have applied movable property belonging to him so as

to deprive him of it by causing it by an act of immobilization to become the property of another.

2) CITY OF BAGUIO VS. BUSUEGO G.R. NO. L-29772 SEPTEMBER 18, 1980

FACTS: This tax collection suit instituted by the City of Baguio, against appellant Fernando S. Busuego, originated in the City Court and was subsequently elevated to the Court of First Instance.

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Under Commonwealth Act No. 186, the GSIS as well as its property are exempt from payment of all types and kinds of taxes.

On August 11, 1959, defendant Busuegoand the Government Service Insurance System (GSIS) executed a "Contract to Sell" over the subject property. Although the agreed purchase price of the property has not been fully paid, Busuego was already using the said property. The City of Baguio has consistently assessed the subject property. The unpaid taxes on record on the property for 1962 to 1966 amounted to P1,656.00. Despite demands made to Busuego for payment of said taxes, he refused and failed to pay the same.

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 until the same is fully paid. Upon appeal, the court of first instance,likewise held that defendant as owner was liable for the realty taxes on the property.

ISSUE: Whether the subject property is still exempt from tax, considering that the defendant has beneficial use over the same?

HELD: NO. Section 40(a) of Presidential Decree No. 464 entitled “The Real Property Tax Code” provides:

Sec. 40.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.

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.

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”.

The judgment of the CFI was affirmed by the Court.

3) REYES VS ALMANZOR G.R. NOS. L-49839-46 APRIL 26, 1991 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.

Republic Act No. 6359 was enacted, 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. Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below P300.00.

Consequently, 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 duly reviewed by the Secretary of Finance. The revision 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

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Assessor adopted. However, the Board of Tax Assessment Appealsconsidered the assessments valid. The Reyeses appealed to the Central Board of Assessment Appeals, which affirmed the assailed valuation and assessment.

ISSUE: Whether the assessments were excessive, unwarranted, inequitable, confiscatory and unconstitutional?

HELD: YES.Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be uniform, but must also be equitable and progressive.Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate. Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected.

Ironically, 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. Nothing can justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially during the time in question, there were hardly any willing buyers. As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that these properties were comparable with other residential properties not burdened by P.D. 20. Neither can the given circumstances be nonchalantly dismissed by public respondents as imposed under distressed conditions clearly implying that the same were merely temporary in character. At this point in time, the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has existed for around twenty (20) years with no end to it in sight.

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.

The respondent Board of Assessment Appeals of Manila and the City Assessor of Manila were ordered to make a new assessment by the income approach method to guarantee a fairer and more realistic basis of computation.

4) PECSON vs. COURT OF APPEALS G.R. No. 105360 May 25, 1993 FACTS: PetitionerPecson 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. The said property was sold at public auction by respondent Regis on November 12, 1980 for non-payment of realty taxes. 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 also 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 in favor of respondent Nepomuceno. As a result, a new TCT was issued in the name of 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. Nepomuceno's title to the property was cancelled anda new TCT was issued in the names of respondents Tan and Nuguid.

Petitioner assails the validity of the public sale in favor of Nepomuceno on the ground 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 the petitioner was not given the proper notice to the sale of the subject property, thus rendering the sale as null and void?

HELD: NO.The governing law in this case is P.D. No. 464, known as the Real Property Tax Code. Section 73 thereof, with the epigraph "Advertisement of sale of real property at public auction," in pertinent part, provides:

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Copy of notices shall forthwith be sent either by registered mail or by messenger, or through the barrio captain, to the delinquent taxpayer, 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 at his residence, if known to said treasurer or barrio captain. Provided, however, that a return of the proof of service under oath shall be filed by the person making the service with the provincial or city treasurer concerned.

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.In the register for the tax years starting from 1982, the address of petitioner was recorded as "79 Paquita, Mla." Hence, petitioner was given the proper notice when the notice of sale was sent to his address as recorded in the tax rolls or property tax record cards.

Petitioner has nobody to blame but himself for this misfortune that befell him. As a property owner and a school teacher at that, he should know that if an owner fails to pay the real estate taxes on property, the said property shall be sold at public auction to recover the delinquent taxes. When petitioner's property was sold at a public auction in December 1980, the tax delinquency must have accumulated for several years. It was only on July 12, 1982 that the order for consolidation of title in the name of respondent Nepomuceno was issued and it was only on December 8, 1983 that the title over the property was transferred to respondents Tan and Nuguid. All throughout these years, petitioner never displayed an interest in paying the real estate taxes on the property. Worse, he introduced improvements thereon without reporting the same for tax purposes. Had he reported the improvements he had introduced on the property, the Office of the Treasurer of Quezon City could have been informed of petitioner's new address in Quezon City.

