General Princ in tax

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TAXATION LAW COMMITTEE AND DIGEST POOLCHAIRPERSON:Charmaine TorresASST.CHAIRPERSON:Rhohail CastroEDP:Rachel R. SayaSUBJECT HEADS:Jemina Sy (General Principles), CasianoIlagan (Income Taxation), Jhundee Guillermo (Transfer Taxes), Ryan Co (Tax Remedies), Edwin Torres (Local Taxation and Real P roperty Taxation) ChristianCabrera (Tariff and Customs Code), Madette Azur (Annexes), Edizer Enriquez, (Annexes)DIGEST POOL:Sam Aceret, Ian Camara, Roel Castro, Riz Cimafranca,Emmanuel Rico Corpuz, Jeenice de Sagun, Rojane Elopre, Amelyn Javillonar, Yvette Labrador, Jessette Labriaga, Mildred Mabanglo, Ruby Mae Mapanao, Reynold Mata, EliseoPitargue, Froshell Saure, Charrisimae Ventura

TAXATION LAW 1 CASES

SUMMARY OF DOCTRINES

GENERAL PRINCIPLES

Tax Exemption of Charitable InstitutionsTo determine whether an enterprise is a charitable institution/entity or not, the elements

which should be considered include the statute creating the enterprise, its corporate purposes, itsconstitution and by-laws, the methods of administration, the nature of the actual work performed,the character of the services rendered, the indefiniteness of the beneficiaries, and the use andoccupation of the properties.

As a general principle, a charitable institution does not lose its character as such and itsexemption from taxes simply because it derives income from paying patients, whether out-patient,

or confined in the hospital, or receives subsidies from the government, so long as the moneyreceived is devoted or used altogether to the charitable object which it is intended to achieve; andno money inures to the private benefit of the persons managing or operating the institution.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to theexemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is acharitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY usedfor charitable purposes. If real property is used for one or more commercial purposes, it is notexclusively used for the exempted purposes but is subject to taxation. The words "dominant use" or"principal use" cannot be substituted for the words "used exclusively" without doing violence to theConstitutions and the law. [LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY ANDCONSTANTINO P. ROSAS. G.R. No. 144104. June 29, 2004.]

Tax Exemption; Trust FundsThe Gratuity Plan will lose its tax-exempt status if the retirement benefits are released

prior to the retirement of the employees. The trust funds of employees other than those of privateemployers are qualified for certain tax exemptions pursuant to Section 60(B), formerly Section53(b), of the National Internal Revenue Code. [DEVELOPMENT BANK OF THE PHILIPPINES vs.COMMISSION ON AUDIT. G.R. No. 144516. February 11, 2004.]

Income Tax; Final Withholding Tax; Gross Receipts Tax; Double TaxationAlthough the 20% FWT on respondent Bank's interest income was not actually received by

respondent because it was remitted directly to the government, the fact that the amountredounded to the bank's benefit makes it part of the taxable gross receipts in computing the 5%GRT. The 5% GRT (Sec. 119 of the Tax Code)is included under "Title V. Other Percentage Taxes"and is not subject to withholding. The 20% FWT, on the other hand, falls under Section 24(e)(1) of"Title II. Tax on Income."

In a withholding tax system, the payee is the taxpayer, the person on whom the tax isimposed; the payor, a separate entity, acts as no more than an agent of the government for thecollection of the tax in order to ensure its payment. Obviously, this amount that is used to settlethe tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceedsare either actual or constructive.

There is no double taxation because the taxes are imposed on two different subjectmatters. The subject matter of the FWT is the passive income generated in the form of interest ondeposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege ofengaging in the business of banking. A tax based on receipts is a tax on business rather than on theproperty; hence, it is an excise rather than a property tax. [CIR vs. SOLIDBANK CORP. G.R. No.

148191. November 25, 2003.]


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Section 64 of the RPTC, prohibits courts from declaring any tax invalid by reason ofirregularities or informalities in the proceedings of the officers charged with the assessment orcollection of taxes except upon the condition that the taxpayer pays the just amount of the tax, asdetermined by the court in the pending proceeding. [MERALCO vs. NELIA A. BARLIS. G.R. No.

114231. June 29, 2004.]

Tax Assessment; Proper ServiceThe legal obligation on the executor, administrator or any of the legal heirs, to inform

respondent CIR of the decedents death under Section 104 of the 1977 NIRCpertains only to allcases of transfer subject to tax or where the gross value of the estate exceeds P3,000. It hasabsolutely no applicability to a case for deficiency of income tax.

When an estate is under administration, notice must be sent to the administrator of theestate, since it is the said administrator, as representative of the estate, who has the legalobligation to pay and discharge all debts of the estate and to perform all orders of the court.[ESTATE OF THE LATE JULIANA DIEZ vs. CIR. G.R. No. 155541. January 27,2004.]

Tax Assessment; Proper ServiceWhere the notice of assessment is sent to the companys old business address, despite the

fact that the new address has been communicated to the BIR, there is then no valid assessment bythe BIR

Since there was a failure to effect a timely valid assessment, the period for filing a criminalcase for PAC's tax liabilities had prescribed by the time Commissioner instituted the criminal casesagainst PACs former officers. [CIR vs. BPI, as LIQUIDATOR OF PARAMOUNT ACCEPTANCECORPORATION. G.R. No. 135446. September 23, 2003.]

Revenue Regulations; Nature; ApplicationAdministrative issuances may be distinguished according to their nature and substance:

legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designedto implement a primary legislation by providing the details thereof. An interpretative rule, on theother hand, is designed to provide guidelines to the law, which the administrative agency is incharge of enforcing.

The principle is well entrenched that statutes, including administrative rules andregulations, operate prospectively only, unless the legislative intent to the contrary is manifest byexpress terms or by necessary implication.

Tax refunds are in the nature of tax exemptions. As such, these are regarded as inderogation of sovereign authority and are to be strictly construed against the person or entityclaiming the exemption. [BPI LEASING CORP. vs. COURT OF APPEALS. G.R. No. 127624.November 18, 2003.]

LOCAL TAXATION

Local Taxation; Validity of a Municipal OrdinanceBy express language of Sections 153 and 155 of RA No. 7160, local government units,

through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees orcharges for the use of any public road, pier or wharf funded and constructed by them. A service feeimposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees as well as allother taxes or charges in any form whatsoever on goods or merchandise.[PALMA DEVELOPMENTCORPORATION vs. MUNICIPALITY OF MALANGAS. G.R. No. 152492. October 16, 2003.]

Local Taxation; Powers of City Assessors

The determination made by the respondent City Assessor with regard to the taxability ofthe subject real properties squarely falls within its power to assess properties for taxation purposes


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San eda College of Law

2005CENTRALIZEDBAROPERATIONS

2005CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONSMaricel Abarentos(Over-all Chairperson), Ronald Jalmanzar(Over-all Vice Chair), Yolanda Tolentino (VC-Acads), Jennifer Ang (VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat(VC-EDP), Anna Margarita Eres(VC-Logistics) Jonathan Mangundayao(Political Law), Francis Benedict Reotutar (Labor Law),

Romuald Padilla(Civil Law), Charmaine Torres(Taxation Law), Mark David Martinez(Criminal Law), Garny Luisa Alegre(Commercial Law), Jinky Ann Uy(Remedial Law), JackieLou Bautista(Legal Ethics)

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subject to appeal before the Local Board of Assessment Appeals. The authority to receive evidence,as basis for classification of properties for taxation, is legally vested on the respondent CityAssessor whose action is appealable to the Local Board of Assessment Appeals and the CentralBoard of Assessment Appeals, if necessary. [SYSTEMS PLUS COMPUTER COLLEGE OF CALOOCAN

CITY vs. LOCAL GOVERNMENT OF CALOOCAN CITY. G.R. No. 146382. August 7, 2003.]

