GOMEZ v PALOMAR Case

Assailing the constitutionality of R.A. 1635 as amended by R.A. 2631: raising funds for the Philippine Tuberculosis Society through purchasing anti-TB stamps by mail users.

Issue:WON it violates the equal protection clause

Ruling:NO. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. In the field of taxation, the legislature possesses the greatest freedom in classification which must be reasonable. So long as the classification imposed is based upon some standard capable of reasonable comprehension, equal protection of the law has been afforded In the case of the anti-TB stamps, the classification of mail users is not without any reason. The single most important and influential consideration that led the legislature to select mail users as subjects of the tax is the relative ease and convenience of collecting the tax through the post offices. It is based on ability to pay, let alone the enjoyment of a privilege, and on administrative convenience.

Issue:WON the tax is levied for public purpose.

Ruling:YES. The eradication of a dreaded disease is a public purpose, but if by public purpose the petitioner means benefit to a taxpayer as a return for what he pays, the only benefit to which the taxpayer is entitled is that derived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes.

Issue:WON it violates the rule of uniformity in taxation.

Ruling:NO. The rule of uniformity and equality of taxation is not infringed by the imposition of a flat rate rather than a graduated tax. The considerations of administrative convenience afford an adequate ground for classification. The same considerations may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating equally on all persons within the class regardless of the amount involved.

Issue:WON it is valid for raising funds for the benefit of Philippine Tuberculosis Society a private organization.

Ruling:YES. The Society is not really the beneficiary but only the agency through which the State acts in carrying out what is essentially a public function. The money is treated as a special fund and as such need not be appropriated by law.

TOLENTINO Case (1994 & 1995)

Assailing the constitutionality of R.A. 7716 otherwise known as the Expanded VAT Law.

Issue:WON the Congress Congress violated the Constitution because, although H. No. 11197 had originated in the House of Representatives, it was not passed by the Senate but was simply consolidated with the Senate version (S. No. 1630) in the Conference Committee to produce the bill which the President signed into law.

Ruling:NO. It is not the law — but the revenue bill — which is required by the Constitution to "originate exclusively" in the House of Representatives. A bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. To insist that a revenue statute — and not only the bill which initiated the legislative process culminating in the enactment of the law — must substantially be the same as the House bill would be to deny the Senate's power not only to "concur with amendments" but also to "propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress.

Issue:WON the law abridges freedom of speech, expression or the press.

Ruling:NO. Even with due recognition of its high estate and its importance in a democratic society, however, the press is not immune from general regulation by the State. As a general proposition, the press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these.

As to removing the exemption of the press from VAT while maintaining those granted to others, it would suffice to say that since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject.

Issue: (1995)WON the law also violates the requirement that "The rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation" for the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.

Ruling:NO. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be

minimized." )). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions.

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation.

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the base of the tax. As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.

Issue:WON the law violates the constitutional provision that "No law impairing the obligation of contracts shall be passed."

Ruling:NO. It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. The Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration.

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) Case

Nature or the juridical personality of said airport authorities; whether the airport lands, buildings are exempt from real estate tax.

Issue:WON the MCIAA is a GOCC.

Ruling: (by adopting the findings and conclusions of the MIAA case)NO. A government-owned or controlled corporation must be “organized as a stock or non-stock corporation.” MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares.

MIAA is also not a non-stock corporation because it has no members. A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury . This prevents MIAA from qualifying as a non-stock corporation.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Instrumentality refers to any agency of the National Government,   not   integrated within   the   department   framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.

Issue:WON the airport lands and buildings are subject to real estate tax.

Ruling: (by adopting the findings and conclusions of the MIAA case)NO. The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic and belong to the public domain. The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. Such fees are often termed user’s tax taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the LGC. The only exception is when MIAA leases its real property to a “taxable person” as provided in Section 234(a) of the LGC, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax.

ABAKADA Case

Constitutionality of Sec 4, 5, and 6 of R.A. 9337 amending Sec 106, 107, and 108, respectively, of the NIRC. These questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%,

Issue:WON there is undue delegation of legislative power

Ruling:NO. The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress.

Issue:WON the law effectively nullified the Presidents power of control over the Secretary of Finance by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance.

Ruling:NO. In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect.[56] The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented. Thus, being the agent of Congress and not of the President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the latter.

PLANTERS PRODUCTS, INC. Case

Constitutionality of LOI 1465 which provides: x x x to include in its fertilizer pricing formula a capital contribution component of not less than P10 per bag. This capital contribution shall be collected until adequate capital is raised to make PPI viable.

Issue:WON the law is an exercise of the power of taxation.

Ruling:YES. We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. The LOI expressly provided that the levy was imposed until adequate  capital is raised to make PPI viable   .  

Issue:WON the taxes are exacted for public purpose.

Ruling:NO. We agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a public purpose.

First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company. Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming financially viable. Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI. Fourth, the levy was used to pay the corporate debts of PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons.[46] The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose.

When a tax law is only a mask to exact funds from the public when its true intent is to give undue benefit and advantage to a private enterprise, that law will not satisfy the requirement of public purpose.

PASCUAL v SEC of PUBLIC WORKS Case

Constitutionality of Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works" for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals which were private properties of the respondent.

Issue:WON the law is for public purpose.

Ruling:It is a general rule that the   legislature   is  without  power   to  appropriate  public   revenue   for anything but  a public  purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money.

In accordance with the rule that the taxing power must be exercised for public purposes only, money raised by taxation can be expended only for public purposes and not for the advantage of private individuals.

Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. The donation to the Government, over five (5) months after the approval and effectivity of said Act, made for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.

LUTZ v ARANETA Case

Constitutionality of Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act the purpose is to stabilize the sugar industry which is a great source of the state’s wealth during the time.

Issue:WON the law is a pure exercise of the taxing power.

Ruling:NO. The tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry, hence, an exercise of the police power.

The fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain.

That the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation".

From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected.

Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes.

ROXAS v CTA Case

Roxas brothers protested the assessment ordering them to pay CIR of the fixed tax on real estate dealers as the gain derived from the sale of the Nasugbu farm lands is 100% taxable.

Issue:WON the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable.

Ruling:NO. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude.

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. It does not conform to justice for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%.

