TAXATION I CASE DIGESTS1. ABRA VALLEY COLLEGE, INC. VS AQUINOJUNE 15 1988 Paras, J.

FACTS:Abra Valley College, an educational corporation and institution of higher learning duly incorporated with the SEC filed a complaint to annul and declare void the Notice of Seizure and the Notice of Sale of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties. Paterno Millare filed through counsel a motion to dismiss the complaint. The provincial fiscal filed a memorandum for the government wherein they opined hat based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and the school lot used for educational purposes of the Abra Valley College are exempted from payment of taxes. Nonetheless, the trial court disagreed because of the use of the second floor by the Director of the said school for residential purpose. He thus ruled for the government and rendered the assailed decision.ISSUE:Whether or not the lot and building in question are used exclusively for educational purposes?HELD: NO. It must be stressed that while the court allows a more liberal and non-restrictive interpretation of the phrase exclusively used for educational purposes as provided for in the Article VI, Section 22, Paragraph 3 of the 1935Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purpose. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may findjustification under the concept of incidental use, which is complimentary to the main or primary purpose educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purposes of education. Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes ofcommerce, it is only fair that half of the assessed tax be return to the school involved.2. Allied Thread vs. City of Manila

GR L-40296, 21 November 1984

En Banc, Abad Santos (J): 10 concur, 2 took no part

Facts:

Allied Thread Co. Inc. is engaged in the business of manufacturing sewing thread and yarn. It operates

its factory and maintains an office in Pasig, Rizal. In order to sell its products in Manila and in other parts of the Philippines, it engaged the services of a sales broker, Ker & Co. Ltd., the latter deriving commissions from every sale made for its principal. The City of Manila enacted Ordinance 7516 imposing business taxes based on gross sales on a graduated basis on manufacturers, importers or producers doing business in Manila. Allied Thread and Ker & Co. alleged that said ordinance is invalid for being contrary to Section 54 of PD 426.

Issue:

Whether Allied Thread is properly taxed in Manila.

Held:

Ordinance 7516, as amended, imposes a business tax on manufacturers, importers or producers doing

business in Manila. The tax imposition is upon the performance of an act, enjoyment of a privilege, or the

engaging in an occupation, and hence is in the nature of an excise tax. The power to levy an excise upon the perforance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in. Thus, since Allied Thread sells its products in the City of Manila through its broker, Ker & Co., it cannot escape the tax liability imposed by Ordinance 7516, as amended.

3. American Bible Society vs. Manila

GR L-9637, 30 April 1957

Second Division, Felix (J): 7 concur, 1 concur in result

Facts:

In the course of its ministry, the Philippine agency of the American Bible Society has been distributing

and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into

several Philippine dialets. The acting City Treasurer of Manila required the society to secure the

corresponding Mayors permit and municipal license fees, together with compromise covering the period

from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit

questioning the legality of the ordinances under which the fees are being collected.

Issue:

Whether the municipal ordinances violate the freedom of religious profession and worship.

Held:

A tax on the income of one who engages in religious activities is different from a tax on property used

or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles,etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society.

4. Commissioner vs. Algue

GRL-28896, 17 February 1988

First Division, Cruz (J); 4 concur

Facts:

The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent,

authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil Investment

Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or request for reconsideration which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition for review with the Court of Tax Appeals.

Issue:

Whether the assessment was reasonable.

Held:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.

Every person who is able to pay must contribute his share in the running of the government. The Government, for his part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power. Tax collection, however, should be made in accordance with law as any arbitrariness will negate the very reason for government itself. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate that the law has not been observed. Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had been legitimately by Algue Inc. It has further proven that the payment of fees was reasonable and necessary in light of the efforts exerted by the payees in inducing investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions of pesos.

The assessment was not reasonable.5. MARUBENI CORPORATION V. COMMISSIONER OF INTERNAL REVENUE

(177 SCRA 500)

Topic: Tax on dividends remitted to foreign corporations Facts:

Marubeni Corporation is a Japanese corporation licensed to engage in business in the Philippines.

When the profitson Marubeni s investments in Atlantic Gulf and Pacific Co. of Manila were declared, a 10% final dividend tax was withheld from it, and another 15% profit remittance tax based on the remittable amount after the final 10% withholding tax were paid to the Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or tax credit for the amount which it has allegedly overpaid the BIR.Issues and Ruling:

1. W/N the dividends Marubeni Corporation received from Atlantic Gulf and Pacific Co. are effectively connected with its conduct or business in the Philippines as to be considered branch profits subject to 15%profit remittance tax imposed under Section 24(b)(2) of the National Internal Revenue Code.NO. Pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits remitted abroad by a branch office to its head office which are effectively connected with its trade or business in the Philippines are subject to the 15% profit remittance tax. The dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are not income arising from the business activity in which Marubeni Corporation is engaged. Accordingly, said dividends if remitted abroad are not considered branch profits for purposes of the 15% profit remittance tax imposed by Section 24(b)(2) of the Tax Code, as amended.2.

2. Whether Marubeni Corporation is a resident or non-resident foreign corporation. Marubeni Corporation is a non-resident foreign corporation, with respect to the transaction. Marubeni Corporation s head office in Japan is a separate and distinct income taxpayer from the branch in the Philippines. The investment on Atlantic Gulf and Pacific Co. was made for purposes peculiarly germane to the conduct of the corporate affairs of Marubeni Corporation in Japan, but certainly not of the branch in the Philippines.3.

3. At what rate should Marubeni be taxed?15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in conjunction with the Philippine-Japan Tax Treaty of 1980. As a general rule, it is taxed 35% of its gross income from all sources within the Philippines. However, a discounted rate of 15% is given to Marubeni Corporation on dividends received from Atlantic Gulf and Pacific Co. on the condition that Japan, its domicile state, extends in favor of Marubeni Corporation a tax credit of not less than20% of the dividends received. This 15% tax rate imposed on the dividends received under Section 24(b)(1)(iii) is easily within the maximum ceiling of 25% of the gross amount of the dividends as decreed in Article 10(2)(b) of the Tax Treaty.

Notes:

Each tax has a different tax basis. Under the Philippine-Japan Tax Convention, the 25% rate fixed is the maximum rate, as reflected in the phrase shallnot exceed. This means that any tax imposable by the contracting state concerned should not exceed the 25%limitation and said rate would apply only if the tax imposed by our laws exceeds the same.

6. Commissioner vs. Procter & Gamble Philippines

GR L-66838, 15 April 1988

Second Division, Paras (J)

Facts:

Procter and Gamble Philippines is a wholly owned subsidiary of Procter and Gamble USA (PMC-

USA), a non-resident foreign corporation in the Philippines, not engaged in trade and business therein. PMC-USA is the sole shareholder of PMC Philippines and is entitled to receive income from PMC Philippines in the form of dividends, if not rents or royalties. For the taxable years 1974 and 1975, PMC Philippines filed its income tax return and also declared dividends in favor of PMC-USA. In 1977, PMC Philippines, invoking the tax-sparing provision of Section 24 (b) as the withholding agent of the Philippine Government with respect to dividend taxes paid by PMC-USA, filed a claim for the refund of 20 percentage point portion of the 35 percentage whole tax paid with the Commissioner of Internal Revenue.

