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i. DUE PROCESS

SECOND DIVISION

G.R. No. 185371 December 8, 2010

COMMISSIONER OF INTERNAL REVENE,  Petitioner, vs.METRO STAR S!ERAMA, INC., Respondent.

D E C I S I O N

MENDO"A, J.:

This petition for review on certiorari under Rue !" of the Ruesof Court fied #$ the petitioner Co%%issioner of InternaRevenue &CIR' see(s to reverse and set aside the )*Septe%#er )+, -- Decision) of the Court of Ta/ 0ppeas En1anc &CT02En 1anc', in C.T.0. E1 No. 3-+ and * itsNove%#er ), -- Resoution den$in4 petitioner5s %otion for reconsideration.

The CT02En 1anc affir%ed in toto the decision of its SecondDivision (CTA-Second Division)  in CT0 Case No. 6)+7

reversin4 the 8e#ruar$ , --" Decision of the CIR whichassessed respondent 9etro Star Supera%a, Inc. (Metro Star)of deficienc$ vaue2added ta/ and withhodin4 ta/ for theta/a#e $ear )777.

1ased on a :oint Stipuation of 8acts and Issues3  of theparties, the CT0 Second Division su%%ari;ed the factua andprocedura antecedents of the case, the pertinent portions of which read<

Petitioner is a do%estic corporation du$ or4ani;ed and

e/istin4 #$ virtue of the aws of the Repu#ic of the Phiippines/ / /.

On :anuar$ +, --), the Re4iona Director of RevenueRe4ion No. )-, =e4a;pi Cit$, issued =etter of 0uthorit$ No----+"+) for Revenue Officer Dais$ >. :ustiniana to e/a%inepetitioner5s #oo(s of accounts and other accountin4 records foinco%e ta/ and other interna revenue ta/es for the ta/a#e$ear )777. Said =etter of 0uthorit$ was revaidated on 0u4us)-, --) #$ Re4iona Director =eonardo Saca%os.

8or petitioner5s faiure to co%p$ with severa re?uests for thepresentation of records and Su#poena Duces Tecu%, @the* OICof 1IR =e4a Division issued an Indorse%ent dated Septe%#e+, --) infor%in4 Revenue District Officer of Revenue Re4ionNo. +6, =e4a;pi Cit$ to proceed with the investi4ation #ased onthe #est evidence o#taina#e preparator$ to the issuance oassess%ent notice.

On Nove%#er , --), Revenue District Officer Socorro ORa%os2=afuente issued a Prei%inar$ )"2da$ =etter, whichpetitioner received on Nove%#er 7, --). The said etter statedthat a post audit review was hed and it was ascertained thatthere was deficienc$ vaue2added and withhodin4 ta/es due

fro% petitioner in the a%ount of P 7,6!.)+.

On 0pri )), --, petitioner received a 8or%a =etter oDe%and dated 0pri 3, -- fro% Revenue District No. +6=e4a;pi Cit$, assessin4 petitioner the a%ount of Two AundredNinet$ Two Thousand Ei4ht Aundred Sevent$ 8our Pesos andSi/teen Centavos &P7,6!.)+.' for deficienc$ vaue2addedand withhodin4 ta/es for the ta/a#e $ear )777, co%puted asfoows<

 0SSESS9ENT NOTICE NO. -+62772--32"672-6

V0=UE 0DDED T0B

>ross Saes P),+76,6).7-

Output Ta/ P )"!,33.-

=ess< Input Ta/  

V0T Pa$a#e P )"!,33.-

 0dd< " Surchar4e P 3,"!."!

- Interest 67,6!+.!7

Co%pro%ise Penat$

=ate Pa$%ent P)+,---.--

8aiure to 8ie V0T returns ,!--.-- ),!--.-- )3+,63).-)

TOT0= P 7),-+7.-7

ITAAO=DIN> T0B

Co%pensation ,66.7)

E/panded ))-,)-3.7

Tota Ta/ Due P )),6+.3

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=ess< Ta/ ithhed ))),!.6

Deficienc$ ithhodin4 Ta/ P ),-."+

 0dd< - Interest p.a. "6+.")

Co%pro%ise Penat$ --.--

TOT0= P ),-".-6

FE/panded ithhodin4 Ta/ P),7!7,33!." / " 76,!++.6)8i% Renta )-,---." / )- ),---.--

 0udit 8ee )73,+).- / " 7,++3.--

Renta E/pense !),6.63 / ) !).63

Securit$ Service )"+,)!.-) / ) ),"+).!

Service Contractor P ))-,)-3.7

Tota

SU990RIES O8 DE8ICIENCIES

V0=UE 0DDED T0B P 7),-+7.-7

ITAAO=DIN> T0B ),-".-6

TOT0= P 7,6!.)+

Su#se?uent$, Revenue District Office No. +6 sent a cop$ of the 8ina Notice of Sei;ure dated 9a$ ), --3, whichpetitioner received on 9a$ )", --3, 4ivin4 the atter astopportunit$ to sette its deficienc$ ta/ ia#iities within ten &)-'@da$s* fro% receipt thereof, otherwise respondent 1IR sha #econstrained to serve and e/ecute the arrants of DistraintandGor =ev$ and >arnish%ent to enforce coection.

On 8e#ruar$ +, --!, petitioner received fro% Revenue DistrictOffice No. +6 a arrant of Distraint andGor =ev$ No. +62--723 dated 9a$ ), --3 de%andin4 pa$%ent of deficienc$vaue2added ta/ and withhodin4 ta/ pa$%ent in the a%ount of P7,6!.)+.

On :u$ 3-, --!, petitioner fied with the Office of respondentCo%%issioner a 9otion for Reconsideration pursuant toSection 3.)." of Revenue Re4uations No. )277.

On 8e#ruar$ , --", respondent Co%%issioner, throu4h itsauthori;ed representative, Revenue Re4iona Director of Revenue Re4ion )-, =e4aspi Cit$, issued a Decision den$in4petitioner5s 9otion for Reconsideration. Petitioner, throu4hcounse received said Decision on 8e#ruar$ ), --".

/ / /.

Den$in4 that it received a Prei%inar$ 0ssess%ent Notice(PAN)  and cai%in4 that it was not accorded due process,9etro Star fied a petition for review! with the CT0. The partiesthen stipuated on the foowin4 issues to #e decided #$ the ta/court<

). hether the respondent co%pied with the due processre?uire%ent as provided under the Nationa Interna RevenueCode and Revenue Re4uations No. )277 with re4ard to the

issuance of a deficienc$ ta/ assess%entH

).) hether petitioner is ia#e for the respective a%ounts ofP7),-+7.-7 and P),-".-6 as deficienc$ V0T and withhodin4ta/ for the $ear )777H

).. hether the assess%ent has #eco%e fina and e/ecutor$and de%anda#e for faiure of petitioner to protest the sa%e

within 3- da$s fro% its receipt thereof on 0pri )), --pursuant to Section of the Nationa Interna RevenueCodeH

. hether the deficienc$ assess%ents issued #$ therespondent are void for faiure to state the aw andGor factsupon which the$ are #ased.

. hether petitioner was infor%ed of the aw and facts onwhich the assess%ent is %ade in co%piance with Section of the Nationa Interna Revenue CodeH

3. hether or not petitioner, as ownerGoperator of a%ovieGcine%a house, is su#ect to V0T on saes of services

under Section )-&0' of the Nationa Interna Revenue CodeH

!. hether or not the assess%ent is #ased on the #esevidence o#taina#e pursuant to Section +' of the NationaInterna Revenue Code.

The CT02Second Division found %erit in the petition of 9etroStar and, on 9arch ), --6, rendered a decision, the decretaportion of which reads<

AERE8ORE, pre%ises considered, the Petition for Review ishere#$ >R0NTED. 0ccordin4$, the assaied Decision dated8e#ruar$ , --" is here#$ REVERSED and SET 0SIDE and

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respondent is ORDERED TO DESIST fro% coectin4 thesu#ect ta/es a4ainst petitioner.

The CT02Second Division opined that J@w*hie there @is* adisputa#e presu%ption that a %aied etter @is* dee%edreceived #$ the addressee in the ordinar$ course of %ai, adirect denia of the receipt of %ai shifts the #urden upon thepart$ favored #$ the presu%ption to prove that the %aied etter was indeed received #$ the addressee.J"  It aso found thatthere was no cear showin4 that 9etro Star actua$ received

the ae4ed P0N, dated :anuar$ )+, --. It, accordin4$, ruedthat the 8or%a =etter of De%and dated 0pri 3, --, as weas the arrant of Distraint andGor =ev$ dated 9a$ ), --3were void, as 9etro Star was denied due process.+

The CIR sou4ht reconsideration6 of the decision of the CT02Second Division, #ut the %otion was denied in the atter5s :u$!, --6 Resoution.

 044rieved, the CIR fied a petition for review7 with the CT02En1anc, #ut the petition was dis%issed after a deter%ination thatno new %atters were raised. The CT02En 1anc disposed<

AERE8ORE, the instant Petition for Review is here#$

DENIED DUE COURSE and DIS9ISSED for ac( of %erit. 0ccordin4$, the 9arch ), --6 Decision and :u$ 6, --6Resoution of the CT0 Second Division in CT0 Case No. 6)+7entited, J9etro Star Supera%a, Inc., petitioner vs.Co%%issioner of Interna Revenue, respondentJ are here#$ 088IR9ED in toto.

SO ORDERED.

The %otion for reconsideration)- fied #$ the CIR was i(ewisedenied #$ the CT02En 1anc in its Nove%#er ), --Resoution.))

The CIR, insistin4 that 9etro Star received the P0N, dated

:anuar$ )+, --, and that due process was servednonetheess #ecause the atter received the 8ina 0ssess%entNotice &80N', co%es now #efore this Court with the soe issueof whether or not 9etro Star was denied due process.

The 4enera rue is that the Court wi not i4ht$ set aside theconcusions reached #$ the CT0 which, #$ the ver$ nature of its functions, has accordin4$ deveoped an e/cusive e/pertiseon the resoution uness there has #een an a#use or i%provident e/ercise of authorit$.)  In 1arceon, Ro/asSecurities, Inc. &now (nown as U1P Securities, Inc.' v.Co%%issioner of Interna Revenue,)3 the Court wrote<

:urisprudence has consistent$ shown that this Court accords

the findin4s of fact #$ the CT0 with the hi4hest respect. In Sea-Land Service Inc. v. Court of Appeals @>.R. No. )+-", 3- 0pri --), 3"6 SCR0 !!), !!"2!!+*, this Court reco4ni;esthat the Court of Ta/ 0ppeas, which #$ the ver$ nature of itsfunction is dedicated e/cusive$ to the consideration of ta/pro#e%s, has necessari$ deveoped an e/pertise on thesu#ect, and its concusions wi not #e overturned uness therehas #een an a#use or i%provident e/ercise of authorit$. Suchfindin4s can on$ #e distur#ed on appea if the$ are notsupported #$ su#stantia evidence or there is a showin4 of 4ross error or a#use on the part of the Ta/ Court. In thea#sence of an$ cear and convincin4 proof to the contrar$, thisCourt %ust presu%e that the CT0 rendered a decision which isvaid in ever$ respect.