5) MATHAY VS. MACALINCAG G.R. No. 97618 December 16, 1993

FACTS: On March 21, 1991, Ismael A. Mathay, Jr., a member of Congress, and registered owner of lands in Quezon City and resident of Metro Manila, instituted in this Court a special civil action of prohibition against Victor Macalincag, then the Undersecretary of Finance, the City Assessor and the City Treasurer of Quezon City.His petition sought the perpetual enjoinment, as unconstitutional and void, of "(a) the schedule of market values prepared by respondent City Assessor for all classes of real property situated in Quezon City, (b) the approval of said schedule by respondent Victor Macalincag, (c) the revised and/or increased assessments of the properties prepared by the City Assessor based on the illegal schedule of market values, and (d) 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 main argument of petitioner for 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:

Sec. 9.Preparation of Schedule of Values for Real Property within the Metropolitan Area. — 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, in accordance with the pertinent provisions of Presidential Decree No. 464, as amended, otherwise known as the Real Property Tax Code, and the implementing rules and regulations thereby issued by the Secretary of Finance.

ISSUE: Whether or not the respondents in preparing/making the subject schedule of market values, violated the provisions of PD No.921?

HELD: YES.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 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.

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6) PATALINGHUG vs. COURT OF APPEALS

G.R. No. 104786 January 27, 1994 FACTS: The SangguniangPanlungsod of Davao City enacted Ordinance No. 363, series of 1982 otherwise known as the "Expanded Zoning Ordinance of Davao City”, which prohibited the establishment of funeral parlors or memorial homes within 50 meters from any residential structures, churches and other institutional buildings.

Petitioner commenced the construction of his funeral parlorat Cabaguio Avenue, Agdao, Davao City.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 IglesianiKristo Chapel and several residential structures, the SangguniangPanlungsod conducted an investigation and found that "the nearest residential structure, owned by Wilfred G. Tepoot is only 8 inches to the south."Notwithstanding the findings of the SangguniangPanlungsod, petitioner continued to construct his funeral parlor which was finished on November 3, 1987.

Consequently, private respondents filed on September 6, 1988 a case for the declaration of nullity of a building permit with preliminary prohibitory and mandatory injunction and/or restraining order with the trial court.After conducting its own ocular inspection, the lower court dismissed the complaint based on the finding 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.

Private respondents appealed to the Court of Appeals. The Appellate Court reversed the lower court’s decision on the ground that although the buildiong was used by Mr. Tepoot's lessee for laundry business, it was a residential lot as reflected in the tax declaration, thus paving the way for the application of Ordinance No. 363.

ISSUE: Whether a tax declaration is conclusive of the nature of the property for zoning purposes?

HELD: NO. 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-visthe determination of a property for zoning purposes. Even if we are to examine the evidentiary value of a tax declaration under the Real Property Tax Code, a tax declaration only enables the assessor to identify the same for assessment levels. In fact, a tax declaration does not bind a provincial/city assessor, for under Sec. 22 of the Real Estate Tax Code,appraisal and assessment are based on the actual use irrespective of "any previous assessment or taxpayer's valuation thereon," which is based on a taxpayer's declaration. In fact, a piece of land declared by a taxpayer as residential may be assessed by the provincial or city assessor as commercial because its actual use is commercial.

7) TY vs. TRAMPE

FACTS:

Petitioner Alejandro B. Ty is a resident of and registered owner of lands and buildings in the Municipality (now City) of Pasig, while petitioner MVR Picture Tube, Inc. is a corporation duly organized and existing under Philippine laws and is likewise a registered owner of lands and buildings in said Municipality

On 06 January 1994, respondent Assessor sent a notice of assessment respecting certain real properties of petitioners located in Pasig, Metro Manila. In a letter dated 18 March 1994, petitioners through counsel "request(ed) the Municipal Assessor to reconsider the subject assessments"

Not satisfied, petitioners filed with the Regional Trial Court of the National Capital Judicial Region, Branch 163, presided over by respondent Judge, a Petition for Prohibition with prayer for a restraining order and/or writ of preliminary injunction to declare null and void the new tax assessments and to enjoin the collection of real estate taxes based on said assessments.

Respondent Judge denied the petition "for lack of merit." The court a quo ruled that the schedule of market values and the assessments based thereon prepared solely by respondent assessor are valid and legal, they having been prepared in accordance with the provisions of the Local Government Code of 1991 (R.A. 7160). It held also that said Code had

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effectively repealed the previous law on the matter, P.D. 921, which required, in the preparation of said schedule, joint action by all the city and municipal assessors in the Metropolitan Manila area.