BAGATSING Case

The chief question to be decided in this case is what law shall govern the publication of a tax ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended), which requires publication of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No. 231), which only demands publication after approval.

Issue:WON the subject ordinance is a tax ordinance.

Ruling:YES. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising function, so that the procedure for publication under the Local Tax Code finds no application. The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation.

Under Section 5, Article XI of the New Constitution, "Each local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be provided by law." And one of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the occupancy or use of public markets and premises * * *." They can provide for and regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30, 1972, insofar as it affects livestock and animal products, because the said decree prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural Resources." 16Clearly, even the exception clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may collect fees for the slaughter of animals and the use of corrals * * * "

Issue:WON the market stall fees imposed in the disputed ordinance are diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the City of Manila to the said corporation in a "Management and Operating Contract."

Ruling:NO. The fees collected do not go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the direction of an individual or private corporation.BRITISH AMERICAN TOBACCO v CAMACHO Case

Constitutionality of Section 145 of the National Internal Revenue Code (NIRC), and Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-2003 for being violative of the equal protection and uniformity clauses of the Constitution.

Issue:WON the classification freeze provision violates the equal protection.

Ruling:NO. . The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it applies equally to all those belonging to the same class.52

The first, third and fourth requisites are satisfied. The classification   freeze   provision was inserted in the law for reasons of practicality and expediency. That is, since a new brand was not yet in existence at the time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price, similar to what was used to classify the brands under Annex "D" as of October 1, 1996, was thus the logical and practical choice. Further, with the amendments introduced by RA 9334, the freezing of the tax classifications now expressly applies not just to Annex "D" brands but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be introduced in the future. The classification   freeze   provision addressed Congresss administrative concerns in the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues. Consequently,  there can be no denial of the equal protection of the laws since the rational-basis test is amply satisfied. Under the rational basis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest.

Issue: WON the assailed provisions violate the uniformity of taxation clause.

Ruling: NO. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found.[5] It does not signify an intrinsic but simply a geographical uniformity. The uniformity rule does not prohibit classification for purposes of taxation. In the instant case, there is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all cigarette brands in the Philippines.

Issue: WON the assailed law transgressed the constitutional provisions on regressive taxation.

Ruling:NO. It may be conceded that the assailed law imposes an excise tax on cigarettes which is a form of indirect tax, and thus, regressive in character. Nevertheless, this does not mean that the assailed law may be declared unconstitutional for being regressive in character because the Constitution does not prohibit the imposition of indirect taxes but merely provides that Congress shall evolve a progressive system of taxation.

LUNG CENTER OF THE PHIL. v QUEZON CITY & ROSAS

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as amended, of the Decision[1] dated July 17, 2000 of the Court of Appeals in CA-G.R. SP No. 57014 which affirmed the decision of the Central Board of Assessment Appeals holding that the lot owned by the petitioner and its hospital building constructed thereon are subject to assessment for purposes of real property tax.

Issue: WON the petitioner is a charitable institution.

Held:YES. The court ruled that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties.Under P.D. No. 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 of the Philippines with the Ministry of Health and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution

Issue: WON petitioner is entitled to realty tax exemptions.

Held:The court qualified. Those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.

Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly andexclusively used for religious, charitable or educational purposes shall be exempt from taxation.

The tax exemption under this constitutional provision covers property taxes only. . . what is exempted is not the institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes.

In order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY andEXCLUSIVELY used for charitable purposes. If real property is used

for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation.

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

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

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes.[45] On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.

CIR v CA, CTA and YMCA (Young Mens Christian Assoc. of the Phil.)

The crux of this case is the income derived from rentals of real property owned by the Young Mens Christian Association of the Philippines, Inc. (YMCA) established as a welfare, educational and charitable non-profit corporation – whether it is subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution.

Issue:WON the rental income of YMCA is txable

Held:YES. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions.[18] Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption must expressly be granted in a statute.SEC. 27 of NIRC. Exemptions from tax on corporations. -- The following organizations shall NOT be taxed under this Title in respect to INCOME received by them as such --

x x x x x x x x x(g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;(h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member;

x x x x x x x x xNotwithstanding the provision in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, REGARDLESS of the disposition made of such income, shall be SUBJECT to the tax imposed under this Code.The last paragraph of Section 27, the YMCA argues, should be subject to the qualification that the income from the properties must arise from activities conducted for profit before it may be considered taxable.[23] This argument is erroneous. As previously stated, a reading of said paragraph ineludibly shows that the income from any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase any of their activities conducted for profit does not qualify the word properties. This makes income from the property of the organization taxable, regardless of how that income is used -- whether for profit or for lofty non-profit purposes. The rental income is taxable regardless of whence such income is derived and how it used or disposed of.

YMCA also invokes Article XIV, Section 4, par. 3 of the Charter, [36] claiming that the YMCA is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income.[37] We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax.

For the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit  educational   institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the Court notes

that not a scintilla of evidence was submitted by private respondent to prove that it met the said requisites.

CIR v S.C. JOHNSON AND SON, INC. & CA

Respondent], 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 . 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.

Respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties.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], par. 12).

Issue: WON the respondent IS ENTITLED TO THE MOST FAVORED NATION TAX RATE OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION TO THE RP-WEST GERMANY TAX TREATY.

Held:NO. The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the avoidance of double taxation.[9] The tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies.Double taxation usually takes place when a person is resident of a contracting state and derives income from, or owns capital in, the other contracting state and both states impose tax on that income or capital . In order to eliminate double taxation, a tax treaty resorts to several methods. There are two methods of relief- the exemption method and the credit method. In the exemption method, the income or capital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayers remaining income or capital. On the other hand, in the credit method, although the income or capital which is taxed in the state of source is still taxable in the state of residence, the tax paid in the former is credited against the tax levied in the latter. The basic difference between the two methods is that in the exemption method, the focus is on the income or capital itself, whereas the credit method focuses upon the tax.

In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the Philippines will give up a part of the tax in the expectation that the tax given up for this particular investment is not taxed by the other country.