REAL PROPERTY TAXATION

Tax Exemption; Real Property Tax and Business TaxThe exemption of public property from taxation does not extend to improvements made

thereon by homesteaders or occupants at their own expense. The warehouse in the instant case isthus, taxable; it being a mere improvement built on an alleged property of public dominion.

Any income or profit generated by an entity, even of a corporation organized without anyintention of realizing profit in the conduct of its activities, is subject to tax. What matters is theestablished fact that it leased out its building to ten private entities from which it regularly earnedsubstantial income. Thus, in the absence of any proof of exemption therefrom, petitioner is liablefor the assessed business taxes. [PHILIPPINE PORTS AUTHORITY vs. CITY OF ILOILO. G.R. No.109791. July 14, 2003.]

TARIFF AND CUSTOMS CODE

Jurisdiction of the Collector of Customs & Commissioner of CustomsThere is no question that 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 Customsand to enjoin or otherwise interfere with these proceedings. The Collector of Customs sitting inseizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questionstouching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precludedfrom assuming cognizance over such matters even through petitions of certiorari, prohibition ormandamus.[R.V. MARZAN FREIGHT, INC. vs. COURT OF APPEALS & SHIELAS MANUFACTURING

INC. G.R. No. 128064. March 4, 2004.]


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received is devoted or used altogether to the charitable object which it is intended to achieve; andno money inures to the private benefit of the persons managing or operating the institution.

The fundamental ground upon which all exemptions in favor of charitable institutions arebased is the benefit conferred upon the public by them, and a consequent relief, to some extent,

of the burden upon the state to care for and advance the interests of its citizens.

2. NO. Even though the petitioner is a charitable institution, those portions of its realproperty that are leased to private entities are not exempt from real property taxes as these arenot actually, directly and exclusively used for charitable purposes.

The settled rule in this jurisdiction is that laws granting exemption from tax are construedstrictissimi jurisagainst the taxpayer and liberally in favor of the taxing power. Taxation is the ruleand 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 inthe law too plain to be mistaken.

The tax exemption under Section 28(3), Article VI of the 1987 Philippine Constitution coversproperty taxes only. What is exempted is not the institution itself; those exempted from real estatetaxes are lands, buildings and improvements actually, directly and exclusively used for religious,

charitable or educational purposes.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 acharitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY usedfor charitable purposes. If real property is used for one or more commercial purposes, it is notexclusively used for the exempted purposes but is subject to taxation. The words "dominant use" or"principal use" cannot be substituted for the words "used exclusively" without doing violence to theConstitution and the law.

What is meant by actual, direct and exclusive use of the property for charitable purposes isthe direct and immediate and actual application of the property itself to the purposes for which thecharitable institution is organized. It is not the use of the income from the real property that isdeterminative of whether the property is used for tax-exempt purposes.

INCOME TAXATION

Tax-Exemption; Trust Funds

DEVELOPMENT BANK OF THE PHILIPPINES vs. COMMISSION ON AUDIT[G.R. No. 144516. February 11, 2004]

CARPIO, J:FACTS:On February 20, 1980, the Development Bank of the Philippines (DBP) Board of Governorsadopted Resolution No. 794 creating the DBP Gratuity Plan and authorizing the setting up of aretirement fund to cover the benefits due to DBP retiring officials and employees underCommonwealth Act No. 186, as amended.

In 1983, the Bank established a Special Loan Program availed thru the facilities of the DBPProvident Fund and funded by placements from the Gratuity Plan Fund. Under the Special LoanProgram, a prospective retiree is allowed the option to utilize in the form of a loan a portion of hisoutstanding equity in the gratuity fund and to invest it in a profitable investment or undertaking.The earnings of the investment shall then be applied to pay for the interest due on the gratuityloan which was initially set at 9% per annum subject to the minimum investment rate resulting fromthe updated actuarial study. The excess or balance of the interest earnings shall then bedistributed to the investor-members.

Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total ofP11,626,414.25 representing the net earnings of the investments for the years 1991 and 1992. Thepayments were disallowed by the Auditor under Audit Observation Memorandum No. 93-2 datedMarch 1, 1993, on the ground that the distribution of income of the Gratuity Plan Fund (GPF) tofuture retirees of DBP is irregular and constituted the use of public funds for private purposes which

is specifically proscribed under Section 4 of P.D. 1445. The Auditor reasoned that the Fund is stillowned by the Bank, the Board of Trustees is a mere administrator of the Fund in the same way thatthe Trust Services Department where the fund was invested was a mere investor and neither can


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the employees, who have still an inchoate interest in the Fund be considered as rightful owner ofthe Fund.

ISSUE: Whether or not the distribution of income of the Gratuity Plan Fund (GPF) to future retireesof DBP make it lose its tax-exempt status

HELD: YES. The Gratuity Plan will lose its tax-exempt status if the retirement benefits arereleased prior to the retirement of the employees. The trust funds of employees other than thoseof private employers are qualified for certain tax exemptions pursuant to Section 60(B), formerlySection 53(b), of the National Internal Revenue Code.

The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee shall bereleased only upon retirement under the Plan. If the earnings and principal of the Fund aredistributed to DBP employees prior to their retirement, the Gratuity Plan will no longer qualify forexemption under Section 60(B). To recall, DBP Resolution No. 794 creating the Gratuity Planexpressly provides that since the gratuity plan will be tax qualified under the National InternalRevenue Code xxx, the Banks periodic contributions thereto shall be deductible for tax purposesand the earnings therefrom tax free. If DBP insists that its employees may receive theP11,626,414.25 dividends, the necessary consequence will be the non-qualification of the Gratuity

Plan as a tax-exempt plan.

Final Withholding Tax; Gross Receipts Tax; Double Taxation

COMMISSIONER OF INTERNAL REVENUE vs. SOLIDBANK CORP.[G.R. No. 148191. November 25, 2003.]

PANGANIBAN, J:FACTS: For the calendar year 1995, respondent filed its Quarterly Percentage Tax Returnsreflecting gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amount ofP1,474,691,693.44 with corresponding gross receipts tax payments in the sum of P73,734,584.60.Respondent alleges that the total gross receipts in the amount of P1,474,691,693.44 included thesum of P350,807,875.15 representing gross receipts from passive income which was alreadysubjected to 20% final withholding tax.

The Court of Tax Appeals rendered a decision in CTA Case No. 4720 entitled Asian BankCorporation vs. Commissioner of Internal Revenue, wherein it was held that the 20% finalwithholding tax on a bank's interest income should not form part of its taxable gross receipts forpurposes of computing the gross receipts tax. On the strength of the aforementioned decision,respondent filed with the Bureau of Internal Revenue [BIR] a letter-request for the refund orissuance of a tax credit certificate in the aggregate amount of P3,508,078.75, representing,allegedly overpaid gross receipts tax for the year 1995. Respondent on the same day filed a petitionfor review with the CTA in order to toll the running of the two-year prescriptive period to judiciallyclaim for the refund of any overpaid internal revenue tax, pursuant to Section 230 [now 229] of theTax Code. After trial on the merits, the CTA rendered its decision ordering petitioner to refund in

favor of respondent the reduced amount of P1,555,749.65 as overpaid gross receipts tax for theyear 1995.

ISSUES:1. Does the 20% final withholding tax on a bank's interest income form part of the taxable

gross receipts in computing the 5% gross receipts tax?2. Is there double taxation?

HELD: 1. YES. Although, the 20% FWT on respondent's interest income was not actually receivedby respondent because it was remitted directly to the government, the fact that the amountredounded to the bank's benefit makes it part of the taxable gross receipts in computing the 5%GRT. The 5% GRT (Sec. 119 of the Tax Code)is included under "Title V. Other Percentage Taxes"and is not subject to withholding. The banks and non-bank financial intermediaries liable therefor

shall, under Section 125(a)(1), file quarterly returns on the amount of gross receipts and pay thetaxes due thereon within twenty (20) days after the end of each taxable quarter. The 20% FWT, on


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the other hand, falls under Section 24(e)(1) of "Title II. Tax on Income." It is a tax on passiveincome, deducted and withheld at source by the payor-corporation and/or person as withholdingagent pursuant to Section 50, and paid in the same manner and subject to the same conditions asprovided for in Section 51.