Issue:

Whether PMC Philippines is entitled to the 15% preferential tax rate on dividends declared and remitted to its parent corporation.

Held:

The issue raised is one made for the first time before the Supreme Court. Under the same underlying

principle of prior exhaustion of administrative remedies, on the judicial level, issues not raised in the lower court cannot be generally raised for the first time on appeal. Nonetheless, it is axiomatic that the state can never be allowed to jeopardize the governments financial position. The submission of the Commissioner that PMC Philippines is but a withholding agent of the government and therefore cannot claim reimbursement of alleged overpaid taxes, is completely meritorious. The real party in interest is PMC-USA, which should prove that it is entitled under the US Tax Code to a US Foreign Tax Credit equivalent to at least 20 percentage points spared or waived as otherwise considered or deemed paid by the Government. Herein, the claimant failed to show or justify the tax return of the disputed 15% as it failed to show the actual amount credited by the US Government against the income tax due from PMC-USA on the dividends received from PMC Philippines; to present the income tax return of PMC-USA for 1975 when the dividends were received; and to submit duly authenticated document showing that the US government credited the 20% tax deemed paid in the Philippines.7. CIR v Solidbank Corporation (G.R. No. 148191)

Facts:

Solidbank filed its Quarterly Percentage Tax Returns reflecting gross receipts amounting to P1,474,693.44. It alleged that the total included P350,807,875.15 representing gross receipts from passive income which was already subjected to 20%final withholding tax (FWT). The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20% FWT should not form part of its taxable gross receipts for purposes of computing the tax. Solidbank, relying on the strength of this decision, filed with the BIR a letter-request for the refund or tax credit. It also filed a petition for review with the CTA where the it ordered the refund. The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross receipts because the FWT was not actually received by the bank but was directly remitted to the government. The Commissioner claims that although the FWT was not actually received by Solidbank, the fact that the amount redounded to the banks benefit makes it part of the taxable gross receipts in computing the Gross Receipts Tax. Solidbank says the CA ruling is correct.

Issue:

Whether or not the FWT forms part of the gross receipts tax.

Held:

Yes. In a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed. The payor, a separate entity, acts as no more than an agent of the government for the collection of tax in order to ensure its payment. This amount that is used to settle the tax liability is sourced from the proceeds constitutive of the tax base.These proceeds are either actual or constructive. Both parties agree that there is no actual receipt by the bank. What needs to be determined is if there is constructive receipt. Since the payee is the real taxpayer, the rule on constructive receipt can be rationalized.

The Court applied provisions of the Civil Code on actual and constructive possession. Article 531 of the Civil Code clearly provides that the acquisition of the right of possession is through the proper acts and legal formalities established. The withholding process is one such act. There may not be actual receipt of the income withheld; however, as provided for in Article 532, possession by any person without any power shall be considered as acquired when ratified by the person in whose name the act of possession is executed. 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.

The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are tantamount to delivery, receipt or remittance. Besides, Solidbank admits that its income is subjected to a tax burden immediately upon receipt, although it claims that it derives no pecuniary benefit or advantage through the withholding process.

There being constructive receipt, part of which is withheld, that income is included as part of the tax base on which the gross receipts tax is imposed.8. COMMISIONER OF INTERNAL REVENUE vs. S.C. JOHNSON AND SON, INC.,

Facts:

S.C. JOHNSON AND SON, INC., a domestic corporation organized and operating under the Philippine laws, entered into a license agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation based in the U.S.A. pursuant to which the [respondent] was granted the right to use the trademark, patents and technology owned by the latter including the right to manufacture, package and distribute the products covered by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son, U. S. A.

The said License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents, Trade Marks and Technology Transfer under Certificate of Registration No. 8064.For the use of the trademark or technology, [respondent] was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which [respondent] paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00

On October 29, 1993, [respondent] filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending [respondent's] case fall squarely within the same circumstances under which said MacGeorge and Gillete rulings were issued. Since the agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the [respondent]. We therefore submit that royalties paid by the [respondent] to SC Johnson and Son, USA is only subject to 10% withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article 13 Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2) (b)] (Petition for Review [filed with the Court of Appeals]

The RP-US Tax Treaty states that:

1) Royalties derived by a resident of one of the Contracting States from sources within the other Contracting State may be taxed by both Contracting States.

2) However, the tax imposed by that Contracting State shall not exceed.

a) In the case of the United States, 15 percent of the gross amount of the royalties, and

b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties;

(ii) 15 percent of the gross amount of the royalties, where the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities; and

(iii) the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third State.

The RP-Germany Tax Treaty provides:

(2) However, such royalties may also be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed:

b) 10 percent of the gross amount of royalties arising from the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process, or from the use of or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.

For as long as the transfer of technology, under Philippine law, is subject to approval, the limitation of the tax rate mentioned under b) shall, in the case of royalties arising in the Republic of the Philippines, only apply if the contract giving rise to such royalties has been approved by the Philippine competent authorities.

The Commissioner did not act on said claim for refund. Private respondent S.C. Johnson & Son, Inc. (S.C. Johnson) then filed a petition for review before the Court of Tax Appeals (CTA).The Court of Tax Appeals rendered its decision in favor of S.C. Johnson and ordered the Commissioner of Internal Revenue to issue a tax credit certificate in the amount of P963,266.00 representing overpaid withholding tax on royalty payments, beginning July, 1992 to May, 1993.2

The Commissioner of Internal Revenue thus filed a petition for review with the Court of Appeals which rendered the decision finding no merit in the petition and affirming in toto the CTA ruling.

Thus, this petition.

Issue:

Whether the Court of Appeals erred in ruling that SC Johnson and Son, USA is entitled to the Most Favored Nation Tax rate of 10% on Royalties as provide in the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty?

Ruling:Under Article 24 of the RP-West Germany Tax Treaty, the Philippine tax paid on income from sources within the Philippines is allowed as a credit against German income and corporation tax on the same income. In the case of royalties for which the tax is reduced to 10 or 15 percent according to paragraph 2 of Article 12 of the RP-West Germany Tax Treaty, the credit shall be 20% of the gross amount of such royalty. To illustrate, the royalty income of a German resident from sources within the Philippines arising from the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, is taxed at 10% of the gross amount of said royalty under certain conditions. The rate of 10% is imposed if credit against the German income and corporation tax on said royalty is allowed in favor of the German resident. That means the rate of 10% is granted to the German taxpayer if he is similarly granted a credit against the income and corporation tax of West Germany. The clear intent of the matching credit is to soften the impact of double taxation by different jurisdictions.