In the case at bar, the state of source is the Philippines because the royalties are paid for the right to use property or rights, i.e. trademarks, patents and technology, located within the Philippines.[17] The United States is the state of residence since the taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state of residence and the state of source are both permitted to tax the royalties, with a restraint on the tax that may be collected by the state of source.[18] Furthermore, the method employed to give relief from double taxation is the allowance of a tax credit to citizens or residents of the United States (in an appropriate amountbased upon the taxes paid or accrued to the Philippines) against the United States tax, but such amount shall not exceed the limitations provided by United States law for the taxable year.

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, supra , 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 . Thus, if the rates of tax are lowered by the state of source, in this case, by the Philippines, there should be a concomitant commitment on the part of the state of residence to grant some form of tax relief, whether this be in the form of a tax credit or exemption. If the state of residence does not grant some form of tax relief to the investor, no benefit would redound to the Philippines .

The most favored nation clause is intended to establish the principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored nation. [26] The essence of the principle is to allow the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country of residence of such taxpayer is also a party provided that the subject matter of taxation, in this case royalty income, is the same as that in the tax treaty under which the taxpayer is liable. Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax Treaty, above-quoted, speaks of tax on royalties for the use of trademark, patent, and technology. The entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for royalties) would derogate from the design behind the most favored nation clause to grant equality of international treatment. The similarity in the circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment precisely to underscore the need for equality of treatment.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.

It bears stress that tax refunds are in the nature of tax exemptions. As such they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against

the person or entity claiming the exemption.[27] The burden of proof is upon him who claims the exemption in his favor. Private respondent is claiming for a refund of the alleged overpayment of tax on royalties; however, there is nothing on record to support a claim that the tax on royalties under the RP-US Tax Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.DEUTSCHE BANK AG MANILA BRANCH v CIR

Petitioner withheld and remitted to respondent on 21 October 2003 the amount of PHP 67,688,553.51, which represented the 15% branch profit remittance tax (BPRT) on its regular banking unit (RBU) net income remitted to Deutsche Bank Germany (DB Germany) for 2002 and prior taxable years. Believing that it made an overpayment of the BPRT, petitioner filed with the BIR Large Taxpayers Assessment and Investigation Division on 4 October 2005 an administrative claim for refund or issuance of its tax credit certificate in the total amount of PHP 22,562,851.17. On the same date, petitioner requested from the International Tax Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under the RP-Germany Tax Treaty.The claim of petitioner for a refund was denied on the ground that the application for a tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual remittance of its branch profits to DB Germany, or prior to its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax Treaty provision. The court a quo held that petitioner violated the fifteen (15) day period mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-2000.

Issue: WON the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax treaty.

Held:NO.Tax Treaty vs. RMO No. 1-2000Our Constitution provides for adherence to the general principles of international law as part of the law of the land.15 Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith.16 More importantly, treaties have the force and effect of law in this jurisdiction. Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions."A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken."20 Thus, laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement.Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony with the objectives of the contracting state to ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons or corporations.

Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief. The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000.

Prior Application vs. Claim for RefundThe underlying principle of prior application with the BIR becomes moot in refund cases, such as the present case, where the very basis of the claim is erroneous or there is excessive payment arising from non-availment of a tax treaty relief at the first instance. In this case, petitioner should not be faulted for not complying with RMO No. 1-2000 prior to the transaction. It could not have applied for a tax treaty relief within the period prescribed, or 15 days prior to the payment of its BPRT, precisely because it erroneously paid the BPRT not on the basis of the preferential tax rate under the RP-Germany Tax Treaty, but on the regular rate as prescribed by the NIRC. Hence, the prior application requirement becomes illogical. Therefore, the fact that petitioner invoked the provisions of the RP-Germany Tax Treaty when it requested for a confirmation from the ITAD before filing an administrative claim for a refund should be deemed substantial compliance with RMO No. 1-2000.

Petitioner is entitled to a refundThe amount of PHP 67,688,553.51 paid by petitioner represented the 15% BPRT on its RBU net income, due for remittance to DB Germany amounting to PHP 451,257,023.29 for 2002 and prior taxable years.23

Likewise, both the administrative and the judicial actions were filed within the two-year prescriptive period pursuant to Section 229 of the NIRC.24

Clearly, there is no reason to deprive petitioner of the benefit of a preferential tax rate of 10% BPRT in accordance with the RP-Germany Tax Treaty.Petitioner is liable to pay only the amount of PHP 45,125,702.34 on its RBU net income amounting to PHP 451,257,023.29 for 2002 and prior taxable years, applying the 10% BPRT. Thus, it is proper to grant petitioner a refund ofthe difference between the PHP 67,688,553.51 (15% BPRT) and PHP 45,125,702.34 (10% BPRT) or a total of PHP 22,562,851.17.

NURSERY CARE CORP. v ACEVEDO

The issue here concerns double taxation. The City of Manila assessed and collected taxes from the individual petitioners pursuant to Section 15 (Tax on Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the Revenue Code of Manila.3 At the same time, the City of Manila imposed additional taxes upon the petitioners pursuant to Section 21 ofthe Revenue Code of Manila.

Issue:WON THE ACT OF THE CITY TREASURER OF MANILA IN IMPOSING, ASSESSING AND COLLECTING THE ADDITIONAL BUSINESS TAX UNDER SECTION 21 OFORDINANCE NO. 7794, AS AMENDED BY ORDINANCE NO. 7807, ALSO KNOWN AS THE REVENUE CODE OF THE CITY OFMANILA, IS CONSTITUTIVE OF DOUBLE TAXATION

Held:YES: Collection of taxes pursuant to Section 21 of the Revenue Code of Manila constituted double taxation. The petitioners point out that although Section 21 of the Revenue Code of Manila was not itself unconstitutional or invalid, its enforcement against the petitioners constituted double taxation because the local business taxes under Section 15 and Section 17 of the Revenue Code of Manila were already being paid by them.The respondents counter, however, that double taxation did not occur from the imposition and collection of the tax pursuant to Section 21 of the Revenue Code of Manila;34 that the taxes imposed pursuant to Section 21 were in the concept of indirect taxes upon the consumers of the goods and services sold by a business establishment;35and that the petitioners did not exhaust their administrative remedies by first appealing to the Secretary of Justice to challenge the constitutionality or legality of the tax ordinance. On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc., the Court now holds that all the elements of double taxation concurred upon the Cityof Manila’s assessment on and collection from the petitioners of taxes for the first quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.Double taxation means taxingthe same property twice when it should be taxed only once; that is, "taxing the same person twice by the same jurisdictionfor the same thing." It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold goods and services in the course of trade or business based on a certain percentage of his gross sales or receipts in the preceding calendar year, while Section 15 and Section 17 likewise imposed the tax on a person who sold goods and services in the course of trade or business but only identified such person with particularity, namely, the wholesaler, distributor or dealer (Section 15), and the retailer (Section 17), all the taxes – being imposed on the privilege of

doing business in the City of Manila in order to make the taxpayers contribute to the city’s revenues – were imposed on the same subject matter and for the same purpose.Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within the same jurisdiction in the same taxing period (i.e., per calendar year).Thirdly, the taxes were all in the nature of local business taxes.CITY OF MANILA v. COCA-COLA BOTTLERS PHIL. INC.