ISSUE: Whether Republic Act No. 7160, otherwise known as the Local Government Code of 1991, repealed the provisions of Presidential Decree No. 921;

HELD: NO

R.A. 7160 has a repealing provision (Section 534) and, if the intention of the legislature was to abrogate P.D. 921, it would have included it in such repealing clause. An implied repeal will not be allowed unless it is convincingly and unambiguously demonstrated that the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist. This is based on the rationale that the will of the legislature cannot be overturned by the judicial function of construction and interpretation. Courts cannot take the place of Congress in repealing statutes. Their function is to try to harmonize, as much as possible, seeming conflicts in the laws and resolve doubts in favor of their validity and co-existence.

Sec. 9 of P.D. 921 requires that the schedule of values of real properties in the Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created therein: while Sec. 212 of R.A. 7160 states that the schedule shall be prepared "by the provincial, city and municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the sanggunian concerned. . . ."

It is obvious that harmony in these provisions is not only possible, but in fact desirable, necessary and consistent with the legislative intent and policy. By this harmonization, both the preamble of P.D. 921 decreeing 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. Indeed the essence of joint local action for common good so cherished in the Local Government Code finds concrete expression in this harmonization.

Since it is now clear that P.D. 921 is still good law, it is equally clear that this Court's ruling in the Mathay/Javier/Puyat-Reyes cases (supra) is still the prevailing and applicable doctrine. And, applying the said ruling in the present case, it is likewise clear that the schedule of values prepared solely by the respondent municipal assessor is illegal and void.

8) TALENTO VS. ESCALADA EMERLINDA S. TALENTO, in her capacity as the Provincial Treasurer of the Province of Bataan, vs. HON. REMIGIO M. ESCALADA, JR., Presiding Judge of the Regional Trial Court of Bataan, Branch 3, and PETRON CORPORATION [G.R. No. 180884. June 27, 2008.] Facts: Petron received from the Provincial Assessor's Office of Bataan a notice of revised assessment over its machineries and pieces of equipment in Lamao, Limay, Bataan. Petron filed a petition with the LBAA. Petron received from petitioner a final notice of delinquent real property tax with a warning that the subject properties would be levied and auctioned should Petron fail to settle the revised assessment due. Consequently, Petron sent a letter to petitioner stating that in view of the pendency of its appeal with the LBAA, any action by the Treasurer's Office on the subject properties would be premature. However, petitioner replied that only Petron's payment under protest shall bar the collection of the realty taxes due, pursuant to Sections 231 and 252 of the LGC. On even date, Petron filed with the Regional Trial Court of Bataan the instant case (docketed as Civil Case No. 8801) for prohibition with prayer for the issuance of a temporary restraining order (TRO) and preliminary injunction. The trial court issued the assailed Order granting Petron's petition for issuance of writ of preliminary injunction, subject to Petron's posting of a P444,967,503.52 bond in addition to its previously posted surety bond of P1,286,057,899.54, to complete the total amount equivalent to the revised assessment of P1,731,025,403.06. The trial court held that in scheduling the sale of the properties despite the pendency of Petron's appeal and posting of the surety bond with the LBAA, petitioner deprived Petron of the right to appeal. Issue/Held: W/N the trial court properly issued the injunction order- YES

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Ratio: We are not unaware of the doctrine that taxes are the lifeblood of the government, without which it cannot properly perform its functions; and that appeal shall not suspend the collection of realty taxes. However, there is an exception to the foregoing rule, i.e., where the taxpayer has shown a clear and unmistakable right to refuse or to hold in abeyance the payment of taxes. In the instant case, we note that respondent contested the revised assessment on the following grounds: that the subject assessment pertained to properties that have been previously declared; that the assessment covered periods of more than 10 years which is not allowed under the LGC; that the fair market value or replacement cost used by petitioner included items which should be properly excluded; that prompt payment of discounts were not considered in determining the fair market value; and that the subject assessment should take effect a year after or on January 1, 2008. To our mind, the resolution of these issues would have a direct bearing on the assessment made by petitioner. Hence, it is necessary that the issues must first be passed upon before the properties of respondent are sold in public auction.

9) FELS ENERGY, INC., v. THE PROVINCE OF BATANGAS

G.R. No. 168557, February 16, 2007

FACTS: National Power Corporation (NPC) is a lessee of Polar Energy, Inc., the lessor of diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The lease contract was denominated as Energy Conversion Agreement. The agreement provides that NPC shall be responsible for the payment of taxes, import duties, fees, charges and other levies imposed by the National Government or an of its instrumentalities. Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. FELS received an assessment for real property taxes (RPT) on the power barges from Provincial Assessor Lauro Andaya of Batangas City. Fels invoked RPT exemption on the ground that it is a mere assignee of the rights of the under the agreement between NPC and Polar which stated that liability for taxes shall be shouldered by NPC. Fels also contended that power barges are exempt from RPT under Section 234 (c) of R.A. No. 7160 which provides for RPT exemption for real properties actually, directly and exclusively used by government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power.