The RP-US Tax Treaty contains no similar matching credit as that provided under the RP-West Germany Tax Treaty. Hence, the tax on royalties under the RP-US Tax Treaty is not paid under similar circumstances as those obtaining in the RP-West Germany Tax Treaty. Therefore, the most favored nation clause in the RP-West Germany Tax Treaty cannot be availed of in interpreting the provisions of the RP-US Tax Treaty.5

The rationale for the most favored nation clause, the concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under similar circumstances. This would mean that private respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the United States in respect of the taxes imposable upon royalties earned from sources within the Philippines as those allowed to their German counterparts under the RP-Germany Tax Treaty.

The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Article 24 of the RP-Germany Tax Treaty expressly allows crediting against German income and corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines. On the other hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double taxation, does not provide for similar crediting of 20% of the gross amount of royalties paid.

Since the RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent cannot be deemed entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances.9. CITY OF BAGUIO vs. DE LEON

25 SCRA 938

GR No. L-24756, October 31, 1968

"There is no double taxation where one tax is imposed by the state and the other is imposed by the city."

FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or corporation doing business in the City. The ordinance sourced its authority from RA No. 329, thereby amending the city charter empowering it to fix the license fee and regulate businesses, trades and occupations as may be established or practiced in the City. De Leon was assessed for P50 annual fee it being shown that he was engaged in property rental and deriving income therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is no statury authority which expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation, and violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code empowering the City Council not only to impose a license fee but to levy a tax for purposes of revenue, thus the ordinance cannot be considered ultra vires for there is more than ample statutory authority for the enactment thereof. Second, an argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. And third, violation of uniformity is out of place it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof.10. De Villata vs. JS Stanley (GR 8154, 20 December 1915)

En Banc, Carson (J): 4 concur, 1 concur in result

Facts:

Joaquin de Villata is the master of SS Vizcaya of the coastwise trade. As such captain, on 6 July 1912,

when sailing from the port of Gubat to the port of Legaspi, Philippine Islands, he failed to notify the

postmaster of the former port, in advance, of his intended sailing, and therefore failed to carry the mails

between said ports. The Collector of Customs (JS Stanley, Acting Insular Collector of Customs) was

threatening to suspend or revoke the license of de Villata by reason of said facts, under and by virtue of the terms of Customs Administrative Circular 627. De Villata filed an application for a writ of prohibition

directed against the Collector of Customs to restrain him from enforcing Customs Administrative Circular 627against de Villata. The case was submitted to the Supreme Court upon de Villatas demurrer to Stanleys answer to the complaint.The Supreme Court held that the complaint, unless amended, must be dismissed, on the ground that no cause of action is developed by the pleadings. The Court ordered that 20 days thereafter, the complaint be dismissed at the costs of the de Villata unless amended so as to set forth a cause of action, and 10 days thereafter let therecord be filed in the archives of original actions in the Supreme Court.

1.Customs Administrative Circular 627 (Prescribing regulations for the transportation of mails

on vessels engaged in the Philippine coastwise trade, 24 December 1910)

[par 1] Every vessel to which a license is granted under the provisions of section 117 of Act No. 355

to engage in the coastwise trade of the Philippine Islands . . . shall carry mail tendered for transportation in a safe and secure manner, and shall keep the same free from injury by water or otherwise. Masters, owners, or agents of vessels shall give prompt advance notice of the intended sailing thereof to the postmaster at each port of departure in ample time to permit the making up of mails for dispatch. Any changes in such sailings shall also be promptly communicated to the postmaster.

[par 2] Mails carried by vessels shall be delivered at ports of call on shore or on a wharf immediately after arrival and prior to the discharge or lading of any cargo, and shall be taken from shore or wharf just before the vessels sailing time, except at ports where the postal authorities have arranged for ship-side delivery.

[par 3] Each vessel mentioned in the preceding paragraph shall be provided with a lock box having a slot in the top or side thereof to receive letters, papers, or other mail matter delivered on board the vessel after the mails have been closed at the post office for that particular voyage. All mail matter deposited in such box shall be delivered by the master, or his representative, to the postmaster at a port of call where a post office is located.

[par 4] The master, owner, agent, or other person in charge of a vessel shall be legally liable for the loss of or damage to mail in his custody, or in the custody of his representatives or agents.

[par 5] The license of the master of any vessel engaged in the coastwise trade of the Philippine Islands may be suspended or revoked by the Insular Collector of Customs for failure to comply with or strictly enforce the regulations governing the transportation of mails.

[par 6] Postmasters throughout the Islands are requested to promptly report to this office in writing any unnecessary delay in the handling of mails transported by vessels, or failure on the part of masters thereof to comply with the requirements of this circular.

[par 7] Philippine customs officers shall give due publicity to the terms of this circular.

2. Decree of 4 August 1863

A decree dated 4 August 1863, provided as follows: In the matter of the investigation made for the

application of the provisions now in force relative to the notice to be given in advance to the post office of the sailings of ships, in the exceptional case of a ship just arrived in port and which has to sail immediately for the convenience of the interests of its owners or consignees, Having considered the ordinances relating to packet boats and other royal orders and superior decrees imposing upon the captain of every ship the duty of giving notice to the postoffice four days in advance at least of the date they are to sail and the port of destination, Considering that the actual application of such provisions might affect in a remarkable way the commercial interests in the very exceptional case spoken of, where the ship just anchored should have to set sail again before the period of four days referred to, The capitamia del puerto, the administracion general de aduanas, comandancia general de carabineros and the administracion general de correos, having been heard, This superior civil government ordains: That when a ship falls within the precise exceptional case raised by the within resolution, its captain shall only be required to give, from the very instant of determining the sailing of the ship, immediate notice to the postoffice stating the day and hour in which the sailing must be made, For the purposes that may be proper, let this decree be communicated to the comandancia general de marina, capitania del puerto de Manila and Cavite and the administracion general de correos, and let same be published in the Gazette for general information. Report to the government of H. M. and file. (Berriz, Diccionario de la Administracion de Filipinas, 1888, vol. 1, p. 516.)