Respondent had been paying the City of Manilalocal business tax only under Section 14 of Tax Ordinance No. 7794,[6] being expressly exempted from the business tax under Section 21 of the same tax ordinance. Petitioner City of Manila subsequently approved Tax Ordinance No. 7988,[7] amending certain sections of Tax Ordinance No. 7794, particularly: (1) Section 14, by increasing the tax rates applicable to certain establishments operating within the territorial jurisdiction of the City of Manila; and (2) Section 21, by deleting the proviso found therein, which stated that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof. Petitioner City of Manila approved only after a year, on 22 February 2001, another tax ordinance, Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and void in Coca-Cola Bottlers Philippines, Inc. v. City of Manila for the following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of the provisions of the Local Government Code (LGC) of 1991 and its implementing rules and regulations; and (2) Tax Ordinance No. 8011 could not cure the defects of Tax Ordinance No. 7988, which did not legally exist.However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No. 8011 null and void, petitioner City of Manila assessed respondent on the basis of Section 21 of Tax Ordinance No. 7794. Respondent filed a protest with petitioner Toledo on the ground that the said assessment amounted to double taxation, as respondent was taxed twice,i.e., under Sections 14 and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No. 8011.

Issue: WON THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794, AS

AMENDED] CONSTITUTES DOUBLE TAXATION.

Held:YES. Section 14 of Tax Ordinance No. 7794 imposes local business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce, pursuant to Section 143(a) of the LGC. On the other hand, the local business tax under Section 21 of Tax Ordinance No. 7794 is imposed upon persons selling goods and services in the course of trade or business, and those importing goods for business or otherwise, who, pursuant to Section 143(h) of the LGC, are subject to excise tax, value-added tax (VAT), or percentage tax under the National Internal Revenue Code (NIRC). Thus, there can be no double taxation when respondent is being taxed under both Sections 14 and 21 of Tax Ordinance No. 7794, for under the first, it is being taxed as a manufacturer; while under the second, it is being taxed as a person selling goods in the course of trade or business subject to excise, VAT, or percentage tax.

Contrary to the assertions of petitioners, the Coca-Cola case is indeed applicable to the instant case. The pivotal issue raised therein was whether Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void, which this Court resolved in the affirmative. Tax Ordinance No. 7988 was declared by the Secretary of the Department of Justice (DOJ) as null

and void and without legal effect due to the failure of herein petitioner City of Manila to satisfy the requirement under the law that said ordinance be published for three consecutive days. Petitioner City of Manila never appealed said declaration of the DOJ Secretary; thus, it attained finality after the lapse of the period for appeal of the same. The passage of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988, did not cure the defects of the latter, which, in any way, did not legally exist.

By virtue of the Coca-Cola case, Tax Ordinance No. 7988 and Tax Ordinance No. 8011

are null and void and without any legal effect. Therefore, respondent cannot be taxed and assessed under the amendatory laws--Tax Ordinance No. 7988 and Tax Ordinance No. 8011.

Petitioners insist that even with the declaration of nullity of Tax Ordinance No. 7988 and Tax Ordinance No. 8011, respondent could still be made liable for local business taxes under both Sections 14 and 21 of Tax Ordinance No. 7944 as they were originally read, without the amendment by the null and void tax ordinances.

With the pronouncement by this Court in theCoca-Cola case that Tax Ordinance No. 7988 and Tax Ordinance No. 8011 were null and void and without legal effect, then Section 21 of Tax Ordinance No. 7794, as it has been previously worded, with its exempting proviso, is back in effect

Double taxation means taxing the same property twice when it should be taxed only once; that is, taxing the same person twice by the same jurisdiction for the same thing. It is obnoxious when the taxpayer is taxed twice, when it should be but once. Otherwise described as direct duplicate taxation, the two taxes must be imposed on the same subject matter , for the same purpose , by the same taxing authority , within the same jurisdiction , during the same taxing period ; and the taxes must be of the same kind or character . Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business.

CIR v. . THE ESTATE OF BENIGNO P. TODA, JR.,

The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles Building.CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million. Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. For the sale of the property to RMI, Altonaga paid capital gains tax in the amount ofP10 million. CIC filed its corporate annual income tax return[7] for the year 1989, declaring, among other things, its gain from the sale of real property in the amount of P75,728.021The Bureau of Internal Revenue (BIR) sent an assessment notice[10] and demand letter to the CIC for deficiency income tax for the year 1989 in the amount of P79,099,999.22. The Estate thereafter filed a letter of protest. The Commissioner dismissed the protest, stating that a fraudulent scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain of P100 million, thus evading the higher corporate income tax rate of 35%; that the two transactions actually constituted a single sale of the property by CIC to RMI, and that Altonaga was neither the buyer of the property from CIC nor the seller of the same property to RMI. The additional gain of P100 million (the difference between the second simulated sale for P200 million and the first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as corporate income tax of CIC.

Issue: WON the RESPONDENT COMMITTED FRAUD WITH INTENT TO EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE CORPORATION. (Is this a case of tax evasion or tax avoidance?)

Held:YES. Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.[23]

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e.,the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or deliberate and not accidental; and (3) a course of action or failure of action which is unlawful.[24]

All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI,[25] and not from Altonaga. That P40 million was

debited by RMI and reflected in its trial balance [26] as other inv. Cibeles Bldg. Also, as of 31 July 1989, another P40 million was debited and reflected in RMIs trial balance as other inv. Cibeles Bldg. This would show that the real buyer of the properties was RMI, and not the intermediary Altonaga.Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax, and not the 35% corporate income tax. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.The intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion.