On the %atter of service of a ta/ assess%ent, a further perusaof our ruin4 in 1arceon is instructive, vi;<

:urisprudence is repete with cases hodin4 that if the ta/pa$edenies ever havin4 received an assess%ent fro% the 1IR, it isincu%#ent upon the atter to prove #$ co%petent evidence thatsuch notice was indeed received #$ the addressee. The onuspro#andi was shifted to respondent to prove #$ contrar$evidence that the Petitioner received the assess%ent in thedue course of %ai. The Supre%e Court has consistent$ hed

that whie a %aied etter is dee%ed received #$ the addresseein the course of %ai, this is %ere$ a disputa#e presu%ptionsu#ect to controversion and a direct denia thereof shifts the#urden to the part$ favored #$ the presu%ption to prove thatthe %aied etter was indeed received #$ the addressee&Repu#ic vs. Court of 0ppeas, )!7 SCR0 3")'. Thus as hed#$ the Supre%e Court in Gonalo P. Nava vs. Co!!issioner oInternal "evenue, )3 SCR0 )-!, :anuar$ 3-, )7+"<

JThe facts to #e proved to raise this presu%ption are &a' thatthe etter was proper$ addressed with posta4e prepaid, and' that it was %aied. Once these facts are proved, thepresu%ption is that the etter was received #$ the addresseeas soon as it coud have #een trans%itted to hi% in theordinar$ course of the %ai. 1ut if one of the said facts fais to

appear, the presu%ption does not ie. &VI, 9oran, Co%%entson the Rues of Court, )7+3 ed, "+2"6 citin4 Enri?ue; vs.Sunife 0ssurance of Canada, !) Phi +7'.J

/ / /. hat is essentia to prove the fact of %aiin4 is there4istr$ receipt issued #$ the 1ureau of Posts or the Re4istr$return card which woud have #een si4ned #$ the Petitioner orits authori;ed representative. 0nd if said docu%ents cannot #eocated, Respondent at the ver$ east, shoud have su#%ittedto the Court a certification issued #$ the 1ureau of Posts andan$ other pertinent docu%ent which is e/ecuted with theintervention of the 1ureau of Posts. This Court does not put%uch credence to the sef servin4 docu%entations %ade #$the 1IR personne especia$ if the$ are unsupported #$

su#stantia evidence esta#ishin4 the fact of %aiin4. Thus<

Jhie we have hed that an assess%ent is %ade when sentwithin the prescri#ed period, even if received #$ the ta/pa$eafter its e/piration &Co. of Int. Rev. vs. 1autista, =2)"- and=2)"7, 9a$ 6, )7"7', this ruin4 %a(es it the %orei%perative that the reease, %aiin4 or sendin4 of the notice #ecear$ and satisfactori$ proved. 9ere notations %ade withouthe ta/pa$er5s intervention, notice or contro, without ade?uatesupportin4 evidence cannot sufficeH otherwise, the ta/pa$ewoud #e at the %erc$ of the revenue offices, without ade?uateprotection or defense.J &Nava vs. CIR, )3 SCR0 )-!, :anuar$3-, )7+"'.

/ / /.

The faiure of the respondent to prove receipt of theassess%ent #$ the Petitioner eads to the concusion that noassess%ent was issued. Conse?uent$, the 4overn%ent5s ri4hto issue an assess%ent for the said period has aread$prescri#ed. &Industria Te/tie 9anufacturin4 Co. of the Phis.Inc. vs. CIR CT0 Case !", 0u4ust , )77+'. &E%phasessuppied.'

The Court a4rees with the CT0 that the CIR faied to dischar4eits dut$ and present an$ evidence to show that 9etro Starindeed received the P0N dated :anuar$ )+, --. It coudhave si%p$ presented the re4istr$ receipt or the certification

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fro% the post%aster that it %aied the P0N, #ut faied. Neither did it offer an$ e/panation on wh$ it faied to co%p$ with there?uire%ent of service of the P0N. It %ere$ accepted the etter of 9etro Star5s chair%an dated 0pri 7, --, that stated thathe had received the 80N dated 0pri 3, --, #ut not the P0NHthat he was wiin4 to pa$ the ta/ as co%puted #$ the CIRH andthat he ust wanted to carif$ so%e %atters with the hope of essenin4 its ta/ ia#iit$.

This now eads to the ?uestion< Is the faiure to strict$ co%p$

with notice re?uire%ents prescri#ed under Section of theNationa Interna Revenue Code of )776 and RevenueRe4uations &R.R.' No. )277 tanta%ount to a denia of dueprocessK Specifica$, are the re?uire%ents of due processsatisfied if on$ the 80N statin4 the co%putation of ta/ ia#iitiesand a de%and to pa$ within the prescri#ed period was sent tothe ta/pa$erK

The answer to these ?uestions re?uire an e/a%ination of Section of the Ta/ Code which reads<

SEC. . Protestin4 of 0ssess%ent. 2  hen theCo%%issioner or his du$ authori;ed representative finds thatproper ta/es shoud #e assessed, he sha first notif$ theta/pa$er of his findin4s< provided, however, that apreassess%ent notice sha not #e re?uired in the foowin4cases<

&a' hen the findin4 for an$ deficienc$ ta/ is the resut of %athe%atica error in the co%putation of the ta/ as appearin4on the face of the returnH or 

' hen a discrepanc$ has #een deter%ined #etween the ta/withhed and the a%ount actua$ re%itted #$ the withhodin4a4entH or 

&c' hen a ta/pa$er who opted to cai% a refund or ta/ creditof e/cess credita#e withhodin4 ta/ for a ta/a#e period was

deter%ined to have carried over and auto%atica$ appied thesa%e a%ount cai%ed a4ainst the esti%ated ta/ ia#iities for the ta/a#e ?uarter or ?uarters of the succeedin4 ta/a#e $earHor 

&d' hen the e/cise ta/ due on e/cisea#e artices has not#een paidH or 

&e' hen the artice oca$ purchased or i%ported #$ ane/e%pt person, such as, #ut not i%ited to, vehices, capitae?uip%ent, %achineries and spare parts, has #een sod,traded or transferred to non2e/e%pt persons.

The ta/pa$ers sha #e infor%ed in writin4 of the aw and the

facts on which the assess%ent is %adeH otherwise, theassess%ent sha #e void.

ithin a period to #e prescri#ed #$ i%pe%entin4 rues andre4uations, the ta/pa$er sha #e re?uired to respond to saidnotice. If the ta/pa$er fais to respond, the Co%%issioner or hisdu$ authori;ed representative sha issue an assess%ent#ased on his findin4s.

Such assess%ent %a$ #e protested ad%inistrative$ #$ fiin4 are?uest for reconsideration or reinvesti4ation within thirt$ &3-'da$s fro% receipt of the assess%ent in such for% and %anner as %a$ #e prescri#ed #$ i%pe%entin4 rues and re4uations.

ithin si/t$ &+-' da$s fro% fiin4 of the protest, a reevantsupportin4 docu%ents sha have #een su#%ittedH otherwisethe assess%ent sha #eco%e fina.

If the protest is denied in whoe or in part, or is not acted uponwithin one hundred ei4ht$ &)-' da$s fro% su#%ission odocu%ents, the ta/pa$er adverse$ affected #$ the decision orinaction %a$ appea to the Court of Ta/ 0ppeas within thirt$&3-' da$s fro% receipt of the said decision, or fro% the apse ofone hundred ei4ht$ &)-'2da$ periodH otherwise, the decision

sha #eco%e fina, e/ecutor$ and de%anda#e. &E%phasissuppied'.

Indeed, Section of the Ta/ Code cear$ re?uires that theta/pa$er %ust first #e infor%ed that he is ia#e for deficienc$ta/es throu4h the sendin4 of a P0N. Ae %ust #e infor%ed ofthe facts and the aw upon which the assess%ent is %ade. Theaw i%poses a su#stantive, not %ere$ a for%a, re?uire%entTo proceed heedess$ with ta/ coection without firsesta#ishin4 a vaid assess%ent is evident$ vioative of thecardina principe in ad%inistrative investi4ations 2 thata/pa$ers shoud #e a#e to present their case and adducesupportin4 evidence.)!

This is confir%ed under the provisions R.R. No. )277 of the1IR which pertinent$ provide<

SECTION 3. Due Process Re?uire%ent in the Issuance of aDeficienc$ Ta/ 0ssess%ent. L

3.) 9ode of procedures in the issuance of a deficienc$ ta/assess%ent<

3.).) Notice for infor%a conference. L The Revenue Officewho audited the ta/pa$erMs records sha, a%on4 others, statein his report whether or not the ta/pa$er a4rees with hisfindin4s that the ta/pa$er is ia#e for deficienc$ ta/ or ta/es. Ithe ta/pa$er is not a%ena#e, #ased on the said OfficerMs

su#%itted report of investi4ation, the ta/pa$er sha #einfor%ed, in writin4, #$ the Revenue District Office or #$ theSpecia Investi4ation Division, as the case %a$ #e &in the caseRevenue Re4iona Offices' or #$ the Chief of Divisionconcerned &in the case of the 1IR Nationa Office' of thediscrepanc$ or discrepancies in the ta/pa$erMs pa$%ent of hisinterna revenue ta/es, for the purpose of JInfor%aConference,J in order to afford the ta/pa$er with an opportunit$to present his side of the case. If the ta/pa$er fais to respondwithin fifteen &)"' da$s fro% date of receipt of the notice forinfor%a conference, he sha #e considered in defaut, in whichcase, the Revenue District Officer or the Chief of the SpeciaInvesti4ation Division of the Revenue Re4iona Office, or theChief of Division in the Nationa Office, as the case %a$ #esha endorse the case with the east possi#e dea$ to the

 0ssess%ent Division of the Revenue Re4iona Office or to theCo%%issioner or his du$ authori;ed representative, as thecase %a$ #e, for appropriate review and issuance of adeficienc$ ta/ assess%ent, if warranted.

3.). Prei%inar$ 0ssess%ent Notice &P0N'. L If after reviewand evauation #$ the 0ssess%ent Division or #$ theCo%%issioner or his du$ authori;ed representative, as thecase %a$ #e, it is deter%ined that there e/ists sufficient #asisto assess the ta/pa$er for an$ deficienc$ ta/ or ta/es, the saidOffice sha issue to the ta/pa$er, at east #$ re4istered %ai, aPrei%inar$ 0ssess%ent Notice &P0N' for the proposedassess%ent, showin4 in detai, the facts and the aw, rues andre4uations, or urisprudence on which the proposed

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assess%ent is #ased &see iustration in 0NNEB 0 hereof'. If the ta/pa$er fais to respond within fifteen &)"' da$s fro% dateof receipt of the P0N, he sha #e considered in defaut, inwhich case, a for%a etter of de%and and assess%ent noticesha #e caused to #e issued #$ the said Office, cain4 for pa$%ent of the ta/pa$erMs deficienc$ ta/ ia#iit$, incusive of the appica#e penaties.

3.).3 E/ceptions to Prior Notice of the 0ssess%ent. L Thenotice for infor%a conference and the prei%inar$ assess%ent

notice sha not #e re?uired in an$ of the foowin4 cases, inwhich case, issuance of the for%a assess%ent notice for thepa$%ent of the ta/pa$erMs deficienc$ ta/ ia#iit$ sha #esufficient<

&i' hen the findin4 for an$ deficienc$ ta/ is the resut of %athe%atica error in the co%putation of the ta/ appearin4 onthe face of the ta/ return fied #$ the ta/pa$erH or 

&ii' hen a discrepanc$ has #een deter%ined #etween the ta/withhed and the a%ount actua$ re%itted #$ the withhodin4a4entH or 

&iii' hen a ta/pa$er who opted to cai% a refund or ta/ credit

of e/cess credita#e withhodin4 ta/ for a ta/a#e period wasdeter%ined to have carried over and auto%atica$ appied thesa%e a%ount cai%ed a4ainst the esti%ated ta/ ia#iities for the ta/a#e ?uarter or ?uarters of the succeedin4 ta/a#e $earHor 

&iv' hen the e/cise ta/ due on e/cisa#e artices has not #eenpaidH or 

&v' hen an artice oca$ purchased or i%ported #$ ane/e%pt person, such as, #ut not i%ited to, vehices, capitae?uip%ent, %achineries and spare parts, has #een sod,traded or transferred to non2e/e%pt persons.

3.).! 8or%a =etter of De%and and 0ssess%ent Notice. L Thefor%a etter of de%and and assess%ent notice sha #e issued#$ the Co%%issioner or his du$ authori;ed representative.The etter of de%and cain4 for pa$%ent of the ta/pa$erMsdeficienc$ ta/ or ta/es sha state the facts, the aw, rues andre4uations, or urisprudence on which the assess%ent is#ased, otherwise, the for%a etter of de%and and assess%entnotice sha #e void &see iustration in 0NNEB 1 hereof'.

The sa%e sha #e sent to the ta/pa$er on$ #$ re4istered %aior #$ persona deiver$.

If sent #$ persona deiver$, the ta/pa$er or his du$ authori;edrepresentative sha ac(nowed4e receipt thereof in the

dupicate cop$ of the etter of de%and, showin4 the foowin4<&a' Ais na%eH ' si4natureH &c' desi4nation and authorit$ to actfor and in #ehaf of the ta/pa$er, if ac(nowed4ed received #$ aperson other than the ta/pa$er hi%sefH and &d' date of receiptthereof.

/ / /.