3.Decree of 13 January 1876

A later decree dated 13 January 1876, was as follows: Having considered the consultation made by

the comandancia general de marina proposing the amendment of section 7 of the superior decree of December 18, 1868, relative to the duty imposed upon shipowners or consignees of steamers whether national or foreign, plying between this port and the other ports of the Archipelago or China and vice versa, of giving four days notice before the day they are to sail, to their great prejudice; and Having considered the reports submitted by the direccion general de administracion civil and the administracion general de correos: Considering the fact that since that superior order was enforced, the fortunate increase of steamers and consequently the frequent repetition of voyages made by them, is evident, and therefore, this circumstance alone would change the object or reason which at that time made it necessary to impose the duty referred to in said section 7. Considering the importance and value at certain times of the prompt clearance of one of its ships to a commercial firm which is at all times worthy of protection by the government. This general government ordains as follows: (1) The period of four days prescribed by section 7 of the superior decree of December 18, 1868, is reduced to two. (2) The shipowners or consignees of steamers, whether national or foreign, plying between this port and the other ports of the archipelago or China, and vice versa, shall give notice to the captain of the ports before midday, in order that the post office may have immediate notice of the sailing at an hour that may enable it to insert same in the Gazette of next day, and the ship may sail in the afternoon of the day next following. (3) The office of the captain of the port will report daily to the administracion general de correos all ships that at 12 oclock, noon, may have requested the visita de salida and in the event of there being none a report shall be sent stating that fact. (4) The report of the captain of the ports office must be at that administracion general before 2 oclock, p. m., every day. (5) Captains and consignees of ships can in no case request the visita de salida without the period of forty-eight hours intervening between the time they report and the visit, so as to give opportune notice to the administracion de correos. (6) The centro de correos shall send the notices to the Gazette and other newspapers, and shall post them besides on a bulletin board at the door of the postoffice. (Berriz, Diccionario de la Administracion de Filipinas, 1888, vol. 1, pp. 528, 529.)

4.Vessels required to carry mails under Spanish sovereignty

An examination of its terms leaves little room for doubt that under Spanish sovereignty the

Government of these Islands assumed and exercised the right to prescribe reasonable regulations requiring vessels trading in the Philippine Islands to carry the mails and to give due notice of their sailing hours to the postal authorities. Indeed it is a matter of common knowledge that, under the laws and regulations in force at the time of the change of sovereignty, all vessels engaged in the coasting trade were required to carry the mails, and to furnish the postal authorities with due notice of their sailing hours. There is no allegation in pleadings denying the continuance in force of this practice under American sovereignty down to the date of the issuance of the above cited Customs Administrative Circular.

5.Nothing in Philippine Bill of Rights depriving government power to make and enforce regulations

There is nothing in the Philippine Bill of Rights which deprived the Philippine Government of the

power to make and enforce reasonable regulations of this nature with which it was clothed prior to the

enactment of that statute.

6. Regulations and control exercised on vessels licensed to engage in interisland trade not in

contravention of Philippine Bill of Rights or US Constitution Vessels licensed to engage in the interisland trade are common carriers; and that as to them, there is an extensive field of regulation and control which may properly be exercised by the state without contravention of the provisions of the Philippine Bill of Rights or the Constitution of the United States; and this notwithstanding the fact that the enforcement of such regulations may tend to restrict their liberty, and to control the free exercise of their discretion in the conduct of their business to a degree and in a form and manner which would not be tolerated under the constitutional guarantees with relation to the private business of a private citizen.

7. Business of common carriers affected with public interest Common carriers exercise a sort of public office, and have duties to perform in which the public is interested. Their business is, therefore, affected with a public interest, and is subject to public regulation.

8. As business is of public employment, state may impose reasonable regulations The nature of the business in which they are engaged as a public employment, is such that it is clearly

within the power of the state to impose such just and reasonable regulations thereon as in the interest of the public it may deem proper. Of course such regulations must not have the effect of depriving an owner of this property without due process of law, nor of confiscating or appropriating private property without just compensation, nor of limiting or prescribing irrevocably vested rights or privileges lawfully acquired under a charter or franchise. But aside from such constitutional limitations, the determination of the nature and extent of the regulations which should be precribed rests in the hands of the legislator. (New Jersey Steam Nav. Co.vs. Merchants Bank, 6 How., 344, 382; Munn vs. Illinois, 94 U. S., 113, 13().)

9.Power to regulate not power to destroy, limitation not confiscation

The power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation.

Under pretense of regulating fares and freights the state can not require a railroad corporation to carry persons or property without reward. Nor can it do that which in law amounts to a taking of private property for public use without just compensation, or without due process of law. (Chicago etc. R. Co. v.s. Minnesota, 134 U. S.,418; Minneapolis Eastern R. Co. vs. Minnesota, 134 U. S., 467.)

10.Judicial interference does not occur unless the case presents flagrant attack upon rights and

property in guise of regulation. The judiciary ought not to interfere with regulations established under legislative sanction unless they are so plainly and palpably unreasonable as to make their enforcement equivalent to the taking of property for public use without such compensation as under all the circumstances is just both to the owner and to the public, that is, judicial interference should never occur unless the case presents, clearly and beyond all doubt, such a flagrant attack upon the rights and property under the guise of regulations as to compel the court to say that the regulations in question will have the effect to deny just compensation for private property taken for the public use. (Chicago etc. R. Co. vs. Well- man, 143 U. S., 339; Smyth vs. Ames, 169 U. S., 466, 524; Henderson Bridge Co. vs. Henderson City, 173 U. S., 592, 614.) (Fisher vs. Yangco Steamship Co., 31 Phil.Rep., 1.)

11.Regulation is reasonable

A regulation requiring all coasting vessels licensed to engage in the interisland trade to carry the mails

and give prompt advance notice in all cases of intended sailings in ample time to permit dispatch of mails, and of changes of sailing hours, (manifestly with a view to make it possible for the post-office officials to tender mail for transportation at the last practicable moment prior to the hour of departure) is a reasonable regulation, made in the interests of the public, which the state has a right to impose when it grants licenses to the vessels affected thereby.

12.Governments incur considerable expenditures to secure safety of vessels plying in Philippine

waters Considerable expenditures of public money have been made in the past and continue to be made

annually for the purpose of securing the safety of vessels plying in Philippine waters. To this end lighthouses have been erected; wharfs and docks constructed; and buoys, bells and other warning signals maintained at points of danger. Largely for the purpose of conveying timely warnings of threatening weather to those that go down into the sea in ships, appropriations are made for the support of a Weather Bureau. Coast and geodetic surveys are conducted to keep them informed as to the dangers hidden beneath the treacherous sea. Licensed pilots are provided to insure safe entry into the dangerous ports and harbors throughout the Islands. Maps, charts and general information as to conditions affecting travel by water are kept up to date, and furnished all vessels having need for them. In a word, the Government unhesitatingly spends a considerable part of the public funds wherever and whenever it appears that the safety and even the convenience of the shipping in Philippine waters will be advanced thereby. Can it be fairly contended that a regulation is unreasonable which requires vessels licensed to engage in the interisland trade, in whose behalf the public funds are so lavishly expended, to hold themselves in readiness to carry the public mails when duly tendered for transportation, and to give such reasonable notice of their sailing hours as will insure the prompt dispatchof all mails ready for delivery at the hours thus designated?

13.

Regulations only begin to affect business of shipowner when it enters into employment as

common carrier It is only when the owner of a vessel enters the quasi-public employment of a common carrier that regulations of this kind begin to affect or control the conduct of his business, and he cannot be heard to complain that he is deprived of his property without due process of law when he elects, of his own free will and accord, to secure a license as a common carrier in Philippine waters, and to engage in a business, one of the conditions of which is that he will comply with such regulations. Under the law in force in these Islands at the time of the change of sovereignty, and of the enactment of the Act of Congress the owners of all licensed coasting vessels were required to comply with regulations of this character, as one of the conditions upon which they were permitted to engage in the quasi-public employment of carriers in the interisland trade. No one is compelled to comply with these regulations unless he voluntarily enters upon the business which they affect, and if he does enter such business he cannot; claim that he is unlawfully deprived, without due process of law, of that which he voluntarily agrees to surrender.