ISSUES: (a) Are the power barges subject to RPT? (b) Is Fels contention that it is RPT-exempt relying on the agreement that “NPC should be liable for taxes due” tenable? (c) Is Fels contention that it is RPT-exempt because same is “actually, directly and exclusively used by government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power” tenable?

HELD: (a) Yes. The power barges fall under the enumeration of immovable property under 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), hence, subject to RPT.

(b) No. Fels’ contention that it is RPT-exempt relying on the agreement that “NPC should be liable for taxes due” is untenable. The mere undertaking of NPC that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to NPC cannot be extended to FELS since the covenant is between FELS and NPC, hence, does not bind a third person not privy thereto, in this case, the Province of Batangas. Taxation is the rule and exemption is the exception. Applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, the SC held that FELS is considered a taxable entity.

(c) No. Under the agreement, POLAR shall own the Power Barges and all the fixtures, fittings, machinery and equipment on the Site used in connection with the Power Barges which have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of converting Fuel of NPC into electricity. Hence, it cannot be said that the power barges are actually, directly and exclusively used by NPC, a government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power. It follows then that FELS cannot escape liability from the payment of RPT by invoking its exemption in Section 234 (c) of R.A. No. 7160.

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10) MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY vs. FERDINAND MARCOS G.R. No. 120082. September 11, 1996 FACTS: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to “principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, x xx and such other airports as may be established in the Province of Cebu x xx” (Sec. 3, RA 6958). 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. 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 located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79. Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units:

Section 133.Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (underscoring supplied)

Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect on January 1, 1992:

Section 193. Withdrawal of Tax Exemption Privilege.— Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

ISSUE: Whether Mactan Cebu International Airport Authority is liable to pay taxes to the City of Cebu HELD: YES. Since MCIAA is a government-owned or controlled corporation, its exemption from payment of property taxesgranted by Section 14 of its charter has been withdrawn, by virtue of Section 234 of the Local Government Code.MCIAA cannot claim that it was never a ³taxable person´ under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent tomake it a taxable person subject to all taxes, except real property tax. Moreover, the petitioner cannot claim that it was never a “taxable person” under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already become, even if it be conceded to be an “agency” or “instrumentality” of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

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11) SESBREÑO vs. CENTRAL BOARD OF ASSESSMENT APPEALS

Facts: On April 3, 1980, petitioner purchased from Estrella Benedicto Tan two (2) parcels of land covered by Transfer Certificate of Title No. T-55917 issued by the Register of Deeds of Cebu City.The conveyance included "a residential house of strong materials constructed on the lots above-mentioned" located in Cebu City. Petitioner declared the real property constructed on the said lots for purposes 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 at a market value of P60,000.00 and an assessed value of P36,900.00. During a tax-mapping operation the field inspectors of the Cebu City Assessor discovered that the real property declared and assessed was actually a residential building consisting of four (4) storeys with a fifth storey used as a roof deck with a total floor area of 500.20 square meters. These findings were confirmed by the Board of Commissioners in an ocular inspection conducted on the subject property. Respondent City Assessor of Cebu City issued a new assessment at a net market value of P499,860.00 and an assessed value of P374,900.00.Petitioner protested the new assessment for being "excessive and unconscionable," contending that it was increased by more than 1,000% as compared to its previous market value of P60,000.00 or assessed value of P36,900.00 and "that he bought the building including the lots for only P100,000.00 on April 3, 1980, which amount should be the market value of the building for purposes of determining its assessed value." He questioned the new assessment before the Local Board of Assessment Appeals of Cebu City, which however dismissed petitioner's appeal on January 11, 1990.Hence, petitioner elevated his case to Respondent Central Board of Assessment Appeals. The petitioner, not being satisfied with the decision of CBAA filed a motion for reconsideration.

Issues:

1.May the Central Board of Assessment Appeals and thereafter the Supreme Court take up and consider issues not raised before the Local Board of Assessment Appeals?

2.Whether or not petitoner is liable for the back taxes assessed on the property — initially declared as a "residential house of strong materials" — after the City Assessor discovered years later that such property was after all a residential building consisting of four storeys with a fifth storey used as roof deck?

Held:

1.Petitioner argues that the issue of back taxes has never been raised before the Local Board of Assessment Appeals or the

Central Board of Assessment Appeals. Hence, respondents are barred by due process and fair play from alleging them before Respondent CBAA and now before this Court. As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration.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,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 back taxes is essential to a just decision on the case, as will be shown below.

2.Arguing that he should not be liable for back taxes, petitioner states that Respondent CBAA should have applied Section 24, instead of Section 25, of PD 464. These statutory provisions read:

"Section 24. Date of effectivity of Assessment or Reassessment. — All assessments or reassessments made after the first day of January of any year shall take effect on the first day of January of the succeeding year: Provided, however, That the reassessment of real property due to its (1) partial or total destruction, or to (2) a major change in its actual use, or to any (3) great and sudden inflation or deflation of real property values, (4) or to the gross illegality of the assessment when made or to any other abnormal cause, shall be made within ninety days from the date any such cause or causes occurred, the same to take effect at the beginning of the quarter next following the reassessment.