8ro% the provision ?uoted a#ove, it is cear that the sendin4 of a P0N to ta/pa$er to infor% hi% of the assess%ent %ade is #utpart of the Jdue process re?uire%ent in the issuance of adeficienc$ ta/ assess%ent,J the a#sence of which rendersnu4ator$ an$ assess%ent %ade #$ the ta/ authorities. The use

of the word JshaJ in su#section 3.). descri#es the %andator$nature of the service of a P0N. The persuasiveness of the ri4hto due process reaches #oth su#stantia and procedura ri4htsand the faiure of the CIR to strict$ co%p$ with there?uire%ents aid down #$ aw and its own rues is a denia o9etro Star5s ri4ht to due process.)" Thus, for its faiure to sendthe P0N statin4 the facts and the aw on which the assess%entwas %ade as re?uired #$ Section of R.0. No. !!, theassess%ent %ade #$ the CIR is void.

The case of CIR v. 9en4uito

)+

 cited #$ the CIR in support of itsar4u%ent that on$ the non2service of the 80N is fata to thevaidit$ of an assess%ent, cannot app$ to this case #ecausethe issue therein was the non2co%piance with the provisionsof R. R. No. )2" which sou4ht to interpret Section 7 of theod ta/ aw. R0 No. !! has aread$ a%ended the provision oSection 7 on protestin4 an assess%ent. The od re?uire%enof %ere$ notif#in$   the ta/pa$er of the CIR5s findin4s waschan4ed in )77 to infor!in$  the ta/pa$er of not on$ the aw#ut aso of the facts on which an assess%ent woud #e %adeOtherwise, the assess%ent itsef woud #e invaid.)6  There4uation then, on the other hand, si%p$ provided that anotice #e sent to the respondent in the for% prescri#ed, andthat no conse?uence woud ensue for faiure to co%p$ withthat for%.%avvp&i%

The Court need not #ea#or to discuss the %atter of 9etroStar5s faiure to fie its protest, for it is we2setted that a voidassess%ent #ears no fruit.)

It is an ee%entar$ rue enshrined in the )76 Constitution thano person sha #e deprived of propert$ without due process ofaw.)7 In #aancin4 the scaes #etween the power of the Stateto ta/ and its inherent ri4ht to prosecute perceivedtrans4ressors of the aw on one side, and the constitutionari4hts of a citi;en to due process of aw and the e?uaprotection of the aws on the other, the scaes %ust tit in favorof the individua, for a citi;en5s ri4ht is a%p$ protected #$ the1i of Ri4hts under the Constitution. Thus, whie Jta/es are the

ife#ood of the 4overn%ent,J the power to ta/ has its i%its, inspite of a its penitude. Aence in Co%%issioner of InternaRevenue v. 04ue, Inc.,- it was said

Ta/es are the ife#ood of the 4overn%ent and so shoud #ecoected without unnecessar$ hindrance. On the other handsuch coection shoud #e %ade in accordance with aw as an$ar#itrariness wi ne4ate the ver$ reason for 4overn%ent itsefIt is therefore necessar$ to reconcie the apparent$ confictin4interests of the authorities and the ta/pa$ers so that the reapurpose of ta/ation, which is the pro%otion of the co%%on4ood, %a$ #e achieved.

/ / / / / / / / /

It is said that ta/es are what we pa$ for civii;ed societ$ithout ta/es, the 4overn%ent woud #e para$;ed for the ac(of the %otive power to activate and operate it. Aence, despitethe natura reuctance to surrender part of one5s hard2earnedinco%e to ta/in4 authorities, ever$ person who is a#e to %ustcontri#ute his share in the runnin4 of the 4overn%ent. The4overn%ent for its part is e/pected to respond in the for% otan4i#e and intan4i#e #enefits intended to i%prove the ives ofthe peope and enhance their %ora and %ateria vaues. Thiss$%#iotic reationship is the rationae of ta/ation and shouddispe the erroneous notion that it is an ar#itrar$ %ethod ofe/action #$ those in the seat of power.

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1ut even as we concede the inevita#iit$ and indispensa#iit$ of ta/ation, it is a re?uire%ent in a de%ocratic re4i%es that it #ee/ercised reasona#$ and in accordance with the prescri#edprocedure. If it is not, then the ta/pa$er has a ri4ht to co%painand the courts wi then co%e to his succor. 8or a theaweso%e power of the ta/ coector, he %a$ sti #e stopped inhis trac(s if the ta/pa$er can de%onstrate / / / that the awhas not #een o#served.) &E%phasis suppied'.

#$EREFORE, the petition is DENIED.

SO ORDERED.

ii. EU0= PROTECTION

iii. UNI8OR9IT 0ND EUIT IN T0B0TION

EN 10NC

G.R. No. L%5&'31 ()*+ 25, 1&8'

ANTERO M. SISON, (R., petitioner, vs.REN . ANC$ETA,

Ac-/ Commo/er, )re) o I/-er/* Re4e/)eROMLO VILLA, De6)-+ Commo/er, )re) o I/-er/*Re4e/)e TOMAS TOLEDO De6)-+ Commo/er, )re)o I/-er/* Re4e/)e MANEL ALA, M/-er o )e-,FRANCISCO TANTICO, Crm/, Commo/er o/A)-, / CESAR E. A. VIRATA, M/-er o F//ce,respondents.

 Antero Sison for petitioner and for &is o'n e&alf.

T&e Solicitor General for respondents.

 

FERNANDO, C.J.:

The success of the chaen4e posed in this suit for decarator$reief or prohi#ition proceedin4 1 on the vaidit$ of Section I of 1atas Pa%#ansa 14. )3" depends upon a showin4 of itsconstitutiona infir%it$. The assaied provision further a%endsSection ) of the Nationa Interna Revenue Code of )766,which provides for rates of ta/ on citi;ens or residents on &a'ta/a#e co%pensation inco%e, ' ta/a#e net inco%e, &c'ro$aties, pri;es, and other winnin4s, &d' interest fro% #an(deposits and $ied or an$ other %onetar$ #enefit fro% depositsu#stitutes and fro% trust fund and si%iar arran4e%ents, &e'dividends and share of individua partner in the net profits of ta/a#e partnership, &f' adusted 4ross inco%e. 2 Petitioner 3 as

ta/pa$er ae4es that #$ virtue thereof, Jhe woud #e undu$discri%inated a4ainst #$ the i%position of hi4her rates of ta/upon his inco%e arisin4 fro% the e/ercise of his profession vis-a-vis those which are i%posed upon fi/ed inco%e or saariedindividua ta/pa$ers. ' Ae characteri;es the a#ove sction asar#itrar$ a%ountin4 to cass e4isation, oppressive andcapricious in character 5  8or petitioner, therefore, there is atrans4ression of #oth the e?ua protection and due processcauses 9 of the Constitution as we as of the rue re?uirin4unifor%it$ in ta/ation. 7

The Court, in a resoution of :anuar$ +, )7, re?uiredrespondents to fie an answer within )- da$s fro% notice. Such

an answer, after two e/tensions were 4ranted the Office of theSoicitor >enera, was fied on 9a$ , )7. 8 The facts asae4ed were ad%itted #ut not the ae4ations which to thei%ind are J%ere ar4u%ents, opinions or concusions on the parof the petitioner, the truth @for the%* #ein4 those stated @in theirSpecia and 0ffir%ative Defenses.J & The answer then affir%edJ1atas Pa%#ansa 1i4. )3" is a vaid e/ercise of the StateMspower to ta/. The authorities and cases cited whie correct$?uoted or para4hraph do not support petitionerMs stand.J 10The pra$er is for the dis%issa of the petition for ac( of %erit.

This Court finds such a pea %ore than ustified. The petition%ust #e dis%issed.

). It is %anifest that the fied of state activit$ has assu%ed a%uch wider scope, The reason was so cear$ set forth #$retired Chief :ustice 9a(ainta thus< JThe areas which used to#e eft to private enterprise and initiative and which the4overn%ent was caed upon to enter optiona$, and on$M#ecause it was #etter e?uipped to ad%inister for the pu#icwefare than is an$ private individua or 4roup of individuas,continue to ose their we2defined #oundaries and to #ea#sor#ed within activities that the 4overn%ent %ust underta(ein its soverei4n capacit$ if it is to %eet the increasin4 sociachaen4es of the ti%es.J 11  Aence the need for %ore

revenues. The power to ta/, an inherent prero4ative, has to #eavaied of to assure the perfor%ance of vita state functions. Itis the source of the #u( of pu#ic funds. To praphrase a recentdecision, ta/es #ein4 the ife#ood of the 4overn%ent, theirpro%pt and certain avaia#iit$ is of the essence. 12

. The power to ta/ %oreover, to #orrow fro% :ustice 9aco%Jis an attri#ute of soverei4nt$. It is the stron4est of a thepowers of of 4overn%ent.J 13  It is, of course, to #e ad%ittedthat for a its penitude Mthe power to ta/ is not unconfinedThere are restrictions. The Constitution sets forth such i%its  0dverse$ affectin4 as it does proper$ ri4hts, #oth the dueprocess and e?ua protection causes ina$ proper$ #e invo(eda petitioner does, to invaidate in appropriate cases a revenue

%easure. if it were otherwise, there woud 2#e truth to the )-3dictu% of Chief :ustice 9arsha that Jthe power to ta/ invovesthe power to destro$.J 1'  In a separate opinion in Graves vNe' or* , 15 :ustice 8ran(furter, after referrin4 to it as an )unfortunate re%ar( characteri;ed it as Ja fourish of rhetoric@attri#uta#e to* the inteectua fashion of the ti%es foowin4* afree use of a#soutes.J 19 This is %ere$ to e%phasi;e that it isriot and there cannot #e such a constitutiona %andate. :ustice8ran(furter coud ri4htfu$ concude< JThe we# of unreait$spun fro% 9arshaMs fa%ous dictu% was #rushed awa$ #$ onestro(e of 9r. :ustice Ao%ess pen< MThe power to ta/ is not thepower to destro$ whie this Court sits.J 17  So it is in thePhiippines.

3. This Court then is eft with no choice. The Constitution as thefunda%enta aw overrides an$ e4isative or e/ecutive, act tharuns counter to it. In an$ case therefore where it can #ede%onstrated that the chaen4ed statutor$ provision L aspetitioner here ae4es L fais to a#ide #$ its co%%and, thenthis Court %ust so decare and adud4e it nu. The inur$ thusis centered on the ?uestion of whether the i%position of ahi4her ta/ rate on ta/a#e net inco%e derived fro% #usiness oprofession than on co%pensation is constitutiona$ infir%.

!, The difficut$ confrontin4 petitioner is thus apparent. Aeae4es ar#itrariness. 0 %ere ae4ation, as here. does nosuffice. There %ust #e a factua foundation of suchunconstitutiona taint. Considerin4 that petitioner here woud

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conde%n such a provision as void or its face, he has not %adeout a case. This is %ere$ to adhere to the authoritativedoctrine that were the due process and e?ua protectioncauses are invo(ed, considerin4 that the$ arc not fi/ed rues#ut rather #road standards, there is a need for of suchpersuasive character as woud ead to such a concusion. 0#sent such a showin4, the presu%ption of vaidit$ %ustprevai. 18

". It is undou#ted that the due process cause %a$ #e invo(ed

where a ta/in4 statute is so ar#itrar$ that it finds no support inthe Constitution. 0n o#vious e/a%pe is where it can #e shownto a%ount to the confiscation of propert$. That woud #e a cear a#use of power. It then #eco%es the dut$ of this Court to sa$that such an ar#itrar$ act a%ounted to the e/ercise of anauthorit$ not conferred. That proper$ cas for the appicationof the Ao%es dictu%. It has aso #een hed that where theassaied ta/ %easure is #e$ond the urisdiction of the state, or is not for a pu#ic purpose, or, in case of a retroactive statute isso harsh and unreasona#e, it is su#ect to attac( on dueprocess 4rounds. 1&