Two types of taxes are involved in the present controversy: (1) the GRT, which is apercentage tax; and (2) the FWT, which is an income tax. As a bank, petitioner is covered by bothtaxes. A percentage tax is a national tax measured by a certain percentage of the gross selling priceor gross value in money of goods sold, bartered or imported; or of the gross receipts or earningsderived by any person engaged in the sale of services. It is not subject to withholding. An incometax, on the other hand, is a national tax imposed on the net or the gross income realized in ataxable year. It is subject to withholding.

In a withholding tax system, the payee is the taxpayer, the person on whom the tax isimposed; the payor, a separate entity, acts as no more than an agent of the government for thecollection of the tax in order to ensure its payment. Obviously, this amount that is used to settlethe tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceedsare either actual or constructive.

In our withholding tax system, possession is acquired by the payor as the withholding agent

of the government, because the taxpayer ratifies the very act of possession for the government.There is thus constructive receipt. There being constructive receipt of such income part of whichis withheld RR 17-84 applies, and that income is included as part of the tax base upon which theGRT is imposed.

2. There is NO double taxation. Double taxation means taxing the same property twicewhen it should be taxed only once; that is, ". . . taxing the same person twice by the samejurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it shouldbe but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed onthe same subject matter, for the same purpose, by the same taxing authority, within the samejurisdiction, during the same taxing period; and they must be of the same kind or character.

First, the taxes herein are imposed on two different subject matters. The subject matter ofthe FWT is the passive income generated in the form of interest on deposits and yield on deposit

substitutes, while the subject matter of the GRT is the privilege of engaging in the business ofbanking. A tax based on receipts is a tax on business rather than on the property; hence, it is anexcise rather than a property tax. It is not an income tax, unlike the FWT.

Second, although both taxes are national in scope because they are imposed by the sametaxing authority the national government under the Tax Code and operate within the samePhilippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect aredifferent. The FWT is deducted and withheld as soon as the income is earned, and is paid afterevery calendar quarter in which it is earned. On the other hand, the GRT is neither deducted norwithheld, but is paid only after every taxable quarter in which it is earned.

Third, these two taxes are of different kinds or characters. The FWT is an income taxsubject to withholding, while the GRT is a percentage tax not subject to withholding.

Tax Exemption of Special Economic Zones

JOHN HAY PEOPLES ALTERNATIVE COALITION vs. VICTOR LIM[G.R. No. 119775. October 24, 2003.]

CARPIO MORALES, J:FACTS: Assailed in this case is Proclamation No. 420 issued by then Pres. Ramos in pursuance toRepublic Act No. 7227 which seeks to convert military bases such as Subic, Clark & Camp John Hayinto other productive uses. R.A. No. 7227 created the Subic Special Economic [and Free Port] Zone(Subic SEZ) which under Sec. 12 thereof, granted the Subic SEZ incentives ranging from tax andduty-free importations, exemption of businesses therein from local and national taxes, to otherhallmarks of a liberalized financial and business climate. R.A. No. 7227 expressly gave authority tothe President to create through executive proclamation, subject to the concurrence of the localgovernment units directly affected, other Special Economic Zones (SEZ) including Camp John Hay.


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ISSUES:

1. Are pawnshops included in the term lending investors for the purpose of imposing the5% percentage tax under then Section 116 of the National Internal Revenue Code (NIRC)of 1977, as amended by Executive Order No. 273?

2. Are RMO No. 15-91 and RMC No. 43-91 valid?

HELD: 1.NO. Pawnshops are not subject to the 5% lending investors tax. Under Section 157(u) ofthe NIRC of 1986, as amended, the term lending investor includes "all persons who make a practiceof lending money for themselves or others at interest." A pawnshop, on the other hand, is definedunder Section 3 of P.D. No. 114 as "a person or entity engaged in the business of lending money onpersonal property delivered as security for loans and shall be synonymous, and may be usedinterchangeably, with pawnbroker or pawn brokerage."

While it is true that pawnshops are engaged in the business of lending money, they are notconsidered "lending investors" for the purpose of imposing the 5% percentage taxes for the following

reasons:First.Under Section 192, paragraph 3, sub-paragraphs (dd) and (ff), of the NIRC of 1977,

prior to its amendment by E.O. No. 273, as well as Section 161, paragraph 2, sub-paragraphs (dd)and (ff), of the NIRC of 1986, pawnshops and lending investors were subjected to different taxtreatments

Second. Congress never intended pawnshops to be treated in the same way as lendinginvestors. We note that the definition of lending investors found in Section 157 (u) of the NIRC of1986 is not found in the NIRC of 1977, as amended by E.O. No. 273, where Section 116 invoked bythe CIR is found.

Third.Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentagetax dealers in securities and lending investors only. There is no mention of pawnshops. Under themaxim expressio unius est exclusio alterius, the mention of one thing implies the exclusion ofanother thing not mentioned.

Fourth.The BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops were not subject to the 5% percentage tax imposed by Section 116 of the NIRCof 1977, as amended by E.O. No. 273.

2.NO. RMO No. 15-91 and RMC No. 43-91 are invalid. Since Section 116 of the NIRC of 1977,which breathed life on the questioned administrative issuances, had already been repealed, RMO15-91 and RMC 43-91, which depended upon it, are deemed automatically repealed. Hence, evengranting that pawnshops are included within the term lending investors, the assessment from 27May 1994 onward would have no leg to stand on. Adding to the invalidity of the RMC No. 43-91 andRMO No. 15-91 is the absence of publication. While the rule-making authority of the CIR is notdoubted, like any other government agency, the CIR may not disregard legal requirements orapplicable principles in the exercise of quasi-legislative powers.

A legislative rule is in the nature of subordinate legislation, designed to implement aprimary legislation by providing the details thereof. An interpretative rule, on the other hand, isdesigned to provide guidelines to the law which the administrative agency is in charge of enforcing.

When an administrative rule is merely interpretative in nature, its applicability needsnothing further than its bare issuance, for it gives no real consequence more than what the lawitself has already prescribed. When, on the other hand, the administrative rule goes beyond merelyproviding for the means that can facilitate or render least cumbersome the implementation of thelaw but substantially increases the burden of those governed, it behooves the agency to accord atleast to those directly affected a chance to be heard, and thereafter to be duly informed, beforethat new issuance is given the force and effect of law.

Without these disputed CIR issuances, pawnshops would not be liable to pay the 5%percentage tax, considering that they were not specifically included in Section 116 of the NIRC of1977, as amended. In so doing, the CIR did not simply interpret the law. The due observance of therequirements of notice, hearing, and publication should not have been ignored.