14.

Uniformity of taxes (assuming)

If regulations of this kind be regarded as in the nature of a tax upon the vessels affected thereby, the

tax cannot be attacked for lack of uniformity so long as it is laid uniformly upon all the members of the class to which it extends. The only limitation upon the authority conferred is uniformity in laying the tax, and uniformity does not require the equal application of the tax to all persons or corporations who may come within its operation, but it is limited to geographical uniformity.

15.

Distinction between equality and uniformity

The distinction between equality and uniformity in taxation is thus stated in Black on

Constitutional Law, page 392, citing Miller, Const., 241: In practice, therefore, equality in taxation means to be called upon to pay taxes, which taxes shall be strictly proportioned to the relative value of their taxable

property. And uniformity in taxation means that all taxable articles or kinds of property, of the same class,shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations,franchises, privileges, necessities, and luxuries shall all be assessed at the same rate. Different articles may be taxed at different amounts, provided the rate is uniform on the same class everywhere, with all people, and at all times.

16.

Power to impose taxes unlimited in force

The power to impose taxes is one so unlimited in force and so searching in extent, that the courts

scarcely venture to declare that it is sub.iect to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. It reaches to every trade or occupation; to every object of industry, use, or enjoyment; to every species of possession; and it imposes a burden which, in case of failure to discharge it, may be followed by seizure and sale or confiscation of property. No attribute of sovereignty is more pervading, and at no point does the power of the Government affect more constantly and intimately all the relations of life than through the exactions made under it. . . .

17.

Power to tax rests upon necessity, and is inherent in every sovereignty

The power to tax rests upon necessity, and is inherent in every sovereignty. The legislature of every

free State will possess it under the general grant of legislative power, whether particularly specified in the

constitution among the powers to be exercised by it or not. No constitutional government can exist without it, and no arbitrary government without regular and steady taxation could be anything but an oppressive and vexatious despotism, since the only alterative to taxation would be a forced extortion for the needs of government from such persons or objects as the men in power might select as victims. Chief Justice Marshall has said of this power: The power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the government may choose to carry it.

18.

Security against abuse of power of taxation

The only security against the abuse of this power is found in the structure of the government itself. In

imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against

erroneous and oppressive taxation. The people of a State, therefore, give to their government a right of taxing themselves and their property; and as the exigencies of the government cannot be limited, they prescribe no limits to the exercise of this right, resting confidently on the interest of the legislator, and on the influence of the constituents over their representative, to guard them against its abuse.

19.

Scope of power of legislation and taxation

The power of legislation, and consequently of taxation, operates on all persons and property

belonging to the body politic. This is an original principle, which has its foundation in society itself. It is

granted by all for the benefit of all. It resides in the government as part of itself, and need not be reserved

where property of any description, or the right to use it in any manner, is granted to individuals or corporate bodies. However absolute the right of an individual may be, it is still in the nature of that right that it must bear a portion of the public burdens, and that portion must be determined by the legislature. This vital power may be abused; but the interest, wisdom, and justice of the representative body, and its relations with its constituents, furnish the only security where there is no express contract against unjust and excessive taxation, as well as against unwise legislation generally.

20.

Judicial department unfit to inquire on degree of taxation

It is unfit for the judicial department to inquire what degree of taxation is the legitimate use, and what

degree may amount to the abuse, of the power. The judicial cannot prescribe to the legislative department of the government limitations upon the exercise of its acknowledged powers. The power to tax may be exercised oppressively upon persons, but the responsibility of the legislature is not to the courts, but to the people by whom its members are elected. So if a particular tax bears heavily upon a corporation or a class of corporations, it cannot, for that reason only, be pronounced contrary to the Constitution. (Veazie Bank vs.Fenno, 8 Wall., 533, 548.)

21.

Judicial department charged with duty of enforcing constitution; Separation of powers

As a result of our written constitution, it is axiomatic that the judicial department of the government is

charged with the solemn duty of enforcing the Constitution, and therefore in cases properly presented, of

determining whether a given manifestation of authority has exceed the power conferred by that instrument, no instance is afforded from the foundation of the government where an act, which was within a power conferred, was declared to be repugnant to the Constitution, because it appeared to the judicial mind that the particular exertion of constitutional power was either unwise or unjust. To announce such a principle would amount to declaring that in our constitutional system the judiciary was not only charged with the duty of upholding the Constitution but also with the responsibility of correcting every possible abuse arising from the exercise by the other departments of their conceded authority. So to hold would be to overthrow the entire distinction between the legislative, judicial and executive departments of the government, upon which our system is founded, and would be a mere act of judicial usurpation. (McCray vs. U. S., 195 U. S., 27.)

22.

Presumed intention of Collector in circular

The provisions of paragraph I require trading vessels to carry mails tendered for transportation in a

safe and secure manner. This does not necessarily require these vessels to accept and to carry mail free of

charge. It is only when goods are lawfully tendered that common carriers may be compelled to carry them, and it must be presumed that the author of the circular had in mind a lawful tender of mails when he wrote this paragraph. If a vessels may not be required to carry mail without direct compensation, or a contract providing for such compensation, it must be presumed that the Collector did not intend to require vessels to accept mail without tender of reasonable compensation for such services or provision for payment by contract or otherwise, and that this paragraph was intended merely as a regulation requiring the acceptance of all mail thus lawfully tendered and the safe transportation of such mail when accepted for transportation.

23.

No fact or allegation in pleading that Collector of Customs is compelling vessels master to

carry mail free of charge

There is absence of the necessary allegations setting forth that the Collector of Customs has

compelled and is threatening to compel the master of the Viscaya to carry mails free of charge. It does not

appear from the pleadings, nor in fact, that any attempt has been made or is being made by the Collector to compel the master of the Vizcaya, over his protest, to carry mail without compensation. The allegations of the complaint disclose merely that he threatened to enforce the regulations of the circular requiring the master of the Vizcaya to make provision for the transportation of the mails when tendered, and for the giving of reasonable notice as to sailing hours upon which such tender might be based.

24.

Section 3 of Act 355

Section 3 of Act 355 provides that the customs service shall embrace, among other things, (1) the

documenting of vessels built or owned in the Philippine Islands, etc.; (2) the exclusion of foreign vessels from the coastwise trade; (3) the entry and clearance of vessels; (4) the enforcement of such regulation of

commerce, foreign and coastwise, as shall be established by competent authority; and (5) the regulation of thecarriage of passengers by water and the licensing of vessels therefor.

25.

Section 7 of Act 355

Section 7 of Act 355 provides, in part, as follows: The Insular Collector shall have general authority

throughout the Philippine Islands in all matters embraced within the jurisdiction of the Customs Service.