+. Now for e?ua protection. The appica#e standard to avoidthe char4e that there is a denia of this constitutiona %andatewhether the assaied act is in the e/ercise of the ice power or 

the power of e%inent do%ain is to de%onstrated that the4overn%enta act assaied, far fro% #ein4 inspired #$ theattain%ent of the co%%on wea was pro%pted #$ the spirit of hostiit$, or at the ver$ east, discri%ination that finds nosupport in reason. It suffices then that the aws operate e?ua$and unifor%$ on a persons under si%iar circu%stances or that a persons %ust #e treated in the sa%e %anner, theconditions not #ein4 different, #oth in the privie4es conferredand the ia#iities i%posed. 8avoritis% and undue preferencecannot #e aowed. 8or the principe is that e?ua protectionand securit$ sha #e 4iven to ever$ person under circu%tanceswhich if not Identica are anao4ous. If aw #e oo(ed upon inter%s of #urden or char4es, those that fa within a cass shoud#e treated in the sa%e fashion, whatever restrictions cast onso%e in the 4roup e?ua$ #indin4 on the rest.J 20 That sa%efor%uation appies as we to ta/ation %easures. The e?uaprotection cause is, of course, inspired #$ the no#e concept of appro/i%atin4 the Idea of the aws #enefits #ein4 avaia#e toa and the affairs of %en #ein4 4overned #$ that serene andi%partia unifor%it$, which is of the ver$ essence of the Idea of aw. There is, however, wisdo%, as we as reais% in thesewords of :ustice 8ran(furter< JThe e?uait$ at which the Me?uaprotectionM cause ai%s is not a dise%#odied e?uait$. The8ourteenth 0%end%ent enoins Mthe e?ua protection of theaws,M and aws are not a#stract propositions. The$ do notreate to a#stract units 0, 1 and C, #ut are e/pressions of poic$ arisin4 out of specific difficuties, address to theattain%ent of specific ends #$ the use of specific re%edies.The Constitution does not re?uire thin4s which are different in

fact or opinion to #e treated in aw as thou4h the$ were thesa%e.J 21  Aence the constant reiteration of the view thatcassification if rationa in character is aowa#e. 0s a %atter of fact, in a eadin4 case of =ut; V. 0raneta, 22 this Court, throu4h:ustice :.1.=. Re$es, went so far as to hod Jat an$ rate, it isinherent in the power to ta/ that a state #e free to seect thesu#ects of ta/ation, and it has #een repeated$ hed thatMine?uaities which resut fro% a sin4in4 out of one particuar cass for ta/ation, or e/e%ption infrin4e no constitutionai%itation.MJ 23

6. Petitioner i(ewise invo(ed the (indred concept of unifor%it$. 0ccordin4 to the Constitution< JThe rue of ta/ation sha4 #eunifor% and e?uita#e.J 2' This re?uire%ent is %et accordin4 to

:ustice =aure in P&ilippine Trust Co!pan# v. atco+  25 decidedin )7!-, when the ta/ Joperates with the sa%e force and effecin ever$ pace where the su#ect %a$ #e found. J 29 Ae i(ewiseadded< JThe rue of unifor%it$ does not ca for perfecunifor%it$ or perfect e?uait$, #ecause this is hard$ attaina#e.J27 The pro#e% of cassification did not present itsef in thatcase. It did not arise unti nine $ears ater, when the Supre%eCourt hed< JE?uait$ and unifor%it$ in ta/ation %eans that ata/a#e artices or (inds of propert$ of the sa%e cass sha #eta/ed at the sa%e rate. The ta/in4 power has the authorit$ to%a(e reasona#e and natura cassifications for purposes o

ta/ation, ... . 28  0s carified #$ :ustice Tuason, where JthedifferentiationJ co%pained of Jconfor%s to the practicadictates of ustice and e?uit$J it Jis not discri%inator$ within the%eanin4 of this cause and is therefore unifor%.J 2& There is?uite a si%iarit$ then to the standard of e?ua protection for athat is re?uired is that the ta/ Jappies e?ua$ to a personsfir%s and corporations paced in si%iar situation.J 30

. 8urther on this point. 0pparent$, what %ised petitioner ishis faiure to ta(e into consideration the distinction #etween ata/ rate and a ta/ #ase. There is no e4a o#ection to a#roader ta/ #ase or ta/a#e inco%e #$ ei%inatin4 adeducti#e ite%s and at the sa%e ti%e reducin4 the appica#eta/ rate. Ta/pa$ers %a$ #e cassified into different cate4ories

To repeat, it. is enou4h that the cassification %ust rest uponsu#stantia distinctions that %a(e rea differences. In the caseof the 4ross inco%e ta/ation e%#odied in 1atas Pa%#ansa14. )3", the, discerni#e #asis of cassification is thesuscepti#iit$ of the inco%e to the appication of 4enerai;edrues re%ovin4 a deducti#e ite%s for a ta/pa$ers within thecass and fi/in4 a set of reduced ta/ rates to #e appied to a ofthe%. Ta/pa$ers who are recipients of co%pensation inco%eare set apart as a cass. 0s there is practica$ no overheade/pense, these ta/pa$ers are e not entited to %a(edeductions for inco%e ta/ purposes #ecause the$ are in thesa%e situation %ore or ess. On the other hand, in the case ofprofessionas in the practice of their cain4 and #usiness%enthere is no unifor%it$ in the costs or e/penses necessar$ toproduce their inco%e. It woud not #e ust then to disre4ard the

disparities #$ 4ivin4 a of the% ;ero deduction andindiscri%inate$ i%pose on a ai(e the sa%e ta/ rates on the#asis of 4ross inco%e. There is a%pe ustification then for the1atasan4 Pa%#ansa to adopt the 4ross s$ste% of inco%eta/ation to co%pensation inco%e, whie continuin4 the s$ste%of net inco%e ta/ation as re4ards professiona and #usinessinco%e.

7. Nothin4 can #e cearer, therefore, than that the petition iswithout %erit, considerin4 the &)' ac( of factua foundation toshow the ar#itrar$ character of the assaied provisionH 31 &' theforce of controin4 doctrines on due process, e?ua protectionand unifor%it$ in ta/ation and &3' the reasona#eness of thedistinction #etween co%pensation and ta/a#e net inco%e of

professionas and #usiness%an certain$ not a suspeccassification,

AERE8ORE, the petition is dis%issed. Costs a4ainspetitioner.

Ma*asiar+ Concepcion+ ,r.+ Guerero+ Melencio-errerascolin+ "elova+ Gutierre+ ,r.+ De la /uente and Cuevas+ ,,.+concur.

Tee&an*ee+ ,.+ concurs in t&e result.

Plana+ ,.+ too* no part.

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EN 10NC

 

G.R. No. 127'10 (/)r+ 20, 1&&&

CONRADO L. TI, (AN T. MONTELIANO (R. /ISAGANI M. (NGCO, petitioners, vs.

CORT OF A!!EALS, $ON. TEOFISTO T. GINGONA (R.,ASES CONVERSION AND DEVELO!MENT AT$ORIT:,SIC A: METRO!OLITAN AT$ORIT:, REA OFINTERNAL REVENE, CIT: TREASRER OF OLONGA!O/ MNICI!AL TREASRER OF SIC, "AMALES,respondents.

 

!ANGANIAN, J.:

The constituttiona ri4hts to e?ua protection of the aw is not

vioated #$ an e/ecutive order, issued pursuant to aw, 4rantin4ta/ and dut$ incentives on$ to the #ussiness and residentswithin the Jsecured areaJ of the Su#ic Specia Econi%ic Qoneand den$in4 the% to those who ive within the Qone #ut outsidesuch Jfenced2inJ territor$. The Constitution does not re?uirea#soute e?uait$ a%on4 residents. It is enou4h that a personsunder i(e circu%stances or conditions are 4iven the sa%eprivie4es and re?uired to foow the sa%e o#i4ations. In short,a cassification #ased on vaid and reasona#e standards doesnot vioate the e?ua protection cause.

T&e Case

1efore us is a petition for review under Rue !" of the Rues of 

Court, see(in4 the reversa of the Court of 0ppeasM Decision 1

pro%u4ated on 0u4ust 7, )77+, and Resoution  2  datedNove%#er )3, )77+, in C02>R SP No. 366. 3  Thechaen4ed Decision uphed the constitutionait$ and vaidit$ of E/ecutive Order No. 7620 &EO 7620', accordin4 to which the4rant and eno$%ent of the ta/ and dut$ incentives authori;edunder Repu#ic 0ct No. 66 &R0 66' were i%ited to the#usiness enterprises and residents within the fenced2in area of the Su#ic Specia Econo%ic Qone &SSEQ'.

The assaied Resoution denied the petitionersM %otion for reconsideration.

On 9arch )3, )77, Con4ress, with the approva of the

President, passed into aw R0 66 entited J0n 0ct 0cceeratin4 the Conversion of 9iitar$ Reservations Into Other Productive Uses, Creatin4 the 1ases Conversion andDeveop%ent 0uthorit$ for this Purpose, Providin4 8undsTherefor and for Other Purposes.J Section ) thereof createdthe Su#ic Specia Econo%ic Qone and 4ranted there to speciaprivie4es, as foows<

Sec. ). Su#ic Specia Econo%ic Qone. L Su#ect to theconcurrence #$ resoution of the san$$unian$ panlun$sod   of the Cit$ of Oon4apo and the san$$unian$ a#an  of the9unicipaities of Su#ic, 9oron4 and Aer%osa, there is here#$created a Specia Econo%ic and 8ree2port Qone consistin4 of the Cit$ of Oon4apo and the 9unicipait$ of Su#ic, Province of 

Qa%#aes, the ands occupied #$ the Su#ic Nava 1ase and itsconti4uous e/tensions as e%#raced, covered, and defined #$the )7!6 9iitar$ 1ases 04ree%ent #etween the Phiippinesand the United States of 0%erica as a%ended, and within theterritoria urisdiction of the 9unicipaities of 9oron4 andAer%osa, Province of 1ataan, hereinafter referred to as theSu#ic Specia Econo%ic Qone whose %etes and #ounds sha#e deineated in a proca%ation to #e issued #$ the Presidenof the Phiippines. ithin thirt$ &3-' da$s after the approva othis 0ct, each oca 4overn%ent unit sha su#%it its resoutionof concurrence to oin the Su#ic Specia Econo%ic Qone to the

Office of the President. Thereafter, the President of thePhiippines sha issue a proca%ation definin4 the %etes and#ounds of the ;one as provided herein.

The a#ove%entioned ;one sha #e su#ect to the foowin4poicies<

&a' ithin the fra%ewor( and su#ect to the %andate andi%itations of the Constitution and the pertinent provisions othe =oca >overn%ent Code, the Su#ic Specia Econo%icQone sha #e deveoped into a sef2sustainin4, industriaco%%ercia, financia and invest%ent center to 4eneratee%po$%ent opportunities in and around the ;one and toattract and pro%ote productive forei4n invest%entsH

' The Su#ic Specia Econo%ic Qone sha #e operated and%ana4ed as a separate custo%s territor$ ensurin4 free fow or%ove%ent of 4oods and capita within, into and e/ported out ofthe Su#ic Specia Econo%ic Qone, as we as provideincentives such as ta/ and dut$2free i%portations of raw%aterias, capita and e?uip%ent. Aowever, e/portation ore%ova of 4oods fro% the territor$ of the Su#ic SpeciaEcono%ic Qone to the other parts of the Phiippine territor$sha #e su#ect to custo%s duties and ta/es under theCusto%s and Tariff Code and other reevant ta/ aws of thePhiippinesH

&c' The provision of e/istin4 aws, rues and re4uations to the

contrar$ notwithstandin4, no ta/es, oca and nationa, sha #ei%posed within the Su#ic Specia Econo%ic Qone. In ieu opa$in4 ta/es, three percent &3' of the 4ross inco%e earned#$ a #usinesses and enterprises within the Su#ic SpeciaEcono%ic Qone sha #e re%itted to the Nationa >overn%entone percent &)' each to the oca 4overn%ent units affected#$ the decaration of the ;one in proportion to their popuationarea, and other factors. In addition, there is here#$ esta#isheda deveop%ent fund of one percent &)' of the 4ross inco%eearned #$ a #usinesses and enterprises within the Su#icSpecia Econo%ic Qone to #e utii;ed for the deveop%ent of%unicipaities outside the Cit$ of Oon4apo and the9unicipait$ of Su#ic, and other %unicipaities conti4uous tothe #ase areas.