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Carrying forward of excess or overpaid income tax

AB LEASING AND FINANCE CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE[G.R. No. 138342. July 8, 2003]

CARPIO-MORALES, J:FACTS:For taxable year 1993, petitioner AB Leasing and Finance Corporation had a net income ofP1,775,832.00 for which it was liable to pay income tax in the amount of P621,541.00. It appeared,however, that for the year 1993, petitioner had made payments in the total amount ofP1,594,756.00 inclusive of unused prior year's tax credits. Petitioner thus opted to apply its excesspayment of P973,215.00 (P1,594,756.00 less P621,541.00) as tax credits for the following year,1994. In the third quarter of taxable year 1994, petitioner had a net income of P3,624,280.89 forwhich it paid income tax in the amount of P295,283.32. At the end of 1994, however, petitionerincurred a net loss of P3,450,916.00 to thereby exempt it from payment of income tax for taxable

year 1994. It was thus unable to apply the P973,215.00 tax credits incurred in 1993.Petitioner thereupon indicated in its amended annual income tax return for calendar year

ending December 31, 1994 that it made excess tax payments totaling P1,268,498.00 (P973,215.00 in1993 plus P295,283.32 in 1994). On April 12, 1996, petitioner filed with respondent, Commissionerof Internal Revenue, a letter-claim for refund of overpaid income taxes for taxable year 1993 in theamount of P973,215.00. As respondent had not acted on the claim, petitioner filed on April 15,1996 a petition for review with the CTA, docketed as C.T.A. Case No. 5372, praying for the refundof the overpaid income taxes remitted in 1993, offering as part of its evidence its income taxreturns for 1993 and 1994. On April 15, 1997, petitioner filed another case with the CTA, docketedas C.T.A. Case No. 5513, seeking a refund of overpaid income taxes for taxable year 1994. In saidcase, it offered as part of its evidence its income tax returns for 1994, 1995, and 1996. By Decisionof July 2, 1997, the CTA dismissed C.T.A. Case No. 5372 for insufficiency of evidence, drawingpetitioner to file a motion for new trial and reconsideration which was denied by the CTA.

ISSUE:Is the carrying forward of any excess or overpaid income tax for a given taxable year limitedto the succeeding taxable year only?

HELD:YES,the carrying forward of any excess or overpaid income tax for a given taxable year thenis limited to the succeeding taxable year only.Section 69 of the old NIRC provides that in case thecorporation is entitled to a refund of the excess estimated quarterly income taxes paid, therefundable amount shown on its final adjustment return may be credited against the estimatedquarterly income tax liabilities for the taxable quarters of the succeeding year.

Since the case at bar involves a claim for refund of overpaid taxes for 1993, petitionercould only have applied the 1993 excess tax credits to its 1994 income tax liabilities. To furthercarry-over to 1995 the 1993 excess tax credits is violative of above-quoted Section 69 of the oldNIRC. That petitioner had signified its intention to apply the entire amount of P1,268,498representing excess tax payments of P973,215.00 for 1993 and P295,283.00 for 1994 to the year1995 is immaterial. Only the amount of P295,283.00 representing the 1994 income taxoverpayments may only be applied to the succeeding taxable year, 1995.

But even assuming that there was a need for petitioner to present in evidence the 1995income tax return or the breakdown of its excess taxes paid for the taxable year ending 1994, theCTA could have taken judicial notice of the records of C.T.A. Case No. 5513, petitioner's claim forrefund of P295,283.00 overpaid income taxes for taxable year 1994, which was already pendingbefore it.


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TAX ENFORCEMENT AND ADMINISTRATION

Tax Assessments

MANILA ELECTRIC COMPANY vs. NELIA A. BARLIS[G.R. No. 114231. June 29, 2004.]

CALLEJO, SR., J:FACTS: From 1968 to 1972, petitioner MERALCO,erected four (4) power generating plants in Sucat,Muntinlupa. To equip the power plants, various machineries and equipment were purchased bothlocally and abroad. When the Real Property Tax Code took effect on June 1, 1974, MERALCO filedits tax declarations covering the Sucat power plants, including the buildings thereon as well as themachineries and equipment. From 1975 to 1978, MERALCO paid the real property taxes on the saidproperties on the basis of their assessed value as stated in its tax declarations.

On December 29, 1978, MERALCO sold all the power-generating plants including thelandsite to the National Power Corporation (NAPOCOR).In 1985, the Municipal Assessor of Muntinlupa discovered that MERALCO, for the years 1976-

1978, misdeclared and/or failed to declare for taxation purposes a number of real propertiesconsisting of several equipment and machineries found in the said power plants. A review of theDeed of Sale which MERALCO executed in favor of NAPOCOR allegedly shows that the true value ofthe machineries and equipment was misdeclared/undeclared.

Thereafter, the Municipal Treasurer of Muntinlupa issued three notices to MERALCO,requesting it to pay the full amount of the claimed deficiency with a warning that its propertiescould be sold at public auction unless the tax due was paid. Still, MERALCO did not pay, nor takesteps to question the tax assessed.

Accordingly, the Municipal Treasurer issued, on October 4, 1990, Warrants of Garnishmentordering the attachment of MERALCO's bank deposits with its depository banks to the extent of its

unpaid real property taxes.On October 10, 1990, MERALCO filed before the RTC of Makati a Petition for Prohibitionwith Prayer for Writ of Preliminary Mandatory Injunction and/or Temporary Restraining Order (TRO)praying, among others, that a TRO be issued to enjoin the Municipal Treasurer of Muntinlupa fromenforcing the warrants of garnishment. The petitioner averred that real estate tax is a tax on realproperty; as such, any tax delinquency on property should follow the present owner, in this case,the NAPOCOR.

The Municipal Treasurer filed a Motion to Dismiss on the following grounds: (a) lack ofjurisdiction, since under Sec. 64 of the Real Property Tax Code, courts are prohibited fromentertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall havepaid, under protest, the tax assessed against him; and (b) lack of cause of action, by reason ofMERALCO's failure to question the notice of assessment issued to it by the Municipality ofMuntinlupa before the Local Board of Assessment Appeals.

In its June 17, 1991 Order, the trial court denied the said motion, ratiocinating that sinceMERALCO was not the present owner or possessor of the properties in question, it was not the"taxpayer" contemplated under Section 64 of the Tax Code.

On a Petition for Certiorari filed before the Supreme Court, later endorsed to the Court ofAppeals, the Municipal Treasurer of Muntinlupa assailed the June 17, 1991 Order of the RTC allegingthat MERALCO was the taxpayer liable for the tax due and the penalties thereon; that despitereceipt by it of the 1985 notice of assessment from the Municipal Assessor, it failed to appealtherefrom and, as such, the assessment had become final and enforceable; and, that MERALCO wasproscribed from filing its petition assailing the assessment.

The Court of Appeals granted the petition and declared the assailed June 17, 1991 ordervoid and without life in law, having been issued without jurisdiction.

The Supreme Court resolves to grant this Motion for Reconsideration since its decisions onthis case on February 1, 2002 and May 18, 2001 are inconsistent with each other.

ISSUES:


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1. Whether or not the petitioner was the taxpayer for the purpose of an assessment underthe Real Property Tax Code from whom collection can be made

2. Whether or not the RTC did commit any grave abuse of discretion when it denied therespondent's motion to dismiss on the claim that for the petitioner's failure to appeal

from the 1986 notice of assessment of the Municipal Assessor, the assessment hadbecome final and enforceable under Section 64 of P.D. No. 464.

3. Whether or not the letters sent to the petitioner by the respondent municipal treasurercan be considered as notices of assessment.

4. Whether or not the courts are prohibited from entertaining any suit assailing thevalidity of a tax assessed under the Real Property Tax Code until the taxpayer shallhave paid, under protest.

HELD:1. YES, MERALCO is the taxpayer for purposes of assessment and collection. The fact that

NAPOCOR is the present owner of the Sucat power plant machineries and equipment does notconstitute a legal barrier to the collection of delinquent taxes from the previous owner, MERALCO,who has defaulted in its payment. In Testate Estate of Concordia T. Lim vs. City of Manila, the

Court held that the unpaid tax attaches to the property and is chargeable against the person whohad actual or beneficial use and possession of it regardless of whether or not he is the owner. Toimpose the real property tax on the subsequent owner that was neither the owner nor thebeneficial user of the property during the designated periods would not only be contrary to law butalso unjust.

2. NO. The RTC did not commit any grave abuse of discretion when it denied therespondent's motion to dismiss on the claim that for the petitioner's failure to appeal from the 1986notice of assessment of the Municipal Assessor, the assessment had become final and enforceableunder Section 64 of P.D. No. 464.

Section 22 of P.D. No. 464 states that, upon discovery of real property, the provincial, cityor municipal assessor shall make an appraisal and assessment of such real property in accordancewith Section 5 of the law, irrespective of any previous assessment or taxpayer's valuation thereon.