Issue: WON the period of assessment has prescribed.Held:

NO. In cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, the period within which to assess tax is 10 years from discovery of the fraud, falsification or omission, as the case may be.

It is true that in a query dated 24 August 1989, Altonaga, through his counsel, asked the Opinion of the BIR on the tax consequence of the two sale transactions. [36] Thus, the BIR was amply informed of the transactions even prior to the execution of the necessary documents to effect the transfer. Subsequently, the two sales were openly made with the execution of public documents and the declaration of taxes for 1989. However, these circumstances do not negate the existence of fraud. As earlier discussed those two transactions were tainted with fraud. And even assuming arguendo that there was no fraud, we find that the income tax return filed by CIC for the year 1989 was false. It did not reflect the true or actual amount gained from the sale of the Cibeles property. Obviously, such was done with intent to evade or reduce tax liability.

As stated above, the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been discovered only on 8 March 1991. [37] The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. Clearly, the issuance of the correct assessment for deficiency income tax was well within the prescriptive period.

Issue: WON respondent estate is liable for the deficiency income tax.Held:YES. A corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer.

Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:x x x SELLER undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987, 1988 and 1989.

When the late Toda undertook and agreed to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987, 1988, and 1989, he thereby voluntarily held himself personally liable therefor. Respondent estate cannot, therefore, deny liability for CICs deficiency income tax for the year 1989 by invoking the separate corporate personality of

CIC, since its obligation arose from Todas contractual undertaking, as contained in the Deed of Sale of Shares of Stock.

FRANCIA v IAC & FERNANDEZ

Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. A 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale.On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez. Francia filed a complaint to annul the auction sale.

Issue: WON PETITIONER'S OBLIGATION TO PAY FOR SUPPOSED TAX DELINQUENCY can be SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.

Held:NO. There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collectedBy legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished.A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required."... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property.Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale. No evidence was presented that the procedure outlined by law on sales of property for tax delinquency was followed. We agree

with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance with all the prescribed requisites for a tax sale.There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. This is actually an exception to the rule that administrative proceedings are presumed to be regular.DOMINGO v GARLITOS

It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte. In order to enforce the claims against the estate the fiscal presented a petition to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows:x x x Considering these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960)The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. (September 28, 1960)

Issue:WON the petition to set aside the above order must be denied.

Held:YES. A ground for denying the petition of the provincial fiscal is the fact that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Apparently, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, thus:ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation.Art. 1279. In order that compensation may be proper, it is necessary:(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;(3) That the two debts be due;

(4) That they be liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price.

DIAZ v Sec of FINANCE

Assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.

Issue:WON toll fees are taxable.

Held:YES.First, do tollway operators render services for a fee? Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators expense. Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads. When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private proprietary rights. Tollway operators are franchise. The word franchise broadly covers government grants of a special right to do an act or series of acts of public concernPetitioners contend that tollway operators cannot be considered franchise grantees under Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the franchise grantees it speaks of are those who hold legislative franchises. Franchises granted by some other government agency. The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by Congress itself.[15] The term franchise has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress.Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term sale of services under Section 108 of the Code. But, again, nothing in Section 108 supports this contention. The reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a public nature such as public utilities and the collection of tolls or charges for its use or service is a franchise.

Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount to taxing a tax. .Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and do not go to the general coffers of the government. Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures.[27] Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities,

therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.[28]

VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the sellers liability but merely the burden of the VAT.

Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax[30] and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code, [31] VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees.For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a users tax. VAT is assessed against the tollway operators gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways.Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway operations impractical and incapable of implementation. They cite the fact that, in order to claim input VAT, the name, address and tax identification number of the tollway user must be indicated in the VAT receipt or invoice. The manner by which the BIR intends to implement the VAT by rounding off the toll rate and putting any excess collection in an escrow account is also illegal, while the alternative of giving change to thousands of motorists in order to meet the exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not administratively feasible.

Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid except to the extent that specific constitutional or statutory limitations are impaired.[34] Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.

The Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT laws coverage when she sought to impose VAT on tollway operations. Section 108(A) of the Code clearly states that services of all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not among the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VAT-exempt transactions under Section 109 of the Code.If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken.

The grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress.

ABAYA v EBDANE

The crux of this case is about taxpayer’s suit. The assailed resolution recommended the award to private respondent China Road & Bridge Corporation of the contract for the implementation of civil works for Contract Package No. I (CP I).

Issue: WON petitioners have standing to file the instant petition as taxpayers.

Held:YES. Locus standi is "a right of appearance in a court of justice on a given question."38 More particularly, it is a party’s personal and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental act being challenged. Consequently, the Court, in a catena of cases,44 has invariably adopted a liberal stance on locus standi, including those cases involving taxpayers.The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or government- owned or controlled corporations allegedly in contravention of law.45 A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law.46 Significantly, a taxpayer need not be a party to the contract to challenge its validity.In the present case, the petitioners are suing as taxpayers. They have sufficiently demonstrated that, notwithstanding the fact that the CP I project is primarily financed from loans obtained by the government from the JBIC, nonetheless, taxpayers’ money would be or is being spent on the project considering that the Philippine Government is required to allocate a peso-counterpart therefor. The public respondents themselves admit that appropriations for these foreign-assisted projects in the GAA are composed of the loan proceeds and the peso-counterpart. The counterpart funds, the Solicitor General explains, refer to the component of the project cost to be financed from government-appropriated funds, as part of the government’s commitment in the implementation of the project.48 Hence, the petitioners correctly asserted their standing since a part of the funds being utilized in the implementation of the CP I project partakes of taxpayers’ money.

GONZALES v MARCOS

The issue centered on the validity of the creation in Executive Order No. 30 of a trust for the benefit of the Filipino people under the name and style of the Cultural Center of the Philippines entrusted with the task to construct a national theatre, a national music hall, an arts building and facilities, to awaken our people's consciousness in the nation's cultural heritage and to encourage its assistance in the preservation, promotion, enhancement and development thereof, with the Board of Trustees to be appointed by the President, the Center having as its estate the real and personal property vested in it as well as donations received, financial commitments that could thereafter be collected, and gifts that may be forthcoming in the future.2 It was likewise alleged that the Board of Trustees did accept donations from the private sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National Investment & Development Corporation as well as $3.5 million received from President Johnson of the United States in the concept of war damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. The Board of Trustees has as its Chairman the First Lady, Imelda Romualdez Marcos, who is named as the principal respondent

Issue: WON petitioner has locus standi as taxpayer.