In case of confict #etween nationa and oca aws with respectto ta/ e/e%ption privie4es in the Su#ic Specia Econo%icQone, the sa%e sha #e resoved in favor of the atterH

&d' No e/chan4e contro poic$ sha #e appied and free%ar(ets for forei4n e/chan4e, 4od, securities and future sha#e aowed and %aintained in the Su#ic Specia Econo%icQoneH

&e' The Centra 1an(, throu4h the 9onetar$ 1oard, shasupervise and re4uate the operations of #an(s and othefinancia institutions within the Su#ic Specia Econo%ic QoneH

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&f' 1an(in4 and finance sha #e i#erai;ed with theesta#ish%ent of forei4n currenc$ depositor$ units of ocaco%%ercia #an(s and offshore #an(in4 units of forei4n #an(swith %ini%u% Centra 1an( re4uationH

&4' 0n$ investor within the Su#ic Specia Econo%ic Qonewhose continuin4 invest%ent sha not #e ess than twohundred fift$ thousand doars &"-,---', hisGher spouse anddependent chidren under twent$2one &)' $ears of a4e, sha#e 4ranted per%anent resident status within the Su#ic Specia

Econo%ic Qone. The$ sha have the freedo% of in4ress ande4ress to and fro% the Su#ic Specia Econo%ic Qone withoutan$ need of specia authori;ation for% the 1ureau of I%%i4ration and Deportation. The Su#ic 1a$ 9etropoitan 0uthorit$ referred to in Section )3 of this 0ct %a$ aso issuewor(in4 visas renewa#e ever$ two &' $ears to forei4ne/ecutives and other aiens possessin4 hi4h$ technica s(iswhich no 8iipino within the Su#ic Specia Econo%ic Qonepossesses, as certified #$ the Depart%ent of =a#or andE%po$%ent. The na%es of aiens 4ranted per%anentresidence status and wor(in4 visas #$ the Su#ic 1a$9etropoitan 0uthorit$ sha #e reported to the 1ureau of I%%i4ration and Deportation within thirt$ &3-' da$s after issuance thereofH

&h' The defense of the ;one and the securit$ of its peri%eterssha #e the responsi#iit$ of the Nationa >overn%ent incoordination with the Su#ic 1a$ 9etropoitan 0uthorit$. TheSu#ic 1a$ 9etropoitan 0uthorit$ sha provide and esta#ish itsown securit$ and fire2fi4htin4 forcesH and

&i' E/cept as herein provided, the oca 4overn%ent unitsco%prisin4 the Su#ic Specia Econo%ic Qone sha retain their #asic autono%$ and identit$. The cities sha #e 4overned #$their respective charters and the %unicipaities sha operateand function in accordance with Repu#ic 0ct No. 6)+-,otherwise (nown as the =oca >overn%ent Code of )77).

On :une )-, )773, then President 8ide V. Ra%os issued

E/ecutive Order No. 76 &EO 76', carif$in4 the appication of the ta/ and dut$ incentives thus<

Sec. ). 0n I!port Ta1es and Duties. 2  Ta/ and dut$2freei%portations sha app$ on$ to raw %aterias, capita 4oodsand e?uip%ent #rou4ht in #$ #usiness enterprises into theSSEQ. E/cept for these ite%s, i%portations of other 4oods intothe SSEQ, whether #$ #usiness enterprises or residentindividuas, are su#ect to ta/es and duties under reevantPhiippine aws.

The e/portation or re%ova of ta/ and dut$2free 4oods fro% theterritor$ of the SSEQ to other parts of the Phiippine territor$sha #e su#ect to duties and ta/es under reevant Phiippine

aws.

Sec. . 0n All 0t&er Ta1es. L In ieu of a oca and nationata/es &e/cept i%port ta/es and duties', a #usiness enterprisesin the SSEQ sha #e re?uired to pa$ the ta/ specified inSection )&c' of R.0. No. 66.

Nine da$s after, on :une )7, )773, the President issuedE/ecutive Order No. 7620 &EO 7620', specif$in4 the area withinwhich the ta/2and2dut$2free privie4e was operative, vi .<

Sec. ).). The Secured 0rea consistin4 of the present$ fenced2in for%er Su#ic Nava 1ase sha #e the on$ co%pete$ ta/

and dut$2free area in the SSE8PQ @Su#ic Specia Econo%icand 8ree Port Qone*. 1usiness enterprises and individuas&8iipinos and forei4ners' residin4 within the Secured 0rea arefree to i%port raw %aterias, capita 4oods, e?uip%ent, andconsu%er ite%s ta/ and dut$2free. Consu%ption ite%showever, %ust #e consu%ed within the Secured 0reaRe%ova of raw %aterias, capita 4oods, e?uip%ent andconsu%er ite%s out of the Secured 0rea for sae to nonSSE8PQ re4istered enterprises sha #e su#ect to the usuata/es and duties, e/cept as %a$ #e provided herein.

On Octo#er +, )77!, the petitioners chaen4ed #efore thisCourt the constitutionait$ of EO 7620 for ae4ed$ #ein4vioative of their ri4ht to e?ua protection of the aws. In aResoution dated :une 6, )77", this Court referred the %atterto the Court of 0ppeas, pursuant to Revised 0d%inistrativeCircuar No. )27".

Incidenta$, on 8e#ruar$ ), )77", Proca%ation No. "3 wasissued #$ President Ra%os. It deineated the e/act %etes and#ounds of the Su#ic Specia Econo%ic and 8ree Port Qonepursuant to Section ) of R0 66.

"ulin$ of t&e Court of Appeals

Respondent Court hed that Jthere is no su#stantia difference#etween the provisions of EO 7620 and Section ) of R0 66In #oth, the MSecured 0reaM is precise and we2defined as M. . the ands occupied #$ the Su#ic Nava 1ase and its conti4uouse/tensions as e%#raced, covered and defined #$ the )7!69iitar$ 1ases 04ree%ent #etween the Phiippines and theUnited States of 0%erica, as a%ended . . .MJ The appeatecourt concuded that such #ein4 the case, petitioners coud nocai% that EO 7620 is unconstitutiona, whie at the sa%e ti%e%aintainin4 the vaidit$ of R0 66.

The court a 3uo aso e/pained that the intention of Con4resswas to confine the covera4e of the SSEQ to the Jsecured areaJand not to incude the Jentire Oon4apo Cit$ and other areas%entioned in Section ) of the aw.J It reied on the foowin4dei#erarions in the Senate<

Senator Paterno. Than( $ou, 9r. President. 9$ first ?uestion isthe e/tent of the econo%ic ;one. Since this wi #e a free portin effect, I #eieve that it is i%portant to deineate or %a(e surethat the deineation wi #e ?uite precise@. 9*$ ?uestion is< Is ithe intention that the entire of Oon4apo Cit$, the 9unicipait$of Su#ic and the 9unicipait$ of Dinaupihan wi #e covered #$the specia econo%ic ;one or on$ portions thereofK

Senator Shahani. On$ portions, 9r. President. In other wordswhere the actua operations of the free port wi ta(e pace.

Senator Paterno. I see. So, we shoud sa$, JCOVERIN> TAEDESI>N0TED PORTIONS OR CERT0IN PORTIONS O8O=ON>0PO CIT, SU1IC 0ND DIN0=UPIA0NJ to %a(e itcear that it is not supposed to cover the entire area of a ofthese territories.

Senator Shahani. So, the >ente%an is proposin4 that thewords JCERT0IN 0RE0SJ. . .

The President. The Chair woud want to invite the attention othe Sponsor and Senator Paterno to etter JC,J which sa$sJTAE PRESIDENT O8 TAE PAI=IPPINES IS AERE1 0UTAORIQED TO PROC=0I9, DE=INE0TE 0ND SPECI8

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TAE 9ETES 0ND 1OUNDS O8 OTAER SPECI0=ECONO9IC QONES AICA 90 1E CRE0TED IN TAEC=0R 9I=IT0R RESERV0TIONS 0ND ITS EBTENSIONS.J

Pro#a#$, this provision can #e e/panded since, apparent$, theintention is that what is referred to in Oon4apo as 9etroOon4apo is not #$ itsef ipso 4ure aread$ a specia econo%ic;one.

Senator Paterno. That is correct.

The President. So%eone, so%e authorit$ %ust decare whichportions of the sa%e sha #e the econo%ic ;one. Is it theintention of the author that it is the President of the Phiippineswho wi %a(e such deineationK

Senator Shahani. es 9r. President.

The Court of 0ppeas further ustified the i%ited appication of the ta/ incentives as #ein4 within the prero4ative of thee4isature, pursuant to its Javowed purpose @of servin4* so%epu#ic #enefit or interest.J It rued that JEO 7620 %ere$i%pe%ents the e4isative purpose of @R0 66*.J

Disa4reein4, petitioners now see( #efore us a review of theaforecited Court of 0ppeas Decision and Resoution.

T&e Issue

Petitioners su#%it the foowin4 issue for the resoution of theCourt<

@*hether or not E/ecutive Order No. 7620 vioates the e?uaprotection cause of the Constitution. Specifica$ the issue iswhether the provisions of E/ecutive Order No. 7620 confinin4the appication of R.0. 66 within the secured area ande/cudin4 the residents of the ;one outside of the secured area

is discri%inator$ or not. '

T&e Court5s "ulin$ 

The petition 5 is #ereft of %erit.

Main Issue<

T&e Constitionalit# of 0 67-A

Citin4 Section ) of R0 66, petitioners contend that theSSEQ enco%passes &)' the Cit$ of Oon4apo, &' the9unicipait$ of Su#ic in Qa%#aes, and &3' the area for%er$

occupied #$ the Su#ic Nava 1ase. Aowever, EO 7620,accordin4 to the%, narrowed down the area within which thespecia privie4es 4ranted to the entire ;one woud app$ to thepresent Jfenced2in for%er Su#ic Nava 1aseJ on$. It hasthere#$ e/cuded the residents of the first two co%ponents of the ;one fro% eno$in4 the #enefits 4ranted #$ the aw. It haseffective$ discri%inated a4ainst the% without reasona#e or vaid standards, in contravention of the e?ua protection4uarantee.

On the other hand, the soicitor 4enera defends, on #ehaf of respondents, the vaidit$ of EO 7620, ar4uin4 that Section ) of R0 66 cear$ vests in the President the authorit$ todeineate the %etes and #ounds of the SSEQ. Ae adds that the

issuance fu$ co%pies with the re?uiretnents of a vaidcassification.

e rue in favor of the constitutionait$ and vaidit$ of theassaied EO. Said Order is not vioative of the e?ua protectioncauseH neither is it discri%inator$. Rather, than we find reaand su#stantive distinctions #etween the circu%stanceso#tainHn4 inside and those outside the Su#ic Nava 1asethere#$ ustif$in4 a vaid and reasona#e cassification.

The funda%enta ri4ht of e?ua protection of the aws is nota#soute, #ut is su#ect to reasona#e cassification. If the4roupin4s are characteri;ed #$ su#stantia distinctions tha%a(e rea differences, one cass %a$ #e treated and re4uateddifferent$ fro% another. 9  The cassification %ust aso #e4er%ane to the purpose of the aw and %ust app$ to a those#eon4in4 to the sa%e cass. E/painin4 the nature of the e?uaprotection 4uarantee, the Court in Ic&on$ v. ernande  8 said<

The e?ua protection of the aw cause is a4ainst undue favoand individua or cass privie4e, as we as hostiediscri%ination or the oppression of ine?uait$. It is not intendedto prohi#it e4isation which is i%ited either @#$* the o#ect towhich it is directed or #$ @the* territor$ within which it is tooperate. It does not de%and a#soute e?uait$ a%on4residentsH it %ere$ re?uires that a persons sha #e treatedai(e, under li*e  circu!stances and conditions  #oth as toprivie4es conferred and ia#iities enforced. The e?uaprotection cause is not infrin4ed #$ e4isation which appieson$ to those persons fain4 within a specified cass, if iappies ai(e to a persons within such cass, and reasona#e4rounds e/ist for %a(in4 a distinction #etween those who fawithin such cass and those who do not.

Cassification, to #e vaid, %ust &)' rest on su#stantiadistinctions, &' #e 4er%ane to the purpose of the aw, &3' not#e i%ited to e/istin4 conditions on$, and &!' app$ e?ua$ toa %e%#ers of the sa%e cass. &

e first deter%ine the purpose of the aw. 8ro% the ver$ titeitsef, it is cear that R0 66 ai%s pri%ari$ to accelerate t&econversion of !ilitar# reservations into productive usesO#vious$, the Jands covered under the )7!6 9iitar$ 1ases 04ree%entJ are its o#ect. Thus, the aw avows this poic$<

Sec. . Declaration of Policies. L It is here#$ decared thepoic$ of the >overn%ent to acceerate the sound and#aanced conversion into aternative productive uses of theCar( and Su#ic %iitar$ reservations and their e/tensions&:ohn Aa$ Station, aace 0ir Station, OMDonne Trans%itteStation, San 9i4ue Nava Co%%unications Station and CapasRea$ Station', to raise funds #$ the sae of portions of 9etro9ania %iitar$ ca%ps, and to app$ said funds as provided

herein for the deveop%ent and conversion to productiveciviian use of the ands covered under the )7!6 9iitar$ 1ases 04ree%ent #etween the Phiippines and the United States o 0%erica, as a%ended.