An assessment fixes and determines the tax liability of a taxpayer. It is a notice to theeffect that the amount therein stated is due as tax and a demand for payment thereof. Theassessor is mandated under Section 27 of the law to give written notice within thirty days of suchassessment, to the person in whose name the property is declared. For purposes of giving effect tosuch assessment, it is deemed made when the notice is released, mailed or sent to the taxpayer. Assoon as the notice is duly served, an obligation arises on the part of the taxpayer to pay the amountassessed and demanded.

If the taxpayer is not satisfied with the action of the local assessor in the assessment of hisproperty, he has the right, under Section 30 of P.D. No. 464, to appeal to the Local Board ofAssessment Appeals by filing a verified petition within sixty (60) days from service of said notice ofassessment. If the taxpayer fails to appeal in due course, the right of the local government tocollect the taxes due becomes absolute upon the expiration of such period, with respect to the

taxpayer's property.Conformably to Section 57 of P.D. No. 464, it is the local treasurer who is tasked withcollecting taxes due from the taxpayer. The duty of the local treasurer to collect the taxescommences from the time the taxpayer fails or refuses to pay the taxes due, following the latter'sfailure to question the assessment in the Local Board of Assessment Appeals and/or to the CentralBoard of Assessment Appeals. This, in turn, renders the assessment of the local assessor final,executory and demandable, thus, precluding the taxpayer from disputing the correctness of theassessment or from invoking any defense that would reopen the question of its liability on themerits.

The records, however, are bereft of any evidence showing actual receipt by petitioner ofthe real property tax declaration sent by the Municipal Assessor.

3. NO.The letters cannot qualify as notices of tax assessment. A notice of assessment as

provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of aspecific property, or proportion thereof subject to tax, including the discovery, listing,


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HELD: 1. NO.There was no proper service. The relationship between the decedent and Philtrustwas one of agency, which is a personal relationship between agent and principal. Under the CivilCode, death of the agent or principal automatically terminates the agency. Since the relationshipbetween Philtrust and the decedent was automatically severed at the moment of the Taxpayers

death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer. Service onPhiltrust of the demand letter and Assessment Notice was improperly done. There was absolutelyno legal obligation on the part of Philtrust to either 1) respond to the demand letter andassessment notice; 2) inform respondent of the decedents death; or 3) inform the petitioner thatit had received said demand letter and assessment notice.

The legal obligation on Philtrust to inform respondent of the decedents death underSection 104 of the 1977 NIRC pertains only to all cases of transfer subject to tax or where thegross value of the estate exceeds P3,000. It has absolutely no applicability to a case fordeficiency of income tax, such as the case at bar.

When an estate is under administration, notice must be sent to the administrator of theestate, since it is the said administrator, as representative of the estate, who has the legalobligation to pay and discharge all debts of the estate and to perform all orders of the court.

2. NO. Since there was never any valid notice of this assessment, it could not have becomefinal, executory and incontestable, and, for failure to make the assessment within the five-yearperiod provided in Section 318 of the National Internal Revenue Code of 1977, respondents claimagainst the petitioner Estate is barred.

Tax Assessment; Proper Service

COMMISSIONER OF INTERNAL REVENUE vs. BANK OF THE PHILIPPINE ISLANDS, as liquidator ofPARAMOUNT ACCEPTANCE CORPORATION[G.R. No. 135446. September 23, 2003.]

CORONA, J:

FACTS: Respondent Bank of the Philippine Islands (BPI) is the liquidator of Paramount AcceptanceCorporation (PAC), a financing corporation which was dissolved on July 17, 1989. After thedissolution of the PAC, respondent BPI learned that petitioner CIR filed certain criminal casesagainst Horacio V. Poblador and Ramon A. Albert, former president and treasurer of PAC,respectively, for willful failure to pay the corporation's final deficiency tax assessments for theyears 1981 and 1982.

Respondent informed petitioner that it was willing to compromise and pay the deficiencytax. At the same time, respondent asked for the withdrawal of the criminal cases against Pobladorand Albert. The parties agreed to settle. Respondent paid to the petitioner a total amount ofP119,815.13.

However, in spite of the payment, petitioner continued to prosecute the criminal casesagainst Poblador and Albert: Criminal Cases Nos. 91-5800, 91-5801 and 91-5802, involving the 1981assessments, before the Regional Trial Court of Makati, Branch 150; and, Criminal Case No. 91-4007involving the 1982 percentage tax deficiency, pending in the Regional Trial Court of Makati, Branch143.

Respondent, in a letter to petitioner, pointed out that the assessments were not sent to theproper address and asked for the refund of the P119,815.13 it paid under the compromiseagreement since the criminal cases against Poblador and Albert were not dropped as agreed upon.

ISSUE: Is PAC liable to pay the tax assessments?

HELD: NO. PAC is not liable. The RTC of Makati City, Branch 143, rendered a decision in CriminalCase No. 91-4007 acquitting Poblador and Albert of willful failure to pay the corporate percentagetax deficiency for 1982. Furthermore, a copy of the said decision was served on petitioner byregistered mail, prior to the submission of its memorandum in this case.

In its decision in Criminal Case No. 91-4007, the trial court ruled that the prosecution failedto establish that PAC was in fact liable for deficiency taxes prior to its liquidation. Assuming


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arguendo that there was a deficiency tax for which PAC was liable, petitioners failed to make avalid assessment on it since the notice of assessment was sent to the PAC's old (and thereforeimproper) office address. PAC already indicated its new address in its 1986 tax return filed with theBIR's Makati office. This notwithstanding, petitioner CIR sent the notice of assessment to PAC's old

business address instead of its new address, which was also BPI's (PAC's liquidator) office address.Since there was a failure to effect a timely valid assessment, the period for filing a criminalcase for PAC's tax liabilities had prescribed by the time petitioner instituted the criminal casesagainst PACs former officers.

Revenue Regulations; Nature; Application

BPI LEASING CORP. vs. COURT OF APPEALS[G.R. No. 127624. November 18, 2003.]

AZCUNA, J:FACTS: BLC is a corporation engaged in the business of leasing properties. For the calendar year

1986, BLC paid the Commissioner of Internal Revenue (CIR) a total of P1,139,041.49 representing 4%"contractor's percentage tax" then imposed by Section 205 of the National Internal Revenue Code(NIRC).

On November 10, 1986, the CIR issued Revenue Regulation 19-86. Section 6.2 thereofprovided that finance and leasing companies registered under Republic Act 5980 shall be subject togross receipt tax of 5%-3%-1% on actual income earned. This means that companies registered underRepublic Act 5980, such as BLC, are not liable for "contractor's percentage tax" under Section 205but are, instead, subject to "gross receipts tax" under Section 260 (now Section 122) of the NIRC.Since BLC had earlier paid the aforementioned "contractor's percentage tax," it re-computed its taxliabilities under the "gross receipts tax" and arrived at the amount of P361,924.44.

On April 11, 1988, BLC filed a claim for a refund with the CIR for the amount ofP777,117.05, representing the difference between the P1,139,041.49 it had paid as "contractor'spercentage tax" and P361,924.44 it should have paid for "gross receipts tax."

Petitioner filed a petition for review with the CTA which dismissed the petition and deniedBLC's claim of refund. The CTA held that Revenue Regulation 19-86, as amended, may only beapplied prospectively such that it only covers all leases written on or after January 1, 1987, asstated under Section 7 of said revenue regulation.

The CTA ruled that, since BLC's rental income was all received prior to 1986, it follows thatthis was derived from lease transactions prior to January 1, 1987, and hence, not covered by therevenue regulation.

ISSUE:1. Whether RR19-86, as amended, is legislative or interpretative in nature.2. Whether RR19-86, as amended, is prospective or retroactive in application.