Section 25. Assessment of Property Subject to Back Taxes. — Real property declared for the first time shall have back taxes assessed against it for the period during which it would have been liable if assessed from the first in proper course but in no case for more than ten years prior to the year of initial assessment; Provided, however, that the back taxes shall be computed on the basis of the applicable schedule of values in force during the corresponding period.

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The court held that 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 to evade his obligation to the government by letting him pay taxes on a property based on its gross undervaluation at P60,000.00, when the same had then a current market value of P449,860.00.Accepting the petitioner's position will necessarily prejudice the public interest, for the government is thereby deprived of back taxes which ought to have been paid in the first place. This will certainly subvert the raison d'etre of the law which is to raise taxes, the lifeblood of the government. Furthermore, if Section 24 is the only applicable provision in cases where a taxpayer has eluded the payment of the correct amount of taxes for more than nine (9) years, as in this case, Section 25 of PD 464 which requires the payment of back taxes will be rendered superfluous and nugatory. Such interpretation could not have been intended by the law. It is a familiar rule in statutory construction that "(t)he legal provision being therefore susceptible of two interpretations, we adopt the one in consonance with the presumed intention of the legislature to give its enactments the most reasonable and beneficial construction, the one that will render them operative and effective and harmonious with other provisions of law.

12) LOPEZ vs. CITY OF MANILA [G.R. No. 127139. February 19, 1999]

FACTS: Republic Act 7160 (R.A. 7160) or the Local Government Code of 1991, Sec 219 requires the conduct of the general revision of real property. In September 1995, the City Assessor's Office submitted the proposed schedule of fair market values to the City Council for its appropriate action. The Council acting on the proposed schedule, enacted Manila Ordinance No. 7894, and made effective on Jan. 01, 1996. With the implementation of the ordinance, 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 ordinance with preliminary injunction and prayer for temporary restraining order (TRO). On the same date, Manila

Ordinance No. 7905 took effect, reducing by fifty percent (50%) the assessment levels for the computation of tax due. Moreover, Section 2 of the said ordinance provides that the amendment embodied therein shall take effect retroactively to January 1, 1996. Despite the amendment brought about by Manila Ordinance No. 7905, the controversy proceeded.

Petitioner contends that the respondent court failed to apply correctly Sections 212 and 221 of R.A. 7160. The petitioner claims that the effectivity date of Manila Ordinance No. 7894 and the schedule of the fair market values is January 1, 1996. He contends that Sec. 212 of the R.A. 7160 prohibits the general revision of real property assessment before the approval of the schedule of the fair market values. Thus, the alleged revision of real property assessment in 1995 is illegal. Also, using Section 221 of R.A. 7160 as basis for his argument, petitioner claims that the 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.

ISSUES: 1. Whether or not the respondent court erred in failing to correctly apply RA 7160, section 212. 2. Whether or not the respondent court erred in failing to correctly apply RA 7160, sec. 221.

HELD: 1. NO. Based on the evidence presented by the parties, the steps to be followed for the mandatory conduct of General Revision of Real Property assessments, pursuant to the provision of Sec. 219, of R.A. No. 7160 are as follows: 1. The preparation of Schedule of Fair Market Values; 2. The enactment of Ordinances: a) levying an annual "ad valorem" tax on real property and an additional tax accruing to the SEF. b) fixing the assessment levels to be applied to the market values of real properties; c) providing necessary appropriation to defray expenses incident to general revision of real property assessments; and d) adopting the Schedule of Fair Market Values prepared by the assessors. 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. 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

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on November 1, 1995. Under the circumstances of this case, was compliance with the requirement provided under Sec. 212 of R.A. 7160.

2.NO. 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. In enacting this ordinance, the due process of law was considered by the City of Manila so that the increase in realty tax will not amount to the confiscation of the property.

13) CAGAYAN ROBINA SUGAR MILLING CO. VS. CA

G.R. No. 122451, Oct. 12, 2000

Facts:

This petition assails the decision of the CA denying petitioner’s motion for review the decision of the Central Board of Assessment Appeals. The CBAA dismissed petitioner’s appeal from the Resolution of the Local Board of Assessment Appeals, which fixed the market value of petitioner’s properties in Piat, Cagayan at P260,327,060. The Assets Privatization Trust (APT) offered for sale all the assets and properties of Cagayan Sugar Corporation (CASUCO), which was foreclosed and transferred to APT by the DBP. Petitioner as highest bidder acquired the property for P464,000,000. Among the properties were sugar mill machineries. The provincial assessor of Cagayan issued a Notice of Assessment of Real Property with a market value of P391,623,520 and assessed value of P313,298,820. The petitioner appealed on the ground that it was excessive, erroneous and unjust. LBAA fixed the value of machineries at P260,327,060 for assessment purposes. Petitioner contends that the formula provided by Section 28 of P.D. 464 must be applied: Remaining Economic Life x Replacement Cost = Current Market Value Economic Life Issue: Did the respondent err in finding the assessment of petitoner’s machineries proper and correct under the Real Property Tax Code (P.D. No. 464)? Held: No. The real property being taxed is for 1990 and the law applicable is P.D. 464 and not the Local Government Code (RA 7160). Section 28 of the Real Property Tax Code provides for the formula for computing the current market value but it must be read in consonance with Section 3 (n) 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 assessment of tax examiners are presumed correct and made in good faith. Petitioner failed to show that the use of APT floor price pursuant to Section 3 (n) of PD 464 was incorrect and done in bad faith. The method used cannot be deemed erroneous since there is no rigid rule for the valuation of the property. Petitioner has not also shown that the current value of its property will be significantly lower if its proposed formula is adopted. Additionally, petitioner filed its appeal to the CBAA out of time in violation of Section 34 of P.D. 464 where the owner is not satisfied of the decision of the LBAA, he may within 30 days from receipt of decision appeal to the CBAA. Petitioner received the decision on April 18, 1992 and only filed its appeal on November 25, 1992, beyond the period to perfect the appeal. Petition is dismissed.

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14) LIGHT RAIL TRANSIT AUTHORITY vs. CENTRAL BOARD OF ASSESSMENT APPEALS [G.R. No. 127316. October 12, 2000, PANGANIBAN, J.:] FACTS: Light Rail Transit Authority (LRTA) is a government-owned and controlled corporation created and organized under E.O. No. 603. It provides that LRTA is responsible for the construction, operation, maintenance and/or lease of light rail transit system in the Philippines. It fulfilment of its purpose it acquired real properties and eventually constructed structural improvements including buildings, carriageways, passenger terminal stations, and installed various kinds of machinery and equipment and facilities in order to operate. In 1984, the City Assessor of Manila assessed the real properties of LRTA including the improvements it constructed and installed, as provided in the Real Property Tax Code, commencing with the year 1985. LRTA paid almost all the real property taxes except the taxes for the carriageways and passenger terminal stations. It reasoned that those properties are not real properties under the Real Property Tax Code being for public use or purpose, but the City Assessor denied the claim. LRTA appealed with the Local Board of Assessment Appeals of Manila (LBAA-Manila) but was also denied by the latter. LBAA-Manila held that the carriageways and passenger terminal stations are improvements; thus they are real property under the Real Property Tax Code. The Court of Appeals (CA) also denied the appeal of LRTA. CA added to the ruling of the LBAA-Manila that the properties in question were not owned by the government; thus no exemption should be given. The CA also held that LRTA is a taxable entity and it uses the LRT system for its benefit. Lastly the CA explained that LRTA is a profit-oriented enterprise who only serves those paying the fare. ISSUE: Whether LRTA’s carriageways and passenger terminal stations are subject to real property taxes. HELD: Both carriageways and passenger terminal stations are subject to real property taxes. The Supreme Court raised three points in its ruling: First, the improvements in question are real property due to its characteristics. For tax purposes the concept of industrial accession as pointed out by LRTA is not important, rather it should be determined based on the real property’s incidents and from its natural and legal effects. As illustrated in the case, the carriageways and passenger terminal stations despite its attachment to public roads still shows its physical separability being elevated structures and inaccessible to the public. The Court further pointed out that the accessibility of public roads are different from the improvements since the latter are accessible to the train and its passengers. Second, the basis of assessment or its actual use of the properties are for those who can afford the fare. The LRT is different with public roads as to its actual use. Public roads are freely utilized by all types of vehicles and people, but the improvements made by are only accessible to trains and those who can afford the fare imposed. Third, LRTA failed to show proof that it can claim exemption from real property tax. An important law pointed out by the Court was E.O. No. 603 which created and organized LRTA, but it did not state that it can claim exemption from real property taxes. Article 4 of E.O. No. 603 only provides exemption as to direct and indirect taxes, duties or fees in connection with the importation of equipment not locally available. The Court also held at this point that pretending that the national government owns the improvements, LRTA cannot be granted exemption because it operates like a private corporation engaged in mass transport industry; wherein it is clothed with corporate status and power in fulfilment of its proprietary purpose. Thus LRTA is a taxable entity. Given all the points raised by Supreme Court, it only goes to shows that the City Assessor of Manila was correct in including the carriageways and passenger terminal stations in the assessment for real property taxes.

