Taxation 1 Digests

7/30/2019 Taxation 1 Digests

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COMMISSIONER OF INTERNAL REVENUE vs.CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS

G.R. No. L-29059 December 15, 1987

FACTS:By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as

modified on appeal by the Supreme Court on February 27, 1965, the Commissioner ofInternal Revenue was ordered to refund to the Cebu Portland Cement Company theamount of P359,408.98, representing overpayments of ad valorem taxes on cementproduced and sold by it after October 1957.

On March 28, 1968, following denial of motions for reconsideration filed by boththe petitioner and the private respondent, the latter moved for a writ of execution toenforce the said judgment.

The motion was opposed by the petitioner on the ground that the privaterespondent had an outstanding sales tax liability to which the judgment debt had alreadybeen 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.On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the

alleged sales tax liability of the private respondent was still being questioned andtherefore could not be set-off against the refund.

ISSUE:Whether or not the judgment debt can be enforced against private respondents

sales tax liability, the latter still being questioned.

RULING: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 ofthe government." If the payment of taxes could be postponed by simply questioning theirvalidity, the machinery of the state would grind to a halt and all government functionswould be paralyzed.

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 internalrevenue tax, fee or charge imposed by this Code.

It goes without saying that this injunction is available not only when theassessment is already being questioned in a court of justice but more so if, as in theinstant 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 aftercrediting of the refund against the tax deficiency, a balance of more than P 4 million isstill due from the private respondent.

To require the petitioner to actually refund to the private respondent the amountof the judgment debt, which he will later have the right to allocate for payment of its salestax liability, is in the Courts view an idle ritual.


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COMMISSIONER OF INTERNAL REVENUE vs.ALGUE and THE COURT OF TAX APPEALS

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

FACTS:

The Philippine Sugar Estate Development Company had earlier appointed Algue asits agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant tosuch authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, andPablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation,inducing other persons to invest in it. Ultimately, after its incorporation largely through thepromotion of the said persons, this new corporation purchased the PSEDC properties. Forthis sale, Algue received as agent a commission of P126,000.00, and it was from thiscommission 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 properlydisallowed because it was not an ordinary reasonable or necessary business expense. TheCourt 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. Thepayment was in the form of promotional fees.

ISSUE:Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00

deduction claimed by private respondent Algue as legitimate business expenses in its incometax returns.

RULING:The Supreme Court agrees with the respondent court that the amount of the

promotional fees was not excessive. The amount of P75,000.00 was 60% of the totalcommission. 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 theactual purchase by it of the Sugar Estate properties.

It is said that taxes are what we pay for civilization society. Without taxes, thegovernment 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 thetaxing authorities, every person who is able to must contribute his share in the running of thegovernment. 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. This symbiotic relationship is the rationale of taxation and should dispel theerroneous 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 arequirement in all democratic regimes that it be exercised reasonably and in accordance withthe prescribed procedure. If it is not, then the taxpayer has a right to complain and the courtswill then come to his succor. For all the awesome power of the tax collector, he may still bestopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not beenobserved.


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C.N. HODGES vs. MUNICIPAL BOARD OF THE CITY OF ILOILOG.R. No. L-18129 January 31, 1963

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 LocalAutonomy Act, requiring any person, firm, association or corporation to pay a sales tax of 1/2of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale ofthe motor vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has beenpaid.

C. N. Hodges, who was engaged in the business of buying and selling second-handmotor vehicles in the City of Iloilo, is one of those affected by the enactment of theordinance, and believing that the same is invalid for having been passed in excess of theauthority conferred by law upon the municipal board, he filed on June 27, 1960 a petition fordeclaratory judgment with the Court of First Instance of Iloilo praying that said ordinance bedeclared void ab initio.

The court a quo rendered decision on December 8, 1960 holding that that part of theordinance which requires the owner of a used motor vehicle to pay a sales tax of 1/2 of 1% ofthe selling price is valid, but the portion thereof which requires the payment of the tax as acondition precedent for the registration of the sale in the Motor Vehicles Office is invalid forbeing repugnant to Section 2(h) of Republic Act 2264. Both parties have appealed.

ISSUE:Whether or not the ordinance in question is valid even with regard to the portion

which requires the payment of the tax as a condition precedent for the registration of the salein the Motor Vehicles Office of said city.

RULING:

The City of Iloilo has the authority and power to approve the ordinance in questionfor it merely imposes a percentage tax on the sale of a second-hand motor vehicle that maybe carried out within the city by any person, firm, association or corporation owning ordealing with it who may come within the jurisdiction.

The requirement of the ordinance cannot be considered a tax in the light viewed bythe court a quo for the same is merely a coercive measure to make the enforcement of thecontemplated sales tax more effective. Well-settled is the principle that taxes are imposed forthe support of the government in return for the general advantage and protection which thegovernment affords to taxpayers and their property. Taxes are the lifeblood of thegovernment. It is imperative that the power to impose them to be clothed with the impliedauthority to devise ways and means to accomplish their collection in the most effectivemanner. Without this implied power the end of government may falter or fail.

If the power of municipalities are to be confined to those expressly granted by thelaw, in many cases they will be denied even the power of self-preservation as well as of themeans necessary to accomplish the essential object of their creation. Hence in givingcorporations authority to carry out the powers expressly granted to them, it is understood thatthey are also given the power to adopt such means as may be necessary for accomplishingtheir ends.


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ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARDG.R. No. L-4376 May 22, 1953

FACTS:The Association of Customs Brokers, Inc., which is composed of all brokers and

public service operators of motor vehicles in the City of Manila challenge the validityOrdinance No. 3379 on the ground that (1) while it levies a so-called property tax it is inreality 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 constitutesdouble taxation.

The respondents contend on their part that the challenged ordinance imposes aproperty tax which is within the power of the City of Manila to impose under its RevisedCharter [Section 18 (p) of Republic Act No. 409], and that the tax in question does notviolate the rule of uniformity of taxation, nor does it constitute double taxation.

ISSUE:

Whether or not the ordinance is null and void.

RULING:Coming to the ordinance in question, the Court finds that its title refers to it as "An

Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City ofManila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem perannum. It also provides that the proceeds of the tax "shall accrue to the Streets and BridgesFunds of the City and shall be expended exclusively for the repair, maintenance andimprovement of its streets and bridges.

While as a rule an ad valorem tax is a property tax, and this rule is supported by someauthorities, the rule should not be taken in its absolute sense if the nature and purpose of thetax as gathered from the context show that it is in effect an excise or a license tax.

The ordinance in question falls under the foregoing rules. While it refers to propertytax and it is fixed ad valorem yet the Court cannot reject the idea that it is merely levied onmotor vehicles operating within the City of Manila with the main purpose of raising funds tobe expended exclusively for the repair, maintenance and improvement of the streets andbridges in said city. This is precisely what the Motor Vehicle Law intends to prevent, for thereason that, under said Act, municipal corporation already participate in the distribution ofthe proceeds that are raised for the same purpose of repairing, maintaining and improvingbridges and public highway. This prohibition is intended to prevent duplication in theimposition of fees for the same purpose. It is for this reason that the Court believe that theordinance in question merely imposes a license fee although under the cloak of an advalorem tax to circumvent the prohibition above adverted to.