HELD: 1.RR19-86is legislative in nature. Administrative issuances may be distinguished accordingto their nature and substance: legislative and interpretative. A legislative rule is in the matter ofsubordinate legislation, designed to implement a primary legislation by providing the detailsthereof. An interpretative rule, on the other hand, is designed to provide guidelines to the lawwhich the administrative agency is in charge of enforcing.

Section 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursuant toSection 277 of the NIRC. Section 277 (now Section 244) is an express grant of authority to theSecretary of Finance to promulgate all needful rules and regulations for the effective enforcementof the provisions of the NIRC. In Paper Industries Corporation of the Philippines v. Court of

Appeals, the Court recognized that the application of Section 277 calls for none other than theexercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that RevenueRegulation 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thusmaking it legislative, and not interpretative as alleged by BLC.

2.RR 19-86 is prospective in application. The principle is well entrenched that statutes,including administrative rules and regulations, operate prospectively only, unless the legislative


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intent to the contrary is manifest by express terms or by necessary implication. In the present case,there is no indication that the revenue regulation may operate retroactively. Furthermore, there isan express provision stating that it "shall take effect on January 1, 1987," and that it "shall beapplicable to all leases written on or after the said date." Being clear on its prospective

application, it must be given its literal meaning and applied without further interpretation. Thus,BLC is not in a position to invoke the provisions of Revenue Regulation 19-86 for lease rentals itreceived prior to January 1, 1987.

It is also apt to add that tax refunds are in the nature of tax exemptions. As such, these areregarded as in derogation of sovereign authority and are to be strictly construed against the personor entity claiming the exemption. The burden of proof is upon him who claims the exemption andhe must be able to justify his claim by the clearest grant under Constitutional or statutory law, andhe cannot be permitted to rely upon vague implications.

LOCAL TAXATION

Local Taxation; Validity of a Municipal Ordinance

PALMA DEVELOPMENT CORPORATION vs. MUNICIPALITY OF MALANGAS[G.R. No. 152492. October 16, 2003.]

PANGANIBAN, J:FACTS:Petitioner Palma Development Corporation is engaged in milling and selling rice and corn towholesalers in Zamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur astransshipment point for its goods.

Municipal Revenue Code No. 09, Series of 1993, was passed and approved on August 4,1994. Section 5G.01 of the ordinance reads:

Section 5G.01. Imposition of fees. There shall be collected service fee for its use of themunicipal road[s] or streets leading to the wharf and to any point along the shorelines withinthe jurisdiction of the municipality and for police surveillance on all goods and all equipmentharbored or sheltered in the premises of the wharf and other within the jurisdiction of this

municipalityThe service fees imposed by Section 5G.01 of the ordinance was paid by petitioner under

protest. It contended that under Republic Act No. 7160, otherwise known as the Local GovernmentCode of 1991, municipal governments did not have the authority to tax goods and vehicles thatpassed through their jurisdictions.

The trial court declared the entire Municipal Revenue Code No. 09 as ultra vires and,hence, null and void. The CA held that local government units already had revenue-raising powersas provided for under Sections 153 and 155 of RA No. 7160. It ruled as well that within the purviewof these provisions and therefore valid is Section 5G.01, which provides for a "service fee forthe use of the municipal road or streets leading to the wharf and to any point along the shorelineswithin the jurisdiction of the municipality" and "for police surveillance on all goods and allequipment harbored or sheltered in the premises of the wharf and other within the jurisdiction ofthis municipality."

ISSUE: Is Section 5G.01 of Municipal Revenue Code No. 09 valid?

HELD: NO. The imposition of a service fee for police surveillance on all goods harbored orsheltered in the premises of the municipal port of Malangas under Sec. 5G.01 of the MalangasMunicipal Revenue Code No. 09, series of 1993, is NULL AND VOID for being violative of Republic ActNo. 7160.

By express language of Sections 153 and 155 of RA No. 7160, local government units,through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees orcharges for the use of any public road, pier or wharf funded and constructed by them. A service feeimposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees as well as allother taxes or charges in any form whatsoever on goods or merchandise.


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It is therefore irrelevant if the fees imposed are actually for police surveillance on thegoods, because any other form of imposition on goods passing through the territorial jurisdiction ofthe municipality is clearly prohibited by Section 133(e).

Under Section 131(y) of RA No. 7160, wharfage is defined as "a fee assessed against the

cargo of a vessel engaged in foreign or domestic trade based on quantity, weight, or measurereceived and/or discharged by vessel." It is apparent that a wharfage does not lose its basiccharacter by being labeled as a service fee "for police surveillance on all goods."

Local Taxation; Powers of City Assessors

SYSTEMS PLUS COMPUTER COLLEGE OF CALOOCAN CITY vs. LOCAL GOVERNMENTOF CALOOCAN CITY

[G.R. No. 146382. August 7, 2003.]

CORONA, J:FACTS: Petitioner Systems Plus Computer College is a non-stock and non-profit educational

institution. As such, it enjoys property tax exemption from the local government on its buildingsbut not on the parcels of land which petitioner is renting for P5,000 monthly from its sistercompanies, Consolidated Assembly and Pair Management (CAPM). Sometime, petitioner requestedrespondent to extend tax exemption to the parcels of land claiming that the same were being usedactually, directly and exclusively for educational purposes. Respondent city government, deniedthe request on the ground that the subject parcels of land were owned by CAPM which derivedincome therefrom in the form of rentals and other local taxes assumed by the petitioner. Hence,from the land owners' standpoint, the same were not actually, directly and exclusively used foreducational purposes.

Subsequently, petitioner and the CAPM entered into separate agreements which in effectnovated their existing contracts of lease and converted them to donations of the beneficial usethereof. Because of this, petitioner sought a reconsideration of respondent's earlier denial of theapplication for tax exemption. Respondent city government again denied the application for tax

exemption, reasoning out that: a) said agreement was made in order to evade payment of RealProperty Taxes; b) the grant of exemption from taxation rests upon the theory that an exemptionwill benefit the body of people, and not upon any idea of lessening the burden of individual orcorporate owners; c) while the beneficial use of the properties being sought to be exempt fromReal Property Taxes were donated to SYSTEMS PLUS COMPUTER COLLEGE, there is no showing thatthe same are "actually, directly and exclusively" used either for religious, charitable, or educationalpurposes.

Twice debunked, petitioner filed a petition for mandamus with the respondent RegionalTrial Court of Caloocan City, Branch 121, which, however, dismissed it for being premature.

ISSUE: Does the determination made by respondent City Assessor fall within its power to assessproperties?

HELD: YES.Under Section 226 of RA 7160, the remedy of appeal to the Local Board of AssessmentAppeals is available from an adverse ruling or action of the provincial, city or municipal assessor inthe assessment of property. Under Section 199(f), Title II, Book II, of the Local Government Codeof 1991, "assessment" is defined as the act or process of determining the value of a property, orproportion thereof subject to tax, including the discovery, listing, classification and appraisal ofproperties. Viewed from this broader perspective, the determination made by the respondent CityAssessor with regard to the taxability of the subject real properties squarely falls within its powerto assess properties for taxation purposes subject to appeal before the Local Board of AssessmentAppeals.

It must be stressed that the authority to receive evidence, as basis for classification ofproperties for taxation, is legally vested on the respondent City Assessor whose action is appealableto the Local Board of Assessment Appeals and the Central Board of Assessment Appeals, if

necessary.


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REAL PROPERTY TAXATION

Tax Exemption; Real Property Tax and Business Tax

PHILIPPINE PORTS AUTHORITY vs. CITY OF ILOILO[G.R. No. 109791. July 14, 2003.]