To underta(e the a#ove o#ectives, the sa%e aw created the1ases Conversion and Deveop%ent 0uthorit$, so%e of whosereevant defined purposes are<

' To adopt, prepare and i%pe%ent a co%prehensive anddetaied deveop%ent pan e%#od$in4 a ist of proectsincudin4 #ut not i%ited to those provided in the =e4isative2E/ecutive 1ases Counci &=E1C' fra%ewor( pan for the sound

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and #aanced conversion of the Car( and Su#ic %iitar$reservations and their e/tensions consistent with ecoo4icaand environ%enta standards, into other productive uses topro%ote the econo%ic and socia deveop%ent of Centra=u;on in particuar and the countr$ in 4eneraH

&c'. To encoura4e the active participation of the private sector in transfor%in4 the Car( and Su#ic %iitar$ reservations andtheir e/tensions into other productive usesH

8urther, in creatin4 the SSEQ, the aw decared it a poic$ todeveop the ;one into a Jsef2sustainin4, industria, co%%ercia,financia and invest%ent center.J 10

8ro% the a#ove provisions of the aw, it can easi$ #e deducedthat the rea concern of R0 66 is to convert the andsfor%er$ occupied #$ the US %iitar$ #ases into econo%ic or industria areas. In furtherance of such o#ective, Con4ressdee%ed it necessar$ to e/tend econo%ic incentives to attractand encoura4e investors, #oth oca and forei4n. 0%on4 suchentice%ents are?.

 

VITG, J.:

These two consoidated specia civi actions for prohi#itionchaen4e, in >.R. No. )-77, the constitutionait$ of Repu#ic 0ct No. 6!7+, aso co%%on$ (nown as the Si%pified NeInco%e Ta/ation Sche%e &JSNITJ', a%endin4 certain

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provisions of the Nationa Interna Revenue Code and, in>.R.No. )-7!!+, the vaidit$ of Section +, Revenue Re4uations No.273, pro%u4ated #$ pu#ic respondents pursuant to said aw.

Petitioners cai% to #e ta/pa$ers adverse$ affected #$ thecontinued i%pe%entation of the a%endator$ e4isation.

In >.R. No. )-77, it is asserted that the enact%ent of Repu#ic 0ctNo. 6!7+ vioates the foowin4 provisions of theConstitution<

 0rtice VI, Section +&)' L Ever$ #i passed #$ the Con4resssha e%#race on$ one su#ect which sha #e e/pressed in thetite thereof.

 0rtice VI, Section &)' L The rue of ta/ation sha #e unifor%and e?uita#e. The Con4ress sha evove a pro4ressives$ste% of ta/ation.

 0rtice III, Section ) L No person sha #e deprived of . . .propert$ without due process of aw, nor sha an$ person #edenied the e?ua protection of the aws.

In >.R. No. )-7!!+, petitioners, assaiin4 Section + of Revenue Re4uations No. 273, ar4ue that pu#ic respondentshave e/ceeded their rue2%a(in4 authorit$ in app$in4 SNIT to4enera professiona partnerships.

The Soicitor >enera espouses the position ta(en #$ pu#icrespondents.

The Court has 4iven due course to #oth petitions. The parties,in co%piance with the CourtMs directive, have fied their respective %e%oranda.

G.". No. %.R.No. )-77'.

The fu te/t of the tite actua$ reads<

 0n 0ct 0doptin4 the Si%pified Net Inco%e Ta/ation Sche%e8or The Sef2E%po$ed and Professionas En4a4ed In ThePractice of Their Profession, 0%endin4 Sections ) and 7 of the Nationa Interna Revenue Code, as 0%ended.

The pertinent provisions of Sections ) and 7, so referred to,of the Nationa Interna Revenue Code, as now a%ended,provide<

Sec. ). Ta1 on citiens or residents. L

/// /// ///

&f' Si%pified Net Inco%e Ta/ for the Sef2E%po$ed andGor Professionas En4a4ed in the Practice of Profession. L 0 ta/is here#$ i%posed upon the ta/a#e net inco%e as deter%inedin Section 6 received durin4 each ta/a#e $ear fro% a

sources, other than inco%e covered #$ para4raphs ', &c', &d'and &e' of this section #$ ever$ individua whethera citi;en ofthe Phiippines or an aien residin4 in the Phiippines who issef2e%po$ed or practices his profession herein, deter%ined inaccordance with the foowin4 schedue<

Not over P)-,--- 3

Over P)-,--- P3-- 7#ut not over P3-,--- of e/cess oveP)-,---

Over P3-,--- P,)-- )"#ut not over P)-,-- of e/cessover P3-,---

Over P)-,--- P)",+-- -#ut not over P3"-,--- oe/cess over P)-,---

Over P3"-,--- P+),+-- 3-of e/cess over P3"-,---

Sec. 7. Deductions fro! $ross inco!e. L In co%putin4ta/a#e inco%e su#ect to ta/ under Sections )&a', !&a', and &c'H and " &a'&)', there sha #e aowed as deductions theite%s specified in para4raphs &a' to &i' of this section<  Provided

&o'ever , That in co%putin4 ta/a#e inco%e su#ect to ta/under Section ) &f' in the case of individuas en4a4ed in#usiness or practice of profession, on$ the foowin4 direccosts sha #e aowed as deductions<

&a' Raw %aterias, suppies and direct a#orH

' Saaries of e%po$ees direct$ en4a4ed in activities in thecourse of or pursuant to the #usiness or practice of theiprofessionH

&c' Teeco%%unications, eectricit$, fue, i4ht and waterH

&d' 1usiness rentasH

&e' DepreciationH

&f' Contri#utions %ade to the >overn%ent and accredited reieor4ani;ations for the reha#iitation of caa%it$ stric(en areasdecared #$ the PresidentH and

&4' Interest paid or accrued within a ta/a#e $ear on oanscontracted fro% accredited financia institutions which %ust #eproven to have #een incurred in connection with the conduct ofa ta/pa$erMs profession, trade or #usiness.

8or individuas whose cost of 4oods sod and direct costs are

difficut to deter%ine, a %a/i%u% of fort$ per cent &!-' otheir 4ross receipts sha #e aowed as deductions to answefor #usiness or professiona e/penses as the case %a$ #e.

On the #asis of the a#ove an4ua4e of the aw, it woud #edifficut to accept petitionerMs view that the a%endator$ awshoud #e considered as havin4 now adopted a $ross inco%einstead of as havin4 sti retained the net inco%e, ta/ationsche%e. The aowance for deducti#e ite%s, it is true, %a$have si4nificant$ #een reduced #$ the ?uestioned aw inco%parison with that which has prevaied prior to thea%end%entH i%itin4, however, aowa#e deductions fro%4ross inco%e is neither discordant with, nor opposed to, thenet inco%e ta/ concept. The fact of the %atter is sti that

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various deductions, which are #$ no %eans inconse?uentia,continue to #e we provided under the new aw.

 0rtice VI, Section +&)', of the Constitution has #eenenvisioned so as &a' to prevent o42roin4 e4isation intendedto unite the %e%#ers of the e4isature who favor an$ one of unreated su#ects in support of the whoe act, ' to avoidsurprises or even fraud upon the e4isature, and &c' to fair$apprise the peope, throu4h such pu#ications of itsproceedin4s as are usua$ %ade, of the su#ects of e4isation.1

 The a#ove o#ectives of the funda%enta aw appear to us tohave #een sufficient$ %et. 0n$thin4 ese woud #e to re?uire avirtua co%pendiu% of the aw which coud not have #een theintend%ent of the constitutiona %andate.

Petitioner inti%ates that Repu#ic 0ct No. 6!7+ desecrates theconstitutiona re?uire%ent that ta/ation Jsha #e unifor% ande?uita#eJ in that the aw woud now atte%pt to ta/ sin4eproprietorships and professionas different$ fro% the %anner iti%poses the ta/ on corporations and partnerships. Thecontention cear$ for4ets, however, that such a s$ste% of inco%e ta/ation has on4 #een the prevaiin4 rue even prior toRepu#ic 0ct No. 6!7+.

Unifor%it$ of ta/ation, i(e the (indred concept of e?uaprotection, %ere$ re?uires that a su#ects or o#ects of ta/ation, si%iar$ situated, are to #e treated ai(e #oth inprivie4es and ia#iities &,uan Luna Sudivision vs. Sar!iento,7) Phi. 36)'. Unifor%it$ does not forfend cassification as on4as< &)' the standards that are used therefor are su#stantia andnot ar#itrar$, &' the cate4ori;ation is 4er%ane to achieve thee4isative purpose, &3' the aw appies, a thin4s #ein4 e?ua,to #oth present and future conditions, and &!' the cassificationappies e?ua$ we to a those #eon4in4 to the sa%e cass&Pepsi Cola vs. Cit# of Butuan, ! SCR0 3H Basco vs.PAGC0" , )76 SCR0 "'.

hat %a$ instead #e perceived to #e apparent fro% thea%endator$ aw is the e4isative intent to increasin4$ shift the

inco%e ta/ s$ste% towards the scheduar approach  2  in theinco%e ta/ation of individua ta/pa$ers and to %aintain, #$ andar4e, the present 4o#a treat%ent   3  on ta/a#e corporations.e certain$ do not view this cassification to #e ar#itrar$ andinappropriate.

Petitioner 4ives a fair$ e/tensive discussion on the %erits of the aw, iustratin4, in the process, what he #eieves to #e ani%#aance #etween the ta/ ia#iities of those covered #$ thea%endator$ aw and those who are not. ith the e4isaturepri%ari$ ies the discretion to deter%ine the nature &(ind',o#ect &purpose', e/tent &rate', covera4e &su#ects' and situs&pace' of ta/ation. This court cannot free$ deve into those%atters which, #$ constitutiona fiat, ri4ht$ rest on e4isative

 ud4%ent. Of course, where a ta/ %easure #eco%es sounconsciona#e and unust as to a%ount to confiscation of propert$, courts wi not hesitate to stri(e it down, for, despite aits penitude, the power to ta/ cannot override constitutionaproscriptions. This sta4e, however, has not #een de%onstratedto have #een reached within an$ apprecia#e distance in thiscontrovers$ #efore us.

Aavin4 arrived at this concusion, the pea of petitioner to havethe aw decared unconstitutiona for #ein4 vioative of dueprocess %ust perforce fai. The due process cause %a$correct$ #e invo(ed on$ when there is a cear contravention of inherent or constitutiona i%itations in the e/ercise of the ta/power. No such trans4ression is so evident to us.

G.". No. %>? 

The severa propositions advanced #$ petitioners revovearound the ?uestion of whether or not pu#ic respondents havee/ceeded their authorit$ in pro%u4atin4 Section +, RevenueRe4uations No. 273, to carr$ out Repu#ic 0ct No. 6!7+.

The ?uestioned re4uation reads<

Sec. +. General Professional Partners&ip L The 4eneraprofessiona partnership &>PP' and the partners co%prisin4the >PP are covered #$ R. 0. No. 6!7+. Thus, in deter%inin4the net profit of the partnership, on$ the direct costs %entionedin said aw are to #e deducted fro% partnership inco%e. 0sothe e/penses paid or incurred #$ partners in their individuacapacities in the practice of their profession which are norei%#ursed or paid #$ the partnership #ut are not consideredas direct cost, are not deducti#e fro% his 4ross inco%e.

The rea o#ection of petitioners is focused on thead%inistrative interpretation of pu#ic respondents that woudapp$ SNIT to partners in 4enera professiona partnershipsPetitioners cite the pertinent dei#erations in Con4ress durin4its enact%ent of Repu#ic 0ct No. 6!7+, aso ?uoted #$ the

Aonora#e Aernando 1. Pere;, %inorit$ foor eader of theAouse of Representatives, in the atterMs privie4e speech #$wa$ of co%%entin4 on the ?uestioned i%pe%entin4 re4uationof pu#ic respondents foowin4 the effectivit$ of the aw, thus$<

9R. 0=10NO, Now 9r. Spea(er, I woud i(e to 4et the correci%pression of this #i. Do we spea( here of individuas who areearnin4, I %ean, who earn throu4h #usiness enterprises andtherefore, shoud fie an inco%e ta/ returnK

9R. PEREQ. That is correct, 9r. Spea(er. This does not app$to corporations. It appies on$ to individuas.