26.

Section 19 of Act 355

Section 19 of Act 355 provides, in part, as follows: The Insular Collector shall, from time to time,

make and promulgate general rules and regulations, not inconsistent withlaw, subject to the approval of the Secretary of Finance and Justice: (1) Directing the manner of execution of the customs law and laws relating to commerce, navigation. and immigration. xxx (7) Prescribing the method of loading and unloading merchandise and the transportation thereof by bonded carriers, railways, vessels, bonded lighters, carts, or otherwise

27.

Section 73 of Act 355

Section 73 of Act 355 provides as follows: In the coasting trade, the admeasurement, documenting,

enrollment and licensing of vessels built or owned in the Philippine Archipelago and in the making and

recording of all documents relating thereto, the Insular Collector shall observe, promulgate, and enforce such orders and regulations respecting the same as have been heretofore or shall hereafter be prescribed by the proper authority. In the absence of such regulations or orders he shall observe and follow the laws of the United States and the regulations of the Treasury Department of the United States so far as the same may be, in his sound judgment, applicable. Certificates of protection shall hereafter be signed by the collector of customs at ports where issued and countersigned by the Insular Collector.

28.

Section 134 of Act 355

Section 134 of Act 355 is as follows: The coastwise trade shall be under the general control and

supervision of the Insular Collector, and under the direct supervision of collectors of customs at the subports of entry within their respective collection districts.

29.

Section 1 of Act 780, as amended by Section 1 of Act 1602

Section 1 of Act 780, as amended by section 1 of Act 1602, provides, in part, as follows: A board is

hereby created, to consist of the Insular Collector of Customs, the supervising inspector of hulls and boilers, and assistant inspector of hulls, one person holding an unexpired license as master in the Philippine coastwise trade, and one other competent person, whose duty it shall be to examine and certify for licenses all applicants for licenses as watch officers and engineers upon vessels of the Philippine Islands.

30.

Section 2 of Act 780

Section 2 of Act 780 is as follows: Whenever any person applies for license as master, mate, patron,

or engineer of a Philippine coastwise vessel it shall be the duty of the Board on Philippine Marine

Examinations to make a thorough inquiry as to his character and carefully to examine the applicant, the

evidence he presents in support of his application, and such other evidence as it may deem proper or

desirable, and if satisfied that his capacity, experience, habits of life, and character are such as to warrant the belief that he can be safely intrusted with the duties and responsibilities of the position for which he makes application, it shall so certify to the Insular Collector of Customs, who shall issue a license authorizing such applicant to act as master, mate, patron, or engineer, as the case may be.

31.

Section 6 of Act 780

Section 6 of Act 780 is as follows: Every license authorized to be issued as above set forth shall be

operative and in force until July first, nineteen hundred and four, but the Insular Collector of Customs may at any time suspend or revoke any license upon satisfactory proof of misconduct, intemperate habits, incapacity, or inattention to duty on the part of the licensee.

32.

Section 2 of Act 1025

Section 2 of Act 1025 is as follows: Upon the expiration of the license authorized to be issued by

said Act Numbered Seven Hundred and eighty, the said Board is further authorized and empowered to renew such license from year to year upon due application being made as prescribed in said Act, but each renewal shall be operative for only one year. In case of renewal of license the written examination required by section three of said Act shall not be had but the applicant for renewal shall only be required to submit to an examination, if deemed necessary by the Board, to test his physical soundness, but the Board is authorized to refuse any application for renewal upon satisfactory evidence of misconduct, intemperate habits, incapacity, or inattention to duty on the part of the licensee and also to revoke any such renewal license, when granted, for the same reasons, or any of them.

33.

Duties of captain of the port devolved upon Insular Collector of Customs and his subordinates

The duties of the captain of the port, as that office formerly existed and as provided in the Spanish

laws, now devolve upon the Insular Collector of Customs and his subordinates as he may direct, pursuant to the provisions of section 1 of Act No. 625. Any duties which the captain of the port was required to perform under the decrees and similar regulations issued under the Spanish Administration of the Government of these Islands, devolved upon the Collector of Customs at the date of the promulgation of Circular 627, so far as those decrees and similar regulations continued in force at that time.

34.

Insular collector clothed with necessary authority to prepare, promulgate, and enforce Customs

Administrative Circular 627

Insofar as Customs Administrative Circular 627 consists of a body of reasonable regulations

controlling and prescribing the conduct of vessels licensed to engage in the coastwise trade, and of licensed officers aboard such vessels, with reference to the transportation of mail, the Insular Collector was clothed with the necessary authority at the date of the circular for its preparation, promulgation and enforcement. The circular is, when correctly construed, such a body of reasonable regulations, touching the conduct of coastwise vessels and their officers with reference to the transportation of mails11. Domingo vs. Garlitos

GR L-18993, 29 June 1963

En Banc, Labrador (J): 8 concur,

1 concur in result, 1 took no part

Facts:

In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the

order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and

penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the lower court. The Court held that the execution is unjustified as the Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted from the Governments indebtedness to the Estate.

Issue:

Whether a tax and a debt may be compensated.

Held:

The court having jurisdiction of the Estate had found that the claim of the Estate against the

Government has been recognized and an amount of P262,200 has already been appropriated by a

corresponding law (RA 2700). Under the circumstances, both the claim of the Government for inheritance

taxes and the claim of the intestate for services rendered have already become overdue and demandable as

well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.12. Garcia vs. Executive Secretary G.R. 101273 July 3, 1992

FACTS: On 27 November 1990, Cory issued Executive Order 438 which imposed, in addition to any other duties, taxes and charges imposed by law on all articles imported into the Philippines, an additional duty of 5% ad valorem. This additional duty was imposed across the board on all imported articles, including crude oil and other oil products imported into the Philippines. In 1991, EO 443 increased the additional duty to 9%. In the same year, EO 475 was passed reinstating the previous 5% duty except that crude oil and other oil products continued to be taxed at 9%. Garcia, a representative from Bataan, avers that EO 475 and 478 are unconstitutional for they violate Sec 24 of Art 6 of the Constitution which provides: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments. He contends that since the Constitution vests the authority to enact revenue bills in Congress, the President may not assume such power of issuing Executive Orders Nos. 475 and 478 which are in the nature of revenue-generating measures.

ISSUE: Whether or not EO 475 and 478 are constitutional.

HELD: Under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue and tariff bills, like all other bills is, of course, within the province of the Legislative rather than the Executive Department. It does not follow, however, that therefore Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are prohibited to the President, that they must be enacted instead by the Congress of the Philippines. Section 28(2) of Article VI of the Constitution provides as follows: (2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. There is thus explicit constitutional permission to Congress to authorize the President subject to such limitations and restrictions as [Congress] may impose to fix within specific limits tariff rates . . . and other duties or imposts . . . .13. Gonzales vs Hechanova

G.R. No. L-21897 October 22 1963 [Executive Agreements]

FACTS:

Exec. Secretary Hechanova authorised the importation of foreign rice to be purchased from private sources. Gonzales filed a petition opposing the said implementation because RA No. 3542 which allegedly repeals or amends RA No. 2207, prohibits the importation of rice and corn "by the Rice and Corn Administration or any other government agency."