AZCUNA, J:FACTS: The City of Iloilo filed an action for the recovery of sum of money against the Phil. PortsAuthority (PPA), a government corporation. Respondent seeks to collect real property taxes on itswarehouse as well as business taxes computed from the last quarter of 1984 up to 4 thquarter of1988. PPA is engaged in the business of arrastre and stevedoring services and the leasing of realestate. Petitioner claimed that being a government owned corporation engaged in performinggovernmental functions, it is exempted from paying taxes under its charter, the Real Property TaxCode and E.O. No. 93. The court a quo rendered its decision holding petitioner liable for real

property taxes and for business taxes with respect to petitioner's lease of real property. It,however, held that respondent may not collect business taxes on petitioner's arrastre andstevedoring services, as these form part of petitioner's governmental functions.

ISSUE: Is the Philippine Ports Authority exempt from the payment of real property tax and businesstax?

HELD: NO. Petitioner is liable for both taxes."Ports constructed by the State" are properties of the public dominion, as Article 420 of the

Civil Code enumerates these as properties "intended for public use." The warehouse in the case atbar may not be held as part of the port, considering its separable nature as an improvement uponthe port, and the fact that it is not open for use by everyone and freely accessible to the public. Inthe same way that we ruled in one case that the exemption of public property from taxation does

not extend to improvements made thereon by homesteaders or occupants at their own expense, welikewise uphold the taxability of the warehouse in the instant case, it being a mere improvementbuilt on an alleged property of public dominion, assuming petitioner's port to be so. Moreover,petitioner may not invoke the definition of "port" in its charter to expand the meaning of "portsconstructed by the State" in the Civil Code to include improvements built thereon.

Originally, petitioner was exempt from real property taxes on the basis of Sec. 40 of theReal Property Tax Code. Petitioner's charter, P.D. 857, further specifically exempted it from realproperty taxes. On June 11, 1984, however, P.D. 1931 effectively withdrew all tax exemptionprivileges granted to government-owned or controlled corporations as stated in Section 1 thereof.Under the same law, the exemption can be restored in special cases through an application forrestoration with the Secretary of Finance, which, notably, petitioner did not avail. Subsequently,Executive Order (E.O.) No. 93 was enacted on December 17, 1986 restoring tax exemptionsprovided under certain laws, one of which is the Real Property Tax Code. Hence, petitioner is liablefor real property taxes on its warehouse, computed from the last quarter of 1984 up to December1986.

As admitted by petitioner, it leases out its premises to private persons for "convenience"and not necessarily as part of its governmental function of administering port operations. Anyincome or profit generated by an entity, even of a corporation organized without any intention ofrealizing profit in the conduct of its activities, is subject to tax. What matters is the establishedfact that it leased out its building to ten private entities from which it regularly earned substantialincome. Thus, in the absence of any proof of exemption therefrom, petitioner is liable for theassessed business taxes.


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TARIFF AND CUSTOMS CODE

Jurisdiction of the Collector of Customs & Commissioner of Customs

R.V. MARZAN FREIGHT, INC. vs COURT OF APPEALS & SHIELAS MANUFACTURING INC.[G.R. No. 128064. March 4, 2004]

CALLEJO, SR., J:FACTS:RV Marzan Freight Inc., was the owner and operator of a customs-bonded warehouse whileShielas Manufacturing, Inc., was engaged in the garment business.

On April 12, 1989, the raw materials consigned to the private respondent arrived in thePhilippines. The Bureau of Customs treated the raw materials as subject to ordinary import taxesand were not immediately released to the private respondent. Moreover, the consignee failed tofile the requisite import entry and failed to claim the cargo.

The District Collector of Customs initiated an abandonment proceedings over the cargo of

the private respondent and issued a notice to the consignee of various overstaying cargo, includingthat of the private respondent, giving them fifteen (15) days from notice thereof to file entry ofthe cargoes without prejudice to the right of the consignees to redeem articles pursuant to Section1801 of the Tariff and Customs Code within the prescribed period therein; otherwise, the cargoeswould be deemed abandoned and sold at public auction. The declaration of abandonment in theaforestated proceedings became final and executory.

After more than two years from the arrival of the cargo in the Philippines, the privaterespondent filed a complaint for damages before the RTC against the petitioner. The trial courtheld petitioner solely liable for the loss. The appellate court affirmed the lower courts decision.

ISSUE: Whether or not the RTC is vested with jurisdiction to review and nullify a declaration madeby the District Collector of Customs that the shipment was abandoned cargo and, thus, ipsofacto belonged to the government.

HELD:NO. The trial court has no jurisdiction. The declaration by the District Collector of Customsis found by the Court to be ineffective. Under the law, notice of the proceedings of abandonmentwas not given to the consignee or the plaintiff herein or his agent. The consignee in this case beingknown, should have been notified of the abandonment of his property and that he should have beengiven a chance at a public hearing to present evidence and to be heard with respect to the cargosubject of abandonment. This is part of due process.

Evidently, the resolution of the foregoing issues is within the exclusive competence of theDistrict Collector of Customs, the Commissioner of Customs and within the appellate jurisdiction ofthe Court of Tax Appeals.

InJao v. Court of Appeals, we held that the RTC is devoid of any competence to pass uponthe validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs,and to enjoin or otherwise interfere with the said proceedings even if the seizure was illegal. Suchact does not deprive the Bureau of Customs of jurisdiction thereon. Thus, we held:

There is no question that Regional Trial Courts are devoid of anycompetence to pass upon the validity or regularity of seizure and forfeitureproceedings conducted by the Bureau of Customs and to enjoin or otherwiseinterfere with these proceedings. The Collector of Customs sitting in seizure andforfeiture proceedings has exclusive jurisdiction to hear and determine allquestions touching on the seizure and forfeiture of dutiable goods. The RegionalTrial Courts are precluded from assuming cognizance over such matters eventhrough petitions of certiorari, prohibition or mandamus.


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SUMMARY OF DOCTRINES OF LEADING CASES

FUNDAMENTALS IN TAXATION

BASIC CONSIDERATIONS

Taxation is a high prerogative of sovereignty the relinquishment of which is neverpresumed, and any reduction or diminution thereof with respect to its mode or rate must be strictlyconstrued and the same must be couched in clear terms. The general rule is that any claim forexemption from tax statutes should be construed strictly against the taxpayer.[Luzon StevedoringCorp. vs. Court of Tax Appeals. GR No. L30232. July 29, 1988]

Taxation is a "symbiotic" relationship whereby in exchange for the protection that thecitizens get from the Government, taxes are paid.

Without taxes, the government would be paralyzed for lack of motive power to activate

and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earnedincome to the taxing authorities, every person who is able must contribute his share in the runningof the government. The government for its part is expected to respond in the form of tangible andintangible benefits intended to improve the lives of the people and enhance their moral andmaterial values.[CIR vs. Algue. GR No. L28896. February 17, 1988]

PURPOSE AND OBJECTIVES OF TAXATION

While the funds collected under the OPSF may be referred to as taxes, they are exacted inthe exercise of the police power of the State. From such fund, amounts are drawn to reimburse oilcompanies when appropriate situations arise for increases in, as well as under-recovery of, the costof crude oil importation.[Osmea vs. Orbos. GR No. 99886. March 31, 1993]

Taxation may be used as an implement of the police power in order to promote the generalwelfare of the people. Thus the Sugar Adjustment Act, which imposed a tax on milled sugar, is validsince the purpose of the law was to strengthen an industry that is so undeniably vital to theeconomy - the sugar industry.[Lutz vs. Araneta. GR No. L7859. December 22, 1955]

POWER OFJUDICIAL REVIEW

Courts cannot inquire into the wisdom of a taxing act. [CIR vs. Lingayen Gulf ElectricPower Co. GR No. L23771. August 4, 1968]

TAXATION DISTINGUISHED FROM OTHER IMPOSITIONS

PenaltyIf a withholding agent like NDC fails to withhold the requisite withholding tax on theincome received from Philippine sources by a Japanese non-resident foreign corporation, suchwithholding agent (NDC) is liable to pay the tax that it did not withhold as "penalty" for its failureto withhold the tax of the foreign corporation. [National Development Co. vs. CIR. GR No. L53961. June 30, 1987]