The ordinance infringes the rule of the uniformity of taxation ordained by ourConstitution. Note that the ordinance exacts the tax upon all motor vehicles operating withinthe City of Manila. It does not distinguish between a motor vehicle for hire and one which ispurely for private use. Neither does it distinguish between a motor vehicle registered in theCity of Manila and one registered in another place but occasionally comes to Manila and usesits streets and public highways. This is an inequality which we find in the ordinance, andwhich renders it offensive to the Constitution.


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ESSO STANDARD EASTERN, INC v. COMMISSIONER OF INTERNAL REVENUEG.R. Nos. L-28508-9, July 7, 1989

FACTS:In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross

income for 1959, as part of its ordinary and necessary business expenses, the amount it hadspent for drilling and exploration of its petroleum concessions. This claim was disallowed bythe Commissioner of Internal Revenue (CIR) on the ground that the expenses should becapitalized and might be written off as a loss only when a "dry hole" should result. Esso thenfiled an amended return where it asked for the refund of P323,279.00 by reason of itsabandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessaryexpenses in the same return was the amount of P340,822.04, representing margin fees it hadpaid to the Central Bank on its profit remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing theclaimed deduction for the margin fees paid on the ground that the margin fees paid to theCentral Bank could not be considered taxes or allowed as deductible business expenses.

Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees ithad earlier paid contending that the margin fees were deductible from gross income either asa tax or as an ordinary and necessary business expense. However, Essos appeal was denied.

ISSUE:(1)Whether or not the margin fees are taxes.(2) Whether or not the margin fees are necessary and ordinary business expenses.

RULING:(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. Themargin fee was imposed by the State in the exercise of its police power and not the power of

taxation.(2) No. 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 itconnotes a payment which is normal in relation to the business of the taxpayer and thesurrounding circumstances. Since the margin fees in question were incurred for theremittance of funds to Esso's Head Office in New York, which is a separate and distinctincome taxpayer from the branch in the Philippines, for its disposal abroad, it can never besaid therefore that the margin fees were appropriate and helpful in the development of Esso'sbusiness in the Philippines exclusively or were incurred for purposes proper to the conduct ofthe affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing aprofit or of minimizing a loss in the Philippines exclusively. If at all, the margin fees wereincurred for purposes proper to the conduct of the corporate affairs of Esso in New York, butcertainly not in the Philippines.


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PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITYG.R. No. L-36081, April 24, 1989

FACTS:On December 24, 1969, the City Council of Quezon City adopted Ordinance No.

7997, otherwise known as the Market Code of Quezon City. Section 3 of said ordinanceprovides that privately owned and operated public markets shall submit monthly to theTreasurer's Office, a certified list of stallholders showing the amount of stall fees or rentalspaid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals tothe City, ... , as supervision fee.

On July 15, 1972, Progressive Development Corporation (Progressive), owner andoperator of a public market known as the "Farmers Market & Shopping Center" filed aPetition for Prohibition with Preliminary Injunction against Quezon City on the ground thatthe supervision fee or license tax imposed by the above-mentioned ordinance is in reality atax on income which Quezon City may not impose, the same being expressly prohibited byRepublic Act No. 2264, as amended, otherwise known as the Local Autonomy Act.

In its Answer, Quezon City, through the City Fiscal, contended that it had authority toenact the questioned ordinances, maintaining that the tax on gross receipts imposed therein isnot a tax on income. The Solicitor General also filed an Answer arguing that the tax on grossreceipts was not a tax on income but one imposed for the enjoyment of the privilege toengage in a particular trade or business which was within the power of Quezon City toimpose.

The lower court ruled that the questioned imposition is not a tax on income, butrather a privilege tax or license fee which local governments, like Quezon City, areempowered to impose and collect.

ISSUE:Whether the tax imposed by Quezon City on gross receipts of stall rentals is properly

characterized as partaking of the nature of an income tax.

RULING:No. The tax imposed in the controverted ordinance constitutes, not a tax on income,

not a city income tax (as distinguished from the national income tax imposed by the NationalInternal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, butrather a license tax or fee for the regulation of the business in which Progressive is engaged.While it is true that the amount imposed by the questioned ordinances may be considered indetermining whether the exaction is really one for revenue or prohibition, instead of one ofregulation under the police power, it nevertheless will be presumed to be reasonable. Localgovernments are allowed wide discretion in determining the rates of imposable license feeseven in cases of purely police power measures, in the absence of proof as to particularmunicipal conditions and the nature of the business being taxed as well as other detailedfactors relevant to the issue of arbitrariness or unreasonableness of the questioned rates.


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PHILIPPINE AIRLINES, INC. v. EDUG.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 exemptfrom 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 asthe Land and Transportation and Traffic Code, requiring all tax exempt entities, among themPAL to pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unlessthe amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest,registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971,to Land Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts

paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held thatmotor vehicle registration fees are in reality taxes from the payment of which PAL is exemptby 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., (32 SCRA 211, March 30, 1970) to the effect that motorvehicle registration fees are regulatory fees imposed as an incident of the exercise of thepolice power of the state and not revenue measures and, therefore, do not come within theexemption granted to PAL under its franchise.

Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell(Carbonell).

The trial court dismissed PAL's complaint as it was moved by the later ruling laiddown by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc.

From this judgment, PAL appealed to the Court of Appeals which in turn certified the case tothe Supreme Court.

ISSUE:Whether or not motor vehicle registration fees are considered as taxes.

RULING: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 motorvehicle registration fees. The motor vehicle registration fees are actually taxes intended foradditional revenues of the government even if one fifth or less of the amount collected is setaside for the operating expenses of the agency administering the program. The conclusionsbecome inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case.The same provision appears as Section 591-593 in the Land Transportation Code. It is patenttherefrom that the legislators had in mind a regulatory tax as the law refers to the impositionon the registration, operation or ownership of a motor vehicle as a "tax or fee."


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VILLEGAS v. HIU CHIONG TSAI PAO HOG.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(Villegas).

Section 1 of the said city ordinance prohibits aliens from being employed or toengage or participate in any position or occupation or business enumerated therein, whetherpermanent, temporary or casual, without first securing an employment permit from theMayor of Manila and paying the permit fee of P50.00 except persons employed in thediplomatic or consular missions of foreign countries, or in the technical assistance programsof both the Philippine Government and any foreign government, and those working in theirrespective households, and members of religious orders or congregations, sect ordenomination, who are not paid monetarily or in kind.

On May 4, 1968, Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in

Manila, filed a petition with the Court of First Instance of Manila to declare City OrdinanceNo. 6537 as null and void. One of his grounds for wanting the ordinance declared null andvoid is that as a revenue measure imposed on aliens employed in the City of Manila,Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in taxation.

The trial court declared City Ordinance No. 6537 null and void. Contesting the trialcourts decision, Villegas filed the present petition. Villegas argues that City Ordinance No.

6537 cannot be declared null and void on the ground that it violated the rule on uniformity oftaxation because the rule on uniformity of taxation applies only to purely tax or revenuemeasures and that City Ordinance No. 6537 is not a tax or revenue measure but is an exerciseof the police power of the state, it being principally a regulatory measure in nature.

ISSUE:

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

RULING: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 truethat the first part which requires that the alien shall secure an employment permit from theMayor involves the exercise of discretion and judgment in the processing and approval ordisapproval of applications for employment permits and therefore is regulatory in characterthe second part which requires the payment of P50.00 as employee's fee is not regulatory buta revenue measure. There is no logic or justification in exacting P50.00 from aliens who havebeen cleared for employment. It is obvious that the purpose of the ordinance is to raisemoney under the guise of regulation.