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Tariff and Custom Laws

1) JAO V. CA G.R. No. 104604 October 6, 1995

Facts:

On August 10, 1990, the Office of the Director, Enforcement and Security Services (ESS), Bureau of Customs, received information regarding the presence of allegedly untaxed vehicles and parts in the premises owned by a certain Pat Hao located in Paranaque and Makati. After conducting a surveillance of the places, respondent Major Jaime Maglipon, Chief of Operations and Intelligence of the ESS, recommended the issuance of warrants of seizure and detention against the articles stored in the premises. On August 13, 1990, the District Collector of Customs issued the warrants of seizure and detention. On the same date, said warrants were executed.

On August 25, 1990, customs personnel started hauling the articles pursuant to the amended warrants. This prompted petitioners Narciso Jao and Bernardo Empeynado to file a case for Injunction and Damages and for a Restraining Order and Preliminary Injunction before the RTC against respondents. The trial court issued a Temporary Restraining Order. On September 7, 1990, respondents filed a Motion to Dismiss on the ground that the RTC has no jurisdiction over the subject matter of the complaint, claiming that it was the Bureau of Customs that had exclusive jurisdiction over it. The RTC dismissed the same and further prohibited respondents from seizing, detaining, transporting and selling at public auction petitioners' vehicles, spare parts, accessories and other properties and ordered them to return the seized items and to render an accounting and inventory thereof. The respondents appealed to the CA which set aside the orders of the RTC.

Issue: Whether or not the RTC has jurisdiction over the present case?

Held:

No. The Supreme Court holds that, the Regional Trial Courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The RTC is thus, precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

According to the provisions of the Tariff and Customs Code and that of RA 1125, "An Act Creating the Court of Tax Appeals," specify the proper fora and procedure for the ventilation of any legal objections or issues raised concerning such proceedings. Thus, actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decision, is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals and then to the Court of Appeals. Such rule is founded upon the policy of placing no unnecessary hindrance on the government's drive, not only to prevent smuggling and other frauds upon Customs, but more importantly, to render effective and efficient the collection of import and export duties due the State, which in turn allows the government to carry out the functions it has been instituted to do.

2) TRANSGLOBE INTERNATIONAL, INC vs. COURT OF APPEALS

G.R. No. 126634 January 25, 1999

FACTS:

Petitioners are the owners of a shipment being questioned by the Bureau of Customs for alleged violation of the Tarriff and Customs Code. Acting on an information, agents of the Economic Intelligence and Investigation Bureau (EIIB) found that:

1. The 40 ft. van was made to appear as a consolidation shipment consisting of 232 packages with Translink Int'l. Freight Forwarder as shipper and Transglobe Int'l., Inc. as consignee;

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2. There were eight (8) shippers and eight (8) consignees declared as co-loaders and co-owners of the contents of the van, when in truth the entire shipment belongs to only one entity;

3. Not one of the items declared as the contents of the van, i.e., various hand tools, water cooling tower g-clamps compressors, bright roping wire and knitting machine w(as) found in the van. Instead the van was fully stuffed with textile piece goods.

Citing a violation of Sec.2503 in relation to Sec. 2530, par. (f) and (m), subpar. 3-5, District Collector Rosquetaordered its seizure. It was later ordered as forfeited in favor of the government after petitioners failed to appear at the set hearing.

A reversal of the initial recommendation took place after petitioners sought for redemption of the shipment. Instead, a recommendation of redemption was forwarded to Commissioner of Customs which, however, was rejected.

The issue was appealed before the CTA, which gave a favorable ruling to the petitioners relying on Sec. 1 of Executive Order No. 38, as applied in Gazzingan v. Commissioner of Customs: “since no fraud was found on the part of the

redemptioner, the CTA directed on 27 June 1995 that petitioner be allowed to redeem the shipment upon payment of its computed domestic market value.” This, however, was then reversed by the Court of Appeals.

ISSUE:

Whether petitioner should be allowed to redeem the forfeited shipment.

HELD:

The Supreme Court ruled in favor of the petitioners. The Court stated that petitioners based their petition for redemption through the provisions of Sec. 2307 of the Tariff and Customs Code. The said provision provides that redemption of forfeited property is unavailing in three (3) instances, namely, when there is fraud, where the importation is absolutely prohibited, or where the release of the property would be contrary to law.

The Court ruled that the respondent based their findings of fraud on unsubstantiated findings. It clarified that 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 some right. In the case, petitioner could not have committed such fraud since it was a mere consignee and it was not the one that preparedthe manifest. The wrongful making or falsity of the documents can only be attributed to the foreign suppliers or shippers.

Respondent should allow redemption, as this is in keeping with the intent of the law, which is to expedite revenue collection and hasten release of cargoes under seizure in such manner that the government, importers and exporters would all benefit

3) Acting Commissioner of Customs v. Court of Tax Appeals

[G.R. No. L-62636 April 27, 1984]

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 tipped-off 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. On 10 March 1980, 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. Proceedings for the seizure of the foreign

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currencies were also commenced at the Customs Office of the MIA in Pasay City, docketed as Seizure Identification No. 416280.