&See Dei#erations on A. 1. No. 3!3)!, 0u4ust +, )77), +

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partners in 4enera professiona partnerships. The fact of the%atter is that a 4enera professiona partnership, uni(e anordinar$ #usiness partnership &which is treated as acorporation for inco%e ta/ purposes and so su#ect to thecorporate inco%e ta/', is not itsef an inco%e ta/pa$er. Theinco%e ta/ is i%posed not on the professiona partnership,which is ta/ e/e%pt, #ut on the partners the%seves in their individua capacit$ co%puted on their distri#utive shares of partnership profits. Section 3 of the Ta/ Code, which has not#een a%ended at a #$ Repu#ic 0ct 6!7+, is e/picit<

Sec. 3. Ta/ ia#iit$ of %e%#ers of 4enera professionapartnerships. L &a' Persons e/ercisin4 a co%%on professionin 4enera partnership sha #e ia#e for inco%e ta/ on$ in their individua capacit$, and the share in the net profits of the4enera professiona partnership to which an$ ta/a#e partner woud #e entited whether distri#uted or otherwise, sha #ereturned for ta/ation and the ta/ paid in accordance with theprovisions of this Tite.

' In deter%inin4 his distri#utive share in the net inco%e of thepartnership, each partner L

&)' Sha ta(e into account separate$ his distri#utive share of the partnershipMs inco%e, 4ain, oss, deduction, or credit to thee/tent provided #$ the pertinent provisions of this Code, and

&' Sha #e dee%ed to have eected the ite%i;ed deductions,uness he decares his distri#utive share of the 4ross inco%eundi%inished #$ his share of the deductions.

There is, then and now, no distinction in inco%e ta/ ia#iit$#etween a person who practices his profession aone or individua$ and one who does it throu4h partnership &whether re4istered or not' with others in the e/ercise of a co%%onprofession. Indeed, outside of the 4ross co%pensation inco%eta/ and the fina ta/ on passive invest%ent inco%e, under thepresent inco%e ta/ s$ste% a individuas derivin4 inco%e fro%an$ source whatsoever are treated in a%ost invaria#$ thesa%e %anner and under a co%%on set of rues.

e can we appreciate the concern ta(en #$ petitioners if perhaps we were to consider Repu#ic 0ct No. 6!7+ as anentire$ independent, not %ere$ as an a%endator$, piece of e4isation. The view can easi$ #eco%e %$opic, however,when the aw is understood, as it shoud #e, as on$ for%in4part of, and su#ect to, the whoe inco%e ta/ concept andprecepts on4 o#tainin4 under the Nationa Interna RevenueCode. To ea#orate a itte, the phrase Jinco%e ta/pa$ersJ is ana e%#racin4 ter% used in the Ta/ Code, and it practica$covers a persons who derive ta/a#e inco%e. The aw, inev$in4 the ta/, adopts the %ost co%prehensive ta/ situs  of nationait$ and residence of the ta/pa$er &that renders citi;ens,

re4ardess of residence, and resident aiens su#ect to inco%eta/ ia#iit$ on their inco%e fro% a sources' and of the4enera$ accepted and internationa$ reco4ni;ed inco%eta/a#e #ase &that can su#ect non2resident aiens and forei4ncorporations to inco%e ta/ on their inco%e fro% Phiippinesources'. In the process, the Code cassifies ta/pa$ers intofour %ain 4roups, na%e$< &)' Individuas, &' Corporations, &3'Estates under :udicia Sette%ent and &!' Irrevoca#e Trusts&irrevoca#e #oth as to corpus and as to inco!e'.

Partnerships are, under the Code, either Jta/a#e partnershipsJor Je/e%pt partnerships.J 0rdinaril# , partnerships, no %atter how created or or4ani;ed, are su#ect to inco%e ta/ &and thusauded to as Jta/a#e partnershipsJ' which, for purposes of the

a#ove cate4ori;ation, are # la' assi!ilated to e 'it&in t&econte1t of+ and so le$all# conte!plated as+ corporationsE/cept for few variances, such as in the appication of theJconstructive receipt rueJ in the derivation of inco%e, theinco%e ta/ approach is ai(e to #oth uridica personsO#vious$, SNIT is not intended or envisioned, as so correct$pointed out in the discussions in Con4ress durin4 itsdei#erations on Repu#ic 0ct 6!7+, afore?uoted, to covecorporations and partnerships which are independent$ su#ecto the pa$%ent of inco%e ta/.

JE/e%pt partnerships,J upon the other hand, are not si%iar$identified as corporations nor even considered as independentta/a#e entities for inco%e ta/ purposes. 0 4enera

 professional   partnership is such an e/a%pe.  '  Aere, thepartners the%seves, not the partnership &athou4h it is stio#i4ated to fie an inco%e ta/ return @%ain$ for ad%inistrationand data*', are ia#e for the pa$%ent of inco%e ta/ in theirindividual capacit$ co%puted on their respective anddistri#utive shares of profits. In the deter%ination of the ta/ia#iit$, a partner does so as an individual , and there is nochoice on the %atter. In fine, under the Ta/ Code on inco%eta/ation, the 4enera professiona partnership is dee%ed to #eno %ore than a %ere %echanis% or a fow2throu4h entit$ in the4eneration of inco%e #$, and the uti%ate distri#ution of such

inco%e to, respective$, each of the individua partners.

Section + of Revenue Re4uation No. 273 did not ater, #u%ere$ confir%ed, the a#ove standin4 rue as now so %odified#$ Repu#ic 0ctNo. 6!7+ on #asica$ the e/tent of aowa#edeductions appica#e to all individua inco%e ta/pa$ers ontheir non2co%pensation inco%e. There is no evident intentionof the aw, either #efore or after the a%endator$ e4isation, topace in an une?ua footin4 or in si4nificant variance theinco%e ta/ treat%ent of professionas who practice theirespective professions individua$ and of those who do ithrou4h a 4enera professiona partnership.

AERE8ORE, the petitions are DIS9ISSED. No specia

pronounce%ent on costs.

SO ORDERED.

EN 10NC

G.R. No. 198059 Se6-ember 1, 2005

AA.R. No. )+-6

 0UI=INO . PI9ENTE=, :R., =UIS0 P. E:ERCITOESTR0D0, :IN>>O E. ESTR0D0, P0N8I=O 9. =0CSON 0=8REDO S. =I9, :091 0.S. 90DRI>0=, 0ND SER>IO ROS9E0 III, Petitioners, vs.E?ECTIVE SECRETAR:EDARDO R. ERMITA, CESAR V. !RISIMA, SECRETAR:

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OF FINANCE, GILLERMO L. !ARA:NO, (R.,COMMISSIONER OF T$E REA OF INTERNALREVENE, Respondent.

/ 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 /

>.R. No. )+!+)

 0SSOCI0TION O8 PI=IPIN0S SAE== DE0=ERS, INC.represented #$ its President, ROS0RIO 0NTONIOH PETRONDE0=ERS5 0SSOCI0TION represented #$ its President, RUTAE. 10R1I1IH 0SSOCI0TION O8 C0=TEB DE0=ERS5 O8 TAEPAI=IPPINES represented #$ its President, 9ERCEDIT0S 0.>0RCI0H ROS0RIO 0NTONIO doin4 #usiness under the na%eand st$e of J0N1 NORTA SAE== SERVICE ST0TIONJH=OURDES 90RTINEQ doin4 #usiness under the na%e andst$e of JSAE== >0TE N. DO9IN>OJH 1ETAQ0ID0 T0Ndoin4 #usiness under the na%e and st$e of J0DV0NCESAE== ST0TIONJH REN0=DO P. 9ONTO0 doin4 #usinessunder the na%e and st$e of JNE =09U0N SAE== SERVICEST0TIONJH E8REN SOTTO doin4 #usiness under the na%eand st$e of JRED 8IE=D SAE== SERVICE ST0TIONJHDONIC0 CORPOR0TION represented #$ its President, DESITO90CRUQH RUTA E. 90R1I1I doin4 #usiness under thena%e and st$e of JRR PETRON ST0TIONJH PETER 9.UN>SON doin4 #usiness under the na%e and st$e of JC=0SSIC ST0R >0SO=INE SERVICE ST0TIONJH 90RI0NSAEI=0 0. =EE doin4 #usiness under the na%e and st$e of JNTE >0SO=INE SERVICE ST0TIONJH :U=I0N CES0R P.POS0D0S doin4 #usiness under the na%e and st$e of JST0RC0R>0 ENTERPRISESJH 0DOR0CION 90E1Odoin4 #usiness under the na%e and st$e of JC909OTORISTS CENTERJH SUS0N 9. ENTR0T0 doin4 #usinessunder the na%e and st$e of J=EON05S >0SO=INE ST0TIONand SERVICE CENTERJH C0R9E=IT0 10=DON0DO doin4#usiness under the na%e and st$e of J8IRST CAOICESERVICE CENTERJH 9ERCEDIT0S 0. >0RCI0 doin4#usiness under the na%e and st$e of J=ORPED SERVICECENTERJH RAE090R 0. R09OS doin4 #usiness under the

na%e and st$e of JR:R09 PTT >0S ST0TIONJH 90. IS01E=VIO=0>O doin4 #usiness under the na%e and st$e of JVIO=0>O2PTT SERVICE CENTERJH 9OTORISTS5 AE0RTCORPOR0TION represented #$ its Vice2President for Operations, :OSE=ITO 8. 8=ORDE=IQ0H 9OTORISTS5A0RV0RD CORPOR0TION represented #$ its Vice2Presidentfor Operations, :OSE=ITO 8. 8=ORDE=IQ0H 9OTORISTS5AERIT0>E CORPOR0TION represented #$ its Vice2Presidentfor Operations, :OSE=ITO 8. 8=ORDE=IQ0H PAI=IPPINEST0ND0RD OI= CORPOR0TION represented #$ its Vice2President for Operations, :OSE=ITO 8. 8=ORDE=IQ0HRO9EO 90NUE= doin4 #usiness under the na%e and st$e of JRO990N >0SO=INE ST0TIONJH 0NTAON 0=1ERT CRUQIII doin4 #usiness under the na%e and st$e of JTRUESERVICE ST0TIONJ, Petitioners, vs.CESAR V. !RISIMA, /

c6c-+ Secre-r+ o -e De6r-me/- o F//ce/ GILLERMO L. !ARA:NO, (R., / c6c-+ Commo/er o I/-er/* Re4e/)e, Respondent.

/ 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 /

>.R. No. )+!+3

8R0NCIS :OSEPA >. ESCUDERO, VINCENT CRISO=O>O,E990NUE= :OE= :. VI==0NUEV0, RODO=8O >. P=0Q0,D0R=ENE 0NTONINO2CUSTODIO, OSC0R >. 90=0PIT0N,1EN:09IN C. 0>0R0O, :R. :U0N ED>0RDO 9. 0N>0R0,:USTIN 90RC S1. CAIPECO, 8=ORENCIO >. NOE=, 9U:IV

S. A0T090N, REN0TO 1. 90>TU1O, :OSEPA 0S0NTI0>O, TEO8ISTO D=. >UIN>ON0 III, RU E=I0S C=OPEQ, RODO=8O . 0>100NI and TEODORO 0C0SIO, Petitioners, vs.CESAR V. !RISIMA, / c6c-+ Secre-r+ o F//ce, GILLERMO L!ARA:NO, (R., / c6c-+ Commo/er oI/-er/* Re4e/)e, / EDARDO R. ERMITA, / c6c-+ E@ec)-4e Secre-r+, Respondent.

/ 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 /

>.R. No. )+63-

10T00N >OVERNOR ENRIUE T. >0RCI0, :R. Petitioner+ vs.  AON. EDU0RDO R. ER9IT0, in his capacit$ as theE/ecutive Secretar$H AON. 90R>0RITO TEVES, in hiscapacit$ as Secretar$ of 8inanceH AON. :OSE 90RIO1UN0>, in his capacit$ as the OIC Co%%issioner of the1ureau of Interna RevenueH and AON. 0=EB0NDER 0REV0=O, in his capacit$ as the OIC Co%%issioner of the1ureau of Custo%s, Respondent.

D E C I S I O N

ASTRIA%MARTINE", J .