Held:NO. Petitioner did not have the requisite personality to contest as a taxpayer the validity of the executive order in question, as the funds held by the Cultural Center came from donations and contributions, not one centavo being raised by taxation It is only to make clear that petitioner has not satisfied the elemental requisite for a taxpayer's suit.

LIWAYWAY-VINZONS-CHATO v. FORTUNE TOBACCO CORP

On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654), which took effect on July 3, 1993. Prior to its effectivity, cigarette brandsChampion, Hope, and More were considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on July 1, 1993, or two days before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying Champion, Hope, and More as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax. On July 2, 1993, at about 5:50 p.m., BIR Deputy Commissioner Victor A. Deoferio, Jr. sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On July 15, 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. Respondent filed before the RTC a complaint for damages against petitioner in her private capacity. Respondent contended that the latter should be held liable for damages under Article 32 of the Civil Code considering that the issuance of RMC 37-93 violated its constitutional right against deprivation of property without due process of law and the right to equal protection of the laws.

Issue: WON Liwayway, as a public officer, can be held liable.

Held:NO. It is a fundamental principle in the law of public officers that a duty owing to the public in general cannot give rise to a liability in favor of particular individuals.[1] The failure to perform a public duty can constitute an individual wrong only when a person can show that, in the public duty, a duty to himself as an individual is also involved, and that he has suffered a special and peculiar injury by reason of its improper performance or non-performance.[2]

Thus, the rule restated is that an individual cannot have a particular action against a public officer without a particular injury, or a particular right, which are the grounds upon which all actions are founded.[18]

Juxtaposed with Article 32[19] of the Civil Code, the principle may now translate into the rule that an individual can hold a public officer personally liable for damages on account of an act or omission that violates a constitutional right only if it results in a particular wrong or injury to the former.   In the instant case, what is involved is a public officer’s duty owing to the public in general . But it is a duty owed not to the respondent alone, but to the entire body politic who would be affected, directly or indirectly, by the administrative rule. Furthermore, as discussed above, to have a cause of action for damages against the petitioner, respondent must allege that it suffered a particular or special   injury on account of the non-performance by petitioner of the public duty. A careful reading of the complaint filed with the trial court reveals that no particular   injury is alleged to have been sustained by the respondent. In contrast, the facts of the case eloquently demonstrate that the petitioner took nothing from the respondent, as the latter did not pay a single centavo on the tax assessment levied by the former by virtue of RMC 37-93. The complaint in this case does not impute bad faith on the petitioner. Without any allegation of bad faith, the cause of action in the respondent’s complaint (specifically, paragraph 2.02 thereof) for damages under Article 32 of the Civil Code would be premised on the findings of this Court in Commissioner of Internal Revenue v. Court of Appeals (CIR v. CA),

[33] where we ruled that RMC No. 37-93, issued by petitioner in her capacity as Commissioner of Internal Revenue, had “fallen short of a valid and effective administrative issuance.”  But this does not mean that such lehislative action was unconstitutional.  Furthermore, in an action for damages under Article 32 of the Civil Code premised on violation of due process, it may be necessary to harmonize the Civil Code provision with subsequent legislative enactments, particularly those related to taxation and tax collection. Judicial notice may be taken of the provisions of the National Internal Revenue Code, as amended, and of the law creating the Court of Tax Appeals. Both statutes provide ample remedies to aggrieved taxpayers; remedies which, in fact, were availed of by the respondent—without even having to pay the assessment under protest— The availability of the remedies against the assailed administrative action, the opportunity to avail of the same, and actual recourse to these remedies, contradict the respondent’s claim of due process infringement. Because the respondent’s complaint does not impute negligence or bad faith to the petitioner, any money judgment by the trial court against her will have to be assumed by the Republic of the Philippines. As such, the complaint is in the nature of a suit against the State.[46]

Court ruled in favor of CIR. The civil case pending in the RTC was ordered dismissed.

BRITISH AMERICAN TOBACCO v SECRETARY of the DEPT. OF FINANCE & CIR

There was an old law (RA 8240) in which a 4tier scheme was laid down to determine the tax rate of cigarette packs depending on its net retail price. A survey of the net retail prices per pack of cigarettes was conducted as of October 1, 1996, the results of which were embodied in Annex "D" of the NIRC as the duly registered, existing or active brands of cigarettes. IN SHORT, NEW brands of cigarettes shall be taxed according to their CURRENT net retail price while existing or "OLD" brands shall be taxed based on their NET retail price as of October 1, 1996.

To implement RA 8240, the BIR issued Revenue Regulations No. 1-97,2 which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands, or those registered AFTER January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate survey to determine their current net retail price is conducted.

In June 2001, Lucky strike Filter, Lucky Strike lights and Lucky strike Menthol cigarettes were newly introduced by the plaintiff (British American Tobacco) and were taxed at P8.96 since its SRP was pegged at P9.90.

A revenue order (Revenue Regulations No 9-2003) was issued by the BIR which provides that there shall be a periodic review conducted once every 2 years to determine the current retail price of the taxable new brands. However, notwithstanding any increase in the current net retail price, the tax classification of such NEW brands shall remain in force UNTIL the same is altered or changed through the issuance of an appropriate Revenue Regulations.

Subsequently, Revenue Regulations No 22-2003 was issued to implement the revised tax classification of certain new brands introduced in the market AFTER January 1, 1997, based on the survey of their current net retail price. It was found out that the current retail price of

Lucky cigarette is P22. Respondent Commissioner of the BIR thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike’s average net retail price is above P10.00 per pack.

Thus, on September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati, a petition for injunction with prayer for the issuance of a temporary restraining on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution.

Court DENIED the application for TRO, holding that it has no authority to restrain the collection of tax.

Meanwhile, respondent Secretary of Finance filed a Motion to Dismiss, contending that the petition is premature for lack of an actual controversy or urgent necessity to justify judicial intervention.