ISSUE

Who has the burden of proof in seizure or forfeiture proceedings?

HELD

The applicable law, Section 2535 of the Tariff and Customs Code, is explicit in this regard.

SEC. 2535. Burden of Proof in Seizure and/or Forfeiture. — 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 6 (Emphais ours).

Upon the facts of the case, 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. 7This 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. Aside from Andrulis' suspicious actuations when about to be apprehended on board the plane, which cast doubt on his alleged bona fide possession of the foreign currencies, his bare assertion in his Affidavit, claiming that "he came into the country with the intention of investing here and of going into joint ventures with local counterparts" 8, has not been corroborated by other convincing evidence.

4) CHEVRON PHILIPPINES VS. COMMISSIONER OF BOC

August 11, 2008

G.R No. 178759

Facts:

Chevron Phils. Inc., is engaged in the business of importing, distributing and marketing of petroleum products in the

Philippines. In 1996, the importations subject of this case arrived and were covered by 8 bills of lading. The shipments were

unloaded from the carrying vessels onto petitioner’s oil tanks over a period of 3 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 thereafter filed. The importations were appraised at

a duty rate of 3% as provided under RA 8180 and petitioner paid the import duties amounting to P316,499,021. Prior to the

effectivity of RA 8180 on April 16, 1996, the rate of duty on imported crude oil was 10%.Three years later, then Finance

Secretary received a letter denouncing the deliberate concealment, manipulation and scheme employed by petitioner in the

importation of crude oil, thereby resulting in huge losses of revenue for the government. This letter was endorsed to the

Bureau of Customs (BOC) for investigation.On August 1, 2000, petitioner received a demand letter from the District

Collector requiring t he immediate settlement of the amount of P73,535,830 representing the difference between the 10%

and 3% tariff rates on the shipments. Petitioner objected to the using of the 10% duty rate and insisted that the 3% tariff

rate should instead be applied. Furthermore it raised the defense of prescription against the assessment pursuant to

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Section1603 of the Tariff and Customs Code (TCC). Thus, it prayed that the assessment for deficiency customs duties be

cancelled and the notice of demand be withdrawn. The Special Investigator found that there was an irregularity in the filing

and acceptance of the import entries beyond the 30-day non-extendible period prescribed under Section 1301 of the TCC

and in the release of the shipments after the same had already been deemed abandoned in favor of the government.

Petitioner was then ordered to pay P1,180,170,769.21 representing the total dutiable value of the importations. The CTA

en banc held that it was the filing of the IEIRDs that constituted entry under the TCC. 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 1802of the TCC.

Issue: Whether "entry" under Section 1301 in relation to Section 1801 of the TCC refers to the IED or the IEIRD

Held:

Under Section 1301 of the TCC, imported articles must be entered within a non-extendible period of 30 days from

the date of discharge of the last package from a vessel. Otherwise, the BOC will deem the imported goods impliedly

abandoned under Section 1801.

Section 1801. Abandonment, Kinds and Effect of. - An imported article is deemed abandoned under any of the following circumstances:

xxx xxx xxx

b. When the owner, importer, consignee or interested party after due notice, fails to file an entry within thirty (30) days, which shall not be extendible, from the date of discharge of the last package from the vessel

xxxxx

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.

Section 205. Entry, or Withdrawal from Warehouse, for Consumption. - Imported articles shall be deemed "entered"

in the Philippines for consumption when the specified entry form is properly filed and accepted,

The filing of the IEIRDs has several important purposes: to ascertain the value of the imported articles, collect the correct

and final amount of customs duties and avoid smuggling of goods into the country. It is the IEIRD which accompanies the

final payment of duties and taxes. These duties and taxes must be paid in full before the BOC can allow the release of the

imported articles from its custody. Tariff and customs duties are taxes constituting a significant portion of the public

revenue which enables the government to carry out the functions it has been ordained to perform for the welfare of its

constituents. Hence, their prompt and certain availability is an imperative need and they must be collected without

unnecessary hindrance. Clearly, and perhaps for that reason alone, the submission of the IEIRD cannot be left to the

exclusive discretion or whim of the importer. We hold, therefore, that under the relevant provisions of the TCC, 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. 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. Petitioner’s failure to file the required entries within a non-extendible period of thirty days from

date of discharge of the last package from the carrying vessel constituted implied abandonment of its oil importations. This

means that from the precise moment that the non-extendible thirty-day period lapsed, the abandoned shipments were

deemed (that is, they became) the property of the government. Therefore, when petitioner withdrew the oil shipments for

consumption, it appropriated for itself properties which already belonged to the government.

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