License FeesTo be considered a license fee, the imposition questioned must relate to an occupation or

activity that so engages the public interest in health, morals, safety and development as to requireregulation for the protection and promotion of such public interest; the imposition must also bear areasonable relation to the probable expenses of regulation, taking into account not only the cost ofdirect regulation but also its incidental consequences as well. Accordingly, a charge of a fixed sum

which bears no relation at all to the cost of inspection and regulation may be held to be a tax


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rather than an exercise of the police power.[Progressive Development Co. vs Quezon City. GRNo. 36081. April 24, 1989]

If the purpose is primarily revenue or if revenue is at least one of the real and substantialpurposes, then the exaction is a tax. Hence, motor vehicle registration fees are taxes because the

legislative intent is mainly to raise funds for the construction and maintenance of highways and, toa much lesser degree, to pay for the expenses of the Land transportation Office, a regulatoryagency of the Government.[Philippine Airlines Inc. vs. Edu. GR No. L41383, August 15, 1988]

While it is true that the first part which requires that the alien shall secure an employmentpermit from the Mayor involves the exercise of discretion and judgment in the processing andapproval or disapproval of applications for employment permits and therefore is regulatory incharacter, the second part which requires the payment of P50.00 as employees fee is notregulatory but a revenue measure. There is no logic or justification in exacting P50.00 from alienswho have been cleared for employment. It is obvious that the purpose of the ordinance is to raisemoney under the guise of regulation. [Villegas vs. Hiu Chiong Tsai Pao Ho. GR No. L-29646.November 10, 1978]

Judging from the amount of the fees fixed in the ordinances in question, the so-called feeswere in reality taxes for city revenue. The fees cannot possibly be considered as mere expenseincurred for, or the cost of the inspection of each animal and the issuance of the correspondingpermit. There would be no doubt that the fees collected would amount to a sizable sum andaugment greatly the revenues of the municipal corporation.[Saldana vs. City of Iloilo GR No. L10470. June 26, 1958]

Incidentally, exemption from tax does not include building permit fee and specialassessments as these are not taxes but regulatory fees in the case of the license fee, and levy onaccount of benefits to land for the special assessments. [Apostolic Prefect of the MountainProvince vs. City Treasurer of Baguio. GR No. 47252. April 18, 1941]

The amount of exaction or charge, if it is to be a license fee, must only be of a sufficient

amount to include expenses of (1) issuing the license; and (2) cost of necessary inspection or policesurveillance. [Cuunjieng vs. Patstone. GR No. 16254. February 21, 1922]

Debts; Set-off or CompensationA taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim

against the Government or that the collection of the tax is contingent on the result of the lawsuit itfiled against the Government.[Philex Mining Corp. vs CIR. GR No. 125704. August 28, 1998]

Once a taxpayer opts for either a refund or the automatic tax credit scheme and signifiedhis option in accordance with the regulation, this does not ipso facto confer on him the right toavail of the same immediately. Prior approval by the Commissioner of Internal Revenue of the taxcredit under Section 86 would appear to be more reasonable interpretation to be given to saidsection. An opportunity must be given the internal revenue branch of the government to investigateand confirm the veracity of the claims of the taxpayer. Insofar as the option of tax credit isconcerned, this right should not be construed as an absolute right which is available to the taxpayerat his sole option. Automatic credit is not available, but this does not mean that the petitionercannot get a refund or credit of the excess quarterly payment.[San Carlos Milling Co., Inc. vs.CIR. GR No. 103379. November 23, 1993]

A corporation's outstanding claims for reimbursement against the Oil Price StabilizationFund (OPSF) cannot be offset against its contributions to said fund. PD 1956, as amended, explicitlyprovides that the source of the OPSF is taxation. A taxpayer may not offset taxes due from claimsthat he may have against the Government.

Taxes and debts cannot be the subject of compensation because the Government and thetaxpayer are not mutually creditors and debtors of each other and a claim for taxes is not a debt,

demand, contract or judgment as is allowable to be set off. [Caltex Phils. vs. Commission onAudit. GR No. 92585. May 8, 1992]


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LIMITATIONS ON THE TAXING POWER

INHERENT LIMITATIONS

Public PurposeGenerally, under the express and implied provisions of the constitution, public funds may

be used only for a public purpose. The right of the legislature to appropriate public funds iscorrelative with its right to tax, and, under constitutional provisions against taxation except forpublic purposes and prohibiting the collection of tax for one purpose and the devotion thereof toanother purpose, no appropriation of state funds can be made for other than a public purpose.[Pascual vs. Sec. of Public Works. GR No. L10405. December 29, 1960]

The promotion of general welfare is the State's paramount concern. Thus, a law imposing atax on sugar produced by sugar centrals for the purpose of using the proceeds thereof in therehabilitation and upliftment of the sugar industry is a tax levied for a public purpose. [Lutz vs.

Araneta. GR No. L7859. December 22, 1955]

In the imposition of taxes, public purpose is presumed. Hence, where an ordinance did notspecifically state the purpose for which the tax was to be used, it is presumed that said tax iscreated for a public purpose.[Mendoza Santos and Co. vs. Municipality of Meycauayan. GR No.L6069. April 30, 1954]

Non-delegability of the Taxing PowerThe power granted to Congress under this constitutional provision to authorize the

President to fix within specified limits and subjects to such limitations and restrictions as it mayimpose, and subject to such limitations and restrictions as it may impose, tariff rates even forrevenue purposes only. Customs duties which are assessed at the prescribed tariff rates are very

much like taxes which are frequently imposed both for revenue-raising and for regulatory purposes.[Garcia vs. Executive Secretary. GR No. 101273. July 3, 1992]

The power of taxation may be delegated to local governments in respect of matters of localconcern. By necessary implication, the legislative power to create political corporations forpurposes of local self-government carries with it the power to confer on such local governmentagencies the power to tax. In delegating the authority, the State is not limited to the exactmeasure of that which is exercised by itself. When it is said that the taxing power may bedelegated to municipalities and the like, it is meant that there may be delegated such measure ofpower to impose and collect taxes as the legislature may deem expedient. Thus, municipalities maybe permitted to tax subjects which for reasons of public policy the State has not deemed wise totax for more general purposes.[Pepsi-Cola Bottling Co. of the Phils., Inc. vs. Municipality ofTanauan, Leyte. GR No. L-31156. February 27, 1976]

Territoriality or Situs of TaxationFor income tax purposes, British Overseas Airways Corp., whose airplanes do not carry

passengers to and from the Philippines as it has no landing rights, is taxable on the income realizedfrom the sales of its tickets in the Philippines through sales office. At the same time, the airlinewould not be subject to any business tax inasmuch as the absence of any landing rights would meanthat it is not engaged in the exercise of any privilege which could be subject to the business orprivilege tax. (See also Commissioner vs. Air India. GR No. 72443. January 29, 1985) [CIR vs.British Overseas Airways Corp. GR No. 65773-74, April 30, 1987]

Where the tax that is being imposed is a tax upon the performance of an act, enjoyment ofa privilege, or engaging in an occupation, or what is sometimes known as an excise or privilege, thesitus of taxation is the place in which the act is performed or where the occupation is engaged in.

So, in case of sales tax imposed by a city government, the place where the sale is perfected and


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provided no two opposing or conflicting interests are involved, like the case of the restored taxexemption of a particular taxpayer where it appears that there is no interest that is existing whichis in conflict with the interests of such taxpayer.[Maceda vs. Macaraig. GR No. 88291. May 31,1991]

When tax turns out to be of a confiscatory nature, such an imposition could very well beconsidered as being violative of the due process principle. Due process clause in the Constitutionmay be invoked where a tax statute is so arbitrary that it finds no support in the Constitution.

The taxing power has the authority to make reasonable and natural classification forpurposes of taxation but the Government's act must not be prompted by a spirit of hostility or, atthe very least, discrimination that

General Princ in tax

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