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COMPAIA GENERAL DE TABACOS DE FILIPINAS vs.CITY OF MANILA, ET AL

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

FACTS:

Petitioner herein, Compania General de Tabacos de Filipinas(Tabacalera)filed actionin the CFI Manila to recover from City of Manila(City ) the sum of P15,280.00 allegedlyoverpaid by it as taxes on its wholesale and retail sales of liquor for the period from the thirdquarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301,and 3816.

Tabacalera's action for refund is based on the theory that, in connection with itsliquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but not themunicipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and since it alreadypaid the license fees aforesaid, the sales taxes paid by it amounting to the sum ofP15,208.00under the three ordinances mentioned heretofore is an overpayment made bymistake, and therefore refundable.

The City 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 paythe license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed byOrdinances Nos. 3634, 3301, and 3816. Even assuming that Tabacalera is not subject to thepayment of the sales taxes prescribed by the said three ordinances as regards its liquorsales,it is not entitled to the refund demanded for the following reasons-(a) The said amount waspaid by the plaintiff voluntarily and without protest;(b) If at all the alleged overpayment wasmade 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 itand passed to the consumers; and (d) The said amount had been already expended by thedefendant City for public improvements and essential services of the City government, thebenefits of which are enjoyed, and being enjoyed by the plaintiff.

ISSUE:Is license fee considered as tax.

RULING: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 aslevies for regulatory purposes. Thus license fees are commonly called taxes. Legallyspeaking, however, license fee is a legal concept quite distinct from tax; the former isimposed in the exercise of police power for purposes of regulation, while the latter isimposed under the taxing power for the purpose of raising revenues (MacQuillin, MunicipalCorporations, Vol. 9, 3rd Edition, p. 26).

Ordinance No. 3358 is clearly one that prescribes municipal license fees for theprivilege to engage in the business of selling liquor or alcoholic beverages, having beenenacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on,and regulate, the sale of intoxicating liquors, whether imported or locally manufactured.(Section 18 [p], Republic Act 409, as amended). The license fees imposed by it areessentially for purposes of regulation, and are justified, considering that the sale ofintoxicating liquor is, potentially at least, harmful to public health and morals, and must be


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subject to supervision or regulation by the state and by cities and municipalities authorized toact in the premises. (MacQuillin, supra, p. 445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxeson the sales of general merchandise, wholesale or retail, and are revenue measures enacted bythe Municipal Board of Manila by virtue of its power to tax dealers for the sale of suchmerchandise. (Section 10 [o], Republic Act No. 409, as amended.).

Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includesliquor.

That Tabacalera is being subjected to double taxation is more apparent than real. Asalready stated what is collected under Ordinance No. 3358 is a license fee for the privilege ofengaging in the sale of liquor, a calling in which it is obviousnot anyone or anybodymay freely engage, considering that the sale of liquor indiscriminately may endanger publichealth and morals. On the other hand, what the three ordinances mentioned heretofore imposeis a tax for revenue purposes based on the sales made of the same article or merchandise. It isalready settled in this connection that both a license fee and a tax may be imposed on thesame business or occupation, or for selling the same article, this not being in violation of therule against double taxation.

Case dismissed.


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AMERICAN MAIL LINE, ET AL vs. CITY OF BASILAN, ET ALG.R. No. L-12647 May 31, 1961

FACTS:On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180,

Series of 1955, the pertinent part reads,Sec. 2. Section 1 of Ordinance No. 7 is hereby amended and adding thereto a new paragraphto be known as Section 1 (D), to read as follows:

"Section 1 (D). Any foreign vessel engaged in coastwise trade which may anchor atany open bay, channel, or any loading point within the territorial waters of the City ofBasilan for the purpose of loading or unloading logs or passengers and other cargoesshall pay an anchorage fee of 1/2 centavo (P.005) per registered gross ton of thevessel 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-fivepesos (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 channelwithin its territorial waters. As the city treasurer assessed and attempted to collect from themthe anchorage fees prescribed in the aforesaid amendatory ordinance, they filed the presentaction for Declaratory Relief to have the courts determine its validity. Upon their petition thelower court issued a writ of preliminary injunction restraining appellants from collecting orattempting to collect from them the fees prescribed therein.

Appellant contended that, through its city council, it had authority to enact thequestioned ordinance in the exercise of either its revenue-raising power or of its policepower. The question to be resolved is whether the City of Basilan has the authority to enactOrdinance 180 and to collect the anchorage fees prescribed therein.

In support of the affirmative, appellant city relies upon the following provisions of its Charter(Republic Act 288):

SEC. 14. General Powers and Duties of the Council. Except as otherwiseprovided by law, and subject to the conditions and limitations thereof, the Councilshall have the following legislative powers:(a) To levy and collect taxes for general and special purposes in accordance with law.(c) To enact ordinances for the maintenance and preservation of peace and goodmorals.(v) To fix the charges to be paid by all watercraft landing at or using public wharves,docks, levees, or landing places.

ISSUE:Is the ordinance valid exercise of taxing power of the City of Basilan.

RULING:Under paragraph (a) sec. 14, R.A. 288, 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 bylaw; in other words, the city of Basilan was not granted a blanket power of taxation. The useof the phrase "in accordance with law" which, in our opinion, means the same as


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"provided by law" clearly discloses the legislative intent to limit the taxing power of theCity.

Section 14(v) of Republic Act No. 288 does not authorize the City of Basilan topromulgate ordinances providing for the collection of "Anchorage" fees. This is clearly notincluded in the power granted by the provision under consideration "to fix the charges to bepaid by all watercraft landing at or using public wharves, docks, levees, or landing places."

That this is so is shown by the need which the City of Basilan had to enact the amendatoryordinance.

It has been held that the power to regulate as an exercise of police power does notinclude the power to impose fees for revenue purposes (Cu Unijeng vs. Patstone, 42 Phil.818; Pacific Commercial Co. vs. Romualdez etc. et al., 46 Phil. 917; Arquiza etc. vs.Municipality of Zamboanga, 55 Phil. 653). In the Cu Unjieng case it was held that fees forpurely regulatory purposes "may only be of sufficient amount to include the expenses ofissuing the license and the cost of the necessary inspection or police surveillance, taking intoaccount not only the expense of direct regulation but also incidental expenses. In ManilaElectric Co. vs. Auditor General, 73 Phil. 129-135, 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, thatwould be the limit of the fee."We believe that the fees required are extended for revenue purposes. In the first

place, being cased upon the tonnage of the vessels, the fees have no proper or reasonablerelation to the cost of issuing the permits and the cost of inspection or surveillance. In thesecond place, the fee imposed on foreign vessels 1/2 centavo per registered gross ton forthe first 24 hours and which shall not exceed P75.00 per dayexceeds even the harbor feeimposed by the National Government, which is only P50.00 for foreign vessels (sec. 2702 ofthe Tariff and Customs Code, Republic Act No. 1937, taken from Sec. 2, Republic Act No.1317 which was enacted by Congress to raise revenues for the Port Works Fund). Lastly,appellant city's own contention that the questioned ordinance was enacted in the exercise ofits power of taxation, makes it obvious that the fees imposed are not merely regulatory.


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JOHN H. OSMEA vs. OSCAR ORBOS et alG.R. No. 99886 March 31, 1993

FACTS:October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special

Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The

OPSF was designed to reimburse oil companies for cost increases in crude oil and importedpetroleum products resulting from exchange rate adjustments and from increases in the worldmarket prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liabilityaccount," . President Corazon C. Aquino promulgated E. O. 137 expanding the grounds forreimbursement to oil companies for possible cost under recovery incurred as a result of thereduction of domestic prices of petroleum products.