Respondents alleged that the importation permitted in RA 2207 is to be authorized by the President of the Philippines, and by or on behalf of the Government of the Philippines. They add that after enjoining the Rice and Corn administration and any other government agency from importing rice and corn, S. 10 of RA 3542 indicates that only private parties may import rice under its provisions. They contended that the government has already constitute valid executive agreements with Vietnam and Burma, that in case of conflict between RA 2207 and 3542, the latter should prevail and the conflict be resolved under the American jurisprudence.

ISSUE:

W/N the executive agreements may be validated in our courts.

RULING:

No. The Court is not satisfied that the status of said tracts as alleged executive agreements has been sufficiently established. Even assuming that said contracts may properly considered as executive agreements, the same are unlawful, as well as null and void, from a constitutional viewpoint, said agreements being inconsistent with the provisions of Republic Acts Nos. 2207 and 3452. Although the President may, under the American constitutional system enter into executive agreements without previous legislative authority, he may not, by executive agreement, enter into a transaction which is prohibited by statutes enacted prior thereto.

Under the Constitution, the main function of the Executive is to enforce laws enacted by Congress. He may not interfere in the performance of the legislative powers of the latter, except in the exercise of his veto power. He may not defeat legislative enactments that have acquired the status of law, by indirectly repealing the same through an executive agreement providing for the performance of the very act prohibited by said laws.14. Lung Center of the Philippines vs. Quezon City

G.R. No. 144104, June 29, 2004 [Constitutional Law - Article VI: Legislative Department; Taxation ]

FACTS:

Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks exemption from real property taxes when the City Assessor issued Tax Declarations for the land and the hospital building. Petitioner predicted on its claim that it is a charitable institution. The request was denied, and a petition hereafter filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA) for reversal of the resolution of the City Assessor. Petitioner alleged that as a charitable institution, is exempted from real property taxes under Sec 28(3) Art VI of the Constitution. QC-LBAA dismissed the petition and the decision was likewise affirmed on appeal by the Central Board of Assessment Appeals of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.

ISSUE:

1. Whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and 1987 Constitution and Section 234(b) of RA 7160.

2. Whether or not petitioner is exempted from real property taxes.

RULING:

1. Yes. The Court hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitution. Under PD 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of the decree, is to be administered by the Office of the President with the Ministry of Health and the Ministry of Human Settlements. The purpose for which it was created was to render medical services to the public in general including those who are poor and also the rich, and become a subject of charity. Under PD 1823, petitioner is entitled to receive donations, even if the gift or donation is in the form of subsidies granted by the government.

2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon.

The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes only. This provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung center must be able to prove that: it is a charitable institution and; its real properties are actually, directly and exclusively used for charitable purpose. Accordingly, the portions occupied by the hospital used for its patients are exempt from real property taxes while those leased to private entities are not exempt from such taxes.15. Maceda vs. Macaraig

197 SCRA 771

GR No. 88291 May 31, 1991

"A taxpayer may question the legality of a law or regulation when it involves illegal expenditure of public money."

FACTS: Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358, RA 6395 and PD 380 expressly grant NPC exemptions from all taxes whether direct or indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs including the NPC but granted the President and/or the Secretary of Finance by recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the NPC. The actions of the respondents were thus questioned by the petitioner by this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or restraining order. To which public respondents argued, among others, that petitioner does not have the standing to challenge the questioned orders and resolution because he was not in any way affected by such grant of tax exemptions.

ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the FIRB restoring the tax exemptions?

HELD: Yes. In this petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that petitioner must show that he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to all members of the public. The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.16. MACTAN CEBU INTERNATIONAL AUTHORITY V. MARCOS (261 SCRA 667)

Topic: Tax exemption government-owned or controlled corporations Facts:

Mactan Cebu International Airport Authority (MCIAA) was created by virtue of RA 6958. It enjoyed the privilege of exemption from payment of taxes from the time of its creation until 1991, when the City of Cebu demanded paymentfor realty taxes on several parcels of land belonging to MCIAA. MCIAA contests the assessment and claims exemption.

Issue and Ruling:

W/N MCIAA is liable to pay taxes to the City of Cebu. YES. Since MCIAA is a government-owned or controlled corporation, its exemption from payment of property taxes granted by Section 14 of its charter has been withdrawn, by virtue of Section 234 of the Local Government Code. MCIAA cannot claim that it was never a taxable person under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax.

Notes:

The power to tax, which was called by Justice Marshall as the power to destroy, cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations thereon may be imposed by the people through their Constitutions. Taxation is a destructive power which interferes with personal property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer.

Since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.18. Ormoc Sugar vs. Treasurer of Ormoc City

GR L-23794, 17 February 1968

En Banc, Bangzon JP (J): 9 concur

Facts:

In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all productions

of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal tax equivalent to 1% per export sale to the United States and other foreign countries. The company paid the said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being unconstitutional.

Issue:

Whether the ordinance violates the equal protection clause.

Held:

The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co. Inc. and

none other. At the time of the taxing ordinances enacted, the company was the only sugar central in Ormoc City. The classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as the present company, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to the company as the entity to be levied upon.

19. Pascual vs. Secretary of Public Works and Communications

GR L-10405, 29 December 1960

En Banc, Concepcion (J): 10 concur

Facts:

RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an item (Section 1

c[a]) for the construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals (the projected and planned subdivision roads, which were not yet constructed, within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta donated said parcels of land to the Government 5 months after the enactment of RA 920, on the condition that if the Government violates such condition the lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity of the donation and the Constitutionality of the item in RA 920, it being not for a public purpose.

Issue:

Whether the item in the appropriation is valid.

Held:

The right of the legislature to appropriate funds is correlative with its right to tax, under constitutional

provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occupying, or acts performed, subsequently thereto, unless the latter consist of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed belonged to Senator Zulueta at the time RA 920 was passed by Congress, or approved by the President, and the disbursement of said sum became effective on 20 June 1953 pursuant to Section 13 of the Act, the result is that the appropriating sough a private purpose and hence, null and void.

20. PASEO REALTY AND DEVELOPMENT CORP. vs. COURT OF APPEALS G.R. No. 119286 October 13, 2004FACTSTopic: Tax Returns and Other Administrative Requirements:

FACTS: Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two parcels of land at Paseo de Roxas in Makati City. On April 16, 1990, petitioner filed its Income Tax Return for the calendaryear1989 declaring a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of P79,009.00, an income tax due thereon in the amount of P27,653.00, prior

years excess credit of P146,026.00, and creditable taxes withheld in 1989 of

P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00.In a resolution dated October 21, 1993 Respondent Courtre considered its decision of July 29, 1993 and dismissed the petition for review, stating that it hasoverlooked the fact that the petitioners 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P54,104.00 subject of petitioners claim for refund has

already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding taxable year 1990.Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10,1994.Petitioner filed a Petition for Review dated April 3, 1994with the Court of Appeals. Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00 representing creditable taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990income tax liability, the appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of P172,447.00, which includes the P54,104.00 refund claimed, against its income tax liability for 1990. The appellate court elucidated on the reason for its dismissal of petitioners claimor refund.