The e/penses of 4overn%ent, havin4 for their o#ect theinterest of a, shoud #e #orne #$ ever$one, and the %ore %aneno$s the advanta4es of societ$, the %ore he ou4ht to hodhi%sef honored in contri#utin4 to those e/penses.

20nne Ro#ert :ac?ues Tur4ot &)662)6)'

8rench states%an and econo%ist

9ountin4 #ud4et deficit, revenue 4eneration, inade?uate fiscaaocation for education, increased e%ou%ents for heath

wor(ers, and wider covera4e for fu vaue2added ta/ #enefitsW these are the reasons wh$ Repu#ic 0ct No. 7336 &R.0. No7336') was enacted. Reasons, the wisdo% of which, the Courteven with its e/tensive constitutiona power of review, cannopro#e. The petitioners in these cases, however, ?uestion noon$ the wisdo% of the aw, #ut aso perceived constitutionainfir%ities in its passa4e.

Ever$ aw eno$s in its favor the presu%ption oconstitutionait$. Their ar4u%ents notwithstandin4, petitionersfaied to ustif$ their ca for the invaidit$ of the aw. AenceR.0. No. 7336 is not unconstitutiona.

LEGISLATIVE $ISTOR:

R.0. No. 7336 is a consoidation of three e4isative #isna%e$, Aouse 1i Nos. 3""" and 36-", and Senate 1i No)7"-.

House Bill No. 3555   was introduced on first readin4 on:anuar$ 6, --". The Aouse Co%%ittee on a$s and 9eansapproved the #i, in su#stitution of Aouse 1i No. )!+, whichRepresentative &Rep.' Eric D. Sin4son introduced on 0u4ust --!. The President certified the #i on :anuar$ 6, --" foi%%ediate enact%ent. On :anuar$ 6, --", the Aouse oRepresentatives approved the #i on second and third readin4.

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House Bill No. 3705 3 on the other hand, su#stituted Aouse 1iNo. 3)-" introduced #$ Rep. Saacni# 8. 1aterina, and Aouse1i No. 33) introduced #$ Rep. :acinto V. Paras. Its J%other #iJ is Aouse 1i No. 3""". The Aouse Co%%ittee on a$sand 9eans approved the #i on 8e#ruar$ , --". ThePresident aso certified it as ur4ent on 8e#ruar$ , --". TheAouse of Representatives approved the #i on second andthird readin4 on 8e#ruar$ , --".

9eanwhie, the Senate Co%%ittee on a$s and 9eans

approved Senate Bill No. 1950 !

  on 9arch 6, --", Jinsu#stitution of Senate 1i Nos. )336, )3 and )63, ta(in4into consideration Aouse 1i Nos. 3""" and 36-".J Senator Raph >. Recto sponsored Senate 1i No. )336, whie Senate1i Nos. )3 and )63 were #oth sponsored #$ Sens.8ran(in 9. Drion, :uan 9. 8avier and 8rancis N. Pan4iinan.The President certified the #i on 9arch )), --", and wasapproved #$ the Senate on second and third readin4 on 0pri)3, --".

On the sa%e date, 0pri )3, --", the Senate a4reed to there?uest of the Aouse of Representatives for a co%%itteeconference on the disa4reein4 provisions of the proposed #is.

1efore on4, the Conference Co%%ittee on the Disa4reein4Provisions of Aouse 1i No. 3""", Aouse 1i No. 36-", andSenate 1i No. )7"-, Jafter havin4 %et and discussed in fufree and conference,J reco%%ended the approva of its report,which the Senate did on 9a$ )-, --", and with the Aouse of Representatives a4reein4 thereto the ne/t da$, 9a$ )), --".

On 9a$ 3, --", the enroed cop$ of the consoidated Aouseand Senate version was trans%itted to the President, whosi4ned the sa%e into aw on 9a$ !, --". Thus, ca%e R.0.No. 7336.

:u$ ), --" is the effectivit$ date of R.0. No. 7336. " hen saiddate ca%e, the Court issued a te%porar$ restrainin4 order,effective i%%ediate$ and continuin4 unti further orders,enoinin4 respondents fro% enforcin4 and i%pe%entin4 theaw.

Ora ar4u%ents were hed on :u$ )!, --". Si4nificant$,durin4 the hearin4, the Court spea(in4 throu4h 9r. :ustice 0rte%io V. Pan4ani#an, voiced the rationae for its issuance of the te%porar$ restrainin4 order on :u$ ), --", to wit<

:. P0N>0NI10N < . . . 1ut #efore I 4o into the detais of $our presentation, et %e ust te $ou a itte #ac(4round. ou (nowwhen the aw too( effect on :u$ ), --", the Court issued aTRO at a#out " o5coc( in the afternoon. 1ut #efore that, therewas a ot of co%paints aired on teevision and on radio. So%epeope in a 4as station were co%painin4 that the 4as priceswent up #$ )-. So%e peope were co%painin4 that their eectric #i wi 4o up #$ )-. Other ti%es peope ridin4 indo%estic air carrier were co%painin4 that the prices that the$5have to pa$ woud have to 4o up #$ )-. hie a that was#ein4 aired, per $our presentation and per our ownunderstandin4 of the aw, that5s not true. It5s not true that the e2vat aw necessari$ increased prices #$ )- unifor%$ isn5t itK

 0TT. 10NIUED < No, our Aonor.

:. P0N>0NI10N < It is notK

 0TT. 10NIUED < It5s not, #ecause, our Aonor, there is an

E/ecutive Order that 4ranted the Petroeu% co%panies so%esu#sid$ . . . interrupted

:. P0N>0NI10N < That5s correct . . .

 0TT. 10NIUED < . . . and therefore that was %eant tote%per the i%pact . . . interrupted

:. P0N>0NI10N < . . . %iti4atin4 %easures . . .

 0TT. 10NIUED < es, our Aonor.

:. P0N>0NI10N < 0s a %atter of fact a part of the %iti4atin4%easures woud #e the ei%ination of the E/cise Ta/ and thei%port duties. That is wh$, it is not correct to sa$ that the V0Tas to petroeu% deaers increased prices #$ )-.

 0TT. 10NIUED < es, our Aonor.

:. P0N>0NI10N < 0nd therefore, there is no ustification forincreasin4 the retai price #$ )- to cover the E2Vat ta/. If $ouconsider the e/cise ta/ and the i%port duties, the Net Ta/woud pro#a#$ #e in the nei4h#orhood of 6K e are not

4oin4 into e/act fi4ures I a% ust tr$in4 to deiver a point thatdifferent industries, different products, different services are hidifferent$. So it5s not correct to sa$ that a prices %ust 4o up#$ )-.

 0TT. 10NIUED < ou5re ri4ht, our Aonor.

:. P0N>0NI10N < Now. 8or instance, Do%estic 0irineco%panies, 9r. Counse, are at present i%posed a Saes Ta/of 3. hen this E2Vat aw too( effect the Saes Ta/ was asore%oved as a %iti4atin4 %easure. So, therefore, there is no ustification to increase the fares #$ )- at #est 6, correctK

 0TT. 10NIUED < I 4uess so, our Aonor, $es.

:. P0N>0NI10N < There are other products that the peopewere co%painin4 on that first da$, were #ein4 increasedar#itrari$ #$ )-. 0nd that5s one reason a%on4 %an$ othersthis Court had to issue TRO #ecause of the confusion in thei%pe%entation. That5s wh$ we added as an issue in this caseeven if it5s tan4entia$ ta(en up #$ the peadin4s of the partiesthe confusion in the i%pe%entation of the E2vat. Our peopewere su#ected to the %erc$ of that confusion of an across the#oard increase of )-, which $ou $oursef now ad%it and thin( even the >overn%ent wi ad%it is incorrect. In so%ecases, it shoud #e 3 on$, in so%e cases it shoud #e +dependin4 on these %iti4atin4 %easures and the ocation andsituation of each product, of each service, of each co%pan$

isn5t itK

 0TT. 10NIUED < es, our Aonor.

:. P0N>0NI10N < 0ri4ht. So that5s one reason wh$ we had toissue a TRO pendin4 the carification of a these and we wishthe 4overn%ent wi ta(e ti%e to carif$ a these #$ %eans of a%ore detaied i%pe%entin4 rues, in case the aw is uphed #$this Court. . . .+

The Court aso directed the parties to fie their respective9e%oranda.

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G.R. No. 198059

1efore R.0. No. 7336 too( effect, petitioners ABAADA G"0Part$ =ist+ et al., fied a petition for prohi#ition on 9a$ 6, --".The$ ?uestion the constitutionait$ of Sections !, " and + of R.0. No. 7336, a%endin4 Sections )-+, )-6 and )-,respective$, of the Nationa Interna Revenue Code &NIRC'.Section ! i%poses a )- V0T on sae of 4oods and properties,Section " i%poses a )- V0T on i%portation of 4oods, andSection + i%poses a )- V0T on sae of services and use or 

ease of properties. These ?uestioned provisions contain aunifor%  proviso  authori;in4 the President, uponreco%%endation of the Secretar$ of 8inance, to raise the V0Trate to ), effective :anuar$ ), --+, after an$ of thefoowin4 conditions have #een satisfied, to wit<

. . . That the President, upon the reco%%endation of theSecretar$ of 8inance, sha, effective :anuar$ ), --+, raise therate of vaue2added ta/ to tweve percent &)', after an$ of the foowin4 conditions has #een satisfied<

&i' Vaue2added ta/ coection as a percenta4e of >rossDo%estic Product &>DP' of the previous $ear e/ceeds two andfour2fifth percent & !G"'H or 

&ii' Nationa 4overn%ent deficit as a percenta4e of >DP of theprevious $ear e/ceeds one and one2haf percent &) X'.

Petitioners ar4ue that the aw is unconstitutiona, as itconstitutes a#andon%ent #$ Con4ress of its e/cusive authorit$to fi/ the rate of ta/es under 0rtice VI, Section &' of the)76 Phiippine Constitution.

G.R. No. 198207

On :une 7, --", Sen. 0?uiino . Pi%ente, :r., et al., fied apetition for certiorari  i(ewise assaiin4 the constitutionait$ of Sections !, " and + of R.0. No. 7336.

 0side fro% ?uestionin4 the so2caed stand-# aut&orit# of thePresident to increase the V0T rate to ), on the 4round that ita%ounts to an undue dee4ation of e4isative power,petitioners aso contend that the increase in the V0T rate to) contin4ent on an$ of the two conditions #ein4 satisfiedvioates the due process cause e%#odied in 0rtice III, Section) of the Constitution, as it i%poses an unfair and additiona ta/#urden on the peope, in that< &)' the ) increase isa%#i4uous #ecause it does not state if the rate woud #ereturned to the ori4ina )- if the conditions are no on4er satisfiedH &' the rate is unfair and unreasona#e, as the peopeare unsure of the appica#e V0T rate fro% $ear to $earH and &3'the increase in the V0T rate, which is supposed to #e an

incentive to the President to raise the V0T coection to at east !G" of the >DP of the previous $ear, shoud on$ #e #ased onfisca ade?uac$.

Petitioners further cai% that the incusion of a stand-# aut&orit#  4ranted to the President #$ the 1ica%era ConferenceCo%%ittee is a vioation of the Jno2a%end%ent rueJ upon astreadin4 of a #i aid down in 0rtice VI, Section +&' of theConstitution.

G.R. No. 198'91

Thereafter, a petition for prohi#ition was fied on :une 7, --",

#$ the 0ssociation of Pilipinas She Deaers, Inc.,  et al.assaiin4 the foowin4 provisions of R.0. No. 7336<

)' Section  , a%endin4 Section ))- &0'&' of the NIRCre?uirin4 that the input ta/ on deprecia#e 4oods sha #ea%orti;ed over a +-2%onth period, if the ac?uisition, e/cudin4the V0T co%ponents, e/ceeds One 9iion Pesos &P)---,---.--'H

' Section  , a%endin4 Section ))- &1' of the NIRC, i%posin4

a 6- i%it on the a%ount of input ta/ to #e credited a4ainsthe output ta/H and

3' Section %@ , a%endin4 Section ))! &c' of the NIRCauthori;in4 the >overn%ent or an$ of its poitica su#divisionsinstru%entaities or a4encies, incudin4 >OCCs, to deduct a" fina withhodin4 ta/ on 4ross pa$%ents of 4oods andservices, which are su#ect to )- V0T under Sections )-+&sae of 4oods and properties' and )- &sae of services anduse or ease of properties' of the NIRC.

Petitioners conte