The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, asamended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' andthat "if a special tax is collected for a specific purpose, the revenue generated therefrom shall'be treated as a special fund' to be used only for the purpose indicated, and not channeled toanother government objective." Petitioner further points out that since "a 'special fund'

consists of monies collected through the taxing power of a State, such amounts belong to theState, although the use thereof is limited to the special purpose/objective for which it wascreated."

The petitioner does not suggest that a "trust account" is illegal per se, but maintainsthat the monies collected, which form part of the OPSF, should be maintained in a specialaccountof the general fund for the reason that the Constitution so provides, and because theyare, supposedly, taxes levied for a special purpose. He assumes that the Fund is formed froma tax undoubtedly because a portion thereof is taken from collections ofad valorem taxes andthe increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on theview that the powers granted to the ERB under P.D. 1956, as amended, partake of the natureof the taxation power of the State. The Solicitor General observes that the "argument rests on

the assumption that the OPSF is a form of revenue measure drawing from a special tax to beexpended for a special purpose."

ISSUE:Are stabilization fees/ funds in the nature of tax

RULING:Of relevance is this Court's ruling in relation to the sugar stabilization fund the nature

of which is not far different from the OPSF. In Gaston v. Republic Planters Bank, this Courtupheld the legality of the sugar stabilization fees and explained their nature and character, viz,The stabilization fees collected are in the nature of a tax, which is within the power of the

State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . . .The tax collected is not in a pure exercise of the taxing power.It is levied with a regulatorypurpose, to provide a means for the stabilization of the sugar industry. The levy is primarily

in the exercise of the police power of the State (Lutz v. Araneta, supra).Hence, it seems clear that while the funds collected may be referred to as taxes, they

are exacted in the exercise of the police power of the State. Moreover, that the OPSF is aspecial fund is plain from the special treatment given it by E.O. 137. It is segregated from thegeneral fund; and while it is placed in what the law refers to as a "trust liability account," thefund nonetheless remains subject to the scrutiny and review of the COA. The Court is


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satisfied that these measures comply with the constitutional description of a "special fund."Indeed, the practice is not without precedent.

What petitioner would wish is the fixing of some definite, quantitative restriction, or"a specific limit on how much to tax." The Court is cited to this requirement by the petitioneron the premise that what is involved here is the power of taxation; but as already discussed,this is not the case. What is here involved is not so much the power of taxation as police

power. Although the provision authorizing the ERB to impose additional amounts could beconstrued to refer to the power of taxation, it cannot be overlooked that the overridingconsideration is to enable the delegate to act with expediency in carrying out the objectives ofthe law which are embraced by the police power of the State.

It would seem that from the above-quoted ruling, the petition for prohibition shouldfail.


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REPUBLIC OF THE PHILIPPINES, vs. BACOLOD-MURCIA MILLING CO., INC.,MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY

G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

FACTS:

Joint appeal by three sugar centrals, respondents herein. from a decision of the Courtof First Instance of Manila finding them liable for special assessments under Section 15 ofRepublic Act No. 632.

Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin forshort, a semi-public corporation . To realize and achieve the ends of the corporation, Sections15 and 16 of the aforementioned law provide:

Sec. 15. Capitalization.To raise the necessary funds to carry out the provisions ofthis Act and the purposes of the corporation, there shall be levied on the annual sugarproduction a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a periodof five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugarcane planters and the sugar centrals in the proportion of their corresponding milling share,

and said levy shall constitute a lien on their sugar quedans and/or warehouse receipts.Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside toconstitute a special fund to be known as the "Sugar Research and Stabilization Fund," whichshall be available exclusively for the use of the corporation. All the income and receiptsderived from the special fund herein created shall accrue to, and form part of the said fund tobe available solely for the use of the corporation.

On September 3, 1951 PHILSUGIN acquired the Insular Sugar Refinery for a totalconsideration of P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3installments from the process of the sugar tax to be collected, under Republic Act 632. Theevidence further discloses that the operation of the Insular Sugar Refinery for the years, 1954,1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred tremendouslosses .

Contending that the purchase of the Insular Sugar Refinery with money from thePhilsugin Fund was not authorized by Republic Act 632 and that the continued operation ofthe said refinery was inimical to their interests, the appellants refused to continue with theircontributions to the said fund. They maintained that their obligation to contribute or pay tothe said Fund subsists only to the limit and extent that they are benefited by suchcontributions since Republic Act 632 is not a revenue measure but an Act which establishes a"Special assessments." Adverting to the finding of the lower court that proceeds of the saidFund had been used or applied to absorb the "tremendous losses" incurred by Philsugin in its"disastrous operation" of the said refinery, the appellants herein argue that they should notonly be released from their obligation to pay the said assessment but be refunded, besides, ofall that they might have previously paid thereunder.

The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar"authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such, theproceeds thereof may be devoted only to the specific purpose for which the assessment wasauthorized, a special assessment being a levy upon property predicated on the doctrine thatthe property against which it is levied derives some special benefit from the improvement. Itis not a tax measure intended to raise revenues for the Government. Consequently, once it hasbeen determined that no benefit accrues or inures to the property owners paying theassessment, or that the proceeds from the said assessment are being misapplied to the


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prejudice of those against whom it has been levied, then the authority to insist on thepayment of the said assessment ceases.

ISSUE:Is the imposition of special assessment an exercise of the taxing power

RULING:The Court deemed it relevant to discuss its holding in Lutz v. Araneta.

The nature of a "special assessment" similar to the case at bar has already been discussed andexplained by this Court in the case ofLutz vs. Araneta, 98 Phil. 148. For in this Lutz case,Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners orpersons in control of lands devoted to the cultivation of sugar cane and ceded to others for aconsideration, on lease or otherwise

a tax equivalent to the difference between the money value of the rental orconsideration collected and the amount representing 12 per centum of the assessedvalue of such land. (Sec. 3).1wph1.t

Under Section 6 of the said law, Commonwealth Act 567, all collections madethereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of thefollowing purposes or to attain any or all of the following objectives, as may be provided bylaw." It then proceeds to enumerate the said purposes, among which are "to place the sugarindustry in a position to maintain itself; ... to readjust the benefits derived from the sugarindustry ... so that all might continue profitably to engage therein; to limit the production ofsugar to areas more economically suited to the production thereof; and to afford laborersemployed in the industry a living wage and to improve their living and working conditions.The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or specialassessment was unconstitutional because it was being "levied for the aid and support of thesugar industry exclusively," and therefore, not for a public purpose. In rejecting the theory

advanced by the said plaintiff, this Court said:

The basic defect in the plaintiff's position in his assumption that the tax provided forin Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of theAct, and particularly Section 6, will show that the tax is levied with a regulatorypurpose, to provide means for the rehabilitation and stabilization of the threatenedsugar 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 industryis a matter of public concern, it follows that the Legislature may determine withinreasonable bounds what is necessary for its protection and expedient for itspromotion. Here, the legislative discretion must be allowed full play, subject only tothe test of reasonableness; and it is not contended that the means provided in Section6 of the law (above quoted) bear no relation to the objective pursued or areoppressive in character. If objective and methods are alike constitutionally valid, noreason is seen why the state may not levy taxes to raise funds for their prosecutionand attainment. Taxation may be made the implement of the state's police power.

On the authority of the above case, then, We hold that the special assessment at barmay be considered as similarly as the above, that is, that the levy for the Philsugin Fund isnot so much an exercise of the power of taxation, nor the imposition of a special assessment,


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but, the exercise of the police power for the general welfare of the entire country. It is,therefore, an exercise of a sovereign power which no private citizen may lawfully resist.


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

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

FACTS:

This case calls into question the validity of Ordinance No. 1, series of 1956, of theMunicipality of Victorias, Negros Occidental.

The disputed ordinance was approved by the municipal Council of Victorias onSeptember 22, 1956 by way of an amendment to two municipal ordinances separatelyimposing license taxes on operators of sugar centralsand sugar refineries. The changes were:with respect to sugar centrals, by increasing the rates of license taxes; and as to sugarrefineries, by increasing the rates of license taxes as well as the range of graduated scheduleof annual output capacity.

For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar centraland its sugar refinery located in the Municipality of Victorias comes within these items.

Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956,

null and void. The plaintiff contends that the ordinance is discriminatory since it singles outplaintiff which is the only operator of a sugar central and a sugar refinery within thejurisdiction of defendant municipality.

The trial court rendered its judgment declaring that "[t]here is no doubt that" theordinance in question refers to license taxes or fees. If the defendant has the power to tax theplaintiff for purposes of revenue, it may do so by proper municipal legislation, but not in theguise of a license tax.

Both plaintiff and defendant directly appealed to the Supreme Court.

ISSUE:Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a

regulatory enactment or as a revenue measure?

RULING:The present imposition must be treated as a levy for revenue purposes. A quick

glance at the big amount of maximum annual tax set forth in the ordinance, P40,000.00 forsugar centrals, and P40,000.00 for sugar refineries, will readily convince one that the tax isreally a revenue tax. And then, we read in the ordinance nothing which would as much asindicate that the tax imposed is merely for police inspection, supervision or regulation. Giventhe purposes just mentioned, we find no warrant in logic to give our assent to the view thatthe ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed.The ordinance is for raising money. To say otherwise is to misread the purpose of theordinance.


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WALTER LUTZ vs. J. ANTONIO ARANETAG.R. No. L-7859 December 22, 1955

FACTS:This 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 SugarAdjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration ofemergency, due to the threat to our industry by the imminent imposition of export taxes uponsugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferentialposition in the United States market"; wherefore, the national policy was expressed "to obtaina readjustment of the benefits derived from the sugar industry by the component elementsthereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the lossof its preferential position in the United States market and the imposition of the export taxes."

Plaintiff, Walter Lutz seeks to recover from the Collector of Internal Revenue thesum 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 leviedfor the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not apublic purpose for which a tax may be constitutioally levied. The action having beendismissed by the Court of First Instance, the plaintifs appealed the case directly to theSupreme Court.

ISSUE:Is the tax provided for in Commonwealth Act No. 567 a pure exercise of the taxing

power?

RULING:Analysis of the Act, and particularly of section 6 will show that the tax is levied with

a regulatory purpose, to provide means for the rehabilitation and stabilization of thethreatened sugar industry. In other words, the act is primarily an exercise of the police power.

The protection and promotion of the sugar industry is a matter of public concern, itfollows that the Legislature may determine within reasonable bounds what is necessary for itsprotection and expedient for its promotion. If objective and methods are alike constitutionallyvalid, no reason is seen why the state may not levy taxes to raise funds for their prosecutionand attainment. Taxation may be made the implement of the state's police power. From thepoint of view we have taken it appears of no moment that the funds raised under the SugarStabilization Act, now in question, should be exclusively spent in aid of the sugar industry,since it is that very enterprise that is being protected. It may be that other industries are alsoin need of similar protection.


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REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIALCOMMISSION ON GOOD GOVERNMENT (PCGG) vs. COCOFED, ET AL. and

BALLARES, ET AL., EDUARDO M. COJUANGCO JR. and the SANDIGANBAYAN(First Division)

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

FACTS:The PCGG issued and implemented numerous sequestrations, freeze orders and

provisional takeovers of allegedly ill-gotten companies, assets and properties, real orpersonal.

Among the properties sequestered by the Commission were shares of stock in theUnited Coconut Planters Bank (UCPB) registered in the names of the alleged "one millioncoconut farmers," the so-called Coconut Industry Investment Fund companies (CIIFcompanies) and Private Respondent Eduardo Cojuangco Jr.

On January 23, 1995, the trial court rendered its final Decision nullifying and settingaside the Resolution of the Sandiganbayan which, as earlier stated, lifted the sequestration of

the subject UCPB shares. The express impleading of herein Respondents COCOFED et al.was deemed unnecessary because "the judgment may simply be directed against the shares ofstock shown to have been issued in consideration of ill-gotten wealth." Furthermore, thecompanies "are simply the res in the actions for the recovery of illegally acquires wealth, andthere is, in principle, no cause of action against them and no ground to implead them asdefendants in said case."

ISSUE:Are the Coconut Levy Funds raised through the States police and taxing powers?

RULING:Indeed, coconut levy funds partake of the nature of taxes which, in general, are

enforced proportional contributions from persons and properties, exacted by the State byvirtue of its sovereignty for the support of government and for all public needs.

Based on this definition, a tax has three elements, namely: a) it is an enforcedproportional contribution from persons and properties; b) it is imposed by the State by virtueof its sovereignty; and c) it is levied for the support of the government.

Taxation is done not merely to raise revenues to support the government, but also toprovide means for the rehabilitation and the stabilization of a threatened industry, which is soaffected with public interest as to be within the police power of the State. Even if the moneyis allocated for a special purpose and raised by special means, it is still public in character. Itis, therefore, the State's concern to make it a strong and secure source not only of thelivelihood of a significant segment of the population, but also of export earnings thesustained growth of which is one of the imperatives of economic stability.


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WENCESLAO PASCUAL vs. THE SECRETARY OF PUBLIC WORKS ANDCOMMUNICATIONS, ET AL.

G.R. No. L-10405 December 29, 1960

FACTS:

On August 31, 1954, petitioner Wenceslao Pascual instituted this action fordeclaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "AnAct Appropriating Funds for Public Works", approved on June 20, 1953, contained, insection 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction,repair, extension and improvement" of Pasig feeder road terminals; that, at the time of thepassage and approval of said Act, the aforementioned feeder roads were "nothing butprojected and planned subdivision roads, not yet constructed, . . . within the AntonioSubdivision . . . situated at . . . Pasig, Rizal" which projected feeder roads "do not connectany government property or any important premises to the main highway";

Respondents moved to dismiss the petition upon the ground that petitioner had "nolegal capacity to sue", and that the petition did "not state a cause of action".

ISSUE:Should appropriation using public funds be made for public purposes only?

RULING:It is a general rule that the legislature is without power to appropriate public revenue

for anything but a public purpose. . . . It is the essential character of the direct object of theexpenditure which must determine its validity as justifying a tax, and not the magnitude ofthe interest to be affected nor the degree to which the general advantage of the community,and thus the public welfare, may be ultimately benefited by their promotion. Incidental to thepublic or to the state, which results from the promotion of private interest and the prosperityof private enterprises or business, does not justify their aid by the use public money.

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 andprohibiting the collection of a tax for one purpose and the devotion thereof to anotherpurpose, 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 iswhether the statute is designed to promote the public interest, as opposed to the furtheranceof the advantage of individuals, although each advantage to individuals might incidentallyserve the public.


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OSMEA VS. ORBOSG.R. No. 99886 March 31, 1993

FACTS:In October 1984, Pres. Marcos issued P.D. 1956 creating a Special Account in the

General Fund designated as the Oil Price Stabilization Fund designed to reimburse oilcompanies for cost increases in crude oil and imported petroleum products resulting fromexchange rate adjustments and from increases in the world market prices of crude oil.Subsequently, E.O. 1024 was issued reclassifying OPSF as a trust liability account andordering such fund to be released from the National Treasury to the Ministry of Energy forinvestment in government securities.

In February 1987, Pres. Aquino amended P.D. 1956 by issuing E.O. 137, expandingthe grounds for reimbursement to oil companies for possible cost underrecoveryincurred as aresult of the reduction of domestic prices of petroleum products, the amount of theunderrecovery being left for determination by the Ministry of Finance.

As of 31 March 1991, the status of the OPSF showed a Terminal Fund Balance

deficit. To abate the worsening deficit, the Energy Regulation Board issued an Orderapproving the pump prices of petroleum products. At the rate of recoupment, the deficitshould have been fully recovered already but respondents, as alleged by petitioner, are poisedto accept, process and pay claims not authorized under P.D. 1956.

Petitioner also claims that the creation of the trust fund violates Section 29(3) ofArticle VI of the Constitution. Under the said provision, the monies collected under P.D.1956 must be treated as a special fund, not a trust fund. And that if a special tax is collectedfor a special purpose, the revenue generated therefrom shall be treated as a special fund to beused only for the purpose indicated, and not channeled to another government objective.

ISSUE:Do the powers granted to the ERB under P.D. 1956 partake of the nature of the

taxation power of the State?

RULING:NO. The OPSF was established "for the purpose of minimizing the frequent price

changes brought about by exchange rate adjustment and/or changes in world market prices ofcrude oil and imported petroleum products. While the funds collected may be referred to astaxes, they are exacted in the exercise of the police power of the State.


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PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. VS.MUNICIPALITY OF TANAUAN

G.R. No. L-31156 February 27, 1976

FACTS:

In February 1963, plaintiff commenced a complaint seeking to declare Section 2 ofR.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing powerand to declare Ordinance Nos. 23 and 24 ISSUEd by the Municipality of Tanauan, Leyte asnull and void.

Municipal Ordinance No. 23 levies and collects from soft drinks producers andmanufacturers one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. For thepurpose of computing the taxes due, the person, firm, company or corporation producing softdrinks shall submit to the Municipal Treasurer a monthly report of the total number of bottlesproduced and corked during the month. On the other hand, Municipal Ordinance No. 27levies and collects on soft drinks produced or manufactured within the territorial jurisdictionof the municipality a tax of one centavo (P0.01) on each gallon of volume capacity. For the

purpose of computing the taxes due, the person, firm, company, partnership, corporation orplant producing soft drinks shall submit to the Municipal Treasurer a monthly report of thetotal number of gallons produced or manufactured during the month. The tax imposed in bothOrdinances Nos. 23 and 27 is denominated as "municipal production tax.

ISSUES:1. Is Section 2 of R.A. 2264 an undue delegation of the power of taxation?2. Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage

or specific taxes?

RULING:1. NO. The power of taxation is purely legislative and cannot be delegated to the

executive or judicial department of the government without infringing upon thetheory of separation of powers. But as an exception, the theory does not apply tomunicipal corporations. Legislative powers may be delegated to localgovernments in respect of matters of local concern. This is sanctioned byimmemorial practice. By necessary implication, the legislative power to createpolitical corporations for purposes of local self-government carries with it thepower to confer on such local governmental agencies the power to tax. (There isno express provision in the 1935 Constitution granting the power of taxation tolocal governments. The power was first vested by the 1973 Constitution.)

2. NO. The Municipality of Tanauan discovered that manufacturers could increasethe volume contents of each bottle and still pay the same tax rate since tax isimposed on every bottle corked. To combat this scheme, Municipal OrdinanceNo. 27 was enacted. As such, it was a repeal of Municipal Ordinance No. 23. Inthe stipulation of facts, the parties admitted that the Municipal Treasurer wasenforcing Municipal Ordinance No. 27 only. Hence, there was no case of doubletaxation.


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SOCIAL SECURITY SYSTEM VS. CITY OF BACOLODG.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 wereassessed for taxation. Petitioner failed to pay the realty taxes for the years 1968, 1969 and1970. Consequently, the City of Bacolod levied upon said lands and buildings and declaredthem forfeited in its favor. In protest, petitioner wrote the city mayor through the citytreasurer seeking reconsideration of the forfeiture proceeding on the ground that it is agovernment-owned and controlled corporation and as such, should be exempt from paymentof real estate taxes. No action was however taken. Thereafter, petitioner filed an action incourt for the nullification of the court proceedings. The court ruled that the properties ofpetitioner are not exempt from the payment of real property tax because these are not one ofthe exemptions under Section 29 of the Charter of Bacolod City and there is no other lawproviding 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 Citydoes not contain any qualification whatsoever in providing for the exemption from real estatetaxes of "lands and buildings owned by the Commonwealth or Republic of Philippines."Hence, when the legislature exempted lands and buildings owned by the government frompayment 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 proprietarypurpose.

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


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SEA-LAND SERVICE, INC. VS. COURT OF APPEALSG.R. No. 122605 April 30, 2001

FACTS:Petitioner Sea-Land Service Incorporated, an American international shipping

company licensed by the Securities and Exchange Commission to do business in thePhilippines entered into a contract with the United States Government to transport militaryhousehold goods and effects of U.S. military personnel assigned to the Subic Naval Base.Sea-Land paid its corresponding corporate income tax for the taxable year 1984 at the rate of1.5% in accordance with Section 25(a)(2) of the National Internal Revenue Code in relationto Article 9 of the RP-US Tax Treaty. Subsequently, Sea-Land filed a claim for refundalleging that the taxes it paid were made in mistake because under the RP-US Military BaseAgreement, it is exempt from the payment of taxes. The pertinent provision provides:

"No national of the United States, or corporation organized under the laws ofthe United States, shall be liable to pay income tax in the Philippines inrespect of any profits derived under a contract made in the United States with

the government of the United States in connection with the construction,maintenance, operation and defense of the bases, or any tax in the nature of alicense in respect of any service or work for the United States in connectionwith the construction, maintenance, operation and defense of the bases."

ISSUE:Does the income that petitioner derived from services in transporting the household

goods and effects of U.S. military personnel fall within the tax exemption provided in theRP-US Military Bases Agreement?

RULING:NO. Laws granting exemption from tax are construed strictissimi juris against the

taxpayer and liberally in favor of the taxing power. The transport or shipment of householdgoods 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 thisservice to the U.S. government be interpreted as directly related to the defense and security ofthe Philippine territories


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COMMISSIONER OF INTERNAL REVENUE vs.MITSUBISHI METAL CORPORATION

G.R. No. L-54908. January 22, 1990

FACTS:

On April 17, 1970, Atlas Consolidated Mining and Development Corporation enteredinto a Loan and Sales Contract with Mitsubishi Metal Corporation, a Japanese corporationlicensed to engage in business in the Philippines, for purposes of the projected expansion ofthe 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 Statescurrency. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates producedfor 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 loanapplication was approved on May 26, 1970 in the equivalent sum of $20,000,000.00 inUnited States currency at the then prevailing exchange rate. The records in the Bureau ofInternal 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 aconsideration for importing copper concentrates from Atlas, and that Mitsubishi had to payback the total amount of loan by September 30, 1981. Pursuant to the contract between Atlasand Mitsubishi, interest payments were made by the former to the latter totalingP13,143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in theamount 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 dulyremitted to the Government.

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

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


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31st INFANTRY POST EXCHANGE vs. POSADASG.R. No. 33403. September 4, 1930

FACTS:The 31st Infantry Post Exchange is a post exchange constituted in accordance with

Army regulations and the laws of the United States. in the course of its duly authorizedbusiness transactions, the Exchange made many purchases of various and diversecommodities, goods, wares and merchandise from various merchants in the Philippines. TheCommissioner collected a sales tax of 1 1/2 % of the gross value of the commodities, etc.from the merchants who sold said commodities to the Exchange. A formal protest was lodgedby the Exchange.

ISSUE:Whether or not the petitioner is exempt from the sales tax imposed against its

suppliers.

RULING:The court ruled in the negative. Taxes have been collected from merchants who madesales to Army Post Exchanges since 1904 (Act 1189, Section 139). Similar taxes are paid bythose who sell merchandise to the Philippine Government, and by those who do businesswith the US Army and Navy in the Philippines. Herein, the merchants who effected the salesto the Post Exchange are the ones who paid the tax; and it is the officers, soldiers, andcivilian employees and their families who are benefited by the post exchange to whom thetax is ultimately shifted. The tax laid upon the merchants who sell to the Army PostExchanges does not interfere with the supremacy of the US Government, nor does it interferewith the operations of its instrumentalities, such as the US Army, to such extent or in such amanner as to render the tax illegal. The tax does not deprive the Army of the power to servethe Government as it was intended to serve it, or hinder the efficient exercise of its power.

An Army Post Exchange, although an agency within the US Army, cannot secureexemption from taxation for merchants who make sales to the Post Exchange.


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COMMISSIONER OF INTERNAL REVENUE vs. MARUBENI CORPORATIONG.R. No. 137377. December 18, 2001

FACTS:Respondent Marubeni Corporation is a foreign corporation and is duly registered to

engage in business in the Philippines. Sometime in November 1985, petitioner Commissionerof Internal Revenue issued a letter of authority to examine the books of accounts of theManila branch office of respondent corporation. In the course of the examination, petitionerfound respondent to have undeclared income from two (2) contracts in the Philippines.Petitioner's revenue examiners recommended an assessment for deficiency income, branchprofit remittance, contractor's and commercial broker's taxes. Respondent questioned thisassessment. Respondent then received a letter form petitioner assessing respondent severaldeficiency taxes. On September 26, 1986, respondent filed two (2) petitions for review withthe Court of Tax Appeals. The first petition questioned the deficiency income, branch profitremittance and contractor's tax assessments in petitioner's assessment letter. The secondquestioned the deficiency commercial broker's assessment. Earlier, on August 2, 1986,

Executive Order (E.O.) No. 41 declaring a one-time amnesty covering unpaid income taxesfor the years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of theincome tax amnesty should comply with certain requirements. In accordance with the termsof E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986. OnNovember 17, 1986, the scope and coverage of E.O. No. 41 was expanded by ExecutiveOrder (E.O.) No. 64.

ISSUES:Whether or not herein respondent's deficiency tax liabilities were extinguished upon

respondent's availment of tax amnesty under Executive Orders Nos. 41 and 64.

RULING:

The main controversy in this case lies in the interpretation of the exception to theamnesty coverage of E.O. Nos. 41 and 64. There are three (3) types of taxes involved hereinincome tax, branch profit remittance tax and contractor's tax. These taxes are covered bythe amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however, that respondent isdisqualified from availing of the said amnesties because the latter falls under the exception inSection 4 (b) of E.O. No. 41. Petitioner's claim cannot be sustained. Section 4 (b) of E.O. No.41 is very clear and unambiguous. It excepts from income tax amnesty those taxpayers "withincome tax cases already filed in court as of the effectivity hereof." The point of reference isthe date of effectivity of E.O. No. 41. The difficulty lies with respect to the contractor's taxassessment and respondent's availment of the amnesty under E.O. No. 64 including estate anddonor's taxes and tax on business. In the instant case, the vagueness in Section 4 (b) broughtabout by E.O. No. 64 should be construed strictly against the taxpayer. The term "income taxcases" should be read as to refer to estate and donor's taxes and taxes on business while theword "hereof," to E.O. No. 64. Since Executive Order No. 64 took effect on November 17,1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivityreferred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986. There is nothing inE.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, theoriginal issuance. Neither is it necessarily implied from E.O. No. 64 that it or any of itsprovisions should apply retroactively.


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REAGAN vs. COMMISSIONER OF INTERNAL REVENUEG.R. No. L-26379, 27. December 27, 1969

FACTS:William Reagan imported a tax-free 1960 Cadillac car with accessories valued at US

$ 6,443.83, including freight, insurance and other charges. After acquiring a permit to sell thecar from the base commander of Clark Air Base, Reagan sold the car to a certain WillieJohnson Jr. of the US Marine Corps stationed in Sangley Point, Cavite for US$ 6,600.Johnson sold the same, on the same day to Fred Meneses, a Filipino. As a result of thetransaction, the Commissioner rendered Reagan liable for income tax in the sum of P2,970.Reagan claimed that he was exempt as the transaction occurred in Clark Air Base, which ashe contends is a base outside the Philippines.

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

RULING:The court ruled in the negative. The Philippines, as an independent and sovereigncountry, exercises its authority over its entire domain. Any state may, however, by itsconsent, express or implied, submit to a restriction of its sovereign rights. It may allowanother power to participate in the exercise of jurisdictional right over certain portions of itsterritory. By doing so, it by no means follows that such areas become impressed with an aliencharacter. The areas retain their status as native soil. Clark Air Base is within Philippineterritorial jurisdiction to tax, and thus, Reagan was liable for the income tax arising from thesale of his automobile in Clark. The law does not look with favor on tax exemptions and thathe who would seek to be thus privileged must justify it by words too plain to be mistaken andtoo categorical to be misinterpreted. Reagan has not done so, and cannot do so.


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TIU vs. COURT OF APPEALSGR. No. 127410 January 20, 1999

FACTS: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 FundsTherefor and for Other Purposes." Section 12 thereof created the Subic Special EconomicZone and granted there to special privileges. President Ramos issued Executive Order No. 97,clarifying the application of the tax and duty incentives. The President issued ExecutiveOrder No. 97-A, specifying the area within which the tax-and-duty-free privilege wasoperative. The petitioners challenged before this Court the constitutionality of EO 97-A forallegedly being violative of their right to equal protection of the laws. This Court referred thematter to the Court of Appeals. Proclamation No. 532 was issued by President Ramos. Itdelineated the exact metes and bounds of the Subic Special Economic and Free Port Zone,pursuant to Section 12 of RA 7227. Respondent Court held that "there is no substantial

difference between the provisions of EO 97-A and Section 12 of RA 7227. In both, the'Secured Area' is precise and well-defined as '. . . the lands occupied by the Subic Naval Baseand its contiguous extensions as embraced, covered and defined by the 1947 Military BasesAgreement between the Philippines and the United States of America, as amended . . .'"

ISSUE:Whether or not Executive Order No. 97-A violates the equal protection clause of the

Constitution

RULING:No. The Court found real and substantive distinctions between the circumstances

obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and

reasonable classification. The fundamental right of equal protection of the laws is notabsolute, but is subject to reasonable classification. If the groupings are characterized bysubstantial distinctions that make real differences, one class may be treated and regulateddifferently from another. The classification must also be germane to the purpose of the lawand must apply to all those belonging to the same class. Classification, to be valid, must (1)rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited toexisting conditions only, and (4) apply equally to all members of the same class. TheSupreme Court believed it was reasonable for the President to have delimited the applicationof some incentives to the confines of the former Subic military base. It is this specific areawhich the government intends to transform and develop from its status quo ante as anabandoned naval facility into a self-sustaining industrial and commercial zone, particularlyfor big foreign and local investors to use as operational bases for their businesses andindustries.


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JOHN PEOPLES ALTERNATIVE COALITION vs. BCDAGR. No. 119775 October 24, 2003

FACTS:Republic Act No. 7227 set out the policy of the government to accelerate the sound

and balanced conversion into alternative productive uses of the former military bases. Itcreated Bases Conversion and Development Authority. It also created the Subic SpecialEconomic and Free Port Zone. It granted the Subic SEZ incentives. It expressly gaveauthority to the President to create through executive proclamation, subject to theconcurrence of the local government units directly affected, other Special Economic Zones inthe areas covered. BCDA entered into a Memorandum of Agreement and Escrow Agreementwith Tuntex and Asiaworld. BCDA, Tuntex and Asiaworld executed a Joint VentureAgreement. The Sangguniang Panlungsod of Baguio City asked BCDA to exclude all thebarangays partly or totally located within Camp John Hay from the reach or coverage of anyplan or program for its development. The sanggunian adopted and submitted a 15-pointconcept for the development of Camp John Hay. BCDA, Tuntex and AsiaWorld agreed to

some, but rejected or modified the other proposals. They stressed the need to declare CampJohn Hay a SEZ as a condition precedent in accordance R.A. No. 7227. The sanggunianrequested the Mayor to order the determination of realty taxes which may be collected fromreal properties of Camp John Hay. It was intended to intelligently guide the sanggunian indetermining its position on whether Camp John Hay be declared a SEZ, it being of the viewthat such declaration would exempt the camps property and the economic activity thereinfrom local or national taxation. The sanggunian passed a resolution seeking the issuance byPresident Ramos of a presidential proclamation declaring an area of 288.1 hectares of thecamp as a SEZ. President Ramos issued Proclamation No. 420 which established a SEZ on aportion of Camp John Hay.

ISSUE:

Whether Proclamation No. 420 is constitutional

RULING:While the grant of economic incentives may be essential to the creation and success

of SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot besustained. The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence,the extension of the same to the John Hay SEZ finds no support therein. Neither does thesame grant of privileges to the John Hay SEZ find support in the other laws specified underSection 3 of Proclamation No. 420, which laws were already extant before the issuance of theproclamation or the enactment of R.A. No. 7227. More importantly, the nature of most of theassailed privileges is one of tax exemption. It is the legislature, unless limited by a provisionof the state constitution, that has full power to exempt any person or corporation or class ofproperty from taxation, its power to exempt being as broad as its power to tax. Thechallenged grant of tax exemption would circumvent the Constitutions imposition that a law

granting any tax exemption must have the concurrence of a majority of all the members ofCongress.

COCONUT OIL REFINERS ASSOCIATION INC. vs. BCDA


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PROVINCE OF ABRA vs. HERNANDOG.R. No. L-49336 August 31, 1981

FACTS:On the face of this certiorari and mandamus petition, it clearly appears that the

actuation of respondent Judge Hernando left much to be desired. There was a denial of amotion to dismiss an action for declaratory relief by Roman Catholic Bishop of Bangueddesirous of being exempted from a real estate tax followed by a summary judgment grantingsuch exemption, without even hearing the side of petitioner. It was the submission of counselthat an action for declaratory relief would be proper only before a breach or violation of anystatute, executive order or regulation. Moreover, there being a tax assessment made by theProvincial Assessor on the properties of respondent, petitioner failed to exhaust theadministrative remedies available under PD No. 464 before filing such court action.Respondent Judge alleged that there "is no question that the real properties sought to be taxedby the Province of Abra are properties of the respondent Roman Catholic Bishop of Bangued,Inc." The very next sentence assumed the very point it asked when he categorically stated:

"Likewise, there is no dispute that the properties including their procedure are actually,directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious orcharitable purposes." For him then: "The proper remedy of the petitioner is appeal and notthis special civil action."

ISSUE:Whether or not the properties of respondent Roman Catholic Bishop should be

exempt from taxation

RULING:Respondent Judge would not have erred so grievously had he merely compared the

provisions of the present Constitution with that appearing in the 1935 Charter on the tax

exemption of "lands, buildings, and improvements." There is a marked difference. Under the1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto,and all lands, buildings, and improvements used exclusively for religious, charitable, oreducational purposes shall be exempt from taxation." The present Constitution added"charitable institutions, mosques, and non-profit cemeteries" and required that for theexemption of ":lands, buildings, and improvements," they should not only be "exclusively"but also "actually and "directly" used for religious or charitable purposes. The Constitution isworded differently. The change should not be ignored. It must be duly taken intoconsideration. Reliance on past decisions would have sufficed were the words "actually" aswell as "directly" not added. There must be proof therefore of the actual and directuse of thelands, buildings, and improvements for religious or charitable purposes to be exempt fromtaxation. According to Commissioner of Internal Revenue v. Guerrero: "From 1906, inCatholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting Commissionerof Customs, it has been the constant and uniform holding that exemption from taxation is notfavored and is never presumed, so that if granted it must be strictly construed against thetaxpayer..


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TOLENTINO vs. SECRETARY OF FINANCEG.R. No. 115455 October 30, 1995

FACTS:Motions were filed seeking reconsideration of the Supreme Court decision dismissing

the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known asthe Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have beenfiled by the several petitioners in these cases.

ISSUES:1. Whether or not R.A. No. 7716 did not "originate exclusively" in the House of

Representatives as required by Art. VI Sec. 24 of the Constitution.2. Whether or not R.A. No. 7716 is violative of press freedom and religious freedom

under Art. III Secs. 4 and 5 of the Constitution.3. Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of

the Constitution.

4.

Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10of the Constitution.5. Whether or not there is violation of the due process clause under Art. III Sec. 1 of the

Constitution.

RULING:1. While Art. VI Sec. 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 maypropose or concur with amendments." In the exercise of this power, the Senate may proposean entirely new bill as a substitute measure. As petitioner Tolentino states in a high schooltext, a committee to which a bill is referred may do any of the following: (1) to endorse the

bill without changes; (2) to make changes in the bill omitting or adding sections or altering itslanguage; (3) to make and endorse an entirely new bill as a substitute, in which case it will beknown as a committee bill; or (4) to make no report at all. (A. TOLENTINO, THEGOVERNMENT OF THE PHILIPPINES 25 (1950))

To except from this procedure the amendment of bills which are required to originatein the House by prescribing that the number of the House bill and its other parts up to theenacting clause must be preserved although the text of the Senate amendment may beincorporated in place of the original body of the bill is to insist on a mere technicality. At anyrate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore asmuch an amendment of H. No. 11197 as any which the Senate could have made.

2. Since the law granted the press a privilege, the law could take back the privilegeanytime without offense to the Constitution. T

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