In an Order dated March 4, 2004, the trial court DENIED the motion to dismiss and issued a writ of preliminary injunction to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. Respondents filed a Motion for Reconsideration and Supplemental Motion for Reconsideration. At the hearing on the said motions, petitioner and respondent Commissioner of Internal Revenue stipulated that the only issue in this case is the constitutionality of the assailed law, order, and regulations.

On May 12, 2004, the trial court rendered a decision upholding the constitutionality of Section 145 of the NIRC and the Revenue Regulations. The trial court also lifted the writ of preliminary injunction.

Petitioner brought the instant petition for review directly with this Court on a pure question of law.

While the petition was pending, RA 9334 (An Act Increasing The Excise Tax Rates Imposed on Alcohol And Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the NIRC of 1997, As Amended), took effect on January 1, 2005.

Under RA 9334, the excise tax due on petitioner’s products was increased to P25.00 per pack. Hence, petitioner filed a Motion to Admit Attached Supplement and a Supplement to the petition for review, assailing the constitutionality of RA 9334 insofar as it retained Annex "D" and praying for a downward classification of Lucky Strike products at the bracket taxable at P8.96 per pack.

Petitioner contended that the continued use of Annex "D" as the tax base of existing brands of cigarettes gives undue protection to said brands which are still taxed based on their price as of October 1996 notwithstanding that they are now sold at the same or even at a higher price than new brands like Lucky Strike. Thus, old brands of cigarettes such as Marlboro and Philip Morris which, like Lucky Strike, are sold at or more than P22.00 per pack, are taxed at the rate of P10.88 per pack, while Lucky Strike products are taxed at P26.06 per pack.

So, the other cigarette manufacturing company filed a motion for intervention. Court admitted them. Fortune Tobacco claims that the challenge to the validity of the BIR issuances should have been brought by petitioner before the Court of Tax Appeals (CTA) and not the RTC because it is the CTA which has exclusive appellate jurisdiction over decisions of the BIR in tax disputes.

Held:

The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282. Section 7 thereof states, in pertinent part:

Sec. 7. Jurisdiction. — The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; xxx.25

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does NOT include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts.

This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments . Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.

The petition for injunction filed by petitioner before the RTC is a DIRECT attack on the

constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing

rules and regulations. Petitioner, therefore, properly filed the subject case before the RTC.

2. We come now to the issue of whether petitioner is estopped from assailing the authority of the Commissioner of Internal Revenue. Fortune Tobacco raises this objection by pointing out that when petitioner requested the Commissioner for a ruling that its Lucky Strike Soft Pack cigarettes was a "new brand" rather than a variant of an existing brand, and thus subject to a lower specific tax rate, petitioner executed an undertaking to comply with the procedures under existing regulations for the assessment of deficiency internal revenue taxes.

We find that petitioner was not guilty of estoppel. When it made the undertaking to comply with all issuances of the BIR, which at that time it considered as valid, petitioner did not commit

any false misrepresentation or misleading act. Indeed, petitioner cannot be faulted for initially undertaking to comply with, and subjecting itself to the operation of Section 145(C), and only later on filing the subject case praying for the declaration of its unconstitutionality when the circumstances change and the law results in what it perceives to be unlawful discrimination. The mere fact that a law has been relied upon in the past and all that time has not been attacked as unconstitutional is not a ground for considering petitioner estopped from assailing its validity.

As can be seen, the law creates a four-tiered system which we may refer to as the low-priced,33medium-priced,34 high-priced,35 and premium-priced36 tax brackets. When a brand is introduced in the market, the current net retail price is determined through the aforequoted specified procedure. The current net retail price is then used to classify under which tax bracket the brand belongs in order to finally determine the corresponding excise tax rate on a per pack basis. The assailed feature of this law pertains to the mechanism where, after a brand is classified based on its current net retail price, the classification is frozen and only Congress can thereafter reclassify the same. From a practical point of view, Annex "D" is merely a by-product of the whole mechanism and philosophy of the assailed law. That is, the brands under Annex "D" were also classified based on their current net retail price, the only difference being that they were the first ones so classified since they were the only brands surveyed as of October 1, 1996, or prior to the effectivity of RA 8240 on January 1, 1997.37

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY v Sec of FINANCE & CIR

Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to own 498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing 49.89% of the latter's outstanding capital stock. In 2009, petitioner offered to sell its shareholdings in PhilamCare through competitive bidding. Thus, on September 24, 2009, petitioner's Class A shares were sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing exchange rate at the time of the sale, to STI Investments, Inc., who emerged as the highest bidder.

After the sale was completed Philamlife filed an application for a certificate authorizing

registration/tax clearance with the Bureau of Internal Revenue (BIR) to facilitate the transfer of

the shares. Months later, petitioner was informed that it needed to secure a BIR ruling in

connection with its application due to potential donor’s tax liability. In compliance, petitioner,

on January 4, 2012, requested a ruling to confirm that the sale was NOT subject to donor’s tax,

pointing out, in its request, the following: that the transaction cannot attract donor’s tax

liability since there was no donative intent and,ergo, no taxable donation; that the shares were

sold at their actual fair market value and at arm’s length; that as long as the transaction

conducted is at arm’s length––such that a bona fide business arrangement of the dealings is

done inthe ordinary course of business––a sale for less than an adequate consideration is not

subject to donor’s tax; and that donor’s tax does not apply to saleof shares sold in an open

bidding process.

On January 4, 2012, however, respondent CIR denied Philamlife’s request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of the shares thus sold was lower than their book value based on the financial statements of PhilamCare as of the end of 2008.6 As such, the Commisioner held, donor’s tax became imposable on the price difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC):SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift x x x.In view of the foregoing, the Commissioner ruled that the difference between the book value and the selling price in the sales transaction is taxable donation subject to a 30% donor’s tax under Section 99(B) of the NIRC.

Aggrieved, petitioner requested respondent Secretary of Finance to review BIR Ruling No. 015-12, but to no avail. For on November 26, 2012, respondent Secretary affirmed the Commissioner’s assailed ruling in its entirety.

Not contented with the adverse results, petitioner elevated the case to the CA via a petition for review under Rule 43. The CA issued the assailed Resolution dismissing the CA Petition. It ruled that it is the Court of Tax Appeals (CTA), pursuant to Sec. 7(a)(1) of RA 1125,11 which has jurisdiction over the issues raised. The outright dismissal is predicated on the postulate that BIR Ruling No. 015-12 was issued in the exercise of the Commissioner’s power to interpret the NIRC and other tax laws. Consequently, requesting for its review can be categorized as "other matters arising under the NIRC or other laws administered by the BIR," which is under the jurisdiction of the CTA, not the CA.

Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21, 2014

Resolution, maintained its earlier position. Hence, the instant recourse.

Issue:Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction

Held:

NO.

Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA.

As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides that the

Commissioner’s power to interpret the provisions of this Code and other tax laws is subject to

review by the Secretary of Finance. The issue that now arises is this––where does one seek

immediate recourse from the adverse ruling of the Secretary of Finance in its exercise of its

power of review under Sec. 4?

Admittedly, there is NO PROVISION IN LAW that expressly provides where exactly the ruling of

the Secretary of Finance under the adverted NIRC provision is appealable to. However, We find

that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law as it vests the

CTA, albeit impliedly, with jurisdiction over the CA petition as "other matters" arising under

the NIRC or other laws administered by the BIR.

Sec. 7. Jurisdiction.- The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,

refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other

matters arising under the National Internal Revenue or other laws administered by the Bureau

of Internal Revenue.

Even though the provision suggests that it only covers rulings of the Commissioner, We hold

that it is, nonetheless, sufficient enough to include appeals from the Secretary’s review under

Sec. 4 of the NIRC.

To remedy this situation, We imply from the purpose of RA 1125 and its amendatory laws that

the CTA is the proper forum with which to institute the appeal. This is not, and should not, in

any way, be taken as a derogation of the power of the Office of President but merely as

recognition that matters calling for technical knowledge should be handled by the agency or

quasi-judicial body with specialization over the controversy.

Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to

decide any and all tax disputes. Defining such special court’s jurisdiction, the Act necessarily

limited its authority to those matters enumerated therein.

The appellate power of the CTA includes certiorari.

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this

does not include cases where the constitutionality of a law or rule is challenged. Where what

is assailed is the validity or constitutionality of a law, or a RULE or REGULATION issued by the

administrative agency in the performance of its quasi legislative function, the REGULAR

COURTS have jurisdiction to pass upon the same. . Indeed, the Constitution vests the power

of judicial review or the power to declare a law, treaty, international or executive agreement,

presidential decree, order, instruction, ordinance, or regulation in the courts, including the

regional trial courts.

The respective teachings in British American Tobacco and Asia International Auctioneers, at

first blush, appear to bear no conflict––that when the validity or CONSTITUTIONALITY of an

administrative rule or regulation is assailed, the REGULAR COURTS have jurisdiction; and if

what is assailed are RULINGS or OPINIONS of the Commissioner on tax treatments,

jurisdiction over the controversy is lodged with the CTA. The problem with the above

postulates, however, is that they failed to take into consideration one crucial point––a taxpayer

can raise both issues simultaneously.

Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a taxable

donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and

RMC 25-11 is merely questioned incidentally since it was used by the CIR as bases for its

unfavourable opinion. Clearly, the Petition involves an issue on the TAXABILITY of the

transaction rather than a direct attack on the CONSTITUTIONALTY of Sec. 100, Sec.7 (c.2.2.) of

RR 06-08 and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under Sec. 7

of RA 9282.

In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled that the CTA

now has the power of certiorari in cases within its appellate jurisdiction. To elucidate:

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of

original jurisdiction which must be expressly conferred by the Constitution or by law and

cannot be implied from the mere existence of appellate jurisdiction.

While there is no express grant of such power, with respect to the CTA, Section 1, Article VIII

of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one

Supreme Court and in such LOWER COURTS as may be established by law and that judicial

power includes the duty of the courts of justice to settle actual controversies involving rights

which are legally demandable and enforceable, and to determine whether or not there has

been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any

branch or instrumentality of the Government.

It can be fairly interpreted that the power of the CTA includes that of determining whether or

not there has been grave abuse of discretion . It, thus, follows that the CTA, by constitutional

mandate, is vested with jurisdiction to issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it

must have the authority to issue, among others, a writ of certiorari. In transferring exclusive

jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law

intended to transfer also such power as is deemed necessary, if not indispensable, in aid of such

appellate jurisdiction.

Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not

only contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise

questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and RMC 25-11 DOES NOT divest the CTA of

its jurisdiction over the controversy, contrary to petitioner's arguments.

MANILA MEMORIAL PARK Case

Assailing the constitutionality of the tax deduction scheme prescribed under RA 9257 granting 20% discount to senior citizens

Issue: WON the 20% senior citizen discount is an exercise of police power.

Ruling:YES. The 20% discount is intended to improve the welfare of senior citizen. As to its nature and effects, the 20% discount is a regulation affecting the ability of private establishments to price their products and services relative to a special class of individuals, senior citizens, for which the Constitution affords preferential concern. In turn, the subject regulation affects the pricing, and, hence, the profitability of a private establishment. However, it does not purport to appropriate or burden specific properties, used in the operation or conduct of the business of private establishments, but merely regulates the pricing of goods and services relative to, and the amount of profits or income/gross sales that such private establishments may derive from, senior citizens.

Central Luzon Drug Corp: (only an obiter dictum)Central Luzon Drug Corporation describes the 20% discount as an exercise of the power of eminent domain. Accordingly, the tax credit benefit granted to these establishments can be deemed as their just compensation for private property taken by the State for public use. The discount privilege to which senior citizens are entitled is actually a benefit enjoyed by the general public to which these citizens belong. The discounts given would have entered the coffers and formed part of the gross sales of the private establishments, were it not for RA 7432. The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use. As a result of the 20% discount, respondent becomes entitled to a just compensation. Besides, the taxation power can also be used as an implement for the exercise of the power of eminent domain. Tax measures are but "enforced contributions exacted on pain of penal sanctions" and "clearly imposed for a public purpose."

Carlos Superdrug Corp:Carlos Superdrug Corporation describes the 20% discount and tax deduction scheme a valid exercise of the police power. The tax deduction scheme does not fully reimburse petitioners for the discount privilege accorded to senior citizens. It is an amount that is allowed by law to reduce the income prior to the application of the tax rate to compute the amount of tax which is due. Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed. As such, it would not meet the definition of just compensation which is real, substantial, full and ample.