ISSUE:

Whether or not the alleged excess taxes paid by a corporation during a taxable year should be refunded or credited against its tax liabilities for the succeeding year?

RULING:

The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside the conclusion reached by an agency such as the CTA which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority. This interdiction finds particular application in this case since the CTA, after careful consideration of the merits of the Commissioner of Internal Revenues motion for reconsideration, reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based, as it is, on the pertinent laws as applied to the facts.

Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excess credit of P146,026.00 and 1989 creditable tax of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the succeeding taxable year. According to petitioner, it successively utilized this amount when it obtained refunds in CTA Case No. 4439 and CTA Case No. 4528 and applied its1990 tax liability, leaving a balance of P54,104.00, the amount subject of the instant claim for refund.

The confusion as to petitioners entitlement to a refund could altogether have been avoided had it presented its tax return for 1990. Such return would have shown whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes the P54,104.00 creditable taxes withheld for 1989subject of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return, or at least, whether petitioners tax credit of P172,477.00 was applied to its approved refunds as it claims. As clearly shown from the above-quoted provisions, in case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return maybe credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year. The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Else wise stated, taxation is the rule, exemption therefrom is the exception.21. Pelaez vs. Auditor General

FACTS:From Sept 04 to Oct 29, 1964, the President (Marcos) issued executive orders creating 33 municipalities this is purportedly in pursuant to Sec 68 of the Revised Administrative Code which provides that the President of the Philippines may by executive order define the boundary, or boundaries, of any province, sub-province, municipality, [township] municipal district or other political subdivision, and increase or diminish the territory comprised therein, may divide any province into one or more subprovincesThe VP Emmanuel Pelaez and a taxpayer filed a special civil action to prohibit the auditor general from disbursing funds to be appropriated for the said municipalities. Pelaez claims that the EOs are unconstitutional. He said that Sec 68 of the RAC has been impliedly repealed by Sec 3 of RA 2370 which provides that barrios may not be created or their boundaries altered nor their names changed except by Act of Congress or of the corresponding provincial board upon petition of a majority of the voters in the areas affected and the recommendation of the council of the municipality or municipalities in which the proposed barrio is situated. Pelaez argues, accordingly: If the President, under this new law, cannot even create a barrio, can he create a municipality which is composed of several barrios, since barrios are units of municipalities? The Auditor General countered that only barrios are barred from being created by the President. Municipalities are exempt from the bar and that t a municipality can be created without creating barrios. Existing barrios can just be placed into the new municipality. This theory overlooks, however, the main import of Pelaez argument, which is that the statutory denial of the presidential authority to create a new barrio implies a negation of the bigger power to create municipalities, each of which consists of several barrios.

ISSUE: Whether or not Congress has delegated the power to create barrios to the President by virtue of Sec 68 of the RAC.

HELD: Although Congress may delegate to another branch of the government the power to fill in the details in the execution, enforcement or administration of a law, it is essential, to forestall a violation of the principle of separation of powers, that said law: (a) be complete in itself it must set forth therein the policy to be executed, carried out or implemented by the delegate and (b) fix a standard the limits of which are sufficiently determinate or determinable to which the delegate must conform in the performance of his functions. Indeed, without a statutory declaration of policy, the delegate would, in effect, make or formulate such policy, which is the essence of every law; and, without the aforementioned standard, there would be no means to determine, with reasonable certainty, whether the delegate has acted within or beyond the scope of his authority.

In the case at bar, the power to create municipalities is eminently legislative in character not administrative.22. People of the Philippines vs. Sandiganbayan

FACTS:

ON 18 MARCH 1986, ATTY. RAMIREZ AND ATTY. ABELLA, PCGG AGENTS, ISSUED A SEQUESTRATION ORDER AGAINST THE RESTHOUS THE SOLE ISSUE PRESENTED IS WHETHER OR NOT THE MARCH 18, 1986 SEQUESTRATION ORDER AGAINST PROPERTIES OF IMELDA IN LEYTE INCLUDING THE RESTHOUSE AT OLOT. THEIR ORDER WAS NOT SIGNED BY ANY PCGG COMMISSIONERS.

ISSUE:

IS THEIR ORDER VALID?

RULING:

NO. JUDICIAL OR QUASI-JUDICIAL POWERS MAY NOT BE DELEGATED. IN PCGG V. JUDGE PEA,[1][17] THE COURT HELD THAT THE POWERS, FUNCTIONS AND DUTIES OF THE PCGG AMOUNT TO THE EXERCISE OF QUASI-JUDICIAL FUNCTIONS, AND THE EXERCISE OF SUCH FUNCTIONS CANNOT BE DELEGATED BY THE COMMISSION TO ITS REPRESENTATIVES OR SUBORDINATES OR TASK FORCES BECAUSE OF THE WELL ESTABLISHED PRINCIPLE THAT JUDICIAL OR QUASI-JUDICIAL POWERS MAY NOT BE DELEGATED.

PETITIONER REPUBLIC ARGUES THAT MRS. MARCOS SHOULD BE DEEMED ESTOPPED FROM QUESTIONING THE SEQUESTRATION OF HER OLOT RESTHOUSE BY HER ACTIONS IN REGARD TO THE SAME. BUT A VOID ORDER PRODUCES NO EFFECT AND CANNOT BE VALIDATED UNDER THE DOCTRINE OF ESTOPPEL. FOR THE SAME REASON, THE COURT CANNOT ACCEPT PETITIONERS VIEW THAT MRS. MARCOS SHOULD HAVE FIRST SOUGHT THE LIFTING OF THE SEQUESTRATION ORDER THROUGH A MOTION TO QUASH FILED WITH THE PCGG. BEING VOID, THE SANDIGANBAYAN HAS THE POWER TO STRIKE IT DOWN ON SIGHT. 23. Pepsi Cola vs. Mun. of Tanauan, Leyte

69 SCRA 460

Taxation Delegation to Local Governments Double Taxation

FACTS: Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality approved Ordinance No. 23 which levies and collects from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked.

In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of volume capacity.

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances impose percentage or specific taxes.

Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of taxing powers to local government units; that allowing local governments to tax companies like Pepsi Cola is confiscatory and oppressive.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance No. 23, hence there is no double taxation.

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

HELD: No. There is no undue delegation. The Constitution even allows such delegation. Legislative powers may be delegated to local governments in respect of matters of local concern. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law. Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation.

There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Colas assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental