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Table of Contents

PART I A. General Principles


Concept, Nature and Characteristics of Taxation and Taxes
Commissioner of Internal Revenue vs. Cebu Portland Cement Company 1 Commissioner of Internal Revenue vs. Algue 3 C.N. Hodges vs. Municipal Board of the City of Ililo 5

Classifications and Distinctions

Association of Customs Brokers, Inc. vs. Municipal Board 7 Esso Standard Eastern, Inc. vs. Commissioner of Internal Revenue 9 Progressive Development Corporation vs. Quezon City 11 PAL vs. Edu 13 Villegas vs. hiu Chiong Tsai Pao Ho 15 Compania General Tobacos de Filipinas vs. City of Manila 17 American Mail Lines vs. City of Basilan 19 Osmea vs. Orbos 20 Republic of the Philippines vs. Bacolod -Murcia Milling Co. 22 Victorias Milling Co., Inc. v. Municipality of Victorias 24 Lutz vs. Araneta 26 PCGG vs. Cojuangco 27

Limitations on the Power of Taxation

Pascual vs. Secretary of Public Works 28 Osmea vs. Orbos 29 Pepsi-Cola Bottling Company vs. Municipality of Tanauan 31 Social Security System vs. City of Bacolod 33 Sea-Land Services, Inc. vs. Court of Appeals 34 Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation 36 31st Infantry Post Exchange vs. Posadas 38 Commissioner of Internal Revenue vs. Marubeni Corporation 39 Reagan vs. Commissioner of Internal Revenue 41 Tiu vs. Court of Appeals 42 John Hay Peoples Alternative Coalition vs. BCDA 43 Coconut Oil Refines Association Inc. vs. BCDA 45 Province of Abra vs. Hernando 49 Tolentino vs. Secretary of Finance 51 Abakada Group Party List vs. Ermita 54 Misamis Oriental Association of Coco Traders, Inc. vs. Deparment of 58 Finance Secretary Commissioner of Internal Revenue vs. Court of Appeals 59 Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc. 61 Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan 63 Sison vs. Ancheta 65 Villegas vs. Hiu Chiong Tsai Pao Ho 66 Villanueva vs. City of Iloilo 68 Pepsi-Cola Bottling Co. of the Philippines Inc., vs. City of Butuan 70

Ormoc Sugar Company, Inc. vs. Treasurer of Ormoc City 72 Lutz vs. Araneta 73 Association of Customs Brokers, Inc. vs. Municipal Board 75 Eastern Theatrical Co., Inc. vs. Alfonso 77 Philippine Trust Company vs. Yatco 78 Churchill vs. Concepcion 80 Meralco vs. Province of Laguna 82 Province of Misamis Oriental vs. Cagayan Electric Power and Light 84 Company, Inc. Cagayan Electric Power & Light Co., Inc. vs. Commissioner of Internal 86 Revenue Lealda vs. Commissioner of Internal Revenue 88 Casanovas vs. Hord 90 American Bible Society vs. City of Manila 91 Abra Valley College vs. Aquino 92 Commissioner of Internal Revenue vs. Bishop of the Missionary District of 93 the Philippines Lladoc vs. Commissioner of Internal Revenue 94 Herrera vs. Quezon City Board of Assessment Appeals 96 Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte 98 Commissioner of Internal Revenue vs. Court of Appeals and YMCA 99 Lung Center of the Philippines vs. Quezon City 101

Situs of Taxation and Double Taxation

Republic Bank vs. Court of Tax Appeals 104 Proctor & Gamble Philippine Manufacturing Corp. vs Municipality of Jagna 106 Pepsi-Cola Bottling Company vs. Municipality of Tanauan 107 Villanueva vs. City of Iloilo 108 Victoria Milling Co., Inc. vs. Municipality of Victorias 112 Compania General De Tabacos de Filipinas vs. City of Manila 114 Province of Bulacan vs. Court of Appeals 116

Forms of Escape from Taxation

Delpher Trades Corp. vs. Intermediate Appellate Court 118 Heng Tong Textiles Co., Inc. vs. Commissioner of Internal Revenue 120 Commissioner of Internal Revenue vs. Toda 121

Exemption from Taxation

Davao Gulf Lumber Corp. vs. Commissioner of Internal Revenue 123 Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue 124 Commissioner of Internal Revenue vs. Court of Appeals and Ateneo de 126 Manila University Caltex Philippines, Inc. vs. Commission on Audit 128 Luzon Stevedoring Corp. vs. Court of Tax Appeals 131 National Development Company vs. Commissioner of Internal Revenue 133 Manila Electric Company vs. Vera 134 Maceda vs. Macaraig 135 Commissioner of Internal Revenue vs. Gotamco & Sons, Inc. 137 Commissioner of Internal Revenue vs. Court of Appeals and YMCA 138

Nitafan vs. Commissioner of Internal Revenue 139 Province of Abra vs. Hernando 140 Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation 141 31st Infantry Post Exchange vs. Posadas 143 PLDT vs. City of Davao 144 Sea-Land Services, Inc. vs. Court of Appeals 146 Meralco vs. Province of Laguna 147 Tiu vs. Court of Appeals 148 Mactan Cebu International Airport Authority vs. Marcos 150 Commissioner of Internal Revenue vs. Robertson 152 Basco vs. PAGCOR 154 Republic of the Philippines vs. Intermediate Appellate Court 156 Commissioner of Internal Revenue vs. Court of Appeals 158

Nature, Construction, Application and Sources of Tax Laws

Hilado vs. Commissioner of Internal Revenue 160 Misamis Oriental Association of Coco Traders, Inc. vs. Department of 161 Finance Secretary Commissioner of Internal Revenue vs. Court of Appeals 163 Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc. 165 ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals 166 Philippine Bank of Communication vs. Commissioner of Internal Revenue 168

Power to Tax Involves Power to Destroy

Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd. 170 Reyes vs. Almanzor 172 Commissioner of Internal Revenue vs. Algue 174

Set-off of Taxes

Philex Mining Corp. vs. Commissioner of Internal Revenue 176 Francia vs. Intermediate Appellate Court 178 Commissioner of Internal Revenue vs. Itogon-Suyoc Mines, Inc. 180 Domingo vs. Garlitos 182 Republic of the Philippines vs. Mambulao Lumber Company 183

Taxpayer Suit

Anti-Graft League of the Philippines vs. San Juan 185 Joya vs. Presidential Commission on Good Government 187 Lozada vs. COMELEC 189

B. Tax Laws and Regulations


CIR vs. S.C. Johnson 191

C. Tax Remedies
St. Stephens Association and St. Stephens Girls School vs. Collector of 193 Internal Revenue Advertising Associates vs. Court of Appeals and Commissioner of Internal 195 Revenue

Commissioner of Internal Revenue vs. Isabela Cultural Corporation 197 Surigao Electric Co. and Arturo Lumenian vs. Municipality of Surigao 199 Yabes vs. Flojo 201 Commissioner of Internal Revenue v. Algue 203 Commissioner of Internal Revenue v. Union Shipping Corporation and the 206 CTA Philippine Journalists, Inc v. Commissioner of Internal Revenue 208 CIR vs. Philippine Global Communications, Inc. 211 RCBC vs. CIR 213 Oceanic Wireless vs. CIR 214 Fishwealth v. Commissioner of Internal Revenue 216

Part II
Local Taxation
Lung Center of the Philippines vs. Quezon City 217 Philippine Rural Electric Cooperatives vs. The Secretary, DILG 220 City Assessor of Cebu City vs. Association of Benevola de Cebu 222 City Government of San Pablo vs. Hon. Bienvenido Reyes 224 First Philippine Industrial Corp. vs. Court of Appeals 225 Manila Electric Company vs. Province of Laguna 227 Philippine Basketball Association vs. Court of Appeals 229 MIAA vs. CA and the City of Paraaque 232 Province of Bulacan vs. Court of Appeals 235 Drilon vs. Lim 237

Real Property Taxation

Davao Sawmill Co. vs. Castillo 239 City of Baguio vs. Busuego 241 Reyes, et al. vs. Almanzar 243 Pecson vs. Court of Appeals 245 Mathay, Jr. v. Macalincag 247 Patalinghug v. Court of Appeals 249 Ty, et. al. vs. Trampe 251 Talento vs. Escalada 253 FELS Energy vs. Province of Batangas 255 Mactan Cebu International Airport Authority vs. Marcos 257 Sesbreo vs. Central Board of Assessment Appeals 259 Lopez vs. City of Manila 261 Cagayan Robina Sugar Miling Co. vs. Court of Appeals 265 Light Rail Transit Authority vs. Central Board of Assessment Appeals 267

Tariff and Custom Laws

Jao vs. Court of Appeals 269 Transglobe International vs. Court of Appeals 270 Acting Commissioner of Customs vs. Court of Appeals 271 Chevron vs. Commission of BOC 272

SUMMARY OF CASE DOCTRINES


PART I. A. GENERAL PRINCIPLES I. Concept, Nature and Characteristics of Taxation and Taxes 1. Commissioner of Internal Revenue v. Cebu Portland Cement Company and Court of Tax Appeals The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. 2. Commissioner of Internal Revenue v. Algue Inc., and CTA Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with the law, and any arbitrariness will negate the very reason for government itself. Without taxes, the government would be paralyzed for lack of the motive to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. 3. C. N. Hodges v The Municipal Board Of The City Of Iloilo, et al. An ordinance imposing a sales tax, which has an additional provision prohibiting the registration of the objects of the sale thereof, unless the tax impost has been paid, such additional prohibition is not be considered a tax, for the same is merely a coercive measure to make the enforcement of the contemplated sales tax more effective. Taxes are the lifeblood of the government. It is imperative that the power to impose them to be clothed with the implied authority to devise ways and means to accomplish their collection in the most effective manner. Without this implied power the end of government may falter or fail. II. Classification and Distinctions 4. Association of Customs Brokers Inc. and G. Manlapit v The Municipal Board, The City Trasurer, The City Assessor and the City Mayor of the City of Manila While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax.

The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their business, it will be construed as a license or occupation tax, even though it is graduated according to the property used in such business, or on the gross receipts of the business. 5. Esso Standard Eastern, Inc. (formerly, Standard-Vacuum Oil Company) v The Commissioner of Internal Revenue A margin fee is imposed by the State in the exercise of its police power and not the power of taxation. A margin fee is not a tax but an exaction designed to curb the excessive demands upon our international reserve. A tax is a levy for the purpose of providing revenue for government operations. 6. Progressive Development Corp. v. Quezon City If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. 7. Philippine Airlines, Inc. v. Edu If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. 8. Villegas vs. Hiu Chiong Tsai Pao Ho While it is true that the first part of Ordinance No. 6537, which requires that the alien to secure an employment permit, is regulatory in character, the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation. 9. Compania General de Tabacos de Filipinas v. City of Manila A license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues. Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation. 10. American Mail Lines v. City of Basilan The power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. Fees for purely regulatory purposes may only be of sufficient amount to include the expenses of issuing the license and the cost of the necessary inspection or police surveillance.

11. Osmea vs. Orbos Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA 12. Republic vs. Bacolod-Murcia Milling Co. The protection of a large industry constituting one of the great source of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. The levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist. 13. Victorias Milling Co., Inc. v. Municipality of Victorias The designation given by the municipal authorities does not decide whether the imposition is properly a license tax or a license fee. The determining factors are the purpose and effect of the imposition as may be apparent from the provisions of the ordinance. Thus, "when no police inspection, supervision, or regulation is provided, nor any standard set for the applicant to establish, or that he agrees to attain or maintain, but any and all persons engaged in the business designated, without qualification or hindrance, may come, and a license on payment of the stipulated sum will issue, to do business, subject to no prescribed rule of conduct and under no guardian eye, but according to the unrestrained judgment or fancy of the applicant and licensee, the presumption is strong that the power of taxation, and not the police power, is being exercised." 14. Lutz v. Araneta Analysis of the Act will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation. 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. 15. PCGG v. Cojuanco Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for all public needs. Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. The coconut levy funds fall squarely into these elements The coconut levy funds -- like the sugar levy and the oil stabilization funds, as well as the monies generated by the On-line Lottery System -- are funds exacted by the State. Being enforced contributions, they are prima facie public funds.

III. Limitations on the Power of Taxation 16. Pascual v. Secretary of Public Works and Communications The right of the legislature to appropriate funds is correlative with its right to tax, under the constitutional provision against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose as appropriation for state funds can be made for other than a public purpose. 17. John Osmea v. Oscar Orbos For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a standard limits of which are sufficiently determinate or determinable to which the delegate must conform. 18. Pepsi-Cola Bottling Company v. Municipality of Tanauan Double taxation, in general, is not forbidden by our fundamental law. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or municipality. 19. Social Security System v. City of Bacolod and Reynaldo When the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose. It is axiomatic that when public property is involved, exemption is the rule and taxation, the exception.. 20. Sea-Land Service, Inc. v. Court of Appeals Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. Any interpretation that would give it an expansive construction to encompass an exemption from taxation would be unwarranted. 21. Commissioner of Internal Revenue v. Mitsubishi Metal Corporation Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which onus petitioners have failed to discharge. 22. Thirty-First Infantry Post Exchange and First Lieutenant David L. Hardee v. Juan Posadas The sale of merchandise through the post exchanges to the individuals of the United States Army and Navy are not goods sold and delivered directly to the United States Army or Navy for the actual use or issue by the Army or Navy and are therefore, not exempt from the payment of the internal revenue tax imposed by the law.

23. Commissioner of Internal Revenue v. Marubeni Corporation A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. 24. William Reagan, Etc. v. Commissioner of Internal Revenue The Philippines being independent and sovereign, its authority may be exercised over its entire domain. There is no portion thereof that is beyond its power. Within its limits, its decrees are supreme, its commands paramount. Its laws govern therein, and everyone to whom it applies must submit to its terms. 25. Conrado L. Tiu vs. Court of Appeals The Constitution does not require absolute equality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the equal protection clause. 26. John Hay Peoples Alternative Coalition v. Bases Conversion Development Authority The nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. 27. Coconut Oil Refiners Association, Inc. vs. Hon Ruben Torres The mere fact that incentives and privileges are granted to certain enterprises to the exclusion of others does not render the issuance unconstitutional for espousing unfair competition. 28. The Province Of Abra vs. Honorable Harold M. Hernando It has been the constant and uniform holding that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be construed strictissimi juris. 29. Arturo M. Tolentino vs.The Secretary of Finance and The Commisioner of Internal Revenue The VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.

30. Abakada Guro Party List vs. The Honorable Executive Secretary Eduardo Ermita 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. This is a duty which cannot be evaded by the President. 31. MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. vs. DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. 32. COMMISSIONER OF INTERNAL REVENUE vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION In a legislative rule (as opposed to interpretative), due observance of the requirements of notice, of hearing, and of publication must be observed. 33. THE COMMISSIONER OF INTERNAL REVENUE vs. LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX APPEALS A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. Uniformity means that all property belonging to the same class shall be taxed alike. The Legislature has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed violative of the equal protection clause. 34. KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA vs. HON. BIENVENIDO TAN, as Commissioner of Internal Revenue 1) The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear and unequivocal terms. 2) It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. 3) To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication and not merely rely upon newspaper articles which are actually hearsay and have evidentiary value 4) The distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax .

35. ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue et al. Taxpayers may be classified into different categories. To repeat, it is enough that the classification must rest upon substantial distinctions that make real differences. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income. 36. Villegas v. Hiu Chiong Tsai Pao Ho Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. 37. Villanueva v. City of Iloilo A license tax may be levied upon a business or occupational though the land or property used in connection therewith is subject to property tax. The rule of equality and uniformity is not violated by the fact that tenement taxes are not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. 38. Pepsi-Cola Bottling Co. of the Philippines, Inc v. City of Butuan When the intention to limit the application of the ordinance to those merchandise brought into the City from outside thereof is apparent, the tax partakes the nature of an import duty, which is beyond defendant's authority to impose by express provision of law. 39. Ormoc Sugar Co. v. Treasurer of Ormoc CityOrmoc Sugar Co. v. Treasurer of Ormoc City The classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for the coverage of the tax. 40. Lutz v. Araneta If objectives 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 with the implement of the states police power. Inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.

41. Association of Customs Broker Inc. vs. The Municipal Board While the ordinance in question refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to. Also, the ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila nor one registered in another place but occasionally comes to Manila and uses its streets and public highways. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution. 42. Eastern Theatrical Co., Inc., et al. vs. Alfonso Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the theater companies cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The fact that somehow places of amusement are not taxed while others, like the ones herein, are taxed is no argument at all against the equality and uniformity of the tax imposition. 43. Churchill vs. Concepcion Uniformity in taxation means that all taxable articles or kinds of property, of the same class, shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and luxuries shall all be assessed at the same rate. The rule does not require taxes to be graded according to the value of the subject(s) upon which they are imposed, especially those levied as privilege or occupation taxes. 44. Philippine Trust Company vs. A.L. Yatco A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable. 45. Meralco vs. Province of Laguna Local Governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute. Presently, Under Article X of the 1987 Constitution, a general delegation of that power has been given in favor of the Local Government Units (LGU). 46. Province of Misamis Oriental v. Cagayan Electric Power and Light Company Inc. A special and local statute applicable to a particular case is not repealed by a later statute which is general in its terms, provisions and application even if the terms of the general act are broad enough to include the cases in the special law unless there is manifest intent to repeal or alter the special law.

47. Cagayan Electric Power & Light Co. Inc. v. CIR The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. 48. Lealda v. CIR It seems clear, therefore, that the intention of the legislature was to impose upon the grantee and his successors in interest, the obligation to pay the same franchise tax imposed upon other grantees or franchise holders at the time Act 2475 was enacted. 49. J. Casanovas vs. JNO S. Hord The concessions can be cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the laws under which they were granted. 50. American Bible Society vs. City of Manila A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is thepower to control or suppress its enjoyment. 51. Abra Valley College vs. Aquino Reasonable emphasis has always been made that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. 52. Commissioner of Internal Revenue vs. Bishop of the Missionary District of the Philippines The following requisites must concur in order that a taxpayer may claim exemption under the law:(1) the imported articles must have been donated; (2) the done must be duly incorporated or established international civic organization, religious or charitable society, or institution for civic religious or charitable purposes; and (3) the articles so imported must have been donated for the use of the organization, society or institution or for free distribution and not for barter, sale or hire. 53. Lladoc vs. Commissioner of Internal Revenue Imposition of the gift tax was valid, under Section 22(3) Article VI of the Constitution contemplates exemption only from payment of taxes assessed on such properties as Property taxes contra distinguished from Excise taxes The imposition of the gift tax on the property used for religious purpose is not a violation of the Constitution. A gift tax is not a property by way of gift inter vivos. 54. Herrera v. Quezon City Board of Assessment Appeals Where rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes of the institution, the mere fact that a profit has been made will not deprive the hospital of its benevolent character. The exemption in favor of property used exclusively for charitable or educational purposes is not limited to property actually indispensable therefor but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes.

55. Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte The exemption in favor of the convent in the payment of land tax refers to the home of the priest who presides over the church and who has to take care of himself in order to discharge his duties. The exemption includes not only the land actually occupied by the Church but also the adjacent ground destined to the ordinary incidental uses of man. 56. Commissioner of Internal Revenue v. Court of Appeals and YMCA Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives. A claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, it must expressly be granted in a statute stated in a language too clear to be mistaken. Verba legis non est recedendum where the law does not distinguish, neither should we. The bare allegation alone that one is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. 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. 57. Lung Center of the Philippines v. Quezon City 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. III. Situs of Taxation and Double Taxation 58. Republic Bank, Petitioner, Vs. Court Of Tax Appeals And The Commissioner Of Internal Revenue, Respondents It is clear from the statutes then in force that there was no double taxation involved -- one was a penalty and the other was a tax. At any rate, we have upheld the validity of double taxation. The payment of 1/10 of 1% is a penalty as the primary purpose involved is regulation, while the payment of 1% for the same violation is a tax for the generation of revenue which is the primary purpose in this instance. 59. Procter and Gamble Philippines Manufacturing Corp. vs. Municipality of Jagna For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. Double taxation has also been defined as taxing the same person twice by the same jurisdiction for the same thing. Surely, a tax on plaintiff's products is different from a tax on the privilege of storing copra in a bodega situated within the territorial boundary of defendant municipality. 60. PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. vs. MUNICIPALITY OF TANAUAN Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a municipality.

61. Villanueva, Et Al., v City of Iloilo In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax 62. Victorias Milling Co. v Municipality of Victoria For double taxation to exist, "the same property must be taxed twice, when it should be taxed but once." Double taxation has also been "defined as taxing the same person twice by the same jurisdiction for the same thing." 63. Compania General De Tabacos De Filipinas v City of Manila, Et Al Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation. 64. Province of Bulacan v Court of Appeals A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code. IV. Forms of Escape from Taxation 65. Delpher Trades Corporation v. IAC and Hydro Pipes Philippines By changing the nature of their ownership from unincorporated to incorporated form, petitioners were able to save on inheritance tax. 66. Heng Tong Textiles Co., Inc. v. CIR An attempt to minimize one's tax does not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his liability by any means which the law permits. 67. CIR v. The Estate of Benigno Toda, Jr. 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. In cases of fraudulent returns, false returns with intent to evade tax, and failure to file a return, the period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may be. 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. V. Exemption from Taxation 68. Davao Gulf Lumber Corporation v. CIR Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.

69. Philippine Acetylene Inc. vs. Commissioner of Internal Revenue The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser. The purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. 70. Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals, and Ateneo de Manila University Private respondent is mandated by law to undertake research activities to maintain its university status and it occasionally accepts sponsorship for unfunded IPC research projects from international organizations, private foundations and governmental agencies. The funds received by private respondent are not given in the concept of a fee or price in exchange for the performance of a service or delivery of an object. Rather, the amounts are in the nature of an endowment or donation given by IPC's benefactors solely for the purpose of sponsoring or funding the research with no strings attached which are taxexempt. 71. Caltex Philippines, Inc. v. Commission on Audit, Commissioner Bartolome Fernandez and Commissioner Alberto Cruz Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent. 72. Luzon Stevedoring Corp. v. Court of Tax Appeals, Commissioner of Internal Revenue In order that the importations of tugboats may be declared exempt from the compensating tax, the following requirements must be complied with: (1) the engines and spare parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or oceangoing navigation. The amendatory provisions of R.A. 3176 limit tax exemption from the compensating tax to imported items to be used by the importer himself as operator of passenger and/or cargo vessel. 73. National Development Company v. Commissioner Of Internal Revenue Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any doubt concerning this question must be resolved in favor of the taxing power. 74. Manila Electric Company v. Misael P. Vera One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer. 75. Ernesto M. Maceda v. Hon. Catalino Macaraig, Jr., et al. The National Power Corporation under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity.

76. Commissioner Of Internal Revenue v. John Gotamco & Sons, Inc. and The Court of Tax Appeals Direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. 77. COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS Under Section 27 of the NIRC, 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 the income is used- whether for profit of for lofty non-profit purposes. On the other hand, Article VI, Section 28 of paragraph 3 of the Constitution, failed to prove by 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 actually, directly and exclusively for educational purposes. 78. DAVID G. NITAFAN vs. COMMISSIONER OF INTERNAL REVENUE The payment of income tax, which is applicable to all income earners, by Justices and Judges does not fall within the constitutional protection against decrease of their salaries during their continuance in office. 79. THE PROVINCE OF ABRA vs. HONORABLE HAROLD M. HERNANDO To be exempt under the Constitution, lands, buildings and improvements of religious and charitable institutions must not only be exclusively but also actually and directly used for religious and charitable purposes. 80. COMMISSIONER OF INTERNAL REVENUE vs. MITSUBISHI METAL CORPORATION Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The taxability of a party cannot be blandly glossed over on the basis of a supposed broad, pragmatic analysis alone without substantial supportive evidence. VI. Exemption from Taxation 81. 31st Infantry Post Exchange v. Posadas Whenever a state engages in a business which is of a private nature, that business is not withdrawn from the taxing power of the Nation, or, conversely stated, whenever the National Government permits an organization under its control to engage in a business which is of a private nature, that business is not withdrawn from the taxing power of the state. 82. PLDT v. City of Davao The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority 83. Sea Land Services, Inc. v. CA Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception.

84. MERALCO v. Province of Laguna Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. 85. Tiu vs. Court of Appeals The constitutional right to equal protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to businesses and residents within the secured area of the Subic Special Economic Zone and denying them to those who live within the Zone but outside such fenced-in territory. A classification based on valid and reasonable standards does not violate the equal protection clause. 86. Mactan Cebu International Airport vs. Marcos The law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. 87. Commissioner of Internal Revenue vs. Robertson Although the laws granting tax exemptions must be construed in strictissimi juris against the taxpayer, and that the burden of proof is with the person or entity given the exemption. The court, however, will not deem itself authorized to depart from the plain meaning of the tax exemption provision, so explicit in terms and so searching in extent. 88. Basco vs. PAGCOR The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. The power to tax which was called as the "power to destroy" cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 89. Republic of the Philippines v. Intermediate Appellate Court The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of expressly and clearly declares. 90. Commissioner of internal Revenue v. Court of Appeals A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate.

VII. NATURE, CONSTRUCTION, APPLICATION & SOURCES OF TAX LAWS 91. Hilado v. Collector of Internal Revenue It is a legal maxim, that excepting that of a political nature, Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty. It seems too clear for serious argument that an administrative officer cannot change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due. 92. Misamis Oriental of Coco Traders, inc. v. Department of Finance Secretary The Commissioner of Internal Revenue is not bound by the ruling of his predecessors. 7 To the contrary, the overruling of decisions is inherent in the interpretation of laws. 93. Commissioner of Internal Revenue v. Court of Appeals Well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. 94. CIR vs. Lingayen Gulf Electric Power Co., Inc. The power of the Legislature to alter, amend, or repeal any franchise is always deemed reserved. 95. ABS-CBN Broadcasting Corporation v. Court of Tax Appeals Rulings or circulars promulgated by the CIR have no retroactive application where to so apply them would be prejudicial to taxpayers. 96. Philippine Bank of Communications v. Commissioner of Internal Revenue Administrative issuances are merely interpretations and not expansions of the provisions of law, thus, in case of inconsistency, the law prevails over them. Administrative agencies have no legislative power. VIII. POWER TO TAX INVOLVES POWER TO DESTROY 97. Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd. 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. 98. Reyes vs. Almanzor The power to tax is not the power to destroy while the Supreme Court sits. 99. Commissioner of Internal Revenue vs. Algue Taxes are, indeed, the lifeblood of the nation but the exercise of taxation must be done reasonably and through the prescribed procedure.

IX. SET-OFF OF TAXES 100. Philex Mining Corp. vs. Commissioner of Internal Revenue Taxes cannot be the subject for compensation for simple reason that the government and the tax payer are not mutual creditors and debtors of each other. 101. Francia v. Intermediate Appellate Court 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 collected. The collection of a tax cannot await the results of a lawsuit against the government. 102. Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. The National Internal Revenue Code provides that interest upon the amount determined as a deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner of Internal Revenue at the specified. It is made clear, however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not yet refunded, may be deducted from the tax to be paid. 103. Domingo v. Garlitos Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable 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, and both debts are extinguished to the concurrent amount. 104. Republic of the Philippines v. Mambulao Lumber Company Appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. With respect to the forest charges which the defendant Mambulao Lumber Company has paid to the government, they are in the coffers of the government as taxes collected, and the government does not owe anything, crystal clear that the Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because compensation refers to mutual debts. X. TAXPAYER SUIT 105. Anti-Graft League of the Philippines v. San Juan In order to constitute a taxpayers suit, two requisites must be met. First, public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed. Second, the petitioner is directly affected by the alleged ultra vires act. 106. Joya v. Presidential Commission on Good Governance Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the government. A taxpayer's suit can prosper only if the governmental acts being questioned involve disbursement of public funds upon the theory that the expenditure of public funds by an officer of the state for the purpose of administering an unconstitutional act constitutes a misapplication of such funds, which may be enjoined at the request of a taxpayer. 107. Lozada v. Commission on Elections A taxpayers suit may be allowed only when an act complained of, which may include a legislative enactment of statute, involves the illegal expenditure of public money.

B. TAX LAWS & REGULATIONS 108. Commissioner of Internal Revenue v. S.C. Johnson The essence of the principle of the most-favored nation clause is to allow the taxpayer in one state to avail 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 is the same as that in the tax treaty under which the taxpayer is liable. Tax refunds are in the nature of tax exemptions and they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify hi claim by the clearest grant of organic or statute law. C. TAX REMEDIES 109. St. Stephens Association and St. Stephens Girls School v. The Collector of Internal Revenue The period for appeal to the respondent court in this case must be computed from the time petitioners received the decision of the respondent Collector of Internal Revenue on the disputed assessment, and not from the time they received said assessment. 110. Advertising Associates, Inc. v. Court of Appeals and CIR The petition for review was filed on time. The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint. 111. Commissioner of Internal Revenue v. Isabela Cultural Corporation The Final Notice Before Seizure should be considered as a denial of respondents request for reconsideration of the disputed assessment. The Notice should be deemed as petitioner's last act, since failure to comply with it would lead to the distraint and levy of respondent's properties, as indicated therein. 112. Surigao Electric, Co., Inc. and Arturo Lumanlan v. Municipality of Surigao A municipal government or a municipal corporation such as the Municipality of Surigao is a government entity recognized, supported and utilized by the National Government as a part of its government machinery and functions; a municipal government actually functions as an extension of the national government and, therefore, it is an instrumentality of the latter; and by express provisions of Section 14(e) of Act 2677, an instrumentality of the national government is exempted from the jurisdiction of the PSC except with respect to the fixing of rates. This exemption is even clearer in Section 13(a). It would be to erode the term "government entities" of its meaning if we are to reverse the Public Service Commission and to hold that a municipality is to be considered outside its scope. 113. Yabes vs. Flojo Court of Tax Appeals has exclusive jurisdiction over complaints involving an assessment made by a Commissioner which has not yet become final and incontestable.

114. Commissioner of Internal Revenue v. Algue Deductions on gross income includes all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered. 115. Commissioner of Internal Revenue v. Union Shipping Corporation and the CTA If an individual or corporation is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the socalled withholding tax on income. 116. Philippine Journalists, Inc v. Commissioner of Internal Revenue The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected. 117. CIR v. Philippine Global Communications, Inc. The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR. 118. RCBC v Commissioner of Internal Revenue As provided under section 228, Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. 119. Ocean Wireless Network v. Commissioner of Internal Revenue In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioners request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. ; Moreover, the general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. 120. Fishwealth v. Commissioner of Internal Revenue If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

PART II. A. LOCAL TAXATION 121. Lung Center of the Philippines vs. Quezon City 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. 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. 122. Philippine Rural Electric Cooperatives vs. The Secretary, Department of Interior and Local Government The withdrawal by the Local Government Code under Sections 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligations of the borrower, the lender or the beneficiary under loan agreements as in fact, no taxation exemption is granted taxation exemption is granted therein. 123. City Assessor of Cebu City vs. Association of Benevola de Cebu The Chong Hua Hospital Medical Arts Center building should be classified as commercial and should not be imposed the commercial level of 35% as it is not operated primarily for profit but as an integral part of CHH. The CHHMAC, with operations being devoted for the benefit of the CHHs patients, should be accorded the 10% special assessment. 124. City Government of San Pablo vs. Hon. Bienvenido Reyes The franchise tax under the LGC is imposable despite any exemption enjoyed under special laws. Hence, in the absence of any provision of the Code to the contrary, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn. 125. First Philippine Industrial Corporation v. Court of Appeals A "common carrier" is exempted from business tax as provided for in Section 133 (j), of the Local Government Code. It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax." Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code. To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code. 126. Manila Electric Company vs. Province of Laguna Where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. 127. Philippine Basketball Asscoiation vs. Court of Appeals The government can never be in estoppel particularly in matters involving taxes. It is an established rule that erroneous application and enforcement of the law by public officers do not preclude subsequent correct application of the statute and the Government is never estopped by mistake or error on the part of its agents. 128. MIAA vs Court of Appeals and the City of Paraaque Real Properties owned by Republic of the Philippines are exempt from real estate tax. An instrumentality of the government is likewise exempt from local taxation.

129. Province of Bulacan vs. Court of Appeals The preemption on taxation refers to an instance wherein the National Government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field. 130. Drilon v. Lim Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure. Such is an act not of control but of mere supervision. B. REAL PROPERTY TAXATION 131. Davao Sawmill Co. v. Castillo It must further be pointed out that while not conclusive, the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the property the character determined by the parties. It is machinery which is involved; moreover, machinery not intended by the owner of any building or land for use in connection therewith, but intended by a lessee for use in a building erected on the land by the latter to be returned to the lessee on the expiration or abandonment of the lease. 132. City of Baguio v. Busuego While the GSIS may be exempt from real estate tax, the exemption does not cover property belonging to it "where the beneficial use thereof has been granted for consideration or otherwise to a taxable person." 133. Reyes, et al. v. Almanzor It is declared that the first Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes is that the property must be "appraised at its current and fair market value." By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with the market value of properties not so covered. The former has naturally a much lesser market value in view of the rental restrictions. 134. Pecson vs. Court of Appeals Notices of the sale of the public auction may be sent to the delinquent taxpayer, either (i) at the address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located or (ii) at his residence, if known to such treasurer or barrio captain. 135. Mathay, Jr. v. Macalincag Section 9 of P.D. 921 is specific and mandatory. The Schedule of Values that will serve as the basis for the appraisal and assessment for taxation purposes of real properties located within the Metropolitan Area shall be prepared jointly by the City Assessors of the Districts created under Section one hereof, with the City Assessor of Manila acting as Chairman.

136. Patalinghug vs. Court of Appeals A tax declaration is not conclusive of the nature of the property for zoning purposes. A property may have been declared by its owner as residential for real estate taxation purposes but it may well be within a commercial zone. A discrepancy may thus exist in the determination of the nature of property for real estate taxation purposes visa-vis the determination of a property for zoning purposes. 137. Ty, et. al. Vs. Trampe RA 7160 (LGC) and PD 921 are compatible laws and can be harmonized in order to achieve the objective that real estate tax should not unduly burden the taxpayer and at the same time encouraging local government units to consolidate or coordinate their efforts, services and resources. Thus new schedule of values and assessments within Metro Manila must be jointly agreed by the city, municipal assessors within the Assessment Districts. 138. Talento vs. Escalada Generally, even pending on appeal the LBAA, CBAA or the courts may not supend the collection of taxes, only a payment under protest may stay an impending levy, however, under certain conditions provided under the Rules of Procedure of the LBAA and the ammendments made by RA 9282, the collection of taxes may be suspended pending the resolution of an appeal. 139. FELS Energy vs. Province of Batangas First; should a taxpayer wish to question the assessment made by the city, provincial or municipal assessor, the proper recourse would be to appeal before the Local Board of Assessment Appeals within 60 days from receipt of assessment. Second; movable property such as barges may be considered real property subject to real property tax depending on the nature of their use. Lastly; taxation is the rule and excemption is the exception, thus strict construction against excemptions. 140. Mactan Cebu International Airport Authority vs. Marcos The Local Government Code's excemptions found in Sec. 133 of the LGC is the general provision for excemption but this is further refined by Sec. 232 and 234, the objective of which is to limit those who may enjoy the privilege of excemption and to increase those that can be taxed by the local government in order to maximize their income to attain fiscal autonomy. When there is doubt as to whether an entity is excempt or not, the rule is that the law shall be strictly interpreted against exemption. 141. Sesbreo v. Central Board of Assessment Appeals Petitioner failed to pay under protest the tax assessed against his property. This is a violation of Section 64 of Presidential Decree No. 464 20 which requires that, before a court may entertain any suit assailing the validity of a tax assessment, the taxpayer must first pay under protest the tax assessed against him. As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration. 21 The Court has held in several cases, however, that an appellate court has an inherent authority to review unassigned errors (1) which are closely related to an error properly raised, or (2) upon which the determination of the error properly assigned is dependent, or (3) where the Court finds that consideration of them is necessary in arriving at a just decision of the case.

142. Lopez v. City of Manila Should the taxpayers question the excessiveness of the amount of tax, he must first pay the amount due, in accordance with Section 252 of R.A. 7160. Then, he must request the annotation of the phrase "paid under protest" and accordingly appeal to the Board of Assessment Appeals by filing a petition under oath together with copies of the tax declarations and affidavits or documents to support his appeal. The reduced assessment levels multiplied by the schedule of fair market values of real properties, provided by Manila Ordinance No. 7894, resulted to decrease in taxes. To that extent, the ordinance is likewise, a social legislation intended to soften the impact of the tremendous increase in the value of the real properties subject to tax. The lower taxes will ease, in part, the economic predicament of the low and middle- income groups of taxpayers. 143. Cagayan Robina Sugar Milling Co. v. Court of Appeals Section 28 must be read in consonance with Section 3 (n)[8] of the said law, which defines "market value." Under the latter provision, the LBAA and CBAA were not precluded from adopting various approaches to value determination, including adopting the APT "floor bid price" for petitioner's properties. Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise. 144. Light Rail Transit Authority v. Central Board of Assessment Appeals The Light Rail Transit Authority and the Metro Transit Organization function as service-oriented business entities, which provide valuable transportation facilities to the paying public. In the absence, however, of any express grant of exemption in their favor, they are subject to the payment of real property taxes. C. TARIFF & CUSTOMS LAWS 145. Jao v. Court of Appeals The estate of an inhabitant of the Philippines shall be settled or letters of administration granted in the proper court located in the province where the decedent resides at the time of his death. 146. Transglobe International v. Court of Appeals Forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner. It is in the nature of a proceeding in rem, i.e., directed against the res or imported articles and entails a determination of the legality of their importation. The fraud contemplated by law must be actual and not constructive. It must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up same right. 147. Acting Commissioner of Customs v. Court of Appeals In all proceedings taken for the seizure and/or forfeiture of any vehicle, vessel, aircraft, beast or articles under the provisions of the tariff and customs laws, the burden of proof shall lie upon the claimant: Provided, That probable cause shall be first shown for the institution of such proceedings and that seizure and/or forfeiture was made under the circumstances and in the manner described in the preceding sections of this Code

148. Chevron v. Commissioner of Bureau of Customs Under the relevant provisions of the TCC (Sec 205, 1301, 1802), both the IED and IEIRD should be filed within 30 days from the date of discharge of the last package from the vessel or aircraft. When the importer fails to file the entry within the said period, he "shall be deemed to have renounced all his interests and property rights" to the importations and these shall be considered impliedly abandoned in favor of the government.

Part I: General Principles

Concept, Nature and Characteristics of Taxation and Taxes

Commissioner of Internal Revenue v. Cebu Portland Cement Company and Court of Tax Appeals
[G.R. No. L-29059. December 15, 1987] Digest by: ALVIAR, Joyce B PONENTE: Cruz, J. FACTS: By virtue of a decision of the CTA rendered on June 21, 1961, as modified on appeal by the SC on February 27, 1965, the CIR was ordered to refund to the Cebu Portland Cement Co. the amount of P359,408.92, representing overpayments of ad valorem taxes on cement produced and sold by it after October1957. On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private respondent, the latter moved for writ of execution to enforce the said judgment. The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on the sales taxes in the amount of P4,789,278.85 plus 28% surcharge. On April 22, 1968, CTA granted the motion, holding that the alleged sales tax liability of Cebu Portland was still being questioned and therefore could not be set-off against the refund. In his petition to review the said resolution, the CIR claims that the refund should be charged against the deficiency of the private respondent on the sales of cement under Sec. 186 of the Tax Code, which is a manufactured and not a mineral product and therefore not exempt from sales tax. The petitioner also denies that the sale tax assessments have already prescribed because the prescriptive period should be counted from the filing of the sales tax returns, which had not yet been done by the private respondent. Cebu Portland questioned the assessed tax based also on Article 186 of the Tax Code, and on jurisprudence contending that cement was adjudged a mineral and not a manufactured product; and thusly they were not liable for their alleged tax deficiency. Thereby, petitioner filed this petition for review. ISSUE: Whether or not assessment of taxes can be enforced (set-off against the deficiency sales tax of Cebu Portland) even if there is a case contesting it. HELD: The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as the lifeblood of

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the government. If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. That is the reason why, save for the exception in RA 1125 , the Tax Code provides that injunction is not available to restrain collection of tax. Thereby, we hold that the respondent Court of Tax Appeals erred in its order. The Tax Code provides: Sec. 291. Injunction not available to restrain collection of tax. No court shall have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code. To require the CIR to actually refund to the Cebu Portland the amount of the judgment debt, which he will later have the right to distrain for payment of its sales tax liability is in our view an Idle ritual.

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Commissioner of Internal Revenue v. Algue Inc., and CTA


[G.R. No. L-28896. February 17, 1988] Digest by: ALVIAR, Joyce B PONENTE: Cruz, J. FACTS: Algue, Inc., is a domestic corporation engaged in engineering, construction and other allied activities. Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. A sale transpired for which Algue received as agent a commission of P126,000.00, and from this commission a P75,000 promotional fees were paid to certain individuals (Guevara, et. al. organizers of the VOICP). The payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon, there was no distribution if dividends involved. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for years 1958 and 1959. Algue filed a protest or request for reconsideration which was not acted upon by the Bureau of Internal Revenue. The counsel of Algue had to accept the warrant of distraint and levy. Algue filed a petition for review with the Court of Tax Appeals. it claimed the 75,000 promotional fees are to be deductible from their tax which the CIR disallowed. ISSUE: Whether or not the Collector of Internal Revenue acted correctly in disallowing the P75,000 deduction claimed by Algue as a legitimate business expenses in its income tax returns. HELD: CIR is incorrect. The burden is on the taxpayer to prove the validity of the claimed deduction. In the present case however, we find that the onus has been discharged satisfactorily by Algue. Algue has proves that the payment of fees was necessary and reasonable in light of the effort of the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, to be sufficiently recompensed. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with the law, and any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparent conflicting interest of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good may be realized. It is said that taxes are what we pay for a civilized society. Without taxes, the government would be paralyzed for lack of the motive to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard earned income to the taxing authorities, every person who is able to must contribute his share in the

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running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. Otherwise, the taxpayer has a right to complain and the courts will then come to his succor. For all the power vested in the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has been in this case, that the law has not been observed.

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C. N. Hodges v The Municipal Board Of The City Of Iloilo, et al.


[G.R. No. L-29059. December 15, 1987] Digest by: ALVIAR, Joyce B PONENTE: Bautista Angelo, J. FACTS: In 1960, the Municipal Board of Iloilo City enacted Ordinance No. 33, pursuant to the provisions of Republic Act No. 2264, known as the Local Autonomy Act requiring the payment of sales tax of of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale involving said vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has been paid. It also expressly required that the payment of the municipal tax shall be a requirement for registration and transfer of ownership. C.N. Hodges (Hodges), engaged in buying and selling of second hand motor vehicles in the city, filed a petition for declaratory judgment with the Court of First Instance of Iloilo assailing the ordinance as invalid for being passed in excess of the authority conferred by law upon the Municipal Board. The CFI rendered a decision which upheld that portion in the Ordinance, imposing of sales tax of of 1% of the selling price, but considered invalid that portion prohibiting registration of the sale/transfer unless such tax has not been paid. ISSUE: 1. Whether or not the City of Iloilo is empowered to impose the tax. 2. Whether or not the condition prohibiting the registration of motor vehicles unless the tax impost has been paid is invalid. HELD: 1. Section 2 of Republic Act No. 2264, known as the Local Autonomy Act pursuant to which the ordinance in question was approved by the Municipal Board of the City of Iloilo, provides in part: SEC. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose

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taxes on articles subject to specific tax, except gasoline, under the provisions of the national internal revenue code: ............ Hence, The City of Iloilo is empowered (a) to impose Municipal licenses, taxes or fees upon any person engaged in any occupation or business, or exercising any privilege in the City; (b) to regulate and impose reasonable fees for services rendered or conducted within the City, and (c) to levy for public purposes just and uniform taxes, licenses, or fees. It would also appear that municipalities and municipal districts are prohibited from imposing any percentage tax on sales or other taxes in any form on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code. The tax in question is in the form of percentage tax on the proceeds of the sale of a motor vehicle. The prohibition against such tax as mentiones, refer only to municipalities and municipal districts and does not comprehend chartered cities like the City of Iloilo. 2. CFI undoubtedly had in mind the provisions of Section 2(h) of Republic Act No. 2264 which prohibits a chartered city from imposing a tax on the registration of motor vehicles and the issuance of all kinds of licenses or permits for the driving thereof, which is one of the exceptions constituting a restriction on the taxation power granted by said Act to a city, municipality or municipal district. But the requirement of the ordinance cannot be considered a tax, for the same is merely a coercive measure to make the enforcement of the contemplated sales tax more effective. Well-settled is the principle that taxes are imposed for the support of the government in return for the general advantage and protection which the government affords to taxpayers and their. Taxes are the lifeblood of the government. It is imperative that the power to impose them to be clothed with the implied authority to devise ways and means to accomplish their collection in the most effective manner. Without this implied power the end of government may falter or fail.

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Part I: General Principles

Classification and Distinctions

Association of Customs Brokers Inc. and G. Manlapit v The Municipal Board, The City Trasurer, The City Assessor and the City Mayor of the City of Manila
[G.R. No. L-28896. February 17, 1988] Digest by: ALVIAR, Joyce B PONENTE: Bautista Angelo, J. FACTS: The Municipal Board of Manila passed ordinance No. 3379 which imposes a property tax that is within the power of the City under its revised charter. The ordinance was passed by the Municipal Board under the authority conferred by section 18 of RA 409, which confers upon the municipal board the power to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding. The plaintiff, an association composed of all brokers and public service operators of Motor Vehicles in the City of Manila filed this petition for declaratory relief challenging the validity of the ordinance on the following grounds; that while it levies a so-called property tax, it is in reality a license fee which is beyond the power of the board to impose; that the said ordinance goes against the rule on uniformity of taxation; and, that the said imposition constitutes double taxation. ISSUE: 1. What is the Character of an ad valorem tax? 2. Whether or not the ordinance infringes on the uniformity of taxes as ordained by the Constitution. HELD: 1. As a rule an ad valorem tax is a property tax, and supported by some authorities, however it should not be taken in its absolute sense, if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise. The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their business, it will be construed as a license or occupation tax, even though it is graduated according to the property used in such business, or on the gross receipts of the business.

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2. YES, The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. The Motor Vehicle Law (Section 70[b]) provides that no fees may be exacted or demanded for the operation of any motor vehicle other than those therein provided , the only exception being that which refers to property tax which may be imposed by municipal corporations. While the ordinance refers to property tax and it is fixed ad valorem, it is merely levied on motor vehicles operating within the city of Manila with the main purpose of raising funds to be expanded exclusively for the repair, maintenance and improvement of streets and bridges in said city. Because of this, the ordinance in question merely imposes a license fee although under the cloak of being an ad valorem tax to circumvent the prohibition provided by the Motor Vehicle Law. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word operating used. The word operating is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary purposes, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

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Esso Standard Eastern, Inc. (formerly, Standard-Vacuum Oil Company) v The Commissioner of Internal Revenue
[G.R. No. L-29059. December 15, 1987] Digest by: ALVIAR, Joyce B. PONENTE: : Cruz, J. FACTS: The CTA denied ESSOs claims for refund of overpaid income taxes of P102,246.00 for 1959 and P434,234.93for 1960 in CTA Cases No. 1251 and 1558 respectively. In CTA Case No.1251, ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the respondent Commissioner of Internal Revenue on the ground that the expenses should be capitalized and might be written off as a loss only when a dry hole should result. ESSO then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells and claimed as ordinary and necessary expenses the margin fees paid to the Central Bank on profit remittances to its New York head office. In another CTA Case, the CIR assessed ESSO a deficiency income tax for the year 1960 arising from the disallowance of the margin fees paid by ESSO to the Central Bank on its profit remittances to its New York head office. ESSO settled the same by applying as tax credit its overpayment on its income tax in 1959 and paying under protest the remaining amount. The CIR denied the claims for refund of the overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. ESSO appealed to the CTA and sought the refund, contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense, which was also denied. ISSUE: Whether or not the margin fees were deductible from gross income as a tax or an ordinary and necessary business expense. HELD: The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. In citing two previous cases the Court held that a margin fee is not a tax but an exaction designed to curb the excessive demands upon our international reserve. In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, the Court stated: A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and encourage exports, and ultimately, curtail any excessive demand upon the international reserve in order to stabilize the currency. By its nature, the margin levy is part of the rate of exchange as fixed by the government. Moreover, it has been settled that a tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our countrys international reserves. In Chamber of Agriculture and Natural Resources of the Philippines v. Central Bank, The same idea was expressed, though in connection with a different levy: we do not

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find merit in the argument that the 20% retention of exporters foreign exchange constitutes an export tax. A tax is a levy for the purpose of providing revenue for government operations, while the proceeds of the 20% retention, are applied to strengthen the Central Banks international reserve. The margin fees are not ordinary and necessary business expenses. Esso contends that such remittance was an expenditure necessary and proper for the conduct of its corporate affairs. The Court citing a case, laid down the rules on the deductibility of business expenses, thus: the law allowing expenses as deduction from gross income for purposes of the income tax is Section 30(a) of the National Internal Revenue which allows a deduction of all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. An item of expenditure, in order to be deductible under this section of the statute, must fall squarely within its language. We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as a business expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. Ordinarily, an expense will be considered necessary where the expenditure is appropriate and helpful in the development of the taxpayers business. It is ordinary when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Assuming that the expenditure is ordinary and necessary in the operation of the taxpayers business, the answer to the question as to whether the expenditure is an allowable deduction as a business expense must be determined from the nature of the expenditure itself, depends on the extent and permanency of the work accomplished by the expenditure. The Court held that CTA was correct in saying that the margin fees are not expenses in connection with the production or earning of petitioners incomes in the Philippines. Since the margin fees in question were incurred for the remittance of funds to petitioners Head Office in New York, a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of petitioners business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of petitioners branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively. ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this as an ordinary and necessary expense paid or incurred in carrying on its own trade or business. PAGE

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Progressive Development Corp. v. Quezon City


[G.R. No. L-36081. April 24, 1989] Digest by: ARBAS, Andrei Christopher G. PONENTE: Feliciano, J. FACTS: On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969, otherwise known as the Market Code of Quezon City, which provided that privately owned and operated public markets shall submit monthly to the Treasurers Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder and shall pay 10% of the gross receipts from stall rentals to the City as supervision fee. Failure to submit said list and to pay the corresponding amount within the period prescribed shall subject the operator to the penalties provided in this Code including revocation of permit to operate. The Market Code was thereafter amended by Ordinance No. 9236 on 23 March 1972, which imposed a five percent (5 %) tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public market known as the Farmers Market & Shopping Center filed a Petition for Prohibition with Preliminary Injunction against respondent before the then Court of First Instance of Rizal on the ground that the supervision fee or license tax imposed by the above-mentioned ordinances is in reality a tax on income which respondent may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended. In its Answer, respondent contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income but one imposed for the enjoyment of the privilege to engage in a particular trade or business which was within the power of respondent to impose. On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect. Having failed to obtain reconsideration of said decision, petitioner came to us on the present Petition for Review. ISSUE: Whether or not the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax. HELD: NO. The tax imposed by respondent is a license fee. The term tax frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while PAGE

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the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. The Farmers Market and Shopping Center being a public market in the sense of a market open to and inviting the patronage of the general public, even though privately owned, petitioners operation thereof required a license issued by the respondent City, the issuance of which, applying the standards set forth above, was done principally in the exercise of the respondents police power. The operation of a privately owned market is as equivalent to or quite the same as the operation of a government-owned market; both are established for the rendition of service to the general public, which warrants close supervision and control by the respondent City for the protection of the health of the public. The Supreme Court held that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the petitioner is engaged. PAGE

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Philippine Airlines, Inc. v. Edu


[G.R. No. L-41383. August 15, 1988] Digest by: ARBAS, Andrei Christopher G. PONENTE: Gutierrez, Jr., J. FACTS: The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor vehicle registration fees. Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees. LTO refused to register the PALs motor vehicles unless the amounts imposed under Republic Act 4136 were paid. Under protest, PAL paid the registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter to respondent LTO Commissioner Edu demanding a refund of the amounts paid invoking that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. Respondent denied the request for refund on the ground that motor vehicle registration fees are regulatory exceptional and not revenue measures and therefore, do not come within the exemption granted to PAL under its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal. Respondents filed a motion to dismiss alleging that the complaint states no cause of action because registration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the police power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle registration fees. The trial court rendered a decision dismissing the PALs complaint. From this judgment, PAL appealed to the Court of Appeals which certified the case to us. ISSUE: Whether or not motor vehicle registration fees partakes nature a kind of tax. HELD: YES. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. It is quite apparent that vehicle registration fees were originally simple exceptional PAGE

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intended only for rigidly purposes in the exercise of the States police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy. of registration payments as fees, their nature has become that of taxes. In view of the foregoing, the Supreme Court ruled that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues of government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program. PAGE

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Villegas vs. Hiu Chiong Tsai Pao Ho


[G.R. No. 29646. November 10, 1978] Digest by: ARBAS, Andrei Christopher G. PONENTE: Fernandez, J. FACTS: Ordinance No. 6537 was passed by the Municipal Board of Manila and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. The ordinance prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind. Violations of the ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction. On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court of First Instance of Manila, praying for the issuance of the writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void on the ground that it is discriminatory and violative of the rule of the uniformity in taxation. Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being principally a regulatory measure in nature. ISSUE: Whether or not the required employment permit is a form of tax. HELD: YES. The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employees fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation. PAGE

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The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive. PAGE

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Compania General de Tabacos de Filipinas v. City of Manila


[G.R. No. 16619. June 29, 1963] Digest by: ARBAS, Andrei Christopher G. PONENTE: Dizon J. FACTS: Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816. In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of 1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is not denied that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to the liquor sales aforesaid. Tabacalera filed an action for refund based on the theory that, in connection with its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it under the three ordinances mentioned heretofore is an overpayment made by mistake, and therefore refundable. The City, on the other hand, contends that, for the permit issued to it granting proper authority to conduct or engage in the sale of alcoholic beverages, or liquors Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816. The City of Manila contended that Tabaclera is not entitled to a refund. ISSUE: Whether or not both a license fee and a tax may be imposed on the same business or occupation. HELD: YES. The term tax applies, generally speaking, to all kinds of exactions which become public funds. The term is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured. PAGE

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The license fees imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to supervision or regulation by the state and by cities and municipalities authorized to act in the premises. On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such merchandise. Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation. PAGE

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American Mail Lines v. City of Basilan


[G.R. No. 12647. May 31, 1961] Digest by: ARBAS, Andrei Christopher G. PONENTE: Dizon J. FACTS: On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180, Series of 1955, stating that any foreign vessel engaged in coastwise trade which may anchor at any open bay, channel, or any loading point within the territorial waters of the City of Basilan for the purpose of loading or unloading logs or passengers and other cargoes shall pay an anchorage fee of P.005 per registered gross ton of the vessel for the first 24 hours provided that maximum charge shall not exceed P75.00 per day. As the city treasurer assessed and attempted to collect anchorage fees prescribed in the aforesaid amendatory ordinance, the company filed the present action for Declaratory Relief to have the courts determine its validity. Respondents argued that the ordinance in question was validly enacted in the exercise of the citys police power and that the fees imposed therein are for purely regulatory purposes. ISSUE: Whether or not the anchorage fees were for regulatory purposes. HELD: NO. The fees required are extended for revenue purposes. It has been held that the power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. Fees for purely regulatory purposes may only be of sufficient amount to include the expenses of issuing the license and the cost of the necessary inspection or police surveillance, taking into account not only the expense of direct regulation but also incidental expenses. The fees have no proper or reasonable relation to the cost of issuing the permits and the cost of inspection or surveillance. The fee imposed on foreign vessels, 1/2 centavo per registered gross ton for the first 24 hours and which shall not exceed P75.00 per day, exceeds even the harbor fee imposed by the National Government, which is only P50.00 for foreign vessels. Respondents contention that the questioned ordinance was enacted in the exercise of its power of taxation makes it obvious that the fees imposed are not merely regulatory. PAGE

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Osmea v. Orbos
[G.R. No. 99886. March 31, 1993] Digest by: AUMENTADO, Adrian F. PONENTE: Narvasa J. FACTS: On October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). It was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Later, the OPSF was reclassified into a trust liability account, by virtue of Executive Order (E.O.) 1024, and ordered released from the National Treasury to the Ministry of Energy. President Corazon C. Aquino, amending PD 1956, promulgated Executive Order No. 137, expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred due to the reduction of domestic prices of petroleum products, the amount of the under recovery being left for determination by the Ministry of Finance. Petitioner argues, among others, that the monies collected pursuant to P.D. 1956, as amended, must be treated as a SPECIAL FUND, not as a trust account or a trust fund, and that if a special tax is collected for a specific purpose, the revenue generated therefrom shall be treated as a special fund to be used only for the purpose indicated, and not channeled to another government objective. Further, that since a special fund consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created. The petitioner does not suggest that a trust account is illegal per se, but maintains that the monies collected, which form part of the OPSF, should be maintained in a special account of the general fund for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad valorem taxes and the increases thereon. ISSUE: What is the nature and character of the OPSF? HELD: While the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a trust liability account, the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a special fund. Indeed, the practice is not without precedent. PAGE

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Also of relevance is this Courts ruling in relation to the sugar stabilization fund the nature of which is not far different from the OPSF. In Gaston v. Republic Planters Bank, this Court upheld the legality of the sugar stabilization fees and explained their nature and character, viz.: The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148) ......... The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra). xxx xxx xxx The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market. The fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, administered in trust for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended. The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution, Article VI, Sec. 23(1). PAGE

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Republic v. Bacolod-Murcia Milling Co., Inc., et al


[G.R. No. L-19824. July 9, 1966] Digest by: AUMENTADO, Adrian F. PONENTE: Regala J. FACTS: The three sugar centrals are sister companies under single ownership and management. They were required to pay 10 centavos per picul of sugar collected for 5 crop years under Sec. 15 of RA 632. The sugar tax was levied to create Philsugin (Philippine Sugar Institute), to conduct research and development for sugar and sugar by-products for the benefit, development and improvement of the sugar industry. Philsugin acquired the Insular Sugar Refinery and lost a lot of money Appellants stopped paying the levy because they said that the purchase was unauthorized by RA 632. They maintained that their obligation to contribute or pay to the said Fund subsists only to the limit and extent that they are benefited by such contributions since Republic Act 632 is not a revenue measure but an Act which establishes a Special assessments. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was authorized, a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government. Consequently, once it has been determined that no benefit accrues or inures to the property owners paying the assessment, or that the proceeds from the said assessment are being misapplied to the prejudice of those against whom it has been levied, then the authority to insist on the payment of the said assessment ceases. ISSUE: Whether or not the appellants may refuse to continue paying the assessment under Republic Act 632? HELD: No. The nature of a special assessment similar to the case at bar has already been discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was unconstitutional because it was being levied for the aid and support of the sugar industry exclusively, and therefore, not for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said: PAGE

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The basic defect in the plaintiffs position in his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. We hold that the special assessment at bar may be considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist. PAGE

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Victorias Milling Co., Inc. v. Municipality of Victorias


[G.R. No. L-21183. September 27, 1968] Digest by: AUMENTADO, Adrian F. PONENTE: Sanchez J. FACTS: This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental. The disputed ordinance imposed license taxes on operators of sugar centrals and sugar refineries. Such changes were: with respect to sugar centrals, by increasing the rates of municipal license taxes; and as to sugar refineries, by increasing the rates of municipal license taxes as well as the range of graduated schedule of annual output capacity. The production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items. Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff contends that the ordinance is discriminatory since it singles out plaintiff, which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality. The trial court rendered its judgment declaring that the ordinance in question refers to license taxes or fees. Both plaintiff and defendant directly appealed to the Supreme Court. ISSUE: Was Ordinance No. 1, series of 1956, passed as a regulatory enactment or as a revenue measure? HELD: A municipality is authorized to impose three kinds of licenses: (1) license for regulation of useful occupations or enterprises; (2) license for restriction or regulation of non-useful occupations or enterprises; and (3) license for revenue. 12 The first two easily fall within the broad police power granted under the general welfare clause. 13 The third class, however, is for revenue purposes. It is not a license fee, properly speaking, and yet it is generally so termed. It rests on the taxing power. That taxing power must be expressly conferred by statute upon the municipality. Because of the purpose of solving the financial difficulty of the low rates imposed by the municipality which deprives the barrios, sitios and rural areas of the essential and necessary services and facilities, the present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. We should not hang so heavy a meaning on the use of the term municipal license tax. This does not necessarily connote the idea that the tax is imposed as the lower court would PAGE

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want it to mea na reve nue meas ure in the guise of a licen se tax. For reall y, this runs coun ter to the decla red purp ose to mak e mon ey. Besi des, the term lice nse tax has not acqu ired a fixed mea ning. It is often use d indis crimi natel y to desig nate impo sitio ns exact ed for the

exerc ise of vario us privil eges. It does not refer solel y to a licens e for regul ation. In many insta nces, it refer s to reve nueraisin g exact ions on privil eges or activi ties. On the other hand, licens e fees are com monl y calle d taxes. But, legall y spea king, the latter are for the purp ose of raisin g reven ues, in

contr ast to the form er whic h are impo sed in the exer cise of polic e pow er for purp oses of regul ation . We acco rdin gly say that the desig natio n give n by the muni cipal auth oriti es does not deci de whet her the impo sitio n is prop erly a licen se tax or a licen se fee. The deter

mini ng facto rs are the purp ose and effect of the impo sition as may be appa rent from the provi sions of the ordin ance. Thus, whe n no polic e inspe ction, super visio n, or regul ation is provi ded, nor any stand ard set for the appli cant to estab lish, or that he agree s to attai n or main tain, but any and all perso ns

enga ged in the busi ness desig nate d, with out quali ficati on or hind ranc e, may com e, and a licen se on pay ment of the stipu lated sum will issue , to do busi ness, subje ct to no pres cribe d rule of cond uct

and unde r no guar dian eye, but accor ding to the unres train ed judg ment or fancy of the appli cant and licens ee, the presu mpti on is stron g that the powe r of taxati on, and not the polic e powe r, is being exerc ised. PAGE

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Lutz v. Araneta
[G.R. No. L-7859. December 22, 1955] Digest by: AUMENTADO, Adrian F. PONENTE: Reyes J. FACTS: Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948- 1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiffs opinion is not a public purpose for which a tax may be constitutionally levied. ISSUE: Whether or not the imposition of the taxes are valid? HELD: Yes. The basic defect in the plaintiffs position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. The tax is levied with regulatory purpose; such is to provide means for the rehabilitation and stabilization of the sugar industry. The act is primarily an exercise of police power, and not a pure exercise of taxing power. As sugar production is one of the great industries of the Philippines, and that its promotion, protection and advancement redounds greatly to the general welfare. The legislature found that the general welfare demands that the industry should be stabilized, and provided that the distribution of benefits therefrom be readjusted among its component to enable it to resist the added strain of the increase in tax that it had to sustain. PAGE

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PCGG v. Cojuanco
[G.R. Nos. 147062-64. December 14, 2001] Digest by: AUMENTADO, Adrian F. PONENTE: Panganiban J. FACTS: The PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal. Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters Bank(UCPB) registered in the names of the alleged one million coconut farmers, the so-called Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr. On January 23, 1995, the trial court rendered its final Decision nullifying and setting aside the Resolution of the Sandiganbayan which lifted the sequestration of the subject UCPB shares. ISSUE: Are the Coconut Levy Funds raised through the States police and taxing powers? HELD: Yes. Coconut levy funds partake of the nature of taxes which, in general, are enforced proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for all public needs. Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State. Even if the money is allocated for a special purpose and raised by special means, it is still public in character. In the case before us, the funds were even used to organize and finance State offices. It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It is, therefore, the States concern to make it a strong and secure source not only of the livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the imperatives of economic stability. The coconut levy funds constitute state funds even though they may be held for a special public purpose. Such coconut levy funds -- like the sugar levy and the oil stabilization funds, as well as the monies generated by the On-line Lottery System -- are funds exacted by the State. Being enforced contributions, they are prima facie public funds. PAGE

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Part I: General Principles

Limitations on the Power of Taxation

Pascual v. Secretary of Public Works and Communications


[G.R. No. L-10405. December 29, 1960] Digest by: AVILA, Alyssa Daphne M. PONENTE: Concepcion, J. FACTS: Republic Act No. 920, the act appropriating funds for public works was enacted in 1953 containing an item for the construction, reconstruction and improvement of Pasig feeder road terminals which were not yet constructed within Antonio subdivision owned by Sen. Jose Zulueta. Zulueta donated said parcels of land to the government five months after the enactment of R.A. No. 920 on the condition that if the government violates such condition, the lands would revert to Zulueta. The provincial governor of Rizal questioned the validity of the donation and the unconstitutionality of the item in R.A. No. 920, it being for a public purpose. ISSUE: Whether or not the appropriation was made for a public purpose. HELD: No. The right of the legislature to appropriate funds is correlative with its right to tax, under the constitutional provision against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose as appropriation for state funds can be made for other than a public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage not upon events or acts performed subsequent thereto, unless the latter consist an amendment of the organic law, removing with retrospective operation the constitutional limitation infringed by said statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed belonged to Sen. Zulueta at the time of R.A. No. 920 was passed by Congress and the disbursement of said fund became effective pursuant to Sec.13 of the law, the result is that the appropriation sought a private purpose, hence, null and void. PAGE

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John Osmea v. Oscar Orbos


[G.R. No. 99886. March 31, 1993] Digest by: AVILA, Alyssa Daphne M. PONENTE: Narvasa, C.J. FACTS: Presidential Decree No. 1956 created a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF) which was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a trust liability account, in virtue of E.O. 1024 and ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also authorized the investment of the fund in government securities, with the earnings from such placements accruing to the fund. President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the under recovery being left for determination by the Ministry of Finance. The petition further avers that the creation of the trust fund violates Section 29(3), Article VI of the Constitution. The petitioner argues that the monies collected pursuant to P.D. 1956, as amended, must be treated as a SPECIAL FUND, not as a trust account or a trust fund, and that if a special tax is collected for a specific purpose, the revenue generated therefrom shall be treated as a special fund to be used only for the purpose indicated, and not channeled to another government objective.10 Petitioner further points out that since a special fund consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created. ISSUE: Whether or not there was undue delegation of legislative power. HELD: The Court finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates, Sec. 8(c) of P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund. What petitioner would wish is the fixing of some definite, quantitative restriction, or a specific limit on how much to tax. The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is PAGE

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to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State. For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a standard limits of which are sufficiently determinate or determinable to which the delegate must conform. The standard, as the Court has already stated, may even be implied. In that light, there can be no ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable standard which guides the exercise of the power granted to the ERB. By the same token, the proper exercise of the delegated power may be tested with ease. It seems obvious that what the law intended was to permit the additional imposts for as long as there exists a need to protect the general public and the petroleum industry from the adverse consequences of pump rate fluctuations. Where the standards set up for the guidance of an administrative officer and the action taken are in fact recorded in the orders of such officer, so that Congress, the courts and the public are assured that the orders in the judgment of such officer conform to the legislative standard, there is no failure in the performance of the legislative functions. PAGE

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Pepsi-Cola Bottling Company v. Municipality of Tanauan


[G.R. No. L-31156. February 27, 1976] Digest by: AVILA, Alyssa Daphne M. PONENTE: Martin, J. FACTS: Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264. Otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects from soft drinks producers and manufacturers a tai of one sixteenth (1/16) of a centavo for every bottle of soft drink corked. For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. For the purpose of computing the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. The tax imposed in both Ordinances Nos. 23 and 27 is denominated as municipal production tax. ISSUE: Whether or not ordinances No. 23 and 27 constitute double taxation. HELD: There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since we have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or municipality. Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the PAGE

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plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendantsappellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the former. PAGE

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Social Security System v. City of Bacolod and Reynaldo


[G.R. No. L-35726. July 21, 1982] Digest by: AVILA, Alyssa Daphne M. PONENTE: Escolin, J. FACTS: Petitioner is a government agency whose primary function is to develop, establish gradually and perfect a social security system which shall be equitable to the needs of the Philippines throughout the Philippines. For its failure to pay realty taxes, respondent city levied upon petitioners lands and building and later declared such properties forfeited in the citys favor. Petitioner argued that being a government-owned and controlled corporation, it is exempt from payment of real estate taxes. The trial court ruled that properties of petitioner are not exempt since there is no law which exempts said entity from taxes and it also does not fall under the provisions of Section 29 of the Charter of the City of Bacolod which exempt from taxation lands and buildings owned by the government and those used exclusively for religious, charitable, scientific, or educational purposes and not for profit. The court a quo restricted the scope of the exemption exclusively to those government agencies, entities and instrumentalities exercising governmental or sovereign functions. It relied on a previous ruling that a government agency performing ministrant functions is not included in the term Government of the Republic of the Philippines || for purposes of exemption from the legal fees provided for in Rule 130 of the Rules of Court. ISSUE: Whether the properties of the Social Security System is exempted from payment of real estate taxes. HELD: Yes. There can be no question that a government owned or controlled corporation is subject to payment of the legal fees provided for in Rule 130 of the Rules of Court. However, the subject of inquiry in the case at bar is not whether a government corporation exercising ministrant or proprietary function, such as petitioner SSS, is exempt from the payment of legal fees, but whether the properties in question, which are concededly owned by the government, are exempt from realty taxes. Under Section 29 of the Charter of the City of Bacolod, they are so exempt. Said section does not contain any qualification whatsoever in providing for the exemption from real estate taxes of lands and buildings owned by the Commonwealth or Republic of Philippines. Hence, when the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose. What is decisive is that the properties possessed by the SSS, albeit devoted to private or proprietary purpose, are in fact owned by the government of the Philippines. As such they are exempt from realty taxes. It is axiomatic that when public property is involved, exemption is the rule and taxation, the exception. PAGE

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Sea-Land Service, Inc. v. Court of Appeals


[G.R. No. 122605. April 30, 2001] Digest by: AVILA, Alyssa Daphne M. PONENTE: Pardo, J. FACTS: Sea-Land is an American international shipping company licensed by the SEC to do business in the Philippines entered into a contract with the US Government to transport military household goods and effects of US military personnel assigned to the Subic Naval Base. From the aforesaid contract, Sea-Land derived an income for the taxable year 1984 amounting to P58,006,207.54. During the taxable year in question, Sea-Land filed with the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Return (ITR) and paid the income tax due thereon of 1.5% as required in Section 25 (a) (2) of the National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty, amounting to P870,093.12. Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with the BIR on 15 April 1987. However, before the said claim for refund could be acted upon by the CIR, petitioner-appellant filed a petition for review with the CTA to judicially pursue its claim for refund and to stop the running of the two-year prescriptive period under the then Section 243 of the NIRC. CTA denied Sea-Land s claim for refund of the income tax it paid in 1984. Such decision was then affirmed by the Court of Appeals. ISSUE: Whether or not the income that petitioner derived from services in transporting the household goods and effects of U. S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RPUS Military Bases Agreement. HELD: No. The Supreme Court denied the petition of tax for the refund. The RP-US Military Bases Agreement provides: No national of the United States, or corporation organized under the laws of the United States, resident in the United States, shall be liable to pay income tax in the Philippines in respect of any profits derived under a contract made in the United States with the government of the United States in connection with the construction, maintenance, operation and defense of the bases, or any tax in the nature of a license in respect of any service or work for the United States in connection with the construction, maintenance, operation and defense of the bases. Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine Government agreed to exempt from payment of Philippine income tax nationals of the United States, or corporations organized under the laws of the United States, residents in the United States in respect of any profit derived under a contract made in the United States with the Government of the United States in connection with the construction, maintenance, operation and defense of the bases. It is obvious that the transport or shipment of household goods and effects of U. S. PAGE

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milit ary pers onne l is not inclu ded in the term con struc tion, main tena nce, oper ation and defe nse of the base s. Neit her coul d the perf orma nce of this servi ce to the U. S. gove rnm ent be inter prete d as direc tly relat ed to the defe nse and secu rity of the Phili ppin e territ ories . Whe n the

law spea ks in clear and categ orical langu age, there is no reaso n for inter preta tion or const ructi on, but only for appli catio n. Any inter preta tion that woul d give it an expa nsive const ructi on to enco mpas s petiti oner s exem ption from taxati on woul d be unwa rrant ed. Laws grant ing exem ption from tax are const rued

strict issim i juris agai nst the taxp ayer and liber ally in favor of the taxin g pow er. Taxa tion is the rule and exe mpti on is the exce ption . The law does not look with favor on tax exe mpti ons and that he who woul d seek to be thus privi lege d must justif y it by word s too plain to be mist

aken and too categ orical to be misin terpr eted. The avow ed purp ose of tax exem ption is some publi c benef it or inter est, whic h the lawm aking body consi ders suffic ient to offset the mone tary loss entail ed in the grant of the exem ption. The hauli ng or trans port of hous ehold good s and perso nal effect s of U. S. milit ary perso nnel

woul d not direc tly contr ibute to the defe nse

and secur ity of the Phili ppine s. PAGE

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Commissioner of Internal Revenue v. Mitsubishi Metal Corporation


[G.R. No. L-54908. January 22, 1990] Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Regalado, J. FACTS: On April 17, 1970, Atlas Consolidated Mining and Development Corporation (Atlas) entered into a Loan and Sales Contract with Mitsubishi Metal Corporation (Mitsubishi), a Japanese corporation licensed to engage in business in the Philippines, for projected expansion of the productive capacity of the formers mines in Toledo, Cebu. Under the contract, Mitsubishi agreed to extend a loan to Atlas in the amount of $20,000,000.00, United States currency, for the installation of a new concentrator for copper production. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates produced from said machine for a period of fifteen (15) years. In order to comply with its obligation, Mitsubishi applied for a loan with the Export-Import Bank of Japan [Eximbank] which was approved on May 26, 1970 in the sum of4,320,000,000.00, at about the same time as the approval of its loan for 2,880,000,000.00 from a consortium of Japanese banks. Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the latter totalling P13,143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in the amount of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the National Internal Revenue Code, as amended by Presidential Decree No. 131, and duly remitted to the Government. On March 5, 1976, private respondents filed a claim for tax credit requesting that the sum of P1,971,595.01 be applied against their existing and future tax liabilities. The petitioner not having acted on the claim for tax credit, private respondents filed a petition for review with respondent court. While said case was still pending before the tax court, the corresponding 15% tax on the amount of P439,167.95 on the P2,927,789.06 interest payments for the years 1977 and 1978 was withheld and remitted to the Government. Atlas again filed a claim for tax credit with the petitioner, repeating the same basis for exemption. Respondent Court in both cases ordered petitioner to grant a tax credit in favor of Atlas. ISSUE: Whether or not Mitsubishi is a mere conduit of Eximbank which will then be considered as the creditor whose investments in the Philippines on loans are exempt from taxes under the code HELD: No. The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the contract of loan and Atlas as the seller of the copper concentrates. MITSUBISHI secured such loans in its own independent capacity as a private entity and not PAGE

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as a cond uit of the cons ortiu m of Japa nese bank s or the EXIM BAN K of Japa n. Whil e the loans were secu red by MITS UBIS HI prim arily as a loan to and in consi derat ion for impo rting copp er conc entra tes from ATL AS, the fact rema ins that it was a loan by EXIM BAN K of Japa n to MITS UBIS HI

and not to ATLA S. Thus, the trans actio n betw een MITS UBIS HI and EXIM BAN K of Japan was a distin ct and separ ate contr act from that enter ed into by MITS UBIS HI and ATLA S. It is too settle da rule in this juris dictio n that laws grant ing exem ption from tax are const rued strict issim i juris again st the taxpa

yer and liber ally in favor of the taxin g pow er. Taxa tion is the rule and exe mpti on is the exce ption . The burd en of proo f rests upon the part y clai ming exe mpti on to prov e that it is in fact cove red by the exe mpti on so clai med, whic h onus

petiti oners have failed to disch arge. Signif icantl y, priva te respo nden ts are not even amon g the entiti es whic h, unde r Secti on 29 (b) (7) (A) of the tax code, are entitl ed to exem ption and whic h shoul d indis pens ably be the party in inter est in this case. PAGE

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Thirty-First Infantry Post Exchange and First Lieutenant David L. Hardee vs Juan Posadas, Jr., Collector of Internal Revenue
[G.R. No. 33403. September 4, 1930] Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Malcolm, J. FACTS: Thirty-first Infantry Post Exchange, is a post exchange constituted in accordance with the Army Regulations and the laws of the United States, with its place of business in the Cuartel de Espaa in the City of Manila, P. I. It is an agency within the United States Army, under the control of the officers of the Army which is designed for the accommodation, convenience, and assistance of the personnel of the Army. All of the goods sold to and purchased by the plaintiff Exchange are intended for resale to and are in fact resold, as they have been in the past, to the officers, soldiers and the civilian employees of the Army, and their families. The defendant and his predecessors in that office have collected from the merchants who made the sales of the commodities, goods, wares, and merchandise to the plaintiff Exchange, taxes at the rate of one and one-half per centum on the gross value in money of the commodities, goods, wares, and merchandise, sold by them to the plaintiff Exchange. petitioner to grant a tax credit in favor of Atlas. ISSUE: Whether or not a tax may be levied by the Government of the Philippine Islands on sales made by merchants to Post Exchanges of the United States Army in the Philippines HELD: The Court, citing the case of Walter E. Olsen vs Rafferty, ruled that the sale of merchandise through the post exchanges to the individuals of the United States Army and Navy are not goods sold and delivered directly to the United States Army or Navy for the actual use or issue by the Army or Navy and are therefore, not exempt from the payment of the internal revenue tax imposed by the law. Since no law of the Congress forbids the taxation of merchants who deal with Army Post Exchanges, and since the Congress has legalized the applicable law, and in doing so has granted no immunity from taxation to merchants who deal with Army Post Exchanges, the Congress has permitted such transactions with Army Post Exchanges, on the assumption that Post Exchanges are agencies of the United States, to be taxed by the Philippine Government. It must be understood, however, that the waiver must be clear, and that every well grounded doubt should be resolved in favor of the exemption. PAGE

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Commissioner of Internal Revenue v. Marubeni Corporation


[G.R. No. 33403. September 4, 1930] Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Puno, J. FACTS: Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan duly registered to engage in such business in the Philippines and maintains a branch office in Manila. Petitioner found respondent to have undeclared income from two (2) contracts in the Philippines in 1984. Respondent then received a letter from petitioner assessing it for several deficiency taxes including surcharges and interests. Respondent filed two (2) petitions for review with the Court of Tax Appeals, the first questioning the deficiency income, branch profit remittance and contractors tax assessments and the second questioning the deficiency commercial brokers assessment. On August 2, 1986, Executive Order (E.O.) No. 412 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. Taxpayers who wished to avail of said amnesty should file the necessary documents before October 31, 1986. In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986. On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64. In addition to the income tax amnesty granted by E.O. No. 41 for the years 1981 to 1985, E.O. No. 64 included estate and donors taxes under Title III and the tax on business under Chapter II, Title V of the National Internal Revenue Code, also covering the years 1981 to 1985. Under E.O. No. 64, those taxpayers who already filed their amnesty return under E.O. No. 41, as amended, could avail themselves of the benefits, immunities and privileges under the new E.O. by filing an amended return and paying an additional 5% on the increase in net worth to cover business, estate and donors tax liabilities. On December 15, 1986, respondent filed a supplemental tax amnesty return under the benefit of E.O. No. 64 and paid a further amount of P1,445,637.00 to the BIR equivalent to five percent (5%) of the increase of its net worth between 1981 and 1986. On July 29, 1996, the Court of Tax Appeals rendered a decision stating that respondent had properly availed of the tax amnesty under E.O. Nos. 41 and 64 and declared the deficiency taxes subject of said case as deemed cancelled and withdrawn. ISSUE: Whether or not respondent is covered by the tax amnesties HELD: Yes. Section 4 of E.O. No. 41 enumerates which taxpayers cannot avail of the amnesty granted thereunder, viz: Sec. 4. Exceptions. The following taxpayers may not avail themselves of the PAGE

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amnesty herein granted: a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14; b) Those with income tax cases already filed in Court as of the effectivity hereof; The point of reference is the date of effectivity of E.O. No. 41. E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109 questioning the 1985 deficiency income, branch profit remittance and contractors tax assessments was filed by respondent with the Court of Tax Appeals on September 26, 1986. When E.O. No. 41 became effective on August 22, 1986, CTA Case No. 4109 had not yet been filed in court. Respondent corporation did not fall under the said exception in Section 4 (b), hence, respondent was not disqualified from availing of the amnesty for income tax under E.O. No. 41. The difficulty lies with respect to the contractors tax assessment and respondents availment of the amnesty under E.O. No. 64. E.O. No. 64 expanded the coverage of E.O. No. 41 by including estate and donors taxes and tax on business. When E.O. No. 64 took effect on November 17, 1986, it did not provide for exceptions to the coverage of the amnesty for business, estate and donors taxes. By virtue of Section 8 of E.O. No. 64, the provisions of E.O. No. 41 not contrary to or inconsistent with the amendatory act were reenacted in E.O. No. 64. Thus, Section 4 of E.O. No. 41 on the exceptions to amnesty coverage also applied to E.O. No. 64. With respect to Section 4 (b) in particular, this provision excepts from tax amnesty coverage a taxpayer who has income tax cases already filed in court as of the effectivity hereof. In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot be construed to refer to E.O. No. 41 and its date of effectivity. The general rule is that an amendatory act operates prospectively. While an amendment is generally construed as becoming a part of the original act as if it had always been contained therein,10 it may not be given a retroactive effect unless it is so provided expressly or by necessary implication and no vested right or obligations of contract are thereby impaired.11 E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored nor presumed in law. If granted, the terms of the amnesty, like that of a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority. For the right of taxation is inherent in government. The State cannot strip itself of the most essential power of taxation by doubtful words. He who claims an exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic or state law. It cannot be allowed to exist upon a vague implication. If a doubt arises as to the intent of the legislature, that doubt must be resolved in favor of the state. PAGE

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William Reagan, Etc. v. Commissioner of Internal Revenue


[G.R. No. L-26379. December 27, 1969] Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Fernando, J. FACTS: Petitioner William C. Reagan, at one time a civilian employee of an American corporation providing technical assistance to the United States Air Force in the Philippines, disputes the payment of the income tax assessed on him by respondent Commissioner of Internal Revenue on an amount realized by him on a sale of his automobile to a member of the United States Marine Corps, the transaction having taken place at the Clark Field Air Base at Pampanga. He contends that in legal contemplation the sale was made outside Philippine territory and therefore beyond our jurisdictional power to tax. ISSUE: Whether or not the sale was in legal contemplation outside the Philippines and thus beyond our jurisdiction to tax HELD: No. Nothing is better settled than that the Philippines being independent and sovereign, its authority may be exercised over its entire domain. There is no portion thereof that is beyond its power. Within its limits, its decrees are supreme, its commands paramount. Its laws govern therein, and everyone to whom it applies must submit to its terms. That is the extent of its jurisdiction, both territorial and personal. Necessarily, likewise, it has to be exclusive. If it were not thus, there is a diminution of its sovereignty. The contention that Clark Air Force is foreign soil or territory for purposes of income tax legislation is clearly without support in law. There is nothing in the Military Bases Agreement that lends support to such an assertion. It has not become foreign soil or territory. This countrys jurisdictional rights therein, certainly not excluding the power to tax, have been preserved. PAGE

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Conrado L. Tiu v. Court of Appeals


[G.R. No. 127410. January 20, 1999] Digest by: BAUTISTA, Cecille Catherine A. PONENTE: Panganiban, J. FACTS: On March 13, 1992 RA 7227 entitled An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes was passed. Section 12 of said law created the Subic Special Economic Zone and granted thereto special privileges. On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO 97), clarifying the application of the tax and duty incentives and subsequently issued on June 19, 1993 Executive Order No. 97-A (EO 97-A), specifying that The Secured Area consisting of the presently fencedin former Subic Naval Base shall be the only completely tax and duty- free area in the SSEFPZ [Subic Special Economic and Free Port Zone]. Petitioners assailed the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. ISSUE: Whether or not Executive Order No. 97-A violates the equal protection clause of the Constitution [Specifically the issue is whether the provisions of Executive Order No. 97-A confining the application of R.A. 7227 within the secured area and excluding the residents of the zone outside of the secured area is discriminatory or not] HELD: The constitutional rights to equal protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to the bussiness and residents within the secured area of the Subic Special Econimic Zone and denying them to those who live within the Zone but outside such fenced-in territory. The Constitution does not require absolute equality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the equal protection clause. Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. PAGE

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John Hay Peoples Alternative Coaliton v. Bases Conversion Development Authority


[G.R. No. 127410. January 20, 1999] Digest by: BONAVENTE, Arianne PONENTE: Carpio-Morales FACTS: The Bases Conversion and Development Act of 1992 set out the policy of the government to accelerate the sound and balanced conversion into alternative productive uses of the former military bases under the 1947 Philippines-United States of America Military Bases Agreement, namely, the Clark and Subic military reservations as well as their extensions including the John Hay Station (Camp John Hay or the camp) in the City of Baguio. R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic SEZ) which granted the Subic SEZ incentives ranging from tax and duty-free importations, exemption of businesses therein from local and national taxes, to other hallmarks of a liberalized financial and business climate. It also expressly gave authority to the President to create through executive proclamation, subject to the concurrence of the local government units directly affected, other Special Economic Zones (SEZ) in the areas covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and Camp John Hay. BCDA entered into a Memorandum of Agreement and Escrow Agreement with private respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale Group, Inc. (ASIAWORLD) preparatory to the formation of a joint venture for the development of Poro Point in La Union and Camp John Hay as premier tourist destinations and recreation centers. They executed a Joint Venture Agreement whereby they bound themselves to put up a joint venture company known as the Baguio International Development and Management Corporation which would lease areas within Camp John Hay and Poro Point for the purpose of turning such places into principal tourist and recreation spots, as originally envisioned by the parties under their Memorandum of Agreement. On July 5, 1994 then President Ramos issued Proclamation No. 420, the title of which was earlier indicated, which established a SEZ on a portion of Camp John Hay and which reads as follows: Sec. 3. Investment Climate in John Hay Special Economic Zone. - Pursuant to Section 5(m) and Section 15 of Republic Act No. 7227, the John Hay Poro Point Development Corporation shall implement all necessary policies, rules, and regulations governing the zone, including investment incentives, in consultation with pertinent government departments. Among others, the zone shall have all the applicable incentives of the Special Economic Zone under Section 12 of Republic Act No. 7227 and those applicable incentives granted in the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and new investment laws that may hereinafter be enacted. PAGE

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Petitioners argue that nowhere in R. A. No. 7227 is there a grant of tax exemption to SEZs yet to be established in base areas, unlike the grant under Section 12 thereof of tax exemption and investment incentives to the therein established Subic SEZ. The grant of tax exemption to the John Hay SEZ, petitioners conclude, thus contravenes Article VI, Section 28 (4) of the Constitution which provides that No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress. Respondents contend that by extending to the John Hay SEZ economic incentives similar to those enjoyed by the Subic SEZ which was established under R.A. No. 7227, the proclamation is merely implementing the legislative intent of said law to turn the US military bases into hubs of business activity or investment. the laws. ISSUE: Whether Proclamation No. 420 is constitutional by providing for national and local tax exemption within and granting other economic incentives to the John Hay Special Economic Zone. HELD: No. It is clear that under Section 12 of R.A. No. 7227 it is only the Subic SEZ which was granted by Congress with tax exemption, investment incentives and the like. There is no express extension of the aforesaid benefits to other SEZs still to be created at the time via presidential proclamation. The deliberations of the Senate confirm the exclusivity to Subic SEZ of the tax and investment privileges accorded it under the law. Moreover the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress. In the same vein, the other kinds of privileges extended to the John Hay SEZ are by tradition and usage for Congress to legislate upon. Contrary to public respondents suggestions, the claimed statutory exemption of the John Hay SEZ from taxation should be manifest and unmistakable from the language of the law on which it is based; it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably expressed. If it were the intent of the legislature to grant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, it would have so expressly provided in the R.A. No. 7227. PAGE

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Coconut Oil Refiners Association, Inc. vs. Hon Ruben Torres


[G.R. No. 132527. July 29, 2005] Digest by:BONAVENTE, Arianne PONENTE: Azcuna, J. FACTS: On March 13, 1992, Republic Act No. 7227 was enacted, providing for, among other things, the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special economic zones in order to promote the economic and social development of Central Luzon in particular and the country in general. Among the salient provisions are as follows: SECTION 12. Subic Special Economic Zone. The abovementioned zone shall be subject to the following policies: (a) Within the framework and subject to the mandate and limitations of the Constitution and the pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed into a selfsustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments; (b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;[4] (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Ecoomic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olangapo and the Municipality of Subic, and other municipalities contiguous to the base areas. On April 3, 1993, President Fidel V. Ramos issued Executive Order No. 80, which declared, among others, that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. Pursuant to the directive under Executive Order No. 80, the BCDA passed Board PAGE

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Resolution No. 93-05-034 on May 18, 1993, allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. On June 10, 1993, the President issued Executive Order No. 97, Clarifying the Tax and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227. Said issuance in part states, thus: SECTION 1. On Import Taxes and Duties - Tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. Except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws. The exportation or removal of tax and duty-free goods from the territory of the SSEZ to other parts of the Philippine territory shall be subject to duties and taxes under relevant Philippine laws. On June 19, 1993, Executive Order No. 97-A was issued, Further Clarifying the Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone. The relevant provisions read, as follows: SECTION 1. The following guidelines shall govern the tax and duty-free privilege within the Secured Area of the Subic Special Economic and Free Port Zone: 1.1 The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free. Consumption items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes and duties, except as may be provided herein. 1.2. Residents of the SSEFPZ living outside the Secured Area can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, these residents can purchase and bring out of the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$100 per month per person. Only residents age 15 and over are entitled to this privilege. 1.3. Filipinos not residing within the SSEFPZ can enter the Secured Area and consume any quantity of consumption items in hotels and restaurants within the Secured Area. However, they can purchase and bring out [of] the Secured Area to other parts of the Philippine territory consumer items worth not exceeding US$200 per year per person. Only Filipinos age 15 and over are entitled to this privilege. Petitioners assail the $100 monthly and $200 yearly tax-free shopping privileges granted by the aforecited provisions respectively to SSEZ residents living outside the Secured Area of the SSEZ and to Filipinos aged 15 and over residing outside the SSEZ. PAGE

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ISSUE: Whether or not the assailed issuances are unconstitutional, illegal and void for being an exercise of executivelawmaking, contrary to RA No. 7227 and in violation of the Constitutional provisions, particularly the equal protectionclause, prohibition of unfair competition and combinations in restraint of trade, and preferential use of Filipino labor,domestic materials and locally produced goods? HELD: On the issue of executive legislation, petitioners contend that the wording of RA No. 7227 clearly limits the grant of tax incentives to the importation of raw materials, capital and equipment only. Hence, they claim that the assailed issuances constitute executive legislation for invalidly granting tax incentives in the importation of consumer goods such as those being sold in the duty-free shops, in violation of the letter and intent of RA No. 7227. The Court held that Section12 of RA No. 7227 clearly does not restrict the duty-free importation only to raw materials, capital and equipment. To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the free flow of goods or capital within, into, and out of the zones is insured. The phrase tax and duty-free importations of raw materials, capital and equipment was merely cited as an example of incentives that may be given to entities operating within the zone. Moreover, the records of the Senate containing the discussion of the concept of special economic zone in Section 12 (a)of Republic Act No. 7227 show the legislative intent that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance with Philippine laws. However, the second sentences of paragraphs 1.2 and 1.3 of EO No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section12 of RA No. 7227. Said Section clearly provides that exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines. On the other hand, insofar as the CSEZ is concerned, the case for an invalid exercise of executive legislation is tenable. While Section 12 of RA No. 7227 expressly provides for the grant of incentives to the SSEZ, it fails to make any similar grant in favor of other economic zones, including the CSEZ. Tax and duty- free incentives being in the nature of tax exemptions, the basis thereof should be categorically and unmistakably expressed from the language of the statute. Consequently, in the absence of any express grant of tax and duty-free privileges to the CSEZ in RA No. 7227, there would be no legal basis to uphold the questioned portions of two issuances: Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034, which both pertain to the CSEZ. On the issue on equal protection, it is an established principle of constitutional law that the guaranty of the equal protection of the laws is not violated by a legislation based on a reasonable classification. Classification, to be valid, must (1) rest on substantial distinction, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. In this case, the Court found that theres real and substantial distinction between residents within the secured area and those living within the economic zone but outside the fenced-off area. A significant distinction between the two PAGE

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groups is that enterprises outside the zones maintain their businesses within Philippine customs territory, while private respondents and the other duly-registered zone enterprises operate within the so-called separate customs territory. The classification is also germane to the purpose of RA No. 7227 because its purpose is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives to the establishments within the zone to attract and encourage foreign and local investors. The classification, moreover, is not limited to the existing conditions when the law was promulgated, but to future conditions as well, inasmuch as the law envisioned the former military reservation to ultimately develop into a selfsustaining investment center. And, lastly, the classification applies equally to all retailers found within the secured area. On the issue of unfair competition the Court held that the mere fact that incentives and privileges are granted to certain enterprises to the exclusion of others does not render the issuance unconstitutional for espousing unfair competition. Said constitutional prohibition cannot hinder the Legislature from using tax incentives as a tool to pursue RA No. 7227 policies of developing the SSEZ into a self-sustaining entity that will generate employment and attract foreign and local investment. Lastly, on the issue of preferential use of Filipino labor, materials and goods, the Court held that this Constitutional provision did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair Furthermore, Executive Department, with its subsequent issuance of Executive Order Nos. 444 and 303, has already provided certain measures to prevent that unfair competition. The petition is PARTLY GRANTED. Section 5 of Executive Order No. 80 and Section 4 of BCDA Board Resolution No. 93-05-034 are hereby declared NULL and VOID and are accordingly declared of no legal force and effect. All portions of Executive Order No. 97-A are valid and effective, except the second sentences in paragraphs 1.2 and 1.3of said Executive Order, which are hereby declared INVALID. PAGE

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The Province Of Abra vs. Honorable Harold M. Hernando


[G.R. No. L-49336. August 31, 1981] Digest by: BONAVENTE, Arianne PONENTE: Fernando, J.: FACTS: The Province of Abra sought to tax the properties of the Roman Catholic Bishop, Inc. of Bangued. Judge Hernando dismissed the petition of Abra without hearing its side. Hernando ruled that there is no question that the real properties sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of Bangued, Inc. Likewise, there is no dispute that the properties including their produce are actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or charitable purposes. The proper remedy of the petitioner is appeal and not this special civil action. ISSUE: Whether or not the properties of the church (in this case) is exempt from taxes. HELD: The petition must be granted. 1. Respondent Judge would not have erred so grievously had he merely compared the provisions of the present Constitution with that appearing in the 1935 Charter on the tax exemption of lands, buildings, and improvements. There is a marked difference. Under the 1935 Constitution: Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation. The present Constitution added charitable institutions, mosques, and non-profit cemeteries and required that for the exemption of :lands, buildings, and improvements, they should not only be exclusively but also actually and directly used for religious or charitable purposes. The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words actually as well as directly not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation. According to Commissioner of Internal Revenue v. Guerrero: From 1906, in Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and uniform holding that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an exempting provision should be construed strictissimi juris. In Manila Electric Company v. Vera, a 1975 decision, such principle was reiterated, reference being made to Republic Flour Mills, Inc. v. Commissioner of Internal Revenue; Commissioner of Customs v. Philippine Acetylene Co. & CTA; and Davao Light and Power Co., Inc. v. Commissioner of Customs. 2. Petitioner Province of Abra is therefore fully justified in invoking the protection of procedural due process. If there is any case where proof is necessary to demonstrate that PAGE

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there is compliance with the constitutional provision that allows an exemption, this is it. Instead, respondent Judge accepted at its face the allegation of private respondent. All that was alleged in the petition for declaratory relief filed by private respondents, after mentioning certain parcels of land owned by it, are that they are used actually, directly and exclusively as sources of support of the parish priest and his helpers and also of private respondent Bishop. In the motion to dismiss filed on behalf of petitioner Province of Abra, the objection was based primarily on the lack of jurisdiction, as the validity of a tax assessment may be questioned before the Local Board of Assessment Appeals and not with a court. There was also mention of a lack of a cause of action, but only because, in its view, declaratory relief is not proper, as there had been breach or violation of the right of government to assess and collect taxes on such property. It clearly appears, therefore, that in failing to accord a hearing to petitioner Province of Abra and deciding the case immediately in favor of private respondent, respondent Judge failed to abide by the constitutional command of procedural due process. The petition is granted and the resolution of June 19, 1978 is set aside. Respondent Judge, or who ever is acting on his behalf, is ordered to hear the case on the merit. PAGE

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Arturo M. Tolentino vs.The Secretary of Finance and The Commisioner of Internal Revenue
[G.R. No. 115455. October 30, 1995] Digest by: BONAVENTE, Arianne PONENTE: Mendoza, J.: FACTS: Tolentino et al is questioning the constitutionality of RA 7716 otherwise known as the Expanded Value Added Tax (EVAT) Law. Tolentino averred that this revenue bill did not exclusively originate from the House of Representatives as required by Section 24, Article 6 of the Constitution. Even though RA 7716 originated as HB 11197 and that it passed the 3 readings in the HoR, the same did not complete the 3 readings in Senate for after the 1st reading it was referred to the Senate Ways & Means Committee thereafter Senate passed its own version known as Senate Bill 1630. Tolentino averred that what Senate could have done is amend HB 11197 by striking out its text and substituting it w/ the text of SB 1630 in that way the bill remains a House Bill and the Senate version just becomes the text (only the text) of the HB. Tolentino and co-petitioner Roco [however] even signed the said Senate Bill. ISSUE: Whether or not EVAT originated in the HoR. HELD: The contention has no merit. The addition of the word exclusively in the Philippine Constitution and the decision to drop the phrase as on other Bills in the American version, according to petitioners, shows the intention of the framers of our Constitution to restrict the Senates power to propose amendments to revenue bills. Petitioner Tolentino contends that the word exclusively was inserted to modify originate and the words as in any other bills (sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a special kind. The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the procedure for lawmaking by the Senate and the House of Representatives. The work of proposing amendments to the Constitution was done by the National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the Assemblys lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly they proposed the following provision: All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall originate exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of disapproval by PAGE

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the Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be deemed enacted and may be submitted to the President for corresponding action. In the event that the Senate should fail to finally act on any such bills, the Assembly may, after thirty days from the opening of the next regular session of the same legislative term, reapprove the same with a vote of two-thirds of all the members of the Assembly. And upon such reapproval, the bill shall be deemed enacted and may be submitted to the President for corresponding action. This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution was derived. It explains why the word exclusively was added to the American text from which the framers of the Philippine Constitution borrowed and why the phrase as on other Bills was not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments must be understood to be full, plenary and complete as on other Bills. Thus, because revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by the House, however, the Senate certainly can pass its own version on the same subject matter. This follows from the coequality of the two chambers of Congress. The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovahs Witnesses, in connection with the latters sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon. A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise of its right to propagate. The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. It is claimed that the application of the tax to existing contracts of the sale of real property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the PAGE

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contract. 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. (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). 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. We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the conclusion that the law suffers from none of the infirmities attributed to it by petitioners and that its enactment by the other branches of the government does not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency must be addressed to Congress as the body which is electorally responsible, remembering that, as Justice Holmes has said, legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a degree as are the courts. (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators, that those who took part in passing the law in question by voting for it in Congress should later thrust to the courts the burden of reviewing measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise a veto power over legislation. PAGE

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Abakada Guro Party List vs. The Honorable Executive Secretary Eduardo Ermita
[G.R. No. 168056. September 1, 2005] Digest by: BONAVENTE, Arianne PONENTE: Austria-Martinez, J.: FACTS: Petitioners ABAKADA GURO Party List, et al. question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit: . . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution. Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the ground that it amounts to an undue delegation of legislative power, petitioners also contend that the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on fiscal adequacy. Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral Conference Committee is a violation of the no-amendment rule upon last reading of a bill laid down in Article VI, Section 26(2) of the Constitution. PAGE

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Thereafter, a petition for prohibition was filed by the Association of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337: 1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00); 2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against the output tax; and 3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108 (sale of services and use or lease of properties) of the NIRC. Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and confiscatory. According to petitioners, the contested sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process of law. Petitioners further contend that like any other property or property right, the input tax credit may be transferred or disposed of, and that by limiting the same, the government gets to tax a profit or value-added even if there is no profit or value-added. Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government, is not based on real and substantial differences to meet a valid classification. Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the petitioners make. Governor Enrique T. Garcia filed a petition for certiorari and prohibition, alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that tax collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution. The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. PAGE

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Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its validity. Relying on the case of Tolentino vs. Secretary of Finance, respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto, have already been settled. With regard to the issue of undue delegation of legislative power to the President, respondents contend that the law is complete and leaves no discretion to the President but to increase the rate to 12% once any of the two conditions provided therein arise. Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on the creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceeding P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation, among others. Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable macroeconomic environment necessary for economic growth. ISSUE: Whether or not the questioned provisions of R.A. No. 9337 are unconstitutional. HELD: Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by Congress of its exclusive power to tax because such delegation is not within the purview of Section 28 (2), Article VI of the Constitution, which provides: The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the government. 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. The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of the executive. 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. This is a duty which cannot be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions by a person or body other than the legislature itself. PAGE

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The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that 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. The Court cannot also subscribe to the position of petitioners Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase upon the recommendation of the Secretary of Finance. Neither does the Court find persuasive the submission of petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter. In the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none, petitioners argument is, at best, purely speculative. There is no basis for petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and unambiguous, so that there is no occasion for the courts seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax. Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of the output tax, then 100% of such input tax is still creditable. Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional. Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are hereby dismissed. PAGE

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MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. vs. DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL

[G.R. No. 108524. November 10, 1994] Digest by: CABATU, RICKY BOY VILLALUZ PONENTE: Mendoza, J.: FACTS: Petitioner are engaged in the buying and selling of copra in Misamis Oriental. They seek to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner organization. They allege that prior to the issuance of the assailed Revenue Memorandum, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. However, respondent Commissioner of Internal Revenue issued the circular in question, classifying copra as an agricultural non-food product and declaring it exempt from VAT only if the sale is made by the primary producer pursuant to Section 103(a) of the Tax Code, as amended. The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under 103(b) of the NIRC. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers. ISSUE: Whether there was violation of the equal protection clause. HELD: No. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. PAGE

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COMMISSIONER OF INTERNAL REVENUE vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION
[G.R. No. 119761. August 29, 1996] Digest by: CABATU, RICKY BOY VILLALUZ PONENTE: VITUG, J. FACTS: On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over Champion, Hope, and More cigarettes. The Commissioner of Internal Revenue Bienvenido A. Tan, Jr. classify them as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of Hope to Hope Luxury and More to Premium More, thereby removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue [BIR]) that Champion was an original Fortune Tobacco Corporation register and therefore a local brand. Ad Valorem taxes were imposed on these brands. A bill, which later became Republic Act (RA) No. 7654 was enacted. In effect, a revenue memorandum circular was issued which stated that the aforesaid brands of cigarettes, viz: HOPE, MORE and CHAMPION being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes. The CTA ruled that the Revenue Memorandum Circular reclassifying the brands of cigarettes, viz: HOPE, MORE and CHAMPION being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be. ISSUE: 1. Whether there was violation of due process in the issuance of the circular. 2. Whether the circular is discriminatory (violation of uniformity in taxation). HELD: 1. Yes, there was violation of due process. Being a legislative rule (as opposed to interpretative), due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. It has been observed that one of the problem areas bearing on compliance with Internal PAGE

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Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on due process of law and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is a basic requirement. In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances: (a) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations. (b) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed. Due notice of the said issuances may be fairly presumed only after the following procedures have been taken. 2. Yes, there was no uniformity. The assailed RMC 37-93 would only apply to Hope Luxury, Premium More and Champion cigarettes and that other cigarettes bearing foreign brands have not been similarly included within the scope of the circular. PAGE

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THE COMMISSIONER OF INTERNAL REVENUE vs. LINGAYEN GULF ELECTRIC POWER CO., INC. and THE COURT OF TAX APPEALS
[G.R. No. L-23771. August 4, 1988] Digest by: CABATU, RICKY BOY VILLALUZ PONENTE: SARMIENTO, J. FACTS: The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant serving the adjoining municipalities of Lingayen and Binmaley, both in the province of Pangasinan, pursuant to the municipal franchise granted it by their respective municipal councils, under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, respectively. On February 24, 1948, the President of the Philippines approved the franchises granted to the private respondent. On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the private respondent the total amount of P19,293.41 representing deficiency franchise taxes and surcharges. Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, granting to the private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same municipalities of Pangasinan which states that no other tax and/or licenses other than the franchise tax of two per centum on the gross receipts as provided for in the original franchise shall be collected from the grantee. The petitioner submits that the said law is unconstitutional insofar as it provides for the payment by the private respondent of a franchise tax of 2% of its gross receipts, while other taxpayers similarly situated were subject to the 5% franchise tax imposed in Section 259 of the Tax Code, thereby discriminatory and violative of the rule on uniformity and equality of taxation. ISSUE: 1. Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the uniformity and equality of taxation clause of the Constitution. 2. If the abovementioned Section 4 of R.A. No. 3843 is valid, whether or not it could be given retroactive effect so as to render uncollectible the taxes in question which were assessed before its enactment. HELD: 1. No violation of uniformity and equality of taxation. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. Uniformity means that all property belonging to the same class shall be taxed alike The Legislature has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed violative of the equal protection clause. It is true that the PAGE

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priva te resp onde nts muni cipal franc hises were obtai ned unde r Act No. 667 of the Phili ppin e Com missi on, but thes e origi nal franc hises have been repla ced by a new legisl ative franc hise, i.e. R.A. No. 3843 . As corr ectly held by the resp onde nt court , the latte r was gran ted subje ct to the term s and

condi tions estab lishe d in Act No. 3636, as amen ded by C.A. No. 132. Thes e condi tions ident ify the priva te respo nden ts powe r plant as fallin g withi n that class of powe r plant s creat ed by Act No. 3636, as amen ded. The benef its of the tax reduc tion provi ded by law (Act No. 3636 as amen

ded by C.A. No. 132 and R.A. No. 3843 ) appl y to the resp onde nts pow er plant and othe rs circu mscr ibed withi n this class. R.ANo. 3843 mere ly trans ferre d the petiti oner s pow er plant from that class provi ded for in Act No. 667, as ame nded , to whic h it belo nged until the appr oval of

R.ANo. 3843, and place d it withi n the class fallin g unde r Act No. 3636, as amen ded. Thus, it only effect ed the trans fer of a taxab le prop erty from one class to anoth er. Furth ermo re, the 5% franc hise tax rate provi ded in Secti on 259 of the Tax Code was never inten ded to have a unive rsal appli catio

n. The said Secti on 259 of the Tax Code expr essly allo ws the pay ment of taxes at rates lowe r than 5% whe n the chart er gran ting the franc hise of a gran tee, like the one gran ted to the priva te resp onde nt unde r Secti on 4 of R.A. No. 3843 , precl udes the impo sitio n of a high

er tax. R.A. No. 3843 did not only fix and speci fy a franc hise tax of 2% on its gross recei pts, but made it in lieu of any and all taxes, all laws to the contr ary notw ithsta nding , thus, leavi ng no room for doub t regar ding the legisl ative inten t. Char ters or speci al laws grant ed and enact ed by the Legis latur

e are in the natu re of priva te contr acts. They do not cons titut ea part of the mac hine ry of the gene ral gove rnm ent. They are usua lly adop ted after caref ul consi derat ion of the priva te right s in relati on with resul tant bene fits to the State ... in passi ng a speci al chart er the atten tion of

the Legis latur e is direc ted to the facts and circu msta nces whic h the act or chart er is inten ded to meet. The Legis latur e consi der and make provi sion for all the circu msta nces of a parti cular case. In view of the foreg oing, SC finds no reaso n to distu rb the respo nden t court s rulin g uphol ding the const itutio

nalit y of the law in ques tion. 2. Yes. In the insta nt case, Act No. 3843 provi des that effe ctive ... upon the date the origi nal franc hise was gran ted, no othe r tax and/ or licen ses othe r than the franc hise

tax of two per centu m on the gross recei pts ... shall be collec ted, any provi sion to the contr ary notw ithsta nding . Repu blic Act No. 3843 there fore speci ficall y provi ded for the retro activ e effect of the law. PAGE

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KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA vs. HON. BIENVENIDO TAN, as Commissioner of Internal Revenue

[G.R. No. 81311. June 30, 1988] Digest by: CABATU, RICKY BOY VILLALUZ PONENTE: PADILLA, J. FACTS: There are four petitions which seek to nullify Executive Order No. 273 issued by the President which amended certain sections of the National Internal Revenue Code and adopted the value-added tax for being unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. ISSUE: 1. Whether the President had no authority to issue EO 273. 2. Whether there was grave abuse of discretion on the part of the President. 3. Whether EO 273 is oppressive, discriminatory, unjust and regressive. 4. Whether EO 273 unduly discriminates against customs brokers. HELD: 1. Yes, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a legislature under a new Constitution is convened. The first Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the Presidents constitutional power and authority to legislate. The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear and unequivocal terms. The Court has not power to rewrite the Constitution and give it a meaning different from that intended. 2. No grave abuse if discretion. Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. The signing of E.O. 273 was merely the last stage in the exercise of her (Pres. Aquino) legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened. PAGE

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3. No. The petitioners assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. 4. No. At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers then, the Court sees no reason why it should protest now. PAGE

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ANTERO M. SISON, JR. vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue et al.
[G.R. No. L-59431. July 25, 1984] Digest by: CABATU, RICKY BOY VILLALUZ PONENTE: PADILLA, J. FACTS: The validity of Section I of Batas Pambansa Blg. 135 is questioned due to constitutional infirmities. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. Petitioner as taxpayer alleges that by virtue thereof, he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in character. For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. ISSUE: Whether the assailed law is discriminatory. HELD: No. Taxpayers may be classified into different categories. To repeat, it is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income. PAGE

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Villegas v. Hiu Chiong Tsai Pao Ho


[G.R. No. L-29646. November 10, 1978] Digest by: DE GUZMAN, Pristine B. PONENTE: Fernandez, J. FACTS: Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. Section 1 of said Ordinance No. 6537 prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00. Hiu Chiong Tsai Pao questioned the validity of the ordinance on the ground that it is discriminatory and violative of the rule of uniformity in taxation. On the other hand, petitioner Mayor Villegas argues that Ordinance No. 6537 did not violate the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being principally a regulatory measure in nature. ISSUE: Whether or not Ordinance No. 6537 is null and void on the ground that it violated the rule on uniformity of taxation. HELD: YES. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employees fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation. The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in PAGE

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the exer cise of his discr etion . It has been held that wher e an ordi nanc e of a muni cipal ity fails to state any polic y or to set up any stan dard to guid e or limit the may ors actio n, expr esses no purp ose to be attai ned by requi ring a per mit, enu mera tes no cond ition s for its gran t or refus

al, and entir ely lacks stand ard, thus confe rring upon the Mayo r arbit rary and unres tricte d powe r to grant or deny the issua nce of build ing perm its, such ordin ance is invali d, being an undef ined and unli mite d deleg ation of powe r to allow or preve nt an activi ty per se lawfu l. PAGE

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Villanueva v. City of Iloilo


[G.R. No. L-26521. December 28, 1968] Digest by: DE GUZMAN, Pristine B. PONENTE: CASTRO, J. FACTS: On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86. The Supreme Court, however, declared the ordinance ultra vires. On January 15, 1960 the municipal board of Iloilo City, believing that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by the Supreme Court as ultra vires, enacted Ordinance 11, series of 1960, imposing municipal license tax on persons engaged in the business of operating tenement houses in accordance with the schedule of payment provided by therein. Villanueva and the other apartment owners from whom, the city collected license taxes by virtue of Ordinance 11 aver that the said ordinance is unconstitutional for RA 2264 does not empower cities to impose apartment taxes; that the same is oppressive and unreasonable for it penalizes those who fail to pay the apartment taxes; that it constitutes not only double taxation but treble taxation; and, that it violates uniformity of taxation. ISSUE: 1. Whether or not the ordinance constitutes double taxation? 2. Whether or not the City of Iloilo is empowered by the Local Autonomy Act to impose tenement taxes. 3. Whether or not Ordinance 11 violated the rule of uniformity of taxation. HELD: 1. NO. While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by the national government as well as by the local government. The contention that appellees are doubly taxed because they are paying real estate taxes and the tenement tax is also devoid of merit. A license tax may be levied upon a business or occupational though the land or property used in connection therewith is subject to property tax. In order to constitute double taxation, both taxes must be the same kind or character. Real estate taxes and tenement taxes are not of the same character. 2. YES. The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name, it is not among the exceptions listed in Section 2 of the Local Autonomy Act. The imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in Section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or PAGE

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exer cisin g privi leges withi n their resp ectiv e territ ories , and othe rwis e to levy for publi c purp oses, just and unifo rm taxes , licen ses, or fees. 3. NO. The ordi nanc e is not viola tive of the rule of unifo rmit y in taxat ion. The Supr eme Cour t has alrea dy ruled that tene ment hous es cons

titute a distin ct class of prop erty. It has likew ise ruled that taxe s are unifo rm and equal when impo sed upon all prop erty of the same class or chara cter withi n the taxin g autho rity. The fact, there fore, that the owne rs of other class es of build ings in the City of Iloilo do not pay the taxes impo sed by the ordin ance

in ques tion is no argu ment at all agai nst unifo rmit y and equa lity of the tax impo sitio n. Neit her is the rule of equa lity and unifo rmit y viola ted by the fact that tene ment taxes are not impo sed in othe r cities , for the same rule does not requi re that taxes for the same

purp ose shoul d be impo sed in differ ent territ orial subdi visio ns at the same time. So long as the burd en of the tax falls equal ly and impa rtiall y on all owne rs or oper ators of tene ment hous es simil arly classi fied or situat ed, equal ity and unifo rmity of taxati on is acco mplis hed. PAGE

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Pepsi-Cola Bottling Co. of the Philippines, Inc v. City of Butuan


[G.R. No. L-2281. August 28, 1968] Digest by: DE GUZMAN, Pristine B. PONENTE: CONCEPCION, C.J. FACTS: In 1960, Ordinance 110 was passed in Butuan. It was later amended by Ordinance 122. This Ordinance imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi- Cola. Pepsi operates within the Butuan and it paid under protest the amount of P4.926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961. Pepsi filed a complaint for the recovery of the total amount of P14,177.03 paid under protest and those that it may later on pay until the termination of the case. Pepsi maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers. ISSUE: Whether or not the ordinance is null and void. HELD: YES. The first and the fourth objections by petitioner merit serious consideration. In this connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers engaged in selling soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon any agent and/or consignee of any person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks. As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax shall be based and computed from the cargo manifest or bill of lading ... showing the number of cases not sold but received by the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond defendants authority to impose by express provision of law. Even however, if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity PAGE

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required by the Constitution and the law therefor, since only sales by agents or consignees of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax. It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation. The classification made in the exercise of this authority, to be valid, must, however, be reasonable and this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the classification applies equally all those who belong to the same class. These conditions are not fully met by the ordinance in question. Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax. PAGE

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Ormoc Sugar Co. v. Treasurer of Ormoc City


[G.R. No. L-23794. February 17, 1968] Digest by: DE GUZMAN, Pristine B. PONENTE: BENGZON, J.P., J. FACTS: Ormoc city passed an ordinance which provides: There shall be paid to the City Treasurer on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Incorporated, in Ormoc City, a municipal tax equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries. Though referred to as a production tax, the imposition actually amounts to a tax on the export of centrifugal sugar produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the tax applies is when the sugar produced is exported. Ormoc Sugar paid the tax (P7,087.50) in protest averring that the same is violative of Section 2287 of the Revised Administrative Code which provides: It shall not be in the power of the municipal council to impose a tax in any form whatever, upon goods and merchandise carried into the municipality, or out of the same, and any attempt to impose an import or export tax upon such goods in the guise of an unreasonable charge for wharfage, use of bridges or otherwise, shall be void. And that the ordinance is violative to equal protection as it singled out Ormoc Sugar as being liable for such tax impost for no other sugar mill is found in the city. ISSUE: Whether or not the ordinance violates the equal protection clause and the uniformity of taxation. HELD: YES. The equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where (1) it is based on substantial distinctions which make real differences; (2) these are germane to the purpose of the law; (3) the classification applies not only to present conditions but also to future conditions which are substantially identical to those of the present; (4) the classification applies only to those who belong to the same class. A perusal of the requisites instantly shows that the questioned ordinance does not meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time of the taxing ordinances enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, for the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc City Sugar Company, Inc. as the entity to be levied upon. PAGE

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Lutz v. Araneta
[G.R. No. L-7859. December 22, 1955] Digest by: DE GUZMAN, Pristine B. PONENTE: REYES, J.B L., J.. FACTS: Due to the threat to industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the eventual loss of its preferential position in the United States market; the National Assembly promulgated Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof and to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes. Walter Lutz, as the Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from J. Antonio Araneta, the Collector of Internal Revenue, the sum of money paid by the estate as taxes, pursuant to the Sugar Adjustment Act. Under Section 3 of said Act, taxes are levied on the owners or persons in control of the lands devoted to the cultivation of sugar cane. Furthermore, Section 6 states all the collections made under said Act shall be for aid and support of the sugar industry exclusively. Lutz contends that such purpose is not a matter of public concern hence making the tax levied for that cause unconstitutional and void. The Court of First Instance dismissed his petition, thus this appeal before the Supreme Court. ISSUE: Whether or not the tax levied under the Sugar Adjustment Act is unconstitutional. HELD: NO. The tax levied under the Sugar Adjustment Act is constitutional. The tax under said Act is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. Since sugar production is one of the great industries of our nation, its promotion, protection, and advancement, therefore redounds greatly to the general welfare. Hence, said objectives of the Act are of public concern and is therefore constitutional. It follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objectives 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 with the implement of the states police power. In addition, it is only rational that the taxes be obtained from those that will directly benefit 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 PAGE

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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. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of all or none. if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied; and that the legislative authority, exerted within its proper field, need not embrace all the evils within its reach 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. PAGE

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ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., vs. THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of the City of Manila

[G.R. No. L-4376, May 22, 1953] Digest by: DESTURA, Kristina Bianca D. PONENTE: BAUTISTA ANGELO, J. FACTS: The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service operator of the trucks in said City, challenge the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila on March 24, 1950 on the ground that (1) while it levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation. The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation. The Court of First Instance of Manila sustained the validity of the ordinance and dismissed the petition. Hence this appeal. ISSUE: 1. Whether or not Ordinance no. 3379 is void for having passed beyond the power of the Municipal Board of the City of Manila. 2. Whether or not Ordinance no. 3379 violates the rule of uniformity of taxation. HELD: 1. In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal corporation to impose tax on motor vehicles operating in any highway in the Philippines. The pertinent provisions are contained in section 70 (b) which provide in part: No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle from the payment of any lawful and equitable insular, local or municipal property tax imposed thereupon........................... Note that under the said section no fees may be exacted or demanded for the operation PAGE

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of any motor vehicle other than those therein provided, the only exception being that which refers to the property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. While it refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to. 2. The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word operating used therein. The word operating denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution. PAGE

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EASTERN THEATRICAL CO., INC., ET AL., vs. VICTOR, ALFON- SO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of the City of Manila

[G.R. No. L-1104, May 31, 1949] Digest by: DESTURA, Kristina Bianca D. PONENTE: PERFECTO, J. FACTS: The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the price of every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical shows and boxing exhibitions, in addition to fees imposed under Sections 633 and 778 of Ordinance 1600. Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they are interested in the provision of section 1,2 and 4 of said ordinance which they impugn as null and void upon the following grounds: (a) For violation the Constitution more particular the provision regarding the uniformity and equality of taxation and the equal protection of the laws; (b) because the Municipal Board of Manila exceeded and over-stepped the power granted it the Charter of the City of Manila; (c) because it contravenes violates and is inconsistent with, existing national legislation more particularly revenue and tax laws and (d) because it is unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and recognizes principles of taxation and licensing laws. ISSUE: Whether the ordinance violates the rule on uniformity and equality of taxation. HELD: The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. PAGE

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PHILIPPINE TRUST COMPANY, PEOPLES BANK AND TRUST COMPANY, THE YOKOHAMA SPECIE BANK, LTD., and THE CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA, vs. A.L. YATCO, as Collector of Internal Revenue,

[G.R. Nos. L-46255, 46256, 46259 and 46277, January 23, 1940] Digest by: DESTURA, Kristina Bianca D. PONENTE: LAUREL, J FACTS: The original plaintiffs in the Court of First Instance of Manila were the Philippine Trust Company, the Peoples Bank and Trust Company, the Yokohama Specie Bank, Ltd., the Chartered Bank of India, Australia & China, the Bank of the Philippine Islands, the Hongkong & Shanghai Banking Corporation, and the China Banking corporation. As the last three named Banks did not appeal from the decision of the lower court, we are here concerned with the appeal taken by the plaintiffs named in the four above-titled cases. The records disclosed that prior to the filing of these suits, and for a number of years, the plaintiffs-appellants had been paying capital and deposit taxes without protest, formerly under section 111 of Act No. 1189, and later under section 1499 of the Revised Administrative Code of 1917, as amended. In the trial court, by agreement of the parties, the case were submitted and heard together on a joint stipulation of facts. After trial, the Court of First Instance of Manila dismissed the actions and upheld the validity of section 1499 of the Revised Administrative Code, as amended by Act No. 3199. Appellants challenge the constitutionality of the aforesaid section of the Revised Administrative Code, principally on the grounds that it violates the rule regarding uniformity of taxation, and that it is discriminatory, and therefore violative of the equal protection clause of the Constitution. ISSUE: Whether or not said section of thr Revised Administrative Code violates the Rule on uniformity of taxation. HELD: No. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. (State v. Railroad Tax Cases, 92 U.S. 575, 595, 612, 23 Law. ed. 363, 373.) Section 1499 of the Revised Administrative Code, as amended, applies uniformly to, and operates on, all banks in the Philippines without distinction and discrimination, and if the National City Bank of New York is exempted from its operation because it is a federal instrumentality subject only to the authority of Congress, that alone could have the effect of rendering it violative of the rule of uniformity. In every well-regulated and enlightened state or government, certain descriptions of property and also certain PAGE

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institutions are exempt from taxation, but these exemptions have never been regarded as disturbing the rules of taxation, even where the fundamental law had ordained that it should be uniform. (Des Moines Bank v. Fairweather, 263 U.S. 103,118). The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable. PAGE

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FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, vs. VENANCIO CONCEPCION, as Acting Collector of Internal Revenue,
[G.R. No. 11572, September 22, 1916] Digest by: DESTURA, Kristina Bianca D. PONENTE: TRENT, J.: FACTS: Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914, imposed an annual tax of P4 per square meter upon electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on premises not occupied by buildings. This section was subsequently amended by Act No. 2432, effective January 1, 1915, by reducing the tax on such signs, billboards, etc., to P2 per square meter or fraction thereof. Section 26 of Act No. 2432 was in turn amended by Act No. 2445, but this amendment does not in any way affect the questions involved in the case under consideration. The taxes imposed by Act No. 2432, as amended, were ratified by the Congress of the United States on March 4, 1915. Francis A. Churchill and Stewart Tait, copartners doing business under the firm name and style of the Mercantile Advertising Agency, owners of a sign or billboard containing an area of 52 square meters constructed on private property in the city of Manila and exposed to public view, were taxes thereon P104. The tax was paid under protest and the plaintiffs having exhausted all their administrative remedies instituted the present action under section 140 of Act No. 2339 against the Collector of Internal Revenue to recover back the amount thus paid. From a judgment dismissing the complaint upon the merits. ISSUE: Whether the statute or tax is void for lack of uniformity. HELD: A tax is uniform when it operates with the same force and effect in every place where the subject of it is found (State Railroad Tax Cases, 92 U.S., 575.) The words uniform throughout the United States, as required of a tax by the Constitution, do not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is therefore the only uniformity which is prescribed by the Constitution. (Patton vs. Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is uniform, within the constitutional requirement, when it operates with the same force and effect in every place where the subject of it is found. (Edye vs. Robertson, 112 U.S., 580; 28 L. Ed., 798.) Uniformity, as applied to the constitutional provision that all taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. (Adams vs. Mississippi State Bank, 23 South, 395, citing Mississippi Mills vs Cook, 56 Miss., 40.) The statute under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or in other words, the rule of taxation upon such signs is uniform throughout the Islands. The rule, which we PAGE

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have just quot ed from the Phili ppin e Bill, does not requi re taxes to be grad ed acco rdin g to the valu e of the subje ct or subje cts upon whic h they are impo sed, espe cially thos e levie d as privi lege or occu patio n taxes . We can hardl y see wher ein the tax in ques tion cons titut es doub le taxat

ion. The fact that the land upon whic h the billbo ards are locat ed is taxed at so much per unit and the billbo ards at so much per squar e mete r does not const itute dou ble taxati on. Doub le taxati on, withi n the true mean ing of that expre ssion, does not neces sarily affect its validi ty. (1 Coole y on Taxat ion, 3d ed., 389.) And

agai n, it is not for the judic iary to say that the class ificat ion upon whic h the tax is base d is mere arbit rary selec tion and not base d upon any reas onab le grou

nds. The Legis latur e select ed signs and billbo ards as a subje ct for taxati on and it must be presu med that it, in so doing , acted with a full know ledge of the situat ion. PAGE

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Meralco vs. Province of Laguna


[G.R. No. 131359. May 5, 1999] Digest by: ERIGA, Ronald Fredric H. PONENTE: Vitug, J. FACTS: In the province of Laguna, certain municipalities thereof issued resolutions through their respective municipal councils, granting MERALCO franchises for the supply of light and power. Thereafter, the Local Government Code of 1991 was enacted enjoining local goverment units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations, consistent with the basic policy of local autonomy. Thereafter, the Province of Laguna enacted Laguna Provincial Ordinance which imposed tax on businesses enjoying a franchise at a rate of 50% of 1% of the gross annual receipts. MERALCO was then sent a demand letter to pay the corresponding tax. MERALCO paid the tax under protest (approx. Php19.5M) and later on filed a formal claim for refund. MERALCO claims that the franchise tax it had paid and continued to pay to the National Government already included the tax imposed by the Provincial Tax Ordinance. The RTC dismissed the complaint and ruled that the Ordinance was valid, binding, reasonable and enforceable. ISSUE: Whether or not the Laguna Provincial Tax Ordinance is valid. HELD: Yes. Local Governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute. Presently, Under Article X of the 1987 Constitution, a general delegation of that power has been given in favor of the Local Government Units (LGU). Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional. While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its PAGE

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private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. The Local Government Code of 1991 explicitly authorizes provincial governments, notwithstanding any exemption granted by any law or other special law, to impose a tax on businesses enjoying a franchise. Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government units, LGC has effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. MERALCO further contends that in a plethora of cases, the phrase shall be in lieu of all taxes and at any time levied, established by, or collected by any authority exempted the franchise holder from any other tax imposed by the then Internal Revenue Code and local ordinaces. The SC holds otherwise. Court has held that the phrase in lieu of all taxes have to give way to the peremptory language of the Local Government Code specifically providing for the withdrawal of such exemptions, privileges, and that upon the effectivity of the Local Government Code all exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim liability for the local tax. In fine, the Court has viewed its previous rulings as laying stress more on the legislative intent of the amendatory law - whether the tax exemption privilege is to be withdrawn or not rather than on whether the law can withdraw, without violating the Constitution, the tax exemption or not. PAGE

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Province of Misamis Oriental v. Cagayan Electric Power and Light Company Inc.
[G.R. No. 131359. May 5, 1999] Digest by: ERIGA, Ronald Fredric H. PONENTE: Grino-Aquino FACTS: Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on June 17, 1961 under RA 3247 to install, operate and maintain an electric light, heat and power system in the City of Cagayan de Oro and its suburbs. The franchise was amended on June 21, 1963 by RA 3570 which added the municipalities of Tagoloan and Opol to CEPALCOs sphere of operation, and was further amended on August 4, 1969 by RA 6020 which extended its field of operation to the municipalities of Villanueva and Jasaan. On June 28, 1973, the Local Tax Code (PD 231) was promulgated. Pursuant thereto, the Province of Misamis Oriental enacted Provincial Revenue Ordinance 19 which provide for a franchise tax. The Provincial Treasurer of Misamis Oriental demanded payment of the provincial franchise tax from CEPALCO. The company refused to pay, alleging that it is exempt from all taxes except the franchise tax required by RA 6020. Nevertheless, CEPALCO paid under protest on May 27, 1974 the sum of P4,276.28 and appealed the fiscals ruling to the Secretary of Justice who reversed it and ruled in favor of CEPALCO. On 16 February 1976, the Province filed in the CFI Misamis Oriental a complaint for declaratory relief praying that the Court exercise its power to construe PD 231 in relation to the franchise of CEPALCO (RA 6020), and to declare the franchise as having been amended by PD 231. The Court dismissed the complaint and ordered the Province to return to CEPALCO the sum of P4,276.28 paid under protest. ISSUE: Whether or not the imposed franchise tax is valid. HELD: Section 9 of PD 231 provides that any provision of special laws to the contrary notwithstanding, the province may impose a tax on businesses enjoying franchise, based on the gross receipts realized within its territorial jurisdiction, at the rate of not exceeding one- half of one per cent of the gross annual receipts for the preceding calendar year. In the case of newly started business, the rate shall not exceed three thousand pesos per year. Sixty per cent of the proceeds of the tax shall accrue to the general fund of the province and forty per cent to the general fund of the municipalities serviced by the business on the basis of the gross annual receipts derived therefrom by the franchise holder. In the case of a newly started business, forty per cent of the proceeds of the tax shall be divided equally among the municipalities serviced by the business. PAGE

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The Provincial Revenue Ordinance 19 provides that there shall be levied, collected and paid on businesses enjoying franchise tax of one-half of one per cent of their gross annual receipts for the preceding calendar year realized within the territorial jurisdiction of the province of Misamis Oriental. There is no provision in PD 231 expressly or impliedly amending or repealing Section 3 of RA 6020. The perceived repugnancy between the two statutes should be very clear before the Court may hold that the prior one has been repealed by the later, since there is no express provision to that effect. The rule is that a special and local statute applicable to a particular case is not repealed by a later statute which is general in its terms, provisions and application even if the terms of the general act are broad enough to include the cases in the special law unless there is manifest intent to repeal or alter the special law. Republic Acts 3247, 3570 and 6020 are special laws applicable only to CEPALCO, while PD 231 is a general tax law. The presumption is that the special statutes are exceptions to the general law (PD 231) because they pertain to a special charter granted to meet a particular set of conditions and circumstances. The CEPALCOs franchise expressly exempts it from payment of all taxes of whatever authority except the three per centum (3%) tax on its gross earnings. The Local Tax Regulation 3-75 issued by the Secretary of Finance on 26 June 1976, has made it crystal clear that the franchise tax provided in the Local Tax Code (PD 231, Sec. 9) may only be imposed on companies with franchises that do not contain the exempting clause. The provision: shall be in lieu of all taxes of every name and nature in the franchise of the Manila Railroad exempts the Manila Railroad from payment of internal revenue tax. The Court pointed out that such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. As a charter is in the nature of a private contract, the imposition of another franchise tax on the corporation by the local authority would constitute an impairment of the contract between the government and the corporation. PAGE

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Cagayan Electric Power & Light Co. Inc. v. CIR


[G.R. No. L-60126 September 25, 1985] Digest by: ERIGA, Ronald Fredric H. PONENTE: Aquino FACTS: Under RA 3247, Cagayan Electric Power and Light Co. is the holder of a legislative franchise, which its payment of 3% tax on its gross earnings from the sale of electric current is in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted. On June 27 1968, RA 5431 amended section 24 of the Tax Code by making liable for income tax all corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the provisions of existing special or general laws to the contrary. Thus, franchise companies were subjected to income tax in addition to franchise tax. However, in the companys case, its franchise was amended by RA 6020 by authorizing the company to furnish electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the municipalities of Tagoloan and Opol. Said amendment reenacted the tax exemption in its original charter or neutralized the modification made by RA 5431 more than a year before. By reason of the amendment to section 24 of the Tax Code, the Commissioner of Internal Revenue required the company to pay deficiency income taxes for 1968 to 1971. The company contested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 but insisted on those for 1968 and 1969. The company filed a petition for review with the Tax Court, which held the company liable only for the income tax for the period from January 1 to August 3, 1969 or before the passage of RA 6020 which reiterated its tax exemption. The liability of the company for income tax amounted to P75,149.73 for the more than seven-month period of the year 1969 in addition to franchise tax. The company appealed to the Supreme Court. ISSUE: Whether or not Congress could impair the companys legislative franchise HELD: Yes. Congress could impair the companys legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise. The Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. Section 1 of the companys franchise, RA 3247, provides that it is subject to the provisions of the Constitution and to the terms and conditions established in Act 3636 whose section 12 provides that the franchise is subject to amendment, alteration or repeal by Congress. RA 5431, in amending section 24 of the Tax Code by subjecting to income tax all PAGE

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corporate taxpayers not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing the companys exemption from income tax. The exemption was restored by the subsequent enactment on 4 August 1969 of RA 6020 which reenacted the said tax exemption. Hence, the company is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax exemption was modified by RA 5431. PAGE

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Lealda v. CIR
[G.R. No. L-16428. April 30, 1963.] Digest by: ERIGA, Ronald Fredric H. PONENTE: Dizon FACTS: Julian M. Locsin Anson was granted a franchise in 1915, to operate an electric light and power plant to supply electric current to the residents of the municipalities of Legaspi and Daraga in Albay province (Act 2475, as amended by Act 2620). Subsequently, he sold his franchise, certificate of public convenience and the electric plant to Saturnino Benito, who in turn sold the same to Alfredo, Mario and Benjamin, all surnamed Benito, on March 13, 1941. On June 11, 1949, the Benitos and other parties formed a partnership to operate the electric plant. After the incorporation of Lealda Electric on February 8, 1951, the franchise, certificate of public convenience and the electric plant was transferred to it by said partnership. All these transactions were approved by the Public Service Commission. Since 1915, the original grantee and, after him, his various successors in interest, paid a franchise tax of 2% on the gross earnings or receipts from the business operated under the franchise until October 1, 1946 when Section 259 of the National Internal Revenue Code was amended by RA 39 which increased the franchise tax to 5%. Upon the approval of this mandatory act, Lealda Electric was required to pay, as it did pay, the increased franchise tax, except those that became payable before its incorporation, these having been paid by its predecessors in interest. Apparently on 27 October 1953, Lealda Electric had filed a claim for refund, action on which, however, was held in abeyance pending receipt by the Collector of Internal Revenue of an audit report expected from the General Auditing Office. On January 8, 1954, Lealda Electric filed with the Commissioner of Internal Revenue a petition for refund contending that, under its charter, it was liable to pay a franchise tax equivalent to only 2% and not 5% of its gross earnings or receipts. On June 22, 1958, Lealda Electric filed its last claim for refund of the total amount of P78,891.34 representing alleged excess payments of franchise tax covering the period from 20 January 1947 to April 15, 1958. On January 8, 1959 petitioner filed with the Court of Tax Appeals a petition for review praying for the refund of the total sum of P84,573.61 representing alleged excess payments of franchise tax for the period from January 20, 1947 to October 14, 1958, and for an order restraining said commission and its agents from collecting from it more than 2% of its gross earnings or receipts, as franchise tax. After proper proceedings in the Court of Tax Appeals, the court held that Lealda Electric was subject to pay the 5% franchise tax as prescribed in Section 259 of the National Internal Revenue Code, as amended by RA 39 and, as a consequence, dismissing the petition for refund for lack of merit. ISSUE: Whether or not Lealda is entitled to the refund. PAGE

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HEL D: No. Leal da Elect rics franc hise does not speci ficall y state that the rate of the franc hise tax to be paid there unde r by the origi nal gran tee and his succ esso rs in inter est shall be 2% of his gros s earni ngs or recei pts. It seem s clear , there fore, that the inten tion of the legisl

ature was to impo se upon the grant ee and his succe ssors in inter est, the oblig ation to pay the same franc hise tax impo sed upon other grant ees or franc hise holde rs at the time Act 2475 was enact ed. Prior to its amen dmen t, Secti on 259 of the Tax Code mere ly provi ded that the grant ees of franc hises shoul

d pay on their gros s earni ngs or recei pts suc h taxes , char ges and perc enta ges as are speci fied in speci al chart ers of corp orati ons upon who m such franc hises are conf erre d This provi sion did not cove r the case of franc hise hold ers who se chart ers did not speci fy the

rate of franc hise tax to be paid by them. Cons eque ntly, prior to the enact ment of RA 39, the franc hise tax paid by grant ees whos e chart ers did not speci fy the rate of the franc hise tax to be paid by them was the one provi ded for in Secti on 10 of Act 3636, know n as the Mode l Elect ric Light and Powe r Franc hise

Act. Cons eque ntly, Secti on 259 of the Tax Code , as ame nded by RA 39, beca me the basic franc hise tax law beca use it was not only entitl ed Tax on Corp orate Fran chise s but it fixed the rate of the franc hise tax to be paid by hold ers of all exist ing and

futur e franc hises. Such being the case, the provi sions of the act amen ding said secti on must be deem ed to apply likew ise to Leald a Elect ric beca use its franc hise was alrea dy existi ng at the time of the adopt ion of the amen dmen t. Tax exem ption s are not presu med. PAGE

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Casanovas v. Hord
[G.R. No. 3473, March 22, 1907] Digest by: ESCANER, Michael Joseph PONENTE: Willard, J. FACTS: The Spanish Government in 1897 granted petitioner certain mines in the province of Ambos Camarines in accordance with the provisions of the royal decree of 14th May 1867. The mines granted are now in the ownership of petitioner. Petitioner contended that these were validly perfected mining concessions granted to him prior to 11th of April 1899. The Collector of Internal Revenue considered the mines to fall within the provisions of Section 134 of Act 1189 (InternalRevenue Act). The defendant Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section134, which plaintiff Casanovas paid under protest. ISSUE: Whether or not Section 134 of Act 1189 is valid. HELD: The deed constituted a contract between the Spanish Government and Casanovas. The concessions can be cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the laws under which they were granted. There is no claim in this case that there was any illegality in the procedure by which these concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed in the royal decree of 1867. The obligation in the contract was impaired by the enactment of Section 134 of the Internal Revenue Law PAGE

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American Bible Society vs. City of Manila


[G.R. No. L-9637, April 30, 1957] Digest by: ESCANER, Michael Joseph PONENTE: Felix, J. FACTS: Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions of the Revised Charter of the City of Manila. In the course of its ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialects. The acting City Treasurer of Manila required the society to secure the corresponding Mayors permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected. ISSUE: Whether or not the respondent can tax the petitioner with respect to its act of selling bibles. HELD: A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27(e) of the Tax Code (CA 466). The fact that the price of bibles petitioner are selling is a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the petitioner for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs. PAGE

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Abra Valley College v. Aquino


[G.R. NO. 39086 June 15, 1988] Digest by: ESCANER, Michael Joseph PONENTE: Paras FACTS: Petitioner filed a complaint to annul and declare void the Notice of Seizure and the Notice of Sale of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting toP5,140.31. Said Notice of Seizure by respondents Municipal Treasurer and Provincial Treasurer was issued for the satisfaction of the said taxes thereon. The trial court ruled for the government, holding that the second floor of the building is being used by the director for residential purposes and that the ground floor is being used and rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not being used exclusively for educational purposes. ISSUE: Whether or not the lot and building are used exclusively for educational purposes and is thus tax exempt. HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes. In the case at bar, the lease of the first floor of the building to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes and the second floor being used as incidental to education. PAGE

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Commissioner of Internal Revenue vs. Bishop of the Missionary District of the Philippines
[G.R. No. L-19445, August 31, 1965] Digest by: ESCANER, Michael Joseph PONENTE: Regala, J. FACTS: In 1957 to 1959, the Missionary District received various shipments of materials, supplies, equipment and other articles intended for use in the construction and operation of the new St. Lukes Hospital. On these shipments, the Commissioner collected compensation tax. The Missionary District filed claims for refund, but which was denied by the Commissioner on the ground that St. Lukes Hospital was not a charitable institution and therefore was not exempt from taxes because it admits pay patients. ISSUE: Whether or not the shipments for St. Lukes Hospital are tax-exempt. HELD: The following requisites must concur in order that a taxpayer may claim exemption under the law:(1) the imported articles must have been donated; (2) the done must be duly incorporated or established international civic organization, religious or charitable society, or institution for civic religious or charitable purposes; and (3) the articles so imported must have been donated for the use of the organization, society or institution or for free distribution and not for barter, sale or hire. As the law does not distinguish or qualify the enjoyment or the exemption (as the Secretary of Finance did in Department Order 18, series of 1958), the admission of pay patients does not detract from the charitable character of a hospital, if its funds are devoted exclusively to the maintenance of the institution. Thus, the shipments are tax exempt. PAGE

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REV. FR. CASIMIRO LLADOC v. CIR and CTA


[14 SCRA 202 ,June 16, 1965] Digest by: GARCIA, Vianne Marie O. PONENTE: J. Paredes FACTS: In 1957, the M.B. Estate, Inc. in Bacolod City donated P10,000 in case to Rev. Fr. Crispin Ruiz, the then parish priest of Victorias, Negros Occidental and the predecessor of Rev. Fr. Casimiro Lladoc, for the construction of a new Catholic Church. The total amount was actually spent for the purpose intended. On March 1958, M.B. Estate filed a donors gift tax return. Subsequently, on April 1960, the CIR issued an assessment for donees gift tax in the amount of P1,370 including surcharges, interest of 1% monthly from May 1958 to June 1960 and the compromise for the late filing of the return against the Catholic Parish of Victorias, Negros Occidental of which Lladoc was a priest. Lladoc protested and moved to reconsider but it was denied. He then appealed to the CTA, in his petition for review, he claimed that at the time of the donation, he was not the parish priest, thus, he is not liable. Moreover, he asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear violation of the Constitution. The CTA ruled in favor of the CIR. Hence, the present petition. ISSUE: Whether or not donees gift tax should be paid HELD: Yes. Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes. In the present case, what the Collector assessed was a donees gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties. Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed by the learned respondent Court, the phrase exempt from taxation, as employed in the Constitution should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of PAGE

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Lladoc, the exemption herein must be denied. However, the Court noted the merit of Lladocs claim, and held as liable the Head of Deocese for being the real party in interest instead of Lladoc who was held to be not personally liable; the former manifested that it was submitting himself to the jurisdiction and orders of the Court and he presented Lladocs brief, by reference, as his own and for all purposes. PAGE

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Jose V. Herrera and Ester Herrera vs. The Quezon City Board Of Assessment Appeals
[L-15270 ,September 30, 1961] Digest by: GARCIA, Vianne Marie O. PONENTE: Concepcion, J. FACTS: Petitioners Jose and Ester Herrera were authorized by the Director of the Bureau of Hospitals to establish and operate the St. Catherines Hospital. In 1953, the petitioners sent a letter to the Quezon City Assessor requesting exemption from payment of real estate tax on the lot, building and other improvements comprising the hospital stating that the same was established for charitable and humanitarian purposes and not for commercial gain which was granted effective the years 1953 to 1955. Subsequently, however, in a letter dated August 10, 1955 the Quezon City Assessor notified the petitioners that the aforesaid properties were reclassified from exempt to taxable and thus assessed for real property taxes effective 1956. The petitioners appealed the assessment to the Quezon City Board of Assessment Appeals, which, affirmed the decision of the City Assessor. A motion for reconsideration thereof was denied. From this decision, the petitioners instituted the instant appeal. The building involved in this case is principally used as a hospital. From the evidence presented by petitioners, it is made to appear that there are two kinds of charity patients (a) those who come for consultation only (outcharity patients); and (b) those who remain in the hospital for treatment (lying-in-patients). Petitioners also operate within the premises of the hospital the St. Catherines School of Midwifery which was granted government recognition by the Secretary of Education. The students practice in the St. Catherines Hospital, as well as in the St. Marys Hospital, which is also owned by the petitioners. A separate set of accounting books is maintained by the school for midwifery distinct from that kept by the hospital. However, the petitioners have refused to submit a separate statement of accounts of the school. ISSUE: Whether or not the said properties are used exclusively for charitable or educational purposes which are exempt from real property tax HELD: The Supreme Court ruled in the affirmative. The Court of Tax Appeals decided the issue in the negative, upon the ground that the St. Catherines Hospital has a pay ward for ... pay-patients, who are charged for the use of the private rooms, operating room, laboratory room, delivery room, etc., like other hospitals operated for profit and that petitioners and their family occupy a portion of the building for their residence. It should be noted, however, that, according to the very statement of facts made in the decision appealed from, of the thirty-two (32) beds in the hospital, twenty (20) are for charity-patients; that the income realized from pay-patients is spent for improvement of the charity wards; and that petitioners, Dr. Ester Ochangco Herrera, as directress of said hospital, PAGE

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does not receive any salary, although its resident physician gets a monthly salary of P170.00. It is well settled, in this connection, that the admission of pay-patients does not detract from the charitable character of a hospital, if all its funds are devoted exclusively to the maintenance of the institution as a public charity. In other words, where rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes of the institution, the mere fact that a profit has been made will not deprive the hospital of its benevolent character. Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is not limited to property actually indispensable therefor but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as, in the case of hospitals, a school for training nurses, a nurses home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns and residents. Within the purview of the Constitutional exemption from taxation, the St. Catherines Hospital is, therefore, a charitable institution, and the fact that it admits pay-patients does not bar it from claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income derived from pay-patients is devoted to the improvement of the charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from outcharity patients who come only for consultation. PAGE

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Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte


[GR 27588, 31 December 1927] Digest by: GARCIA, Vianne Marie O. PONENTE: AVANCEA, J FACTS: The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas, Ilocos Norte. On the south side is a part of the Church yard, the convent and an adjacent lots used for a vegetable garden in which there is a stable and a well for the use of the convent. In the center is the remainder of the church yard and the Church. On the north side is an old cemetery with its two walls still standing, and a portion where formerly stood a tower. The provincial board assessed land tax on lots comprising the north and south side, which the church paid under protest. It filed suit to recover the amount, alleging that the collection of this tax is illegal. ISSUE: Whether the lots are covered by the Churchs tax exemption? HELD: The exemption in favor of the convent in the payment of land tax refers to the home of the priest who presides over the church and who has to take care of himself in order to discharge his duties. The exemption includes not only the land actually occupied by the Church but also the adjacent ground destined to the ordinary incidental uses of man. A vegetable garden, thus, which belongs to a convent, where its use is limited to the necessity of the priest, comes under the exemption. In regard to the lot which formerly was the cemetery was neither used for any commercial purpose. The land was used as a lodging house by the people who participate in religious festivities, which constitute an incidental use in religious functions. Likewise it comes within the exemption. PAGE

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COMMISSIONER OF INTERNAL REVENUE v. YMCA


[G.R. No. 124043 October 14, 1998] Digest by: GARCIA, Vianne Marie O. PONENTE: Panganiban, J. FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees collected from non-members. Petitioner issued an assessment to private respondent for deficiency taxes. Private respondent formally protested the assessment. In reply, the CIR denied the claims of YMCA. ISSUE: Whether or not the income derived from rentals of real property owned by YMCA subject to income tax HELD: Yes. Income of whatever kind and character of non-stock non-profit organizations 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 the NIRC. Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions (Commissioner of Internal Revenue v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997). 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 stated in a language too clear to be mistaken (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, p. 15 July 23, 1998). Verba legis non est recedendum. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we. Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming that it 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 PAGE

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on its properties and income. This is without merit since the exemption provided lies on the payment of property tax, and not on the income tax on the rentals of its property. The bare allegation alone that one 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 above 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. Unfortunately for respondent, the Court noted that not a scintilla of evidence was submitted to prove that it met the said requisites. The Court appreciates the nobility of respondents cause. However, the Courts power and function are limited merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. The Court regrets that, given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political departments of government. PAGE

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Lung Center of the Philippines vs. Quezon City


[G.R. No. 144104 June 29, 2004] Digest by: HATOL, Michelle Marie PONENTE: CALLEJO, SR., J.: FACTS: The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established by virtue of P D No. 1823. It is the registered owner of a parcel of land, located in Quezon City. The lot has an area of 121,463 square meters and Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. A big portion on the right side is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying patients. Aside from its income from paying patients, the petitioner receives annual subsidies from the government. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City. Accordingly, Tax Declarations were issued for the land and the hospital building. On August 25, 1993, the petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioners request was denied. ISSUE: 1. Whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Republic Act No. 7160; 2. Whether the real properties of the petitioner are exempt from real property taxes. HELD: 1. On the first issue, we hold that the petitioner is a charitable institution. 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. PAGE

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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. The money received by the petitioner becomes a part of the trust fund and must be devoted to public trust purposes and cannot be diverted to private profit or benefit. 2. Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that 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. Consequently, the constitutional provision is implemented by Section 234(b) of Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as follows: SECTION 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property tax: (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes. We note that under the 1935 Constitution, ... all lands, buildings, and improvements used exclusively for charitable purposes shall be exempt from taxation. However, under the 1973 and the present Constitutions, for lands, buildings, and improvements of the charitable institution to be considered exempt, the same should not only be exclusively used for charitable purposes; it is required that such property be used actually and directly for such purposes. 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 P1,136,483.45 as PAGE

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rentals in 1991 and P1,679,999.28 for 1992 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. 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. PAGE

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Part I: General Principles

Situs of Taxation and Double Taxation

Republic Bank vs. Court of Tax Appeals


[G.R. No. 62554-55, September 02, 1992] Digest by: HATOL, Michelle Marie PONENTE: NOCON, J. FACTS: On 14 September 1971, respondent Commissioner assessed petitioner the amount of P1,060,615.06, plus 25% surcharge in the amount of P265,153.76, or a total of P1,325,768.82, as 1% monthly bank reserve deficiency tax for taxable year 1969. On 5 April 1973, respondent Commissioner assessed petitioner the amount of P1,562,506.14, plus 25% surcharge in the amount of P390,626.53, or a total of P1,953,132.67, as 1% monthly bank reserve deficiency tax for taxable year 1970. Petitioner requested reconsideration of the assessment which respondent Commissioner denied. Petitioner contends that Section 249 of the Tax Code is no longer enforceable, because Section 126 of Act 1459, which was allegedly the basis for the imposition of the 1% reserve deficiency tax, was repealed by Section 90 of Republic Act 337, the General Banking Act, and by Sections 100 and 101 of Republic Act 265. On 28 March 1973, petitioner filed a petition for review with the Tax Court, contesting the assessment for the taxable year 1969 and 1970. The cases, involving similar issues, were consolidated. After hearing, the Tax Court rendered a decision dated 30 September 1982 dismissing the petitions for review and upholding the validity of the assessments. Hence this petition; ISSUE: 1. Whether section 249 OF THE TAX CODE WHICH PROVIDES THAT THERE SHALL BE COLLECTED UPON THE AMOUNT OF RESERVE DEFICIENCIES INCURRED BY THE BANK was repealed by section 126 of the corporation law. 2. Whether there was double taxation. HELD: After a careful consideration of the facts of the case and the pertinent laws involved, We vote to deny the petition. Firstly, We would like to state that We find unfortunate petitioners act of quoting out of context the questioned provision in the Tax Code. Petitioner alleged that the second paragraph of Section 249 of the Tax Code merely states that there shall be collected x x x as provided in Section one hundred twenty one of Act numbered one thousand four hundred and fifty nine x x x one per centum per month. PAGE

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If petitioner had been candid and honest enough, it would have stated under what title and chapter of the Tax Code the second paragraph of Section 249 falls. As it then stood, the law stated: xxx TITLE VIII - MISCELLANEOUS TAXES Sec. 249. Tax on Banks. xxx xxx xxx. There shall be collected upon the amount of reserve deficiencies incurred by the bank, and for the period of their duration, as provided in section one hundred twenty six of Act numbered one thousand four hundred and fifty-nine, as amended by Act Numbered Three thousand six hundred and ten, one per centum per month. xxx xxx xxx. (As amended by Rep. Act No. 6110) As the law stood during the years the petitioner was assessed for taxes on reserve deficiencies (1969 & 1970), petitioner had to pay twice -- the first, a penalty, to the Central Bank by virtue of Section 106 for violation of Secs. 100 and 101, all of theCentral Bank Act and the second, a tax to the Bureau of Internal Revenue for incurring a reserve deficiency. As correctly analyzed by the petitioner and public respondents, the new legislations on bank reserves merely provided the basis for computation of the reserve deficiency of petitioner bank. Petitioner submits that it was not the legislative intention that banks with reserve deficiencies would pay twice as the Tax Code (CA 466, as amended by P.D. 69) enacted on January 1, 1973 did not contain said questioned provision. While petitioner might have a point, the wisdom of this legislation is not the province of the Court. It is clear from the statutes then in force that there was no double taxation involved -- one was a penalty and the other was a tax. At any rate, We have upheld the validity of double taxation. The payment of 1/10 of 1% for incurring reserve deficiencies (Section 106, Central Bank Act) is a penalty as the primary purpose involved is regulation, while the payment of 1% for the same violation (Second Paragraph, Section 249, NIRC) is a tax for the generation of revenue which is the primary purpose in this instance. Petitioner should not complain that it is being asked to pay twice for incurring reserve deficiencies. It can always avoid this predicament by not having reserve deficiencies. Petitioners case is covered by two special laws -- one a banking law and the other, a tax law. These two laws should receive such construction as to make them harmonize with each other and with the other body of pre- existing laws. PAGE

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Proctor & Gamble Philippines Manufacturing Corp. vs. Municipality of Jagna


[G.R. No. 124043 October 14, 1998] Digest by: HATOL, Michelle Marie PONENTE: MELENCIO-HERRERA, J. FACTS: Petitioner Procter and Gamble Philippines Manufacturing Corp. is a consolidated corporation of Procter and Gamble Trading Company engaged in the manufacture of soap, edible oil, margarine and other similar products. Petitioner maintains a bodega in the municipality of Jagna, where it stores copra purchased in the municipality and ships the same for its manufacturing and other operations. In 1954, the Municipal Council of Jagna enacted Ordinance 4, imposing storage fees of all exportable copra deposited in the bodega within the jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid the municipality, allegedly under protest, storage fees. In 1964, it filed suit, wherein it prayed that the Ordinance be declared inapplicable to it, and if not, that it be declared ultra vires and void. ISSUE: Whether the Ordinance is void, as it amounts to double taxation. HELD: The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon municipalities by Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the Ordinance is actually a municipal license tax or fee on persons, firms and corporations exercising the privilege of storing copra within the municipalitys territorial jurisdiction. Such fees imposed do not amount to double taxation. For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. A tax on the companys products is different from the tax on the privilege of storing copra in a bodega situated within the territorial boundary of the municipality. PAGE

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Pepsi-Cola Bottling Company vs. Municipality of Tanauan


G.R. No. L-31156 February 27, 1976] Digest by: HATOL, Michelle Marie. PONENTE: MARTIN, J.: FACTS: In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance Nos. 23 and 27 issued by the Municipality of Tanauan, Leyte as null and void. Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. On the other hand, Municipal Ordinance No. 27 levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of the municipality a tax of one centavo (P0.01) on each gallon of volume capacity. The tax imposed in both Ordinances Nos. 23 and 27 is denominated as municipal production tax. ISSUE: 1. Is Section 2 of R.A. 2264 an undue delegation of the power of taxation? 2. Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or specific taxes? HELD: 1. NO. The power of taxation is purely legislative and cannot be delegated to the executive or judicial department of the government without infringing upon the theory of separation of powers. But as an exception, the theory does not apply to municipal corporations. Legislative powers may be delegated to local governments in respect of matters of local concern. 2. NO. The Municipality of Tanauan discovered that manufacturers could increase the volume contents of each bottle and still pay the same tax rate since tax is imposed on every bottle corked. To combat this scheme, Municipal Ordinance No. 27 was enacted. As such, it was a repeal of Municipal Ordinance No. 23. In the stipulation of facts, the parties admitted that the Municipal Treasurer was enforcing Municipal Ordinance No. 27 only. Hence, there was no case of double taxation. PAGE

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Villanueva, Et Al., v City of Iloilo


[L-22405. December 28, 1968] Digest by:JHOCSON, Maria Alexandria B. PONENTE: Castro, J. FACTS: On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter. On January 15, 1960 the municipal board of Iloilo City believing that with the passage of RA 2264 (Local Autonomy Act), it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960. In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not impose tenement or apartment taxes. By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property. On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution, and that the City be ordered to refund the amounts collected from PAGE

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them under the said ordinance. On March 30, 1966, the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) RA 2264 does not empower cities to impose apartment taxes, (b) the same is oppressive and unreasonable, for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation. ISSUE: 1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation? 2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? 3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause? 4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation? HELD: 1. No. While it is true that the plaintiffs-appellees are taxable under Sec. 182 (A) (3) (s) of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof. The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a wellsettled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sense a double tax. In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax. It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of the same kind or character. At all events, there is no constitutional prohibition against double taxation in the Philippines. It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform. 2. Yes. RA 2264 confers on local governments broad taxing authority which extends to almost everything, excepting those which are mentioned therein, provided that the tax so levied is for public purposes, just and uniform, and does not transgress any constitutional provision or is not repugnant to a controlling statute. Thus, when a tax, levied under the PAGE

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auth ority of a city or muni cipal ordi nanc e, is not withi n the exce ption s and limit ation s afore ment ione d, the same com es withi n the ambi t of the gene ral rule, purs uant to the rules of expr essio uniu s est exclu sio alteri us, and exce ptio firm at regul um in casib us non exce pti. The appe llees stron gly

maintai n that it is a prope rty tax or real estate tax, and not a tax on person s engage d in any occupa tion or busines s or exercis ing privileg es, or a license tax, or a privileg e tax, or an excise tax. It is our view that the tax in questio n is not a real estate tax. A real estate tax is a direct tax on the owners hip of lands and buildin gs or other improv ements thereo n, not speciall y exempt ed, and is payabl e

rega rdles s of whet her the prop erty is used or not, altho ugh the valu e may vary in acco rdan ce with such facto r. The tax is usua lly singl e or indiv isibl e, altho ugh the land and build ing or impr ove ment s erect ed there on are asses sed sepa ratel y, exce pt whe n the land and build ing or

improv ements belong to separat e owners . It is a fixed propor tion of the assesse d value of the proper ty taxed, and require s, therefo re, the interve ntion of assesso rs. It is collecte d or payabl e at appoin ted times, and it constit utes a superio r lien on and is enforce able against the proper ty subject to such taxatio n, and not by impris onmen t of the owner. The tax impose d by the ordina nce in questio n does not posses

s the afore state d attri bute s. The subje ctmatt er of the ordi nanc e is tene ment hous es who se natu re and esse nce are expr essly set forth in secti on 2 whic h defin es a tene ment hous e as any build ing or dwel ling for renti ng spac e divid ed into sepa rate apart ment s or acce ssori as. The Supr

eme Court defined a teneme nt house as any house or buildin g, or portion thereof , which is rented, leased, or hired out to be occupie d, or is occupie d, as the home or residen ce of three familie s or more living indepe ndently of each other and doing their cookin g in the premis es or by more than two familie s upon any floor, so living and cookin g, but having a commo n right in the halls, stairwa

ys, yard s, wate rclose ts, or privi es, or some of them . Tene ment hous es, bein g nece ssari ly offer ed for rent or lease by their very natu re and esse nce, there fore cons titut ea disti nct form of busi ness or calli ng, simil ar to the hotel or mote l busi ness, or the oper ation of lodgi ng

houses or boardi ng houses. The lower court has interch angeab ly denomi nated the tax in questio n as a teneme nt tax or an apartm ent tax. Called by either name, it is not among the excepti ons listed in section 2 of the Local Autono my Act. 3. No. A tax is not a debt in the sense of an obligati on incurre d by contrac t, express or implied , and therefo re is not within the meanin g of constit utional or statuto

ry provi sions aboli shin g or proh ibitin g impr ison ment for debt, and a statu te or ordi nanc e whic h puni shes the nonpay ment there of by fine or impr ison ment is not, in confl ict with that proh ibitio n. Nor is the tax in ques tion a poll tax, for the latte r is a tax of a fixed amo unt upon all

person s, or upon all person s of a certain class, residen t within a specifie d territor y, withou t regard to their proper ty or the occupa tions in which they may be engage d. Theref ore, the tax in questio n is not oppres sive in the manne r the lower court puts it. On the other hand, the charter of Iloilo City empow ers its munici pal board to fix penalti es for violatio ns of ordina nces, which shall not exceed a fine

of two hund red peso s or six mont hs impr ison ment , or both such fine and impr ison ment for each offen se. 4. No. This Cour t has alrea dy ruled that tene ment hous es cons titut ea disti nct class of prop erty. It has like wise ruled that taxe s are unifo rm and equa l whe n impo sed upon all PAGE

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prop erty of the same class or char acter withi n the taxin g auth ority. The fact, there fore, that the own ers of othe r class es of build ings in the City of Iloilo do not pay the taxes impo sed by the ordi nanc e in ques tion is no argu ment at all agai nst unifo rmit y and equa lity of the tax impo sitio n.

Neither is the rule of equalit y and unifor mity violate d by the fact that teneme nt taxes are not impose d in other cities, for the same rule does not require that taxes for the same purpos e should be impose d in differe nt territor ial subdivi sions at the same time. So long as the burden of the tax falls equally and imparti ally on all owners or operat ors of teneme nt houses similarl y classifi ed or situate

d, equa lity and unifo rmit y of taxat ion is acco mpli shed. The plain tiffsappe llees, as own ers of tene ment hous es in the City of Iloilo , have not

shown that the tax burden is not equally or unifor mly distrib uted among them, to overthr ow the presum ption that tax statute s are intende d to operat e unifor mly and equally . PAGE

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Victorias Milling Co., v Municipality of Victoria


[G.R. No. L-21183. September 27, 1968] Digest by: JHOCSON, Maria Alexandria B. PONENTE: Sanchez FACTS: Ordinance No. 1 is an amendment to two municipal ordinances separately imposing license taxes on operators of sugar centrals and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity. The production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within the items in the schedule of Section 1(m) relating to sugar centrals and Section 2(m) covering sugar refineries of Ordinance No. 1, An Ordinance Amending Ordinance No. 25, Series of 1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on Capacity Annual Output Respectively, with specific reference to the maximum annual license tax. Plaintiff filed suit to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The trial court held that [t]here is no doubt that the ordinance in question refers to license taxes or fees, and that [i]t is settled that a license tax should be limited to the cost of licensing, regulating and surveillance. It also ruled that, if the defendant has the power to tax the plaintiff for purposes of revenue, it may do so by proper municipal legislation, but not in the guise of a license tax. Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the decision denying the refund of the license taxes paid under protest in the amount of P280,000 covering the period from the first quarter of 1957 to the second quarter of 1960; and balked at the courts order limiting refund to any and all such license taxes paid under protest after notice of this decision. Defendant, upon the other hand, challenges the correctness of the courts decision invalidating Ordinance No. 1, series of 1956. ISSUE: Whether or not there was double taxation. HELD: No. Double taxation has been otherwise described as direct duplicate taxation. For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. Double taxation has also been defined as taxing the same person twice by the same jurisdiction for the same thing. With the foregoing precepts in mind, we find no difficulty in saying that plaintiffs argument on double taxation does not inspire assent. First. The two taxes cover two different objects. Section 1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One occupation or business is different from the PAGE

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othe r. Seco nd. The disp uted taxes are impo sed on occu patio n or busi ness. Both taxes are not on suga r. The amo unt there of depe nds on the annu al outp ut capa

city of the mills concer ned, regardl ess of the actual sugar milled. Plaintif fs argume nt perhap s could make out a point if the object of taxatio n here were the sugar it produc es, not the busines s of produc ing it. PAGE

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Compania General De Tabacos De Filipinas v City of Manila, Et Al.


[G.R. No. L-16619. June 29, 1963] Digest by: JHOCSON, Maria Alexandria B. PONENTE: Dizon FACTS: Appellee Compania General de Tabacos de Filipinas (Tabacalera) filed this action in the Court of First Instance of Manila to recover from appellants, City of Manila and its Treasurer, Marcelino Sarmiento (City) the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816. Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816. In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of 1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is not denied that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to the liquor sales aforesaid. In the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view that liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance No. 3358 are not subject to the wholesale and retail dealers taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee stopped including its sales of liquor in its quarterly sworn declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301, and 3816, and on December 3, 1957, it addressed a letter to the City Treasurer demanding refund of the alleged overpayment. As the claim was disallowed, the present action was instituted. ISSUE: Is Tabacalera subjected to double taxation? HELD: No. The term tax generally applies to all kinds of exactions which become public funds. The term is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues. Ordinance No. 3358 prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured (Section 18 [p], Republic Act PAGE

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409, as amended). The license fees imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to supervision or regulation by the state and by cities and municipalities authorized to act in the premises. On the other hand, Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such merchandise (Section 10 [o], Republic Act No. 409, as amended.). Under Ordinance No. 3634 the word merchandise as employed therein clearly includes liquor. Aside from this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., that the word merchandise refers to all subjects of commerce and traffic; whatever is usually bought and sold in trade or market; goods or wares bought and sold for gain; commodities or goods to trade; and commercial commodities in general. Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which not anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may endanger public health and morals. On the other hand, what the three ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is already settled in this connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation. PAGE

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Province of Bulacan v Court of Appeals


[G.R. No. 126232. November 27, 1998] Digest by: JHOCSON, Maria Alexandria B. PONENTE: Romero FACTS: On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as An Ordinance Enacting the Revenue Code of the Bulacan Province. which was to take effect on July 1, 1992. Section 21 of the ordinance provides as follows: Sec. 21 Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction. Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated November 11, 1993, assessed private respondent Republic Cement Corporation P2,524,692.13 for extracting limestone, shale and silica from several parcels of private land in the province during the third quarter of 1992 until the second quarter of 1993. Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on quarry resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993. It was denied by the Provincial Treasurer. Republic Cement then filed a petition for declaratory relief with the RTC of Bulacan while the province filed a motion to dismiss Republic Cements petition, which was granted by the trial court. On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the trial courts dismissal of their petition. The Court referred the same to the Court of Appeals who ruled that the Province did not have legal authority to impose and assess taxes on quarry resources extracted by RCC from private lands. ISSUE: Whether or not the provincial government could impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. HELD: No. Section 186 allows a province to levy taxes other than those specifically enumerated under the Code, subject to the conditions specified therein. However, petitioners are still prohibited from imposing taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. The tax imposed by the Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity. The Local Government Code provides: Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers PAGE

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of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx xxx xxx (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; xxx xxx xxx A province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code which provides: Sec. 151. Mineral Products. (A) Rates of Tax. There shall be levied, assessed and collected on minerals, mineral products and quarry resources, excise tax as follows: xxx xxx xxx (2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the gross output thereof at the time of removal, in case of those locally extracted or produced; or the values used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and valueadded tax, in the case of importation. It is clearly apparent from the above provision that the NIRC levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the NIRC. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the LGC. As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the NIRC. PAGE

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Part I: General Principles

Forms of Escape from Taxation

Delpher Trades Corporation v. IAC and Hydro Pipes Philippines


[G.R. No. L-69259.January 26, 1988] Digest by: JULIAN, Nicole Alora G. PONENTE: Gutierrez, Jr. FACTS: Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of real estate in the Municipality of Polo. The said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee. The lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco. The contract of lease and the assignment of lease were annotated at he back of the title. The deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property together with another parcel of land also for 2,500 shares of stock of defendant corporation with a total value of P1.5M. On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the lot. ISSUE: Whether the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the Hydro Phils right of first refusal over the leased property included in the deed of exchange. HELD: No. By their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. Its other advantages are continuous control of the property, tax exemption benefits, and other inherent benefits in a corporation. The Deed of Exchange of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership PAGE

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interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal PAGE

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Heng Tong Textiles Co., Inc. v. CIR


[G.R. No. L-19737. August 26, 1968] Digest by: JULIAN, Nicole Alora G. PONENTE: Makalintal FACTS: In 1952 the then Collector of Internal Revenue assessed against the petitioner deficiency sales taxes and surcharges for the year 1949 and the first four months of 1950 in the aggregate sum of P89,123.58. The deficiency taxes in question were assessed on importations of textiles from abroad. The goods were withdrawn from Customs by Pan-Asiatic Commercial Co., Inc., which paid, in the name of the petitioner, the corresponding advance sales tax. The assessment for the deficiency, however, was made against the petitioner, Heng Tong Textiles Co., Inc. (now Philip Manufacturing Corporation) on the ground that it was the real importer of the goods and did not pay the taxes due on the basis of the gross selling prices thereof. ISSUE: Whether the petitioner was guilty of fraud so as to warrant the imposition of a penalty of 50% on the deficiency. HELD: No. The arrangement resorted to does not by itself alone justify the penalty imposed. Section 183 (a), paragraph 3, of the Internal Revenue Code, as amended by Republic Act No. 253, speaks of willful neglect to file the return or willful making of a false or fraudulent return. An attempt to minimize ones tax does not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his liability by any means which the law permits. The intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot, be justified by mere speculation. This is because fraud is never lightly to be presumed. No such evidence is shown by the record in the case of the herein petitioner. Its actuation is not incompatible with good faith on its part, that is, with a genuine belief that by indorsing the goods to Pan-Asiatic Commercial so that the latter could, as it did, take delivery thereof, Pan-Asiatic Commercial would in law be considered the importer. It may even be true, as the petitioner insists, that it was Pan-Asiatic Commercial that financed the importations but placed them in the name of the petitioner as a matter of accommodation, in which case the element of fraud would be ruled out, although from the legal viewpoint and as far as the right of the Government to collect the taxes was concerned the petitioner was the real importer and hence must shoulder the tax burden. PAGE

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CIR v. The Estate of Benigno Toda, Jr.


[G.R. No. 147188. September 14, 2004] Digest by: JULIAN, Nicole Alora G. PONENTE: Davide FACTS: On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding capital stock, to sell the Cibeles Building. On 30 August 1989, 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. Three and a half years later Toda died. On 29 March 1994, the BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment from the CIR for deficiency income tax for the year 1989. The Estate thereafter filed a letter of protest. The Commissioner dismissed the protest. On 15 February 1996, the Estate filed a petition for review with the CTA. In its decision the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. It ruled that even assuming that a preconceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. Hence, the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a petition for review with the Court of Appeals. The Court of Appeals affirmed the decision of the CTA, hence, this recourse. ISSUE: 1. Whether this a case of tax evasion or tax avoidance. 2. Whether the period for assessment of deficiency income tax for the year 1989 prescribed. 3. Whether respondent Estate be held liable for the deficiency income tax of CIC for the year 1989, if any? HELD: 1. Yes. 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. All these factors are present in the instant case. 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. Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. PAGE

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2. No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read: Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof Put differently, 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 ten years from discovery of the fraud, falsification or omission, as the case may be. 3. 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. There are, however, certain instances in which personal liability may arise, to wit: 1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons; 2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made, by specific provision of law, to personally answer for his corporate action. 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 for the 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. PAGE

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Part I: General Principles

Exemption from Taxation

Davao Gulf Lumber Corporation v. CIR


[G.R. No. 117359. July 23, 1998] Digest by: JULIAN, Nicole Alora G. PONENTE: Panganiban FACTS: From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels. Said oil companies paid the specific taxes imposed on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to the petitioner in this case. Petitioner filed before Respondent CIR a claim for refund in the amount of P120, 825.11, representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations as forest concessionaire. On January 20, 1983, petitioner filed at the CTA a petition for review. The CTA rendered its decision finding petitioner entitled to a partial refund of specific taxes in the reduced amount of P2, 923.15. In regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not on the higher rates actually paid by petitioner under the NIRC. ISSUE: Whether or not petitioner is entitled to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils. HELD: Yes, partially. At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435, which was enacted to provide means for increasing the Highway Special Fund. A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, [a] claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. PAGE

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Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue and Court of Tax Appeals
[L-19707. August 17, 1967] Digest by: MAGAT, Kristianne Santiago PONENTE: Castro FACTS: The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases, who made various sales of its products to the National Power Corporation (Phil. Gov. Agency), and to the Voice of America (US Gov. Agency). The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683, on account of which the respondent Commission of Internal Revenue assessed against, and demanded from, the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to the provisions of Secs. 183 and 186 of the National Internal Revenue Code. The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from taxation. It asked for a reconsideration of the assessment and, failing to secure one, appealed to the Court of Tax Appeals. The court ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and not on the buyer with the result that petitioner cannot claim exemption from the payment of sales tax simply because NPC is exempt from the payment of all taxes. With respect to the sales made to the VOA, the court held that goods purchased by the American Government or its agencies are exempt from the payment of the sales tax under the agreement between the Philippines and that of the United States, provided the purchases are supported by certificates of exemption. ISSUE: Whether petitioner is liable for the payment of tax on the sales it made to the NPC and the VOA because both entities are exempt from taxation. HELD: Yes. The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the sellers obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. Even if the NPC enjoys tax exemption by virtue of an act of Congress, petitioner still has to pay the tax on the sales made. PAGE

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With rega rd to petiti oner s sales to the Voic e of Ame rica, the provi sions of the agre eme nt betw een the Gove rnm ent of the Phili ppin es and the Gove rnm ent of the Unit ed State s, provi de that good s purc hase d locall y by U.S. civili an agen cies direc tly from man ufact urer s, prod

ucers or import ers shall be exempt from the sales tax, provid ed such purcha ses are suppor ted by serially umber ed Certific ates of Tax Exempt ion issued by the vendee agency. Howev er, we find nothin g in the langua ge of the Agree ment to warran t the general exempt ion grante d by that circula r. The agreem ent provid es that only sales made for exclusi ve use in the constru ction, mainte nance, operati

on or defe nse of the base s, in a word , only sales to the quar term aster , are exe mpt unde r articl eV from taxat ion. Sales of good s to any othe r part y even if it be an agen cy of the Unit

ed States, such as the VOA, or even to the quarter master but for a differe nt purpos e, are not free from the payme nt of the tax. We hold, therefo re, that sales to the VOA are subject to the payme nt of percent age taxes under section 186 of the Code. PAGE

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Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals, and Ateneo de Manila University
[G.R. No. 115349. April 18, 1997] Digest by: MAGAT, Kristianne Santiago PONENTE: Panganiban FACTS: Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches all over the Philippines, one of which is the Institute of Philippine Culture (IPC), which has no legal personality separate and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies. On July 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter assessing private respondent the sum of P174,043.97 for alleged deficiency contractors tax, and an assessment in the sum of P1,141,837 for alleged deficiency income tax, both for the fiscal year ended March 31, 1978. Private respondent denied the liability by contesting the validity of the assessments. Petitioner further modified the assessment for deficiency contractors tax by increasing the amount due to P193,475.55. Unsatisfied, private respondent requested for a reconsideration and at the same time filed in the respondent court a petition for review of the said letter-decision of the petitioner. While the petition was pending before the respondent court, petitioner reduced the assessment for deficiency contractors tax to P46,516.41, exclusive of surcharge and interest. On July 1993, the respondent court ruled that the deficiency contractors tax assessment in the amount of P46,516.41 exclusive of surcharge and interest for the fiscal year ended March 31, 1978 is cancelled. ISSUE: Whether Ateneo de Manila University, through its auxiliary unit or branch the Institute of Philippine Culture performing the work of an independent contractor and, thus, subject to the three percent contractors tax levied by then Sec. 205 of the NIRC. HELD: No. To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent contractor be engaged in the business of selling its services. We find no evidence that Ateneos Institute of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. The funds received by Ateneos Institute of Philippine Culture are not given in the concept of a fee or price in exchange for the performance of a service or delivery of an object. Rather, the amounts are in the nature of an endowment or donation given by IPCs benefactors PAGE

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solel y for the purp ose of spon sorin g or fundi ng the rese arch with no strin gs attac hed whic h are taxexe mpt. Priva te resp onde nt is man date d by law to unde rtake rese arch activ ities to main tain its univ ersit y statu s. Since it can only finan ce a limit ed num ber of IPCs rese arch proje cts,

private respon dent occasio nally accepts sponso rship for unfund ed IPC researc h project s from interna tional organiz ations, private founda tions and govern mental agencie s. It bears stressi ng that private respon dent is a nonstock, nonprofit educati onal corpor ation. The fact that it accepte d sponso rship for IPCs unfund ed project s is merely inciden tal. For, the main functio n of the IPC is to undert ake researc

h proje cts unde r the acad emic

agenda of the private respon dent. PAGE

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CaltexPhilippines, Inc.v.CommissiononAudit,Commissioner Bartolome Fernandez and Commissioner Alberto Cruz


[G.R. No. [92585. May 8, 1992] Digest by: MAGAT, Kristianne Santiago PONENTE: Davide, Jr. FACTS: In 1989, the COA sent a letter to Caltex directing it to remit to the OPSF its collection of the additional tax on petroleum products authorized under Sec. 8 of P.D. No. 1956 and informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. Thereafter, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March 1989. COA denied petitioners request for the early release of the reimbursement certificates from the OPSF. Petitioner submitted to the COA a proposal for the payment of the collections and the recovery of claims and the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the proposal but prohibiting petitioner from further offsetting remittances and reimbursements for the current and ensuing years. Pursuant to this decision, the COA, on August 18, 1989, sent the a letter to Executive Director De la Paz of the Office of Energy Affairs informing them that Caltex shall be required to remit to OPSF a certain amount representing remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted claims). In addition, the Commission authorizes the Office of Energy Affairs (OEA) to cause payment to Caltex of its claims initially allowed in audit but the disallowance includes sales to NPC, Atlas and Marcopper. It reasoned that for the sales to Atlas/Marcopper, LOI No. 1416 dated July 17, 1984 provides that I hereby order and direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect due and payable by the copper mining companies in distress to the national and local governments. It is their opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis. Petitioner filed an Omnibus Request for the Reconsideration of the decision contending that administrative interpretations are legal and should be respected and applied unless declared null and void by courts or repealed by legislation. The COA handed down Decision No. 1171 affirming the disallowance for recovery of financing charges, inventory losses, and sales to Marcopper and Atlas. ISSUE: Whether petitioner has claim for reimbursement from its sales to NPC, Atlas, and Marcopper. PAGE

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HELD: For sales to NPC, we find for the petitioner. The respondents themselves admit in their Comment that underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of taxes; to prove this, respondents trace the laws providing for such exemption. The last law cited is the Fiscal Incentives Regulatory Boards Resolution No. 17-87 of 24 June 1987 which provides, in part, that the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987. In a Memorandum issued on 5 October 1987 by the Office of the President, NPCs tax exemption was confirmed and approved. Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support the OPSF. The pertinent part of Section 2, Republic Act No. 6952 provides: Application of the Fund shall be subject to the following conditions: (1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported crude oil and finished petroleum products resulting from foreign exchange rate adjustments and/or increases in world market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation (NPC); and (c) other cost underrecoveries incurred as may be finally decided by the Supreme Court For sales to ATLAS and MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416, dated 17 July 1984. Pursuant to this LOI, then Minister of Energy issued Memorandum Circular No. 84-11-22 advising the oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are among those declared to be in distress. LOI 1416 could not have intended to exempt said distressed mining companies from the payment of OPSF dues for the following reasons: a) LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on February 25, 1987; b) LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the governments effort to prevent the collapse of the copper industry. P.D No. 1956, as amended, was issued for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products; and c) LOI 1416 caused the suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the Notional and Local Governments . . . On the other hand, OPSF dues are not payable by (sic) distressed copper companies but by oil companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil products. While LOI 1416 suspends the payment of taxes by distressed mining companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF dues. Also, it is apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil Code. Therefore it has no binding force or effect as it was never published in the Official Gazette after its issuance. PAGE

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Even granting arguendo that LOI 1416 has force and effect, petitioners claim must still fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent. In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to the payment of OPSF dues. PAGE

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Luzon Stevedoring Corp. v. Court of Tax Appeals, Commissioner of Internal Revenue


[L-30232. July 29, 1988] Digest by: MAGAT, Kristianne Santiago PONENTE: Paras FACTS: Petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review with the Court of Tax Appeals, praying that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals denied the various claims for tax refund. The Motion for Reconsideration was denied, hence, the instant petition. ISSUE: Whether petitioners tugboats can be interpreted to be included in the term cargo vessels for purposes of the tax exemption provided for in Sec. 190 of the NIRC. HELD: No. This Court has laid down the rule that as the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied. The general rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer. In order that the importations in question may be declared exempt from the compensating tax, the following requirements must be complied with: (1) the engines and spare parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or oceangoing navigation. The amendatory provisions of R.A. 3176 limit tax exemption from the compensating tax to imported items to be used by the importer himself as operator of passenger and/or cargo vessel. From the decision of the CTA, a tugboat is defined as a strongly built, powerful steam or power vessel, used for towing and, now, also used for attendance on vessel. A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. A tug is a steam vessel built for towing, synonymous with tugboat. Hence, petitioners tugboats clearly do not fall under the categories of passenger and/or cargo vessels. The Court of Tax Appeals found that no evidence was adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping industry as an independent business. On the contrary, petitioner-appellants own evidence supports the view PAGE

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that it is enga ged as a steve dore, that is, the work of unlo adin g and loadi ng of a vess el in port; and towi ng of barg es cont ainin g carg oes is a part of petiti oner s unde rtaki ng as a steve dore. In fact, even its trade nam e is indic ative

that its sole and princip al busines s is steved oring and lighter age, taxed under Section 191 of the Nation al Interna l Revenu e Code as a contrac tor, and not an entity which transp orts passen gers or freight for hire which is taxed under Section 192 of the same Code as a commo n carrier by water. PAGE

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National Development Company v. Commissioner Of Internal Revenue


[L-53961. June 30, 1987] Digest by: MAGBUHOS, Denise Dianne A. PONENTE: Chico-Nazario FACTS: National Development Company (NDC) is a domestic corporation with principal offices in Manila. It entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of twelve oceangoing vessels. Initial payments were made in cash and through irrevocable letters of credit. Fourteen promissory notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines. Thereafter, remaining payments and the interests thereon were remitted in due time by the NDC to Tokyo. After the vessels were delivered, the NDC remitted to the shipbuilders in Tokyo the interest on the balance of the purchase price. No tax was withheld. The Commissioner of Internal Revenue held that the interest remitted to the Japanese shipbuilders on the unpaid balance of the purchase price of the vessels acquired by petitioner is subject to income tax under the Tax Code. The petitioner argues that the Japanese shipbuilders were not subject to tax under the Tax Code. Petitioner contends that the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code. ISSUE: Whether petitioner should not be held liable due to the undertaking signed by the Secretary of Finance and because the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code as alleged by petitioner. HELD: No. Petitioner should be held liable. There is nothing in Section 29(b)[4] of the Tax Code exempting the interests from taxes. Furthermore in the said undertaking, petitioner has not established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any doubt concerning this question must be resolved in favor of the taxing power. It is not the NDC that is being taxed. It was the income of the Japanese shipbuilders and not the Republic of the Philippines that was subject to the tax the NDC did not withhold. In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders. PAGE

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Manila Electric Company v. Misael P. Vera


[L-29987s and L-23847. October 22, 1975] Digest by: MAGBUHOS, Denise Dianne A. PONENTE: Palma FACTS: MERALCO is the holder of a franchise by the Municipal Board of the City of Manila to Mr. Charles M. Swift and later assumed and taken over by petitioner to construct, maintain, and operate an electric light, heat, and power system in the City of Manila and its suburbs. In two separate occasions, MERALCO imported copper wires, transformers, and insulators for use in the operation of its business. The Collector of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating tax for the said importation. MERALCO claims for a refund alleging that it was exempted from such compensating tax based on paragraph 9 of its franchise. The court stated that MERALCOs claim for exemption from the payment of the compensating tax is not clear or expressed. Hence, this appeal. ISSUE: Whether or not petitioner is exempted to pay compensating tax for its purchase or receipt of commodities, goods, wares, or merchandise outside the Philippines. HELD: No. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer. In the case at bar, the Court is not aware whether or not the tax exemption provisions contained in Par. 9, Part Two of Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal franchise granted because no admissible copy of Ordinance of the said Board was ever presented in evidence by the petitioner. Furthermore there is no plain and unambiguous terms declaring petitioner MERALCO exempt from paying a compensating tax on its imports of poles, wires, transformers, and insulators. The last clause of paragraph 9 merely reaffirms, what has been expressed in the first sentence that petitioner is exempted from payment of property tax. A compensating tax is not a property tax but an excise tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. PAGE

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Ernesto M. Maceda v. Hon. Catalino Macaraig, Jr., et al.


[G.R. No. 88291. May 31, 1991 and G.R. No. 88291. June 8, 1993] Digest by: MAGBUHOS, Denise Dianne A. PONENTE: Nocon FACTS: Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic power and the production of power from other sources. Several laws were enacted granting NPC tax and duty exemption privileges such as taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities directly or indirectly, on all petroleum products used by NPC in its operation. However P.D. No. 1931 withdrew all tax exemption privileges granted in favor of government- owned or controlled corporations including their subsidiaries but empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege enjoyed the NPC under said section covers only taxes for which it is directly liable and not on taxes, which are only shifted to it. In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum products to NPC are tax-exempt, regardless of the period of delivery. Thereafter, the FIRB issued several Resolutions in different occasions restoring the tax and duty exemption privileges of NPC indefinite period due to the restoration of the tax exemption privileges of NPC, NPC applied with the BIR for a refund of Specific Taxes paid on petroleum products. On August 6, 1987, the Secretary of Justice, Opinion opined that the power conferred upon Fiscal Incentives Review Board constitute undue delegation of legislative power and, therefore, unconstitutional. However, respondents Finance Secretary and the Executive Secretary declared that NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Thereafter investigations were made for the refund of the tax payments of the NPC, which includes Millions of pesos Tax refund. Petitioner, as member of the Philippine Senate introduced as Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance. ISSUE: Whether or not respondent NPC is legally entitled to the questioned tax and duty refunds. HELD: Yes. In G.R. No. 88291 the Supreme Court ruled in favor of exempting NPC to the said taxes. Also, in G.R.No. 88291 the Supreme Court ruled in favor of respondents. NPC under the PAGE

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provi sions of its Revi sed Char ter retai ns its exe mpti on from dutie s and taxes impo sed on the petr oleu m prod ucts purc hase d locall y and used for the gene ratio n of elect ricity . Presi denti al Decr ee No. 938 ame nded the tax exe mpti on of NPC by simp lifyin g the same law in gene ral term s. It

succinc tly exempt s NPC from all forms of taxes, duties, fees, impost s, as well as costs and service fees includi ng filing fees, appeal bonds, supers edeas bonds, in any court or admini strative procee dings. the NPC electric power rates did not carry the taxes and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to the govern ment, no part thereof was recover ed

from the sale of elect ricity prod uced. As a cons eque nce, as of our most rece nt infor mati on, some P1.5 5B in clai ms repr esen t amo unts for whic h the oil supp liers and NPC are outofpock et. Ther e woul d have to be speci fic orde r to the Bure aus conc erne d for the resu mpti on of the proc

essing of these claims. constru ed against the taxpay er. In the case at bar, the Court is not aware whethe r or not the tax exempt ion provisi ons contain ed in Par. 9, Part Two of Act No. 484 of the Philipp ine Commi ssion of 1902 was incorp orated in the munici pal franchi se grante d becaus e no admissi ble copy of Ordina nce of the said Board was ever present ed in eviden ce by the petitio ner. Furthe

rmor e there is no plai n and una mbig uous term s decla ring petiti oner MER ALC O exe mpt from payi ng a com pens ating tax on its impo rts of poles , wire s, trans form ers, and insul ators . The last claus e of para grap h9 mere ly

reaffir ms, what has been express ed in the first senten ce that petitio ner is exempt ed from payme nt of proper ty tax. A compe nsating tax is not a proper ty tax but an excise tax impose d on the perfor mance of an act, the engagi ng in an occupa tion, or the enjoym ent of a privileg e. PAGE

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Commissioner Of Internal Revenue v. John Gotamco & Sons, Inc. and The Court of Tax Appeals
[L-31092. February 27, 1987] Digest by: MAGBUHOS, Denise Dianne A. PONENTE: Yap FACTS: The World Health Organization (WHO for short) is an international organization that has a regional office in Manila. An agreement was entered into between the Republic of the Philippines and the said Organization on July 22,1951. Section 11 of that Agreement provides, inter alia, that the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. The WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila. A bidding was held for the building construction. The WHO informed the bidders that the building to be constructed belonged to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore their bids must take this into account and should not include items for such taxes, licenses and other payments to Government agencies. Thereafter, the construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of for the 3% contractors tax plus surcharges on the gross receipts it received from the WHO in the construction of the latters building. WHO. The WHO issued a certification that the bid of John Gotamco & Sons, should be exempted from any taxes in connection with the construction of the World Health Organization office building because such can be considered as an indirect tax to WHO. However, The Commissioner of Internal Revenue contends that the 3% contractors tax is neither a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered by the tax exemption agreement. ISSUE: Whether or not the said 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO by the government. HELD: Yes. The 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO. Hence, petitioner cannot be held liable for such contractors tax. The Supreme Court explained that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. While it is true that the contractors tax is payable by the contractor, however in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax against the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. PAGE

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Commissioner Of Internal Revenue v. Court of Appeals and YMCA


[G.R. No. 124043. October 14, 1998] Digest by: MALAMUG, Jena Lemienne Mae A. PONENTE: Pabganiban FACTS: Young Mens Christian Association of the Philippines, Inc. (YMCA) is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. For the income earned from leasing its facilities to small shop owners and the operation of the parking lot, the commissioner of internal revenue (CIR) issued an assessment for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA protested to the assessment claiming that it is exempted from the income on rentals of small shops and parking fees. The Court of Tax Appeals (CTA) and the Court of Appeals (CA) ruled in favor of YMCA, holding that the latter is tax exempted on income it derived from renting out its real property on the ground that the income is not collected for profit but is merely incidental to its operation. Hence this petition for review on certiorari. ISSUE: Whether or not the income derived from rentals of real property owned by the YMCA is subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution. HELD: Yes. Under Section 27 of the NIRC, 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 the income is used- whether for profit of for lofty non-profit purposes. This is contrary to the argument of YMCA that the income from the properties must arise from activities conducted for profit before it may be considered taxable. On the other hand, YMCA in invoking Article VI, Section 28 of paragraph 3 of the Constitution, failed to prove by 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 actually, directly and exclusively for educational purposes. The school system, under the Education Act of 1982, is synonymous with formal education, which refers to the hierarchically structured and chronological graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels. With regard to the second requirement, YMCA did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively used for educational purposes. PAGE

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Nitafan vs. Commissioner of Internal Revenue


[G.R. No. L-78780. July 23, 1987] Digest by: MALAMUG, Jena Lemienne Mae A. PONENTE: Melencio-Herrera FACTS: David Nitafan, Wenceslao Polo and Maximo Savellano, Jr., duly appointed and qualified judges of the Regional Trial Court, seek to prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court from making any deduction of withholding taxes from their salaries. They submit that any tax withheld from their emoluments or compensation as judicial officers constitutes a decrease or diminution of their salaries, contrary to the provision of Section 10, Article VIII of the Constitution mandating that during their continuance in office, their salary shall not be decreased. In addition, said contention was in line with the ruling on Perfecto vs. Meer and Endencia vs. David, declaring the salaries of members of the Judiciary exempt from payment of the income tax and considered such payment as a diminution of their salaries during their continuance in office. ISSUE: Whether or not the salaries of Justices and Judges are subject to income tax law. HELD: Yes. The payment of income tax, which is applicable to all income earners, by Justices and Judges does not fall within the constitutional protection against decrease of their salaries during their continuance in office. The true intent of the framers of the 1987 Constitution was to make the salaries of members of the Judiciary taxable. The matter of tax exemption from tax of the salary of justices violates the principles of the uniformity of taxation and the principle of equal protection of the law. PAGE

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Province of Abra vs. Hernando


[G.R. No. L-49336. August 31, 1981] Digest by: MALAMUG, Jena Lemienne Mae A. PONENTE: Fernando FACTS: The Province of Abra sought to tax the real properties of Roman Catholic Bishop of Bangued, Inc. However, the latter was desirous of being exempted from real estate tax claiming that the properties including their produce are actually, directly and exclusively used by them for religious or charitable purposes. They invoked Section 17, paragraph 3, Article VII of the 1973 Constitution. The declaratory relief prayed was granted by the CFI presiding judge Hon. Harold Hernando without any hearing. Hence, this instant petition for certiorari and mandamus by the Province of Abra. ISSUE: Whether or not the properties of Roman Catholic Bishop of Bangued, Inc. must be shown to have been actually and directly used for religious or charitable purposes to be exempted from real estate tax. HELD: Yes. To be exempt under the Constitution, lands, buildings and improvements of religious and charitable institutions must not only be exclusively but also actually and directly used for religious and charitable purposes. PAGE

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Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation


[G.R. No. 54908. January 22, 1990] Digest by:MALAMUG, Jena Lemienne Mae A. PONENTE: Regalado FACTS: Atlas Consolidated Mining and Developmentt Corporation(Atlas)entered into a Loan and Sales Contract with Mitsubishi Metal Corporation. Under the said contract, in consideration of the loan amounting to $20,000,000.00, Atlas undertook to sell all the copper concentrates produced by the new concentrator to Mitsubishi. Thereafter, application of Mitsubishi for a loan with the Export-Import Bank of Japan was granted subject to the condition that Mitsubishi would use the amount as a loan to Atlas and as a consideration for importing copper concentrates from Atlas. Pursuant to the contract, Atlas made interest payments to Mitsubishi for the years 1974 and 1975. The corresponding 15% tax thereon was withheld pursuant to Section 24(b) (1) and Section 53 (b) (2) of the National Internal Revenue Code. A claim for tax credit was then made by herein private respondents so that the amount previously withheld be applied against their existing and future tax liabilities. But the Commissioner of Internal Revenue failed to act on the claim for tax credit. On the other hand, the Court of Tax Appeals granted a tax credit to Atlas declaring that Mitsubishi was a mere agent of Eximbank, which is a financing institution owned and controlled and financed by the Japanese Government. Hence, this petition for review. ISSUE: 1. Whether or not Mitsubishi is a mere conduit of Eximbank which will then be considered as the creditor whose investments in the Philippines on loans are exempt from taxes under the code. 2. Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29 (b) (7) (A) of the tax code. HELD: 1. No. The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the contract of loan and Atlas as the seller of the copper concentrates. While the loans were secured by Mitsubishi as a loan to and in consideration for importing copper concentrates from Atlas, the fact remains that it was a loan by Eximbank of Japan to Mitsubishi and not to Atlas. The transaction between Mitsubishi and Eximbank of Japan was a distinct and separate contract from that entered into by Mitsubishi and Atlas. 2. No. The provision of the National Internal Revenue Code relied upon is Section 29 (b) (7) (A), 6 which excludes from gross income: (A) Income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in the Philippines by (1) foreign governments, (2) financing institutions PAGE

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own ed, contr olled , or enjo ying refin anci ng from them , and (3) inter natio nal or regio nal finan cing instit ution s esta blish ed by gove rnm ents. Here in priva te resp onde nts are not even amo ng the entiti es whic h, unde r Secti on 29 (b) (7) (A) of the tax code, are entitl ed to exe

mption and which should indispe nsably be the party in interes t in this case. It is a settled rule that that laws grantin g exempt ion from tax are constru ed strictis simi juris against the taxpay er and liberall y in favor of the taxing power. Taxatio n is the rule and exempt ion is the excepti on. The taxabili ty of a party cannot be blandly glossed over on the basis of a suppos ed broad, pragma tic analysi s

alon e with out subs tanti al supp ortiv e evid ence. PAGE

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31s
t

Inf ant ry Po st Exc ha ng ev Po sad as


[G.R. No. 3340 3 Sept emb er 4, 1930 ] Dige st by: : MAN ALO, Sam anth a Grac e N. PON ENT E: Malc olm FAC TS: Petit ioner is a post exch ange in acco rdan ce with the Arm y Regu latio ns and the laws

of the US. It is designe d for the accom modati on, conven ience and assista nce of the Armys person nel. All the goods purcha sed are intende d for resale and are in fact resold to the officers , soldier s and civilian employ ees of the Army, and their family. The net procee ds derived from the resale do not accrue to the general funds of the US but are used for the better ment of the Army person nel. The Exchan ge

mad hants e who purc made hase the s of sales of vario the us commo and dities, diver etc. se taxes at com the modi rate of ties, % on good the s, gross ware value s and in merc money hand of the ise commo from dities, vario etc. us sold by merc them hant to the s of Exchan the ge. It Phili intends ppin to es. collect The the CIR same colle from ctor, the herei Exchan n ge. The resp Exchan onde ge nt, made a have formal colle legal cted protest from . the ISSUE said : merc Whether or not a tax may be levied by the Government of the Philippine Islands on sales made by merchants to Post Exchanges of the United States Army in the Philippines. HELD: Yes. Philippine law as thus enacted and expressly confirmed by the Congress, makes particular mention of the persons exempt from this tax, without, however, including in the enumeration commercial transactions with Army Post Exchanges. The sale of merchandise through the post exchanges to the individuals of the United States Army and Navy are not goods sold and delivered directly to the United States Army or Navy for the actual use or issue by the Army or Navy and are therefore, not exempt from the payment of the internal revenue tax imposed by the law. Since no law of the Congress forbids the taxation of merchants who deal with Army Post Exchanges, and since the Congress has legalized the applicable law, and in doing so has granted no immunity from taxation to merchants who deal with Army Post Exchanges, the Congress has permitted such transactions with Army Post Exchanges, on the assumption that Post Exchanges are agencies of the United States, to be taxed by the Philippine Government. PAGE

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PLDT v City of Davao


[G.R. No. 143867. August 22, 2001] Digest by: : MANALO, Samantha Grace N. PONENTE: Mendoza FACTS: On 1999, PLDT applied for a Mayors Permit to operate its Davao Metro Exchange but respondent City of Davao withheld action on the application pending payment by petitioner of the local franchise tax in the for the first to the fourth quarter of 1999. Petitioner protested the assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the year 1997 and the first to the third quarters of 1998. It contented that it was exempt from the payment of franchise tax by virtue of Sec 12 of RA 7082 which states that it shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof . . . PLDT also became automatically covered by the tax exemption provisions of Public Telecommunications Policy Act of the Philippines (RA 7925) particularly Sec. 23, providing for the equality of treatment in the telecommunications industry, which took effect on March 1995. Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs upon the effectivity of RA 7925. The City Treasurer denied the protest and claim for tax refund of PLDT by virtue of an ordinance imposing a tax on a business enjoying a franchise, at a rate of 75% on 1% of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. ISSUE: Whether or not, after the withdrawal of its exemption by virtue of Sec. 137 of the LGC, petitioner has again become entitled to exemption from local franchise tax. HELD: No. PLDT justifies its claim of exemption by strained inferences particularly on R.A. No. 7925. The term exemption under Sec. 23 thereof is too general. The thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities and thus promote a level playing field in the telecommunications industry. There is nothing in the language of Sec.23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC. In approving 23 of R.A. No. 7925 Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws PAGE

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gran ting tax exe mpti ons and the rule that doub ts shou ld be resol ved in favor of muni cipal corp orati ons in inter preti ng statu tory provi sions on muni cipal taxin

g powers , we hold that 23 of R.A. No. 7925 cannot be conside red as having amend ed petitio ners franchi se so as to entitle it to exempt ion from the imposit ion of local franchi se taxes. PAGE

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Sea Land Services, Inc. v CA


[G.R. No. 122605. April 30, 2001] Digest by: : MANALO, Samantha Grace N. PONENTE: Pardo FACTS: Sea Land entered into a contract with the United States Government to transport military household goods and effects of U. S. military personnel assigned to the Subic Naval Base. During the 1984 taxable year, it filed with the BIR the corresponding ITR and paid the income tax due thereon as required in Sec25 (a)(2) of the NIRC in relation to the RP-US Tax Treaty. However, Sea Land claimed that it paid the same by mistake and a written claim for refund was filed with the BIR. But before the refund could be acted upon by the CIR, Sea Land filed a petition for review before the CTA to judicially pursue its claim for refund and to stop the running of the twoyear prescriptive period under the then Section 243 of the NIRC. The CTA denied its claim for refund. ISSUE: Whether or not the income that petitioner derived from services in transporting the household goods and effects of U. S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RPUS Military Bases Agreement. HELD: No. Under Article XII (4) of the RP-US Military Bases Agreement, the Philippine Government agreed to exempt from payment of Philippine income tax nationals of the United States, or corporations organized under the laws of the United States, residents in the United States in respect of any profit derived under a contract made in the United States with the Government of the United States in connection with the construction, maintenance, operation and defense of the bases. It is obvious that the transport or shipment of household goods and effects of U. S. military personnel is not included in the term construction, maintenance, operation and defense of the bases. Neither could the performance of this service to the U. S. government be interpreted as directly related to the defense and security of the Philippine territories. PAGE

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MERALCO v Province of Laguna


[G.R. No. 131359. May 5, 1999] Digest by: : MANALO, Samantha Grace N. PONENTE: Vitug FACTS: Prior to the enactment of the Local Government Code of 1991 (RA 7160), MERALCO has been granted a franchise for the supply of electric power in various municipalities of Laguna. Upon enactment of the said code enjoining LGUs to create their own sources of revenue and to levy taxes, it enacted Ordinance No. 01-92 imposing a tax on business enjoying a franchise at a rate of 50%of 1% of the gross annual receipts xxx. Meralco paid the tax under protest. A formal claim of refund was then sent by Meralco to the Provincial Treasurer claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. Section 1 of PD 551 provides that, xxx any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current. Such claim for refund was denied. ISSUE: Whether or not the imposition of a franchise tax under the Provincial Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and Section 1 of Presidential Decree No. 551. HELD: No. While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires. PAGE

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Tiu vs. Court of Appeals


[G.R. No. 127410. January 20, 1999] Digest by: : MEJIA, Daryll Margaret V. PONENTE: Panganiban FACTS: On March 13, 1992, Congress, with the approval of the President, passed into law RA 7227 entitled An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes. In order the it shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments, the Subic Special Economic Zone is given special privileges, one of which is that no taxes, local and national, shall be imposed within the Subic Special Economic Zone. On June 10, 1993, then President Fidel V. Ramos issued Executive Order No. 97 (EO 97), clarifying that the tax and duty-free importations shall apply only to raw materials, capital goods and equipment brought in by business enterprises into the SSEZ. And that except for these items, importations of other goods into the SSEZ, whether by business enterprises or resident individuals, are subject to taxes and duties under relevant Philippine laws. The EO also provided that the Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ [Subic Special Economic and Free Port Zone]. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free. Consumption items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes and duties, except as may be provided. The Court of Appeals further justified the limited application of the tax incentives as being within the prerogative of the legislature, pursuant to its avowed purpose [of serving] some public benefit or interest. ISSUE: Whether EO 97-A discriminated against them, without reasonable or valid standards, in contravention of the equal protection guarantee. HELD: No. The fundamental right of equal protection of the laws is not absolute, but is subject to reasonable classification. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another. The classification must also be germane to the purpose of the law and must apply to all those PAGE

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belonging to the same class. Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. From the very title itself, it is clear that RA 7227 aims primarily to accelerate the conversion of military reservations into productive uses. Obviously, the lands covered under the 1947 Military Bases Agreement are its object. Thus, the law avows as one of its policies is to encourage the active participation of the private sector in transforming the Clark and Subic military reservations and their extensions into other productive uses. More so, the law declared it a policy to develop the zone into a self-sustaining, industrial, commercial, financial and investment center. In furtherance of such objective, Congress deemed it necessary to extend economic incentives to attract and encourage investors, both local and foreign. Among such enticements are: (1) a separate customs territory within the zone, (2) tax-and-duty-free importations and (3) restructured income tax rates on business enterprises within the zone. Certainly, there are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called secured area and the present business operators outside the area. On the one hand, we are talking of billion-peso investments and thousands of new jobs. On the other hand, definitely none of such magnitude. The classification occasioned by EO 97-A was not unreasonable, capricious or unfounded. To repeat, it was based, rather, on fair and substantive considerations that were germane to the legislative purpose. PAGE

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Mactan Cebu Interational Airport Authority vs. Marcos


[G.R. No. 120082. September 11, 1996] Digest by: : MEJIA, Daryll Margaret V. PONENTE: Davide, Jr FACTS: Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City and such other airports as may be established in the Province of Cebu. Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter: Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities. On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner. Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions and that unless otherwise provided, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy on taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. The petitioner was compelled to pay its tax account under protest and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu. Respondent City, however, asserted that MCIAA is not an instrumentality of the government but merely a governmentowned corporation performing proprietary functions. ISSUE: Whether the MCIAA as an instrumentality of the government is exempted from payment of realty taxes as imposed by the City of Cebu. HELD: There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the PAGE

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pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution. The taxes, fees or charges, as provided by Section 133 of the Local Government Code, referred to are of any kind; hence, they include all, unless otherwise provided by the LGC. Reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, taxes, fees and charges of any kind on the National Government, its agencies and instrumentalities, and local government units; however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person, as provided in item (a) of the first paragraph of Section 234. As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. Even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already become, even if it be conceded to be an agency or instrumentality of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner. PAGE

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Commissioner of Internal Revenue v. Robertson


[G.R. No. L-70116-19, August 12, 1986] Digest by: : MEJIA, Daryll Margaret V. PONENTE: Paras FACTS: Petition for Review of the consolidated decision dated 14 December 1984 of the Court of Tax Appeals cancelling the assessments for deficiency income tax for taxable years 1969- 1972, inclusive of interests and penalties against the respondents Frank Robertson (CTA Case No. 2735), James Robertson (CTA CASE No. 2736), Robert H. Cathey (CTA Case No. 2738) and John Garrison (CTA CASE No. 2739). Respondents are all American Citizens who were all assigned at the U.S. Naval Base, Subic Bay, Philippines. The Court a quo after due hearing, rendered its judgment in favor of respondents cancelling and setting aside the assessments for deficiency income taxes of respondents for the taxable years 1969-1972, inclusive of interests and penalties. Pursuant to Article XII, Par. 2, of the RP-US Military Bases Agreement of 1947, quoted as follows: 2. No national of the United States serving in or employed in the Philippines in connection with the construction, maintenance, operation or defense of the bases and residing in the Philippines by reason only of such employment, or his spouse and minor children and dependent parents of either spouse, shall be liable to pay income tax in the Philippines except in respect of income derived from Philippine sources or sources other than the United states sources. Petitioner, to support his contentions, argues that the laws granting tax exemptions must be construed in strictissimi juris against the taxpayer, and that the burden of proof is private respondents, Frank Robertson, James W. Robertson, Robert H. Cathey and John L. Garrison to establish that their residence in the country is by reason only of their employment in connection with the construction, maintenance, operation or defense of the U.S. ISSUE: Whether the respondents were able to sufficiently discharge the burden of proof by establishing their residence and employment. HELD: The law and the facts of the case are so clear that there is no room left for Us to doubt the validity of private respondents defense. In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement he must be a national of the United States employed in connection with the construction, maintenance, operation or defense, of the bases, residing in the Philippines by reason of such employment, and the income derived is from the U.S. Government (Art. XII par. 2 of PI-US Military Bases Agreement of 1947). Said circumstances are all present in the case at bar. PAGE

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It bears repeating as so disclosed in the records that the petitioners together with families upon repatriation in 1945 had since acquired domicile and residency in the United States. And, obtained employment with the United States Federal Service. Not until after several years of a hiatus, petitioners did return to the Philippines not so much of honoring a pledge nor of sentimental journey but by reason of taking up assigned duties with the United States military bases in the Philippines where they were gainfully employed by the U.S. Federal Government. It appeals too much of a stretch to hold petitioners straight-jacketed to an irreversible situs of birth constraint and by reason thereof deny altogether any opportunity to a serendipitous enjoyment of a tax relief accorded in the Agreement. Such a random quirk of pirouette in the tax treatment falls sharply at odds with the shared expectations of the high contracting parties. This Court will not deem itself authorized to depart from the plain meaning of the tax exemption provision, so explicit in terms and so searching in extent. PAGE

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Basco v. PAGCOR
[G.R. No. 91649 May 14, 1991] Digest by: : MEJIA, Daryll Margaret V. PONENTE: Paras FACTS: The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines. Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law. To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal Revenue and the Bureau of Customs. But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is null and void for being contrary to morals, public policy and public order, monopolistic and tends toward crony economy, and is violative of the equal protection clause and local autonomy. Petitioner refers to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local. as violative of the principle of local autonomy. ISSUE: Whether the establishment of PAGCOR pursuant to P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees and that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. HELD: Their contention stated hereinabove is without merit for the following reasons: (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it. Its power to tax therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the inherent power to tax. (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that municipal corporations are mere creatures of Congress which has the power to PAGE

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create and abolish municipal corporations due to its general legislative powers. Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. Therefore, only the National Government has the power to issue licenses or permits for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of licenses or permits is no longer vested in the City of Manila. (d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. PAGE

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Republic of the Philippines v. Intermediate Appellate Court


[G.R. No. L-69344 April 26, 1991] Digest by: : NIEVA, Aubin Arn R. PONENTE: Grino- Aquino FACTS: The Republic through the Bureau of Internal Revenue instituted an action against the spouses Pastors for deficiency income taxes for the years 1955 to 1959 in the amount of P17,117.08 with a 5% surcharge and 1% monthly interest, and costs. The Pastors filed an answer admitting there was an assessment against them of P17,117.08 for income tax deficiency but denying liability therefor. They contended that they had availed of the tax amnesty under P.D.s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes amounting to P10,400 or 10% of their reported untaxed income under P.D. 23, P2,951.20 or 20% of the reported untaxed income under P.D. 213, and a final payment on October 26, 1973 under P.D. 370 evidenced by the Governments Official Receipt No. 1052388. Consequently, the Government is in estoppel to demand and compel further payment of income taxes by them. The trial court rendered a decision on February 28, 1980, holding that the defendants spouses had settled their income tax deficiency for the years 1955 to 1959, not under P.D. 23 or P.D. 370, but under P.D. 213, as shown in the Amnesty Income Tax Returns Summary Statement and the tax Payment Acceptance Order for P2,951.20 with its corresponding official receipt, which returns also contain the very assessment for the questioned years. By accepting the payment of the amnesty income taxes, the Government, therefore, waived its right to further recover deficiency incomes taxes. ISSUE: Whether or not the tax amnesty payments made by the private respondents on October 23, 1973 bar an action for recovery of deficiency income taxes under P.D.s Nos. 23, 213 and 370. HELD: The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly declares. Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct, since the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No. 213, and were granted not merely an exemption, but an amnesty, for their past tax failings, the Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. PAGE

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The finding of the appellate court that the deficiency income taxes were paid by the Pastors, and accepted by the Government, under P.D. 213, granting amnesty to persons who are required by law to file income tax returns but who failed to do so, is entitled to the highest respect and may not be disturbed except under exceptional circumstances. PAGE

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Commissioner of Internal Revenue v. Court of Appels


[G.R. No. 108358 January 20, 1995] Digest by: : NIEVA, Aubin Arn R. PONENTE: Vitug FACTS: Executive Order No. 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donors taxes and taxes on business, for the taxable years 1981 to 1985. R.O.H. Auto Products Philippines, Inc., availed of the amnesty and filed, in October 1986 and November 1986, its Tax Amnesty Return No. 34-F-00146-41 and Supplemental Tax Amnesty Return No. 34-F-00146-64-B, respectively, and paid the corresponding amnesty taxes due. Petitioner Commissioner of Internal Revenue, in a communication received by private respondent on 13 August 1986, assessed the latter deficiency income and business taxes for its fiscal years ended 30 September 1981 and 30 September 1982 in an aggregate amount of P1,410,157.71. The taxpayer wrote back to state that since it had been able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The contention of the petitioner was that the amnesty coverage was to be to include only assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments theretofore made. The CA ruled that in examining carefully the words used in Executive Order No. 41, as amended there is nothing which justifies petitioner Commissioners ground for denying respondent taxpayers claim to the benefits of the amnesty law. ISSUE: Whether or not said deficiency assessments in question were extinguished by reason or private respondents availment of executive order no. 41 as amended by Executive Order no. 6. HELD: We agree with both the court of Appeals and court of Tax Appeals that Executive Order No. 41 is quite explicit and requires hardly anything beyond a simple application of its provisions. If, as the Commissioner argues, Executive Order No. 41 had not been intended to include 1981-1985 tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it. PAGE

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A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate. PAGE

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Part I: General Principles

Nature , Construction, Application & Sources of tax Laws

Hilado v. Commissioner of Internal Revenue


[G.R. No. L-9408. October 31, 1956.] Digest by: : NIEVA, Aubin Arn R. PONENTE: Bautista FACTS: On March 31, 1952, Petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. Through the collector, the secretary of finance issued general circular V-139 which revoked and declared void circular V123. It provided that losses of property which occurred in world war II from fire, storms and shipwreck or from other casualty like robbery of theft or embezzlement in the year of actual loss or destruction of property. The deductions were later on disallowed. ISSUE: Can Hilado claim compensation for destruction of his property during the war under the laws in effect at that time? HELD: Petitioners contention that during the last war and as a consequence of enemy occupation in the Philippines there was no taxable year within the meaning of our internal revenue laws because during that period the y were unenforceable, is without merit. Philippine Internal Revenue laws are not political in nature and as such were continued in force during enemy occupation and in effect were actually enforced by the occupying government. Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the end of 1945, there was no law which Hilado could claim for the destruction of his properties during the liberation of our country. Under the Philippine rehabilitation act of 1948, the payment of claims by the War damage Commission depended upon its discretion. Non-payment of which does not give rise to any enforceable right. Furthermore, it is a legal maxim, that excepting that of a political nature, Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty. It seems too clear for serious argument that an administrative officer cannot change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due. PAGE

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Misamis Oriental Assoc. of CoCo Traders, Inc. vs. Department of Finance Secretary
[G.R. No. 108524 November 10, 1994] Digest by: : NIEVA, Aubin Arn R. PONENTE: Mendoza FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. Under 103(a), as above quoted, the sale of agricultural non-food products in their original state is exempt from VAT only if the sale is made by the primary producer or owner of the land from which the same are produced. The sale made by any other person or entity, like a trader or dealer, is not exempt from the tax. On the other hand, under 103(b) the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution regardless of who the seller is. Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the competent government agency to determine the proper classification of food products. On the other hand, the respondents argue that the opinion of the BIR, as the government agency charged with the implementation and interpretation of the tax laws, is entitled to great respect. ISSUE: Whether or not the contention of the Commissioner is correct. HELD: It is correct. we find no reason for holding that respondent Commissioner erred in not considering copra as an agricultural food product within the meaning of 103(b) of the NIRC. As the Solicitor General contends, copra per se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra for food. That previous Commissioners considered it so, is not reason for holding that the present interpretation is wrong. The Commissioner of Internal Revenue is not bound by the ruling of his predecessors. To the contrary, the overruling of decisions is inherent in the interpretation of laws. Petitioner likewise claims that RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original PAGE

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state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers. The argument has no merit. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. is finally argued that RMC No. 47-91 is counterproductive because traders and dealers would be forced to buy copra from coconut farmers who are exempt from the VAT and that to the extent that prices are reduced the government would lose revenues as the 10% tax base is correspondingly diminished. This is not so. The sale of agricultural non-food products is exempt from VAT only when made by the primary producer or owner of the land from which the same is produced, but in the case of agricultural food products their sale in their original state is exempt at all stages of production or distribution. At any rate, the argument that the classification of copra as agricultural non-food product is counterproductive is a question of wisdom or policy which should be addressed to respondent officials and to Congress. PAGE

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Commissioner of Internal Revenue v. Court of Appeals


[G.R. No. 117982. February 6, 1997] Digest by: : ONG, Fina N. PONENTE: BELLOSILLO, J.: FACTS: The present case arose from the discrepancy in the taxable base on which the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated 4 October 1988 which excluded the VAT from the tax base in computing the fifteen percent (15%) excise tax due; and, (2) BIR Ruling 017-91 dated 11 February 1991 which included back the VAT in computing the tax base for purposes of the fifteen percent (15%) ad valorem tax. Alhambra industries, Inc. (Alhambra) is a domestic corporation engaged in the manufacture and sale of cigar and cigarette products. On May 7, 1991 private respondent received a letter dated April 26, 1991 from the Commissioner of Internal Revenue assessing its deficiency Ad Valorem Tax (AVT) in the total amount of P488,396.62, inclusive of increments, on the removals of cigarette products from their place of production during the period Nov. 2, 1990 to January 22, 1991. Alhambra filed protest against amount assessed by the CIR, however, it was denied by the latter at the same time increasing the amount assessed to P520,835.29. Alhambra filed a petition for review with the CTA, despite payment under protest the amount of P520,835.29. On December 1, 1993, CTA ordered petitioner to refund said amount to Alhambra. ISSUE: The main contention is whether the new ruling should be given retroactive effect thus, in effect revoking the tax exemption given to the petitioner in the first BIR ruling. HELD: The court held in the negative. In its ruling, it states that well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Section 246 provides for the Non-retroactivity of rulings.- Any revocation, modification, or reversal of any rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or c) where the taxpayer acted in bad faith. PAGE

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Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it would be assessed deficiency excise tax as bad faith is also absent. PAGE

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Commissioner of the Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc.
[GR L-23771, 4 August 1988] Digest by: : ONG, Fina N. PONENTE: Sarmiento, J: FACTS: Lingayen Gulf Electric Power operates an electric power plant serving the municipalities of Lingayen and Binmaley, Pangaisnan, pursuant to municipal franchise granted it by the respective municipal councils. The franchises provided that the grantee shall pay quarterly to the Provincial Treasury of Pangasinan 1% of the gross earnings obtained through the privilege for the first 20 years (from 1946), and 2% during the remaining 15 years of the life of the franchise. In 1948, the Philippine President approved the franchise (RA 3843). In 1955, the BIR assessed and demanded against the company deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from 1948 to 1954. The company asked for a reinvestigation, which was denied. ISSUE: Whether or not the 5% franchise tax prescribed in Section 259 of the National Internal Revenue Code assessed against the private respondent on its gross receipts realized before the effectivity of R.A- No. 3843 is collectible. HELD: The court held in negative. R.A. No. 3843 granted the private respondent a legislative franchise in June, 1963, amending, altering, or even repealing the original municipal franchises, and providing that the private respondent should pay only a 2% franchise tax on its gross receipts, in lieu of any and all taxes and/or licenses of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national, now or in the future and effective further upon the date the original franchise was granted, no other tax and/or licenses other than the franchise tax of two per centum on the gross receipts shall be collected, any provision of law to the contrary notwithstanding. Thus, by virtue of R.A- No. 3843, the private respondent was liable to pay only the 2% franchise tax, effective from the date the original municipal franchise was granted. PAGE

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ABS-CBN Broadcasting Corporation v. Court of Tax Appeals


[G.R. No. L-52306 October 12, 1981] Digest by: : ONG, Fina N. PONENTE: MELENCIO-HERRERA, J.: FACTS: ABS-CBN is engaged in the business of telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or business within the Philippines. The applicable law with the income tax of non-resident corporations is section 24 (b) of the National Internal Revenue Code, as amended by Republic Act No. 2343 dated June 20, 19598. On April 12, 1961, in implementation of said provision, the CIR issued General Circular No. V-334. Pursuant to the foregoing, ABS-CBN dutifully withheld and turned over to the BIR the amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade or business within the Philippines. The last year that ABS-CBN withheld taxes pursuant to the foregoing Circular was in 1968. On June 27, 1968, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 % and revising the tax basis from such amount referring to rents, etc. to gross income. On February 8, 1971, the CIR issued Revenue Memorandum Circular No. 4-71, revoking General Circular No. V334, and holding that the latter was erroneous for lack of legal basis, because the tax therein prescribed should be based on gross income without deduction whatever. On the basis of this new Circular, CIR issued against ABS-CBN a letter of assessment and demand requiring them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968 and film royalty as of the end of 1968 in the total amount of P525,897.06. ISSUE: Whether or not respondent can apply General Circular No. 471 retroactively and issue a deficiency assessment against petitioner in the amount of P 525, 897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and 1968. HELD: The court held in negative. Sec. 338-A (now Sec. 327) of the Tax Code applies in this case. Rulings or circulars promulgated by the CIR have no retroactive application where to so apply them would be prejudicial to taxpayers. The retroactive application of Memorandum Circular No. 4-71 prejudices ABS-CBN since: a) It was issued only in 1971, or 3 years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. PAGE

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b) The assessment and demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. c) ABS-CBN was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as the enumerated exceptions (to non-retroactivity) are concerned, ABSCBN does not fall under any of them. PAGE

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Philippine Bank of Communications v. Commissioner of Internal Revenue


[G.R. No. 112024. January 28, 1999] Digest by: : ONG, Fina N. PONENTE: Quisumbing FACTS: The case is about the validity of the administrative guidelines issued by the commissioner of internal revenue altering the 2-year prescriptive period imposed by law to 10-year prescriptive period. Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00 by applying PBComs tax credit memos for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered net loss of P25,317,228.00, thereby showing no income tax liability in its Annual Income Tax Returns for the year-ended December 31, 1985. For the succeeding year, ending December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: Philippine Bank of Communications vs. Commissioner of Internal Revenue. The CTA decided in favor of the BIR on the ground that the Petition was filed out of time as the same was filed beyond the two-year reglementary period. A motion for Reconsideration was denied and the appeal to Court of Appeals was likewise denied. Thus, this appeal to Supreme Court. ISSUE: Whether or not Revenue Regulations No. 7-85 which alters the reglementary period from two (2) years to ten (10) years is valid. PAGE

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HELD: RR 7-85 altering the 2-year prescriptive period imposed by law to 10-year prescriptive period is invalid. Administrative issuances are merely interpretations and not expansions of the provisions of law, thus, in case of inconsistency, the law prevails over them. Administrative agencies have no legislative power. When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it issued guidelines contrary to the statute passed by Congress. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute. PAGE

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Part I: General Principles

Power TO Tax Involves The Power To Destroy

Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd.


[G.R. No. L-68252. May 26, 1995] Digest by: : ONG, Ruth Ann PONENTE: Puno FACTS: Private respondent, Tokyo Shipping Co. Ltd, is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Inc. It owns and operates tramper vessel M/V Gardenia. In December 1980, NASUTRA chartered M/V Gardenia to load 16,500 metric tons of raw sugar in the Philippines. On December 23, 1980 Mr. Edilberto Lising, the operations supervisor of Soriamont Agency, paid the required income and common carriers taxes in the sum total of P107,142.75 based on the expected gross receipts of the vessel. Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981, NASUTRA and private respondents agent mutually agreed to have the vessel sail for Japan without any cargo. Claiming the pre-payment of income and common carriers taxes as erroneous since no receipt was realized from the charter agreement private respondent instituted a claim for tax credit or refund of the sum of P107,142,75 before petitioner Commissioner of Internal Revenue on March 23, 1981. Petitioner failed to act promptly on the claim, hence, on May 14, 1981, private respondent filed a petition for review before public respondent CTA. Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes are presumed to have been collected in accordance with law; that in an action for refund, the burden of proof is upon the taxpayer to show that taxes are erroneously or illegally collected and the taxpayers failure to sustain said burden is fatal to the action for refund; and that claims for refund are construed strictly against tax claimants. After trial, respondent tax court decided in favor of the private respondent. ISSUE: Whether or not private respondent is entitled to a refund of the taxes it pre-paid to the government. HELD: A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. Likewise, there can be no disagreement with petitioners stance that private respondent has the burden of proof to establish the factual basis of its claim for tax refund. The court cannot but bewail the unyielding stance taken by the government in refusing to refund the sum of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY TWO PESOS AND SEVENTY FIVE CENTAVOS (P107,142.75) erroneously prepaid by private respondent. PAGE

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The tax was paid way back in 1980 and despite the clear showing that it was erroneously paid, the government succeeded in delaying its refund for fifteen (15) years. After fifteen (15) long years and the expenses of litigation, the money that will be finally refunded to the private respondent is just worth a damaged nickel. This is not, however, the kind of success the government, especially the BIR, needs to increase its collection of taxes. Fair deal is expected by our taxpayers from the BIR and the duty demands that BIR should refund without any unreasonable delay what it has erroneously collected. 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 publics trust and confidence in the Government this power must be used justly and not treacherously. PAGE

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Reyes vs. Almanzor


[L-49839-46 April 26, 1991] Digest by: : ONG, Ruth Ann PONENTE: Paras FACTS: Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands on which anothers dwelling is located, where such rentals do not exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently, the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values duly reviewed by the Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that the reassessments made were excessive, unwarranted, inequitable, confiscatory and unconstitutional considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted. The Board of Tax Assessment Appeals, however, considered the assessments valid. ISSUE: Whether or not income approach is the method to be used in the tax assessment and not the comparable sales approach. HELD: By no stretch of the imagination can the market value of properties covered by PD 20 be equated with the market value of properties not so covered. In the case at bar, not even factors determinant of the assessed value of subject properties under the comparable sales approach were presented by respondent namely: PAGE

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1. That the sale must represent a bonafide arms length transaction between a willing seller and a willing buyer 2. The property must be comparable property. As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that these properties are comparable. Taxes are lifeblood of government, however, such collection should be made in accordance with the law and therefore necessary to reconcile conflicting interests of the authorities so that the real purpose of taxation, promotion of the welfare of common good can be achieved. The power to tax is an attribute of sovereignty. In fact, it is the strongest of all the powers of government. But for all its plenitude the power to tax is not unconfined as there are restrictions. Adversely effecting as it does property rights, both the due process and equal protection clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that the power to tax involves the power to destroy. The web or unreality spun from Marshalls famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: The power to tax is not the power to destroy while this Court sits. So it is in the Philippines. PAGE

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Commissioner of Internal Revenue vs. Algue


[G.R. No. L-28896 February 17, 1988] Digest by: : ONG, Ruth Ann PONENTE: Cruz FACTS: Phil. Sugar Estate appointed Algue Inc. as its agent to sell its land, factory & oil manufacturing process. Pursuant to said authority, Alberto Guevarra & four (4) other individuals worked for the formation of Vegetable Oil Investment Corporation (VOIC) by inducing investors. After VOIC was incorporated, it bought the properties being sold by Phil. Sugar Estate (PSE). For the sale, PSE paid 125, 000 as commission to Algue Inc. who, in turn, paid 75, 000 to the individual agents, leaving a balance of 50, 000 as net income of Algue Inc. for which it now seeks deduction being a legitimate business expense. The Collector of Internal Revenue disallowed such deduction saying that it was fictitious and it was not an ordinary reasonable or necessary business expense. ISSUE: Whether or not the CIR correctly disallowed the 75, 000 deduction claimed by Algue, Inc. as legitimate business expense. HELD: The Tax Code provides: SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions (a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; and Revenue Regulations No. 2, Section 70 (1), reading as follows: SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application maybe further stated and illustrated as follows: Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders. Practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. The Court ruled that the 125, 000 paid by Algue Inc. to the five (5) individuals were PAGE

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legitimate fees for actual services rendered, that is, the creation of the VOIC and the sale of the properties of Phil. Sugar Estate and hence, allowed as deduction. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. PAGE

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Part I: General Principles

Set-off Of Taxes

Philex Mining Corp. vs. Commissioner of Internal Revenue


[G.R. No. 125704. August 28, 1998] Digest by: : ONG, Ruth Ann PONENTE: Romero FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CAG.R. SP No. 36975 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821,982.52. In a letter dated August 20, 1992, Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore, these claims for tax credit/refund should be applied against the tax liabilities. In reply, the BIR, in a letter dated September 7, 1992, found no merit in Philexs position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, he BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter. In view of the BIRs denial of the offsetting of Philexs claim for VAT input credit/ refund against its exercise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. In the course of the proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latters tax obligation of P110,677,688.52. Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest. The Court of Tax Appeals ruled that taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or contract. ISSUE: Can taxes be subject to set-off? HELD: Taxes cannot be the subject for compensation for simple reason that the government and the tax payer are not mutual creditors and debtors of each other. Debts are due in the government in its corporate capacity while taxes are due to the government in its sovereign PAGE

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capacity. A tax payer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government that the collection of the tax is contingent on the result of the law suit it filed against the government. PAGE

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Francia v. Intermediate Appellate Court


[G.R. No. L-67649. June 28, 1988] Digest by: : OSOTEO, Maureen Kascha L. PONENTE: Gutierrez, Jr. FACTS: On October 15, 1977, a 125 square meter portion of Francias 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 by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. In this petition, Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. ISSUE: Whether Francias tax obligation may be subject to compensation by operation of law. HELD: No. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; xxx xxx xxx (3) that the two debts be due. xxx xxx xxx 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 collected. The collection of a tax cannot await the results of a lawsuit against the government. A taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. Government and taxpayer are not mutually creditors and debtors of each other under PAGE

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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. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. PAGE

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Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.


[G.R. No. L-25299. July 29, 1969] Digest by: : OSOTEO, Maureen Kascha L. PONENTE: Fernando FACTS: Respondent Itogon-Suyoc Mines filed on January 13, 1961, its income tax return for the fiscal year 1959-1960. It declared a taxable income of P114,368.04 and a tax due thereon amounting to P26,310.41, for which it paid on the same day, the amount of P13,155.20 as the first installment of the income tax due. On May 17, 1961, petitioner filed an amended income tax return, reporting therein a net loss of P331,707.33. It thus sought a refund from the Commissioner of Internal Revenue. On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the fiscal year 19601961, setting forth its income tax liability to the tune of P97,345.00, but deducting the amount of P13,155.20 representing alleged tax credit for overpayment of the preceding fiscal year 1959-1960. Petitioner Commissioner of Internal Revenue assessed against the respondent the amount of P1,512.83 as 1% monthly interest on the aforesaid amount of P13,155.20 from January 16, 1962 to December 31, 1962. The basis for such an assessment was the absence of legal right to deduct said amount before the refund or tax credit thereof was approved by petitioner Commissioner of Internal Revenue. ISSUE: Whether petitioner has the legal right to deduct the overpaid amount before the refund or tax credit thereof is approved by the Commissioner of Internal Revenue. HELD: Yes. The National Internal Revenue Code provides that interest upon the amount determined as a deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner of Internal Revenue at the specified. It is made clear, however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not yet refunded, may be deducted from the tax to be paid. There is no question respondent was entitled to a refund. Instead of waiting for the sum involved to be delivered to it, it deducted the said amount from the tax that it had to pay. That it had a right to do according to the law. It is true a doubt could have arisen due to the fact that as of the time such a deduction was made, the Commissioner of Internal Revenue had not as yet approved such a refund. It is an admitted fact though that respondent was clearly entitled to it, and petitioner did not allege otherwise. Nor could he do so. Under all the circumstances disclosed therefore, the applicability of the legal provision allowing such a deduction from the amount of the tax to be paid cannot be disputed. PAGE

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What is therefore sought to be avoided is for the taxpayer to make use of funds that should have been paid to the government. Here, in view of the overpayment for the fiscal year 1959- 1960, the sum of P13,155.20 had already formed part of the public funds. It cannot be said, therefore, that respondent taxpayer was guilty of any delay enabling it to utilize a sum of money that should have been in the government treasury. PAGE

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Domingo v. Garlitos
[G.R. No. L-18994. June 29, 1963] Digest by: : OSOTEO, Maureen Kascha L. PONENTE: Labrador FACTS: In Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674 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, special proceedings No. 14 entitled In the matter of the Intestate Estate of the Late Walter Scott Price. In order to enforce the claims against the estate the fiscal presented a petition for the execution of the judgment. The petition was, however, denied by the respondent which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. Respondent ordered that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue 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. ISSUE: Whether the claim by the Government against the estate may be deducted from its debt to the estate and whether compensation may take place HELD: Yes. The court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable 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, and both debts are extinguished to the concurrent amount, 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. PAGE

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Republic of the Philippines v. Mambulao Lumber Company


[G.R. No. L-17725. February 28, 1962] Digest by: : OSOTEO, Maureen Kascha L. PONENTE:Barrera FACTS: Defendants have a liability for forest charges to the Republic of the Philippines which amounts aggregate to P4,802.37. While from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for reforestation charges and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for reforestation charges pursuant to Section 1 of Republic Act 115. It is the contention of the defendant Mambulao Lumber Company that since the Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges. ISSUE: Whether the sum paid for reforestation charges may be set-off or applied to the payment of forest charges owed by defendant to the Government HELD: No. Appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. Under Article 1278, NCC, compensation should take place when two persons in their own right are creditors and debtors of each other. With respect to the forest charges which the defendant Mambulao Lumber Company has paid to the government, they are in the coffers of the government as taxes collected, and the government does not owe anything, crystal clear that the Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of each other, because compensation refers to mutual debts. 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, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. 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 is 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 a duty to, and are the positive acts of the government, PAGE

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to the maki ng and enfo rcing of whic h, the pers onal cons ent of indiv idual taxp ayer s is not requi red. If the taxp ayer can prop erly refus e to pay his tax whe n calle d upon by the Colle ctor, beca use he has a clai m agai nst the gove rnm ental body whic h is not inclu ded in the tax levy,

it is plain that some legitim ate and necess ary expend iture must be curtaile d. If the taxpay ers claim is dispute d, the collecti on of the tax must await and abide the result of a lawsuit , and meanw hile the financi al affairs of the govern ment will be thrown into great confusi on. (47 Am. Jur. 766767.) PAGE

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Pa rt I: G en

eral Prin cipl es

Taxpayer Suit

Anti-Graft League of the Philippines v. San Juan


[G.R. No. 97787. August 1, 1996] Digest by: PADUA, Julie Ann E. PONENTE:Romero FACTS: On March 20, 1975, President Ferdinand E. Marcos issued Presidential Decree (PD) No. 674, establishing the Technological Colleges of Rizal and which also directed the Provincial Board of Rizal (the Board) to provide funds for the purchase of a site and the construction of the necessary structures thereon. Consequently, the Province of Rizal (Province) bought four parcels of land located in Ugong Norte, Pasig from Ortigas & Co., Ltd. (Ortigas). However, the projected construction never materialized because of the decimation of the Provinces resources brought about by the creation of the Metro Manila Commission (MMC) in 1976. Twelve years later, with the said property lying idle and the Province needing funds to propel its 5-year Comprehensive Program, the Board passed Resolution No. 87-205 dated October 15, 1987 authorizing the Governor to sell the property. The said property was eventually sold to Valley View Realty Development Corporation (Valley View) for a total of P134,523,900.00. On May 10, 1988, after learning about the sale, Ortigas, filed an action for recission of contract plus damages with preliminary injunction against the Province (Civil Case No. 55904) alleging that the latter violated one of the terms of the contract - that the land will be utilized solely for the construction of the Rizal Technological Colleges and the Rizal Provincial Hospital. On April 21, 1988, the new provincial officials of the Board adopted Resolution No. 8865 which provided for the rescission of the sale between the Province and Valley View on the ground that the sale was prejudicial to the former. Consequently, Valley View filed Civil Case no. 55913 against the Province for specific performance and damages. However, the said case was dismissed because the parties executed a compromise agreement. On March 20, 1989, Civil Case No. 55904 was resolved through execution of a compromise agreement between the Province and Ortigas. Under the said agreement, the Province agreed to reconvey the property to Ortigas at a price of P432,398,250.00 payable within two years at an annual interest rate of 14%. The said amount was higher than the market values separately determined by Asian Appraisal Inc. and the Provincial Appraisal Committee. Hence, this petition for certiorari. ISSUE: Whether or not the present action is a taxpayers suit and that the petitioner has legal standing to question the transaction entered into by the Board and Ortigas. PAGE

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HELD: No. In order to constitute a taxpayers suit, two requisites must be met, namely, that public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed, and that the petitioner is directly affected by the alleged ultra vires act. In the said case, the first requirement was not present because the petitioner never referred to such purchase as an illegal disbursement of public funds but focused on the alleged fraudulent reconveyance of said property to Ortigas because the price paid was lower than the prevailing market value of neighboring lots. Since petitioner failed to show that there was unlawful spending of public money, he, even as a taxpayer, cannot question the transaction validly executed by and between the Province and Ortigas simply because he is not privy to the contract. Therefore, petitioner has no locus standi. PAGE

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Joya v. Presidential Commission on Good Government


[G.R. No. 96541. August 24, 1993] Digest by: PADUA, Julie Ann E. PONENTE:Bellosillo FACTS: On August 9, 1990, Mateo A.T. Caparas, then Chairman of the Presidential Commission on Good Governance (PCGG), wrote then President Corazon C. Aquino, requesting her for authority to sign the proposed Consignment Agreement between the Republic of the Philippines through PCGG and Christie, Manson and Woods International, Inc. (CHRISTIEs) concerning the scheduled sale on January 11, 1991 of eighty-two (82) Old Masters Paintings and antique silverware seized from Malacaang and the Metropolitan Museum of Manila alleged to be part of the ill-gotten wealth of the late President Marcos, his relatives and cronies. On August 15, 1990, PCGG, through Chairman Caparas, signed the Consignment Agreement with CHRISTIEs. According to the agreement, PCGG shall consign to CHRISTIES for sale at public auction the eighty-two (82) Old Masters Paintings then found at the Metropolitan Museum of Manila as well as the silverware contained in seventy-one (71) cartons in the custody of the Central Bank of the Philippines, and such other property as may subsequently be identified by PCGG and accepted by CHRISTIES to be subject to the provisions of the agreement. On October 26, 1990, the Commission on Audit (COA) through then Chairman Eufemio C. Domingo submitted to President Aquino the audit findings and observations of COA on the said Consignment Agreement to the effect that: (a) the authority of former PCGG Chairman Caparas to enter into the Consignment Agreement was of doubtful legality; (b) the contract was highly disadvantageous to the government; (c) PCGG had a poor track record in asset disposal by auction in the U.S.; and, (d) the assets subject of auction were historical relics and had cultural significance, hence, their disposal was prohibited by law. On November 15, 1990, PCGG through its new Chairman David M. Castro, wrote President Aquino to refute the allegations of Domingo. On the same date, Director of National Museum Gabriel S. Casal issued a certification that the items subject of the Consignment Agreement did not fall within the classification of protected cultural properties and did not specifically qualify as part of the Filipino cultural heritage. Hence, this petition. However, the public auction proceeded as scheduled and the proceeds of $13,302,604.86 were turned over to the Bureau of Treasury. ISSUE: 1. Whether or not the petition can be allowed as a taxpayers suit. 2. Whether or not the properties subject for public auction constitute as public properties. PAGE

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HELD: 1. No. Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the government. A taxpayers suit can prosper only if the governmental acts being questioned involve disbursement of public funds upon the theory that the expenditure of public funds by an officer of the state for the purpose of administering an unconstitutional act constitutes a misapplication of such funds, which may be enjoined at the request of a taxpayer. In the said case, the action cannot be considered as a taxpayers suit because the petitioners are not challenging any expenditure involving public funds but the disposition of what they alleged to be public properties. 2. No. The paintings were donated by private persons from different parts of the world to the Metropolitan Museum of Manila Foundation, a non-profit and non-stock corporation established to promoted non-Philippine arts, wherein Former First Lady Imelda Marcos is the chairman. Accordingly, the ownership of the paintings legally belongs to the foundation or corporation or the members thereof. On the other hand, the pieces of antique silverware were given to the Marcos couple as gifts from friends and dignitaries from foreign countries on their silver wedding and anniversary. The confiscation of these properties by the Aquino administration does not mean that the ownership of these paintings has automatically passed on the government without complying with constitutional and statutory requirements of due process and just compensation. PAGE

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Lozada v. Commission on Elections


[G.R. No. 88866. February 18, 1991] Digest by: PADUA, Julie Ann E. PONENTE:De Castro FACTS: Jose Mari Eulalio C. Lozada together with Romeo B. Igot filed a petition for mandamus compelling the Commission on Elections (COMELEC) to hold a special election to fill up the vacancies in the Interim Batasang Pambansa. The petition was based on Section 5 (2), Article VIII of the 1973 Constitution which provides: In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term. COMELEC opposes the petition alleging, substantially, that 1) petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa. ISSUE: 1. Whether or not petition may be considered as a taxpayers suit. 2. Whether or not the Supreme Court can compel the COMELEC to hold a special election. HELD: 1. No. A taxpayers suit may be allowed only when an act complained of, which may include a legislative enactment of statute, involves the illegal expenditure of public money. In the said petition, it was not alleged the tax money is being illegally spent rather the act complained of was the inaction of COMELEC to call a special election. Further, since the asserted harm is a generalized grievance shared in substantially equal measure by all or a large class of citizens, the petitioners have no locus standi. 2. The SCs jurisdiction over the COMELEC is only to review by certiorari the latters decision, orders or rulings pursuant to Section 11, Article XI IC of the new Constitution, to wit: Any decision, order, or ruling of the Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from his receipt of a copy thereof. However, in this case, there was no decision, order or ruling of the COMELEC which is PAGE

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sought to be reviewed by this Court under its certiorari jurisdiction, which is the only known provision conferring jurisdiction or authority on the Supreme Court over the COMELEC. Further, the holding of special elections in several regional districts where vacancies exist, would entail huge expenditure of money. Only the Batasang Pambansa can make the necessary appropriation for the purpose, and this power may neither be subject to mandamus by the courts much less may COMELEC compel the Batasang Pambansa to exercise its power of appropriation. From the role Batasang Pambansa has to play in the holding of special elections, which is to appropriate the funds for the expenses thereof, it would seem that the initiative on the matter must come from the said body, not the COMELEC, even when the vacancies would occur in the regular not interim Batasang Pambansa. The power to appropriate is the sole and exclusive prerogative of the legislative body, the exercise of which may not be compelled through a petition for mandamus. Moreover, the provision of Section 5(2), Article VIII of the Constitution was intended to apply to vacancies in the regular National Assembly, now Batasang Pambansa, not to the Interim Batasang Pambansa. PAGE

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Part I:

Tax Laws & Regulations

Commissioner of Internal Revenue v. S.C. Johnson


[G.R. No. 127105. June 25, 1999] Digest by: PADUA, Julie Ann E. PONENTE:Gonzaga-Reyes FACTS: S.C. Johnson and Son, Inc. (S.C. Johnson), a domestic corporation organized and operating under the Philippine laws, entered into a license agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation based in the U.S.A. pursuant to which the [respondent] was granted the right to use the trademark, patents and technology owned by the latter including the right to manufacture, package and distribute the products covered by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son, U. S. A. For the use of the trademark or technology, S.C. Johnson was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which S.C. Johnson paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00. On October 29, 1993, S.C. Johnson filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that the preferential tax rate of 10% withholding tax should apply to the S.C. Johnson 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)]. However, the Commissioner did not act on said claim for refund resulting in the filing of a petition for review before the Court of Tax Appeals (CTA). On May 7, 1996, the CTA rendered its decision in favor of S.C. Johnson and ordered the Commissioner of Internal Revenue (CIR) to issue a tax credit certificate amounting to P963,266.00 representing overpaid withholding tax on royalty payments. The CIR thus filed a petition for review with the Court of Appeals but the latter affirmed in too the CTA ruling; hence, this petition for review. ISSUE: Whether or not S. C. Johnson should be 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 German Tax Treaty. HELD: No. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Article 24 of the RP-Germany Tax Treaty, expressly allows crediting against German income and corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines. On the other hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double taxation, does not provide for similar PAGE

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crediting of 20% of the gross amount of royalties paid. The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than that which has been or may be granted to the most favored among other countries. 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. 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 RPWest 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 grant equality of international treatment since the tax burden laid upon the income of the investor is not the same in the two countries. 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. Further, since the RP-US Tax Treaty does not give a matching tax credit of 20% for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, S.C. Johnson cannot be deemed entitled to the 10% rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances. PAGE

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Part I:

Tax Remedies

St. Stephens Association and St. Stephens Girls School v. The Collector of Internal Revenue
[G.R. No. L-11238. August 21, 1958] Digest by: PALATTAO, Claudine M. PONENTE: Reyes, J.B.L. FACTS: On January 21, 1950, the petitioner St. Stephens Association turned over the amount of P9,252.48 to the St. Stephens Chinese Girls School, and the transfer of funds was entered in the ledger and cash book of the School as a donation from the Association. Having come across the book entry in a routine inspection of the books of the School, an examiner of the Bureau of Internal Revenue reported the donation to the Collector and thereafter, the Collector of Internal Revenue sent petitioners his Assessment Notice No. GA-3008-50 dated October 15, 1954, demanding the payment of the amounts of P98.70 and P699.07 as donors and donees gift taxes on the donation in question, including surcharges and interests. On November 13, 1954, petitioners wrote the Collector a letter requesting the cancellation and withdrawal of the assessment notice in question on the ground that the amount of P9,252.48 was erroneously entered by the bookkeeper as a donation from the Association to the School, when the truth was that said amount was obtained by the former by means of small contributions from the public and allocated to the School for its maintenance. On April 21, 1955, petitioners received a letter from the Collector dated April 6, 1955, denying the request embodied in their letter of November 13, 1954, and insisting that the assessment in question be paid. On May 9, 1955, petitioners filed their reply to the Collectors letter of April 6, 1955, rebutting the arguments of the Collector in support of the assessment, and asking for its reconsideration. On July 25, 1955, petitioners received the letter of the Collector dated July 11, 1955, again denying their request that the assessment in question be cancelled and withdrawn, and stating in its last paragraph that: This decision becomes final thirty days after your receipt hereof unless an appeal is taken to the Court of Tax Appeals within the same period, in accordance with the provisions of Republic Act No. 1125. On August 15, 1955, the respondent court promulgated a resolution dismissing the petition for lack of jurisdiction. The resolution was premised on the courts findings that the period for petitioners appeal started to run from their receipt of the assessment notice in question; that said period was interrupted by the filing of petitioners two requests for the cancellation of the assessment, but started to run again when said requests were denied; and that from November 12, 1954, when petitioners received the assessment notice, to August 13, 1955, when they filed their petition for review, deducting the time when their two requests for cancellation were pending with the respondent Collector, 37 days had elapsed and therefore, their petition was filed out of time and did not confer jurisdiction upon the respondent court. From this resolution of dismissal, petitioners appealed to this Court. PAGE

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ISSUE: Whether the period for appeal to the respondent court must be computed from the time petitioners received the decision of the respondent on the disputed assessment and not from the time they received said assessment. HELD: Yes. The period for appeal to the respondent court in this case must be computed from the time petitioners received the decision of the respondent Collector of Internal Revenue on the disputed assessment, and not from the time they received said assessment. We believe the respondent court erred in holding that the assessment in question is the respondent Collectors decision or ruling appealable to it, and that consequently, the period of thirty days prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the respondent court must be counted from its receipt of said assessment. Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a disputed assessment that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment, in accordance with paragraph (1) of section 7, Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax Appeals to review decisions of the Collector of Internal Revenue in cases involving disputed assessment . . . PAGE

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Advertising Associates, Inc. v. Court of Appeals and Commissioner of Internal Revenue


[G.R. No. L-59758. December 26, 1984] Digest by: PALATTAO, Claudine M. PONENTE: Aquino, J. FACTS: The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractors tax for 1967-1971 and 1972, respectively, including 25% surcharge (the latter amount includes interest) on its income from billboards and neon signs. The basis of the assessment is the fact that the taxpayers articles of incorporation provide that its primary purpose is to engage in general advertising business. Its income tax returns indicate that its business was advertising. The taxpayer requested the cancellation of the assessments in its letters of September 13 and November 21, 1974. Then, on March 31, 1978, the Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection enforcement division to levy on the taxpayers personal properties as would be sufficient to satisfy the deficiency taxes. The warrants were served upon the taxpayer on April 18 and May 25, 1978. Acting Commissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to the requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint. He justified the assessments by stating that the rental income of Advertising Associates from billboards and neon signs constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency taxes within ten days from receipt of the demand; otherwise, the Bureau would enforce the warrants of distraint. He closed his demand letter with this paragraph: This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the Court of Tax Appeals within 30 days from receipt of this letter. Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition for review. In its resolution of August 28, 1979, the Tax Court enjoined the enforcement of the warrants of distraint. The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioners appealable decisions. Since Advertising Associates appealed from the decision of May 23, 1979, the petition for review was filed out of time. It was dismissed. The taxpayer appealed to this Court. PAGE

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ISSUE: Whether or not the petition for review was filed on time HELD: Yes. The petition for review was filed on time. The reviewable decision is that contained in Commissioner Planas letter of May 23, 1979 and not the warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioners final decision within the meaning of section 7 of Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. The directive is in consonance with this Courts dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action. PAGE

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Commissioner of Internal Revenue v. Isabela Cultural Corporation


[G.R. No. 135210. July 11, 2001] Digest by: PALATTAO, Claudine M. PONENTE: Panganiban, J. FACTS: In an investigation conducted on the 1986 books of account of respondent, petitioner had the preliminary finding that respondent incurred a total income tax deficiency of P9,985,392.15, inclusive of increments. Upon protest by respondents counsel, the said preliminary assessment was reduced to the amount of P325,869.44. On February 23, 1990, respondent received from petitioner an assessment letter, dated February 9, 1990, demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding tax inclusive of surcharge and interest, respectively, for the taxable period from January 1, 1986 to December 31, 1986. On February 9, 1995, respondent received from petitioner a Final Notice Before Seizure, dated December 22, 1994. In said letter, petitioner demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure on its part would constrain [petitioner] to collect the subject assessment through summary remedies. Respondent considered said final notice of seizure as petitioners final decision. Hence, the instant petition for review filed with this Court on March 9, 1995. The CTA having rendered judgment dismissing the petition, respondent filed the instant petition anchored on the argument that petitioners issuance of the Final Notice Before Seizure constitutes its decision on respondents request for reinvestigation, which the respondent may appeal to the CTA. ISSUE: Whether or not the Final Notice Before Seizure dated February 9, 1995 against respondent constitutes the final decision of the CIR appealable to the CTA. HELD: Yes. Respondent points out that the Final Notice Before Seizure should be considered as a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as petitioners last act, since failure to comply with it would lead to the distraint and levy of respondents properties, as indicated therein. We agree with respondent. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period covered, the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest PAGE

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the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefor, and submitting such proof as may be necessary. That letter is considered as the taxpayers request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for review. The Final Notice Before Seizure cannot but be considered as the commissioners decision disposing of the request for reconsideration filed by respondent, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIRs final act regarding the request for reconsideration. The very title expressly indicated that it was a finalnotice prior to seizure of property. The letter itself clearly stated that respondent was being given this LAST OPPORTUNITY to pay; otherwise, its properties would be subjected to distraint and levy. Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR. Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. In the instant case, the second notice received by private respondent verily indicated its nature - that it was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration. Having admitted as a fact private respondents request for reconsideration, petitioner must have passed upon it prior to the issuance of the Final Notice Before Seizure. PAGE

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Surigao Electric, Co., Inc. and Arturo Lumanlan v. Municipality of Surigao


[G.R. No. L-22766. August 30, 1968] Digest by: PALATTAO, Claudine M. PONENTE: Fernando, J. FACTS: On June 18, 1960, Congress further amended the Public Service Act, one of the changes introduced doing away with the requirement of a certificate of public convenience and necessity from the Public Service Commission for public services owned or operated by government entities or government-owned or controlled corporations, but at the same time affirming its power of regulation,1 more specifically as set forth in the next section of the law, which while exempting public services owned or operated by any instrumentality of the government or any government-owned or controlled corporations from its supervision, jurisdiction and control stops short of including the fixing of rates. Petitioner Surigao Electric Co., Inc., a legislative franchise holder, and petitioner Arturo Lumanlan to whom, on February 16, 1962, the rights and privileges of the former as well as its plant and facilities were transferred, challenge the validity of the order of respondent Public Service Commission, dated July 11, 1963, wherein it held that it had no other alternative but to approve as it did approve the tentative schedule of rates submitted by the applicant, the other respondent herein, the Municipality of Surigao. Citing the above amendments introduced by Republic Act No. 2677, respondent Commission stated thus: A municipal government or a municipal corporation such as the Municipality of Surigao is a government entity recognized, supported and utilized by the National Government as a part of its government machinery and functions; a municipal government actually functions as an extension of the national government and, therefore, it is an instrumentality of the latter; and by express provisions of Section 14(e) of Act 2677, an instrumentality of the national government is exempted from the jurisdiction of the PSC except with respect to the fixing of rates. This exemption is even clearer in Section 13(a). ISSUE: Whether or not a municipal government can directly maintain and operate an electric plant without obtaining a specific franchise for the purpose and without a certificate of public convenience and necessity duly issued by the Public Service Commission. HELD: Yes. We sustain the Public Service Commission. It would be to erode the term government entities of its meaning if we are to reverse the Public Service Commission and to hold that a municipality is to be considered outside its scope. Petitioners seek refuge in the legislative franchise granted them. Whatever privilege may be claimed by petitioners cannot override the specific constitutional restriction that no PAGE

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franchise or right shall be granted to any individual or corporation except under a condition that it shall be subject to amendment, alteration or repeal by Congress. Such amendment or alteration need not be express; it may be implied from a latter act of general applicability, such as the one now under consideration. Reference by petitioners to the statute providing the procedure for the taking over and operation by the government of public utilities, in their view to further strengthen [their] contention, as to the commission of this alleged error is unavailing, even if such statute were applicable, which it is not. What is to be regulated by this enactment is the exercise of eminent domain, which is a taking of private property for public use upon the payment of just compensation. There is here no taking. There is here no appropriation. What was owned before by petitioners continue to remain theirs. There is to be no transfer of ownership. Rather, a municipal corporation, by virtue of Commonwealth Act No. 2677, may further promote community welfare by itself engaging in supplying public services, without the need of a certificate of public convenience. If at all then, the exercise of this governmental prerogative comes within the broad, well-nigh, undefined scope of the police power. It is not here, of course, the ordinary case of restraint on property or liberty, by the imposition of a regulation. What the amendatory act in effect accomplishes is to lend encouragement and support for the municipal corporation itself undertaking an activity as a result of which, profits of a competing private firm would be adversely affected. PAGE

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Yabes vs. Flojo


[G.R. NO. L-46954 JULY 20, 1982] Digest by: PALATTAO, Rose Angelie T. PONENTE: Concepcion, Jr. FACTS: Doroteo Yabes of Calamaniugan Cagayan, who was for sometime an exclusive dealer of products of the International Harvester Macleod, Inc., received on or about May 1, 1962, a letter from the Commissioner of Internal Revenue dated March 27, 1962, demanding payment of the amount of P15,976.81, as commercial brokers fixed and percentage taxes plus surcharges to which Yabes protested on the ground that his agreements with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence not liable for such kind of taxes. To give time for the Commissioner to study the case and several other cases similar thereto, Yabes filed, a tax waiver on October 20, 1962, extending the period of prescription to December 31, 1967; Doroteo Yabes died on March 13, 1963 and no estate proceedings were instituted for the settlement of his estate. On March 14, 1966, the Court of Tax Appeals decided the Constantino test case. The CTA ruled that agreements entered into by Constantino with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence no commercial brokers fixed and percentage fees could be collected,however this Court reversed the Court of Tax Appeals and ruled in favor of the Commissioner of Internal Revenue. The heirs of Doroteo Yabes filed a revised waiver further extending the period of prescription to December 31, 1970 as requested by the Commissioner. Thereafter, no word was received by the petitioners or their lawyers during the interim of more than three (3) years, but on January 20, 1971, petitioners as heirs of the deceased Doroteo Yabes received the summons and a copy of the complaint filed by the Commissioner on December 4, 1970 with the Court of First Instance of Cagayan which seeks to collect from the petitioners the sum of P 15,976.82, as deficiency commercial brokers fixed and percentage taxes, including surcharges and interest thereon, due from Yabes by reason of the latters income derived from transactions as dealer of the products of the International Harvester Macleod, Inc.; Taking the complaint as the final decision of the Commissioner on the disputed assessment against the deceased taxpayer Doroteo Yabes, petitioners filed on February 12, 1971, a petition for review of said disputed assessment with the CTA. Petitioners filed on the same day their answer to the complaint before the Court of First Instance of Cagayan and alleged, by way of special defense, that the CTA has exclusive jurisdiction of the action and that there is another action of the same nature between the parties relating to the same assessment pending before the Court of Tax Appeals ISSUE: WON the assessment made by the Commissioner has already become final thereby giving jurisdiction to CFI of Cagayan. PAGE

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HELD: No. The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, as this Court holds it to be, considering the aforementioned conclusion of the Court of Tax Appeals on the finality and incontestability of the assessment made by the Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction over this case. Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code. For want of jurisdiction over the case, the Court of First Instance of Cagayan should have dismissed the complaint filed in Civil Case No. IIPAGE

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Commissioner of Internal Revenue v. Algue


[G.R. No. L-28896 February 17, 1988] Digest by: PALATTAO, Rose Angelie T. PONENTE: CRUZ, J. FACTS: Private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. Algue on the other hand was appointed as agent of the Philippine Sugar Estate Development Company. On January 18, 1965, Algue filed a letter of protest or request for reconsideration, on the assessment made by the Commissioner disallowing the P75, ooo deductions on their gross income which letter was stamp received on the same day in the office of the petitioner, which, however, was missing. Atty. Guevara, private respondents counsel produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. Sixteen days later, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the CTA. ISSUE: 1. WON the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. 2. WON the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with law. HELD: 1. No. The CTA correctly held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company. Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the workers. There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. The CTA also found, after examining the evidence, that no distribution of dividends was involved. It was clearly shown that payments were not made in one lump sum but periodically and in different amounts as each payees need arose. The court also held that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. PAGE

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This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code: SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions (a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; and Revenue Regulations No. 2, Section 70 (1), reading as follows: SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be further stated and illustrated as follows: Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock .......... (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.) It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. 2. On the issue of time, according to RA No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. It is true that as a rule the warrant PAGE

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of distr aint and levy is pro of of the finali ty of the asses sme nt and rend ers hope less a requ est for reco nsid erati on, bein g tant amo unt to an outri ght deni al there of and mak es the said requ est dee med rejec ted. But there is a speci al circu msta nce in the

case at bar that preven ts applica tion of this accepte d doctrin e. The proven fact is that four days after the private respon dent receive d the petitio ners notice of assess ment, it filed its letter of protest . This was appare ntly not taken into accoun t before the warran t of distrai nt and levy was issued becaus e such protest could not be located . PAGE

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Commissioner of Internal Revenue v. Union Shipping Corporation and the CTA


[G.R. No. L-66160 May 21, 1990] Digest by: PALATTAO, Rose Angelie T. PONENTE: PARAS, J. FACTS: In a letter dated December 27, 1974 petitioner Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was received on January 4, 1975, and in a letter dated January 10, 1975 received by petitioner on January 13, 1975, private respondent protested the assessment. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served on private respondents counsel, Clemente Celso, on November 25, 1976. In a letter dated November 27, 1976 (Exhibit D), received by petitioner on November 29, 1976 private respondent reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila and docketed as Civil Case No. 120459 against private respondent. Petitioner contends that the warrant of distraint and levy was issued after respondent corporation filed a request for reconsideration of subject assessment, thus constituting petitioners final decision in the disputed assessments. Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent corporation sought redress from the Tax Court, petitioners decision has long become final and executory. On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioners assessment of its deficiency income taxes. CTA ruled in favor of respondent. Hence, this petition. ISSUE: WON the issuance of a warrant of distraint and levy by the Commissioner in this case is proof of the finality of an assessment HELD: No. There appears to be no dispute that petitioner did not rule on private respondents motion for reconsideration but on the contrary left private respondent in the dark as to which action of the Commissioner is the decision appealable to the CTA. Had he categorically stated that he denies private respondents motion for reconsideration and that his action constitutes his final determination on the disputed assessment, private respondent without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided. PAGE

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Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125. Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd., a non-resident taxpayer. As correctly ruled by the CTA, if an individual or corporation like the petitioner in this case, is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by Yee Fong Hong, Ltd. PAGE

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Philippine Journalists, Inc v. Commissioner of Internal Revenue


[G.R. No. 162852 December 16, 2004] Digest by: PALATTAO, Rose Angelie T. PONENTE: YNARES-SANTIAGO, J. FACTS: The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31, 1994 which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of P10,247,384.00. From the examination of petitioners books of accounts, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty. Upon an informal conference called upon by the Commissioner, petitioners Comptroller, Lorenza Tolentino, executed a Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC) The document waived the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consented to the assessment and collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation After which, petitioner was found to have a tax delinquency, thus, BIR issued assessment/ demand from him. Hence, petitioner filed a petition for review with the CTA. CTA ruled in favor of petitioner and held that the Waiver of the Statute of Limitation is without any binding effect on the petitioner because it is an unlimited waiver, it does not contain a definite expiration date which is required under RMO No. 20-90. Secondly, the waiver failed to state the date of acceptance by the Bureau which under the aforequoted RMO should likewise be indicated. Finally, petitioner was not furnished a copy of the waiver required by RMO No. 20-90. On appeal to the CA, however, the CTA judgment was reversed on the ground that the defects mentioned by CTA were merely formal in nature and ruled that only decisions of the BIR, denying the request for reconsideration or reinvestigation may be appealed to the CTA. Mere assessment notices which have become final after the lapse of the thirty (30)-day reglementary period are not appealable. ISSUE: 1.WON the CTA has jurisdiction to determine whether the warrant of distraint or levy was illegally issued and that no assessment was issued because it was based on an invalid waiver of the statutes of limitations. 2. WON the waiver of the statute of limitations was valid as to toll the prescriptive period. PAGE

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HELD: 1. Yes. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals, provides for the jurisdiction of that special court: SEC. 7. Jurisdiction. - The Court of Tax Appeals shall exercise 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 imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue; The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of Internal Revenue on matters relating to assessments or refunds. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected. 2. NO. The second issue focuses on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The Waiver of Statute of Limitations, signed by petitioners comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioners waiver became unlimited in time, violating Section 222(b) of the NIRC. The waiver is also defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is NOT unilateral act of the taxpayer but is in fact and in law an agreement between the taxpayer and the BIR. When the petitioners comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement. PAGE

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The waiver is therefore incomplete and defective and thus the three-year prescriptive period was not tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-00075794 issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/ or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null and void for having been issued pursuant to an invalid assessment. PAGE

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COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE GLOBAL COMMUNICATION


[ GR No. 167146. October 31, 2006] Digest by: PAMATMAT, John Red C. PONENTE: Chico-Nazario, J. FACTS: On April 15, 1991, the respondent corporation filed its annual income tax return for taxable year 1990. Sometime in 1992, officials of the Bureau of Internal Revenue (BIR), acting on the authority given by the Commissioner of Internal Revenue (CIR), sought to examine the books of account and other accounting records of the respondent. The respondent was requested by the Bureau to produce and present some documents to which the former failed. Consequently, respondent received a Preliminary Assessment notice for deficiency income tax in the amount of P118,271,672.00 and on that following day received a Formal Assessment Notice with the same amount stated. This prompted the respondent, through its counsels, to file formal protests against the Formal assessment notice and requested for the cancellation of the same as it lacks factual and legal basis. The CIR denied the protest and affirmed in toto the assessment after eight years counting from the period to which the assessment was presumably issued. As a consequence thereof, the respondent filed a petition for review with the Court of Tax Appeals (CTA) which favored respondent on the ground of prescription, as the letters filed by the respondent did not toll the running of the prescriptive period as it did not constitute a request for investigation. Motion for reconsideration was denied from the same court and was affirmed by the same court en banc. ISSUE: Whether or not the letters filed by the respondent constitute request for an investigation so as to toll the running of the prescriptive period. HELD: No. The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR. The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. Among the exceptions provided by the section 224, and invoked by the CIR as a ground PAGE

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for this petiti on, is the insta nce whe n the taxp ayer requ ests for a reinv estig ation whic h is gran ted by the Com missi oner. How ever, this exce ption does not appl y to this case since the resp onde nt neve r requ este d for a reinv estig ation . More impo rtant ly, the CIR coul d not have cond ucte da reinv estig

ation where, as admitt ed by the CIR in its Petitio n, the respon dent refused to submit any new eviden ce. In the present case, the separat e letters of protest dated 6 May 1994 and 23 May 1994 are request s for reconsi deratio n. The CIRs allegati on that there was a request for reinves tigatio n is inconc eivable since respon dent consist ently and categor ically refused to submit new eviden ce and cooper

ate in any reinv estig ation proc eedi ngs.

Hence, the petitio n is denied. PAGE

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RIZAL COMMERCIAL BANKING CORP. v. COMMISSIONER OF INTERNAL REVENUE


[GR No. 168498, June 16, 2006] Digest by: PAMATMAT, John Red C. PONENTE: Ynares-Santiago, J. FACTS: On July 5, 2001, a formal letter of demand was received by petitioner Rizal Commercial Banking Corporation (RCBC) from respondent Commissioner of Internal Revenue (CIR) for its tax liabilities amounting to P53,998,428.29 and P47,717,952.76 for Gross onshore tax and Documentary stamp tax, respectively. This prompted RCBC to file a protest letter/request for reconsideration/reinvestigation by virtue of section 228 of NIRC. However, this protest was ignored by the respondent, hence a petition for review with the Court of Tax Appeals (CTA) for the cancellation of the assessments was filed. Unfortunately for the petitioner, the petition was dismissed on the ground that it was filed beyond the 30-day period following the lapse of 180 days from petitioners submission of documents in support of the protest. There was no motion for reconsideration or appeal on the part of the petitioner thus the resolution became final and executory and consequently, an entry of judgement was made. ISSUE: Whether or not the period of the petitioner in protesting the assessment has already prescribed as provided for under section 228. HELD: Yes. As provided under section 228, Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable. Following the periods provided for under section 228, from July 20, 2001, that is, the date of petitioners filing of protest, it had until September 18, 2001 to submit relevant documents and from September 18, 2001, the Commissioner had until March 17, 2002 to issue his decision. As admitted by petitioner, the protest remained unacted by the Commissioner of Internal Revenue. Therefore, it had until April 16, 2002 within which to elevate the case to this court. Thus, when petitioner filed its Petition for Review on April 30, 2002, the same is outside the thirty (30) period. PAGE

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OCEANIC WIRELESS NETWORK, INC. v. COMMISSIONER OF INTERNAL REVENUE


[GR No. 148380. December 9, 2005] Digest by: PAMATMAT, John Red C. PONENTE: Azcuna, J. FACTS: The bureau of Internal Revenue (BIR) sent deficiency tax assessments for the taxable year of 1984 amounting to P8,644,998.71 to herein petitioner, Oceanic wireless Network Inc. This prompted the petitioner to file protest against the tax assessments and requested a reconsideration or cancellation of the same to the Commissioner of Internal Revenue (CIR). The Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino Buot, then acting in behalf of the CIR denied the request for reinvestigation because there was failure to submit necessary supporting papers and at the same time reiterating the tax assessment. The said letter also requests the petitioner to pay the amount within ten days, failure of which will prompt the Chief to refer the matter to Collection Enforcement Division for the issuance of a warrant of distraint and levy. Disregarding the request, the petitioner failed to pay the amount hence issuance of the corresponding warrants of distraint and/or garnishment and levy followed. Consequently, petitioner filed a petition for review with the Court of Tax Appeals (CTA) to question the issuance of the warrants which was dismissed on the ground that the petition was filed beyond the 30-day period from the time the demand letter from the Chief was presumably received. The petitioner, on its motion fro reconsideration, assails that the demand letter cannot be considered as the final decision of the CIR on its protest because the same was signed by a mere subordinate and not the CIR, hence there was no personal determination as regards the merits of the case. ISSUE: Whether or not the demand letter issued and signed by a subordinate officer acting as the CIR is deemed final and executor. HELD: Yes. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer. In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioners request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result in the issuance of a warrant of distraint and levy to enforce its collection without further notice. In addition, the letter contained a notation indicating that petitioners request for reconsideration had been denied for lack of supporting documents. Moreover, the general rule is that the Commissioner of Internal Revenue may PAGE

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delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC) enumerated in Section 7 and nothing in this section speaks of the nondelegation of issuing a demand letter by the Chief. Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within the reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and denying its request for reconsideration which constituted the final determination by the Bureau of Internal Revenue on petitioners protest. Being a final disposition by said agency, the same would have been a proper subject for appeal to the Court of Tax Appeals. \ PAGE

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Fishwealth v. Commissioner of Internal Revenue


[GR No. 179343, January 21, 2010] Digest by: PAMATMAT, John Red C. PONENTE: Carpio-Morales, J. FACTS: A letter of authority dated May 16, 2000 was issued by the respondent Commissioner of Internal Revenue (CIR) ordering the examination of the internal revenue taxes for the taxable year 1999 of petitioner. Such investigation yielded that the petitioner is liable for P2,395,826.88 worth of taxes. Subsequently, the petitioner settled the liability. The respondent again investigated the books of accounts of the petitioner and by reason of which issued a subpoena duces tecum requiring the petitioner to submit what is asked of by the respondent. Petitioner, on the other hand, requests the cancellation of such subpoena on the ground that the same set of documents had already been examined. Respondent issued a final assessment of notice which was received and contested by the petitioner. Such letter of protest was subsequently denied by the respondent and requested the immediate payment thereof. A petition for review was filed before the CTA and CTA en banc by the petitioner which were both dismissed on the ground that it was filed out of time. ISSUE: Whether or not the petition was filed out of time HELD: Yes. As provided under section 228, xxx If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. In the case at bar, petitioners administrative protest was denied by Final Decision on Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4, 2005. Under the abovequoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal respondents denial of its protest to the CTA. PAGE

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Part II:

Local Taxation

Lung Center of the Philippines vs. Quezon City


[G.R. No. 144104. June 29, 2004] Digest by: PANGANIBAN, Rachelle P. PONENTE: Callejo, Sr. FACTS: The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established in 1981 by virtue of Presidential Decree No. 1823. It is the registered owner of a parcel of land located in Quezon City. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government. In 1993, both the land and the hospital building of the petitioner were assessed for real property taxes. Accordingly, tax declarations are issued for the land and hospital building. The petitioner filed a Claim for Exemption but the same was denied and held the petitioner liable for property taxes. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real property taxes. The respondent ruled that the petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable purposes; hence, it was not entitled to real property tax exemption under the constitution and the law. ISSUE: 1. Whether or not the petitioner is a charitable institution 2. Whether or not the real properties of the petitioner are exempt from real property taxes. PAGE

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HELD: The petition is partially granted. 1. Yes. The petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. Hence, the medical services of the petitioner are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. After all, any person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity. 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. 2. No. Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that 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. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. Under Section 2 of Presidential Decree No. 1823, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges. 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. PAGE

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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. 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. PAGE

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Philippine Rural Electric Cooperatives vs. The Secretary, DILG


[G.R. No. 143076. June 10, 2003] Digest by: PANGANIBAN, Rachelle P. PONENTE: Puno FACTS: A class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under P.D. No. 269 who are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). P.D. No. 269 provides the electric cooperatives exemption from payment of income taxes, national and local government and municipal taxes and fees among others. From 1971 to 1978, in order to finance the electrification projects envisioned by P.D. No. 269, the Philippine Government, acting through the National Economic Council (now National Economic Development Authority) and the NEA, entered into 6 loan agreements with the government of the USA through the United States Agency for International Development (USAID) with electric cooperatives. The 6 loan agreements involved a total amount of approximately US$86,000,000.00. These loan agreements are existing until today. Petitioners contend that they are exempt from payment of local taxes, including payment of real property tax. With the passage of the Local Government Code, however, they allege that their tax exemptions have been invalidly withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local Government Code on the ground that the said provisions discriminate against them, in violation of the equal protection clause. Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the Philippine Government and the United States Government. ISSUE: Whether or not Sections 193 and 234 of the Local Government Code are unconstitutional for being in violation of the equal protection and non-impairment of rights clause HELD: No. There is no violation of the equal protection clause because there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938 with respect the capital contribution of its members and extent of governmental control over cooperatives. Electric cooperatives under R.A. No. 6938 have their members make equitable contributions to the capital required and maintain autonomy from the State. On the other hand, electric cooperatives under P.D. No. 269 do not require equitable contributions to capital and grants the National Electrification Administration the power to control and take over the management and operation of cooperatives registered under it upon the happening of certain events. PAGE

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Also, there is no violation of non-impairment clause. The loan agreement does not grant any tax exemption in favor of the borrower or the beneficiary either on the proceeds of the loan itself or the properties acquired through the said loan. It simply states that the loan proceeds and the principal and interest of the loan, upon repayment by the borrower, shall be without deduction of any tax or fee that may be payable under Philippine laws as such tax or fee will be absorbed by the borrower with funds other than the loan proceeds. This only means that whatever taxes imposed by the Philippines, if any, will be paid by the borrower and cannot be shifted to the lender. Thus, the withdrawal by the Local Government Code of the tax exemptions previously enjoyed by the petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as in fact, no tax exemption is granted therein. PAGE

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City Assessor of Cebu City vs. Association of Benevola de Cebu


[G.R. No. 152904. June 8, 2007] Digest by: PANGANIBAN, Rachelle P. PONENTE: Velasco, Jr. FACTS: Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit organization and is the owner of Chong Hua Hospital (CHH) in Cebu City. In the late 1990s, respondent constructed the CHH Medical Arts Center (CHHMAC). Petitioner City Assessor of Cebu City assessed the CHHMAC building as commercial at the assessment level of 35% for commercial buildings, and not at the 10% special assessment currently imposed for CHH and its other separate buildingsthe CHHs Dietary and Records Departments. He further ascertained that it is not a part of the CHH building but a separate building which is actually used as commercial clinic/room spaces for renting out to physicians and, thus, classified as commercial. On the other hand, respondent contended that CHHMAC building is actually, directly, and exclusively part of CHH and should have a special assessment level of 10% as provided under City Tax Ordinance LXX. Respondent asserted that the CHHMAC building is similarly situated as the buildings of CHH, housing its Dietary and Records Departments, are completely separate from the main CHH building and are imposed the 10% special assessment level. In fine, respondent argued that the CHHMAC, though not actually indispensable, is nonetheless incidental and reasonably necessary to CHHs operations. ISSUE: Whether or not the medical arts center built by Chong Hua Hospital to house its doctors a separate commercial establishment or an appurtenant to the hospital HELD: Yes. The CHH Medical Arts Center (CHHMAC) is an integral part of CHH. It is definitely incidental to and reasonably necessary for the operations of Chong Hua Hospital. It is undisputed that the doctors and medical specialists holding clinics in CHHMAC are those duly accredited by CHH, that is, they are consultants of the hospital and the ones who can treat CHHs patients confined in it. This fact alone takes away CHHMAC from being categorized as commercial since a tertiary hospital like CHH is required by law to have a pool of physicians who comprises the required medical departments in various medical fields. The fact that the physicians are holding office in a separate building does not take away the essence and nature of their services vis--vis the over-all operation of the hospital and the benefits to the hospitals patients. Their transfer to a more spacious and, perhaps, convenient place and location for the benefit of the hospitals patients does not remove them PAGE

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from being an integral part of the overall operation of the hospital. Respondents charge of rentals for the offices and clinics its accredited physicians occupy cannot be equated to a commercial venture, which is mainly for profit. First, CHHMAC is only for its consultants or accredited doctors and medical specialists. Second, the charging of rentals is a practical necessity: (1) to recoup the investment cost of the building, (2) to cover the rentals for the lot CHHMAC is built on, and (3) to maintain the CHHMAC building and its facilities. Third, as correctly pointed out by respondent, it pays the proper taxes for its rental income. And, fourth, if there is indeed any net income from the lease income of CHHMAC, such does not inure to any private or individual person as it will be used for respondents other charitable projects. PAGE

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City Government of San Pablo vs. Hon. Bienvenido Reyes


[G.R. No. 127708. March 25, 1999] Digest by: PANGANIBAN, Rachelle P. PONENTE: Gonzaga-Reyes FACTS: Act No. 3648 granted the Escudero Electric Services Company, a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo. Escuderos franchise was transferred to MERALCO under RA 2340. Thereafter, RA 7160 (Local Government Code of 1991) took effect and authorizes the province/city to impose a tax on business enjoying a franchise at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year realized within its jurisdiction. Hence, Ordinance No.56 was enacted. Private respondent paid under protest and subsequently filed this action before the RTC to declare Ordinance No. 56 null and void insofar as it imposes the franchise tax upon private respondent MERALCO and to claim for a refund of the taxes paid. The Court ruled in favor of MERALCO and upheld its argument that the LGC did not expressly or impliedly repeal the tax exemption/incentive enjoyed by it under its charter. ISSUE: Whether or not there is an implied repeal by RA 7160 of the MERALCO franchise insofar as the latter impose a 2% tax in lieu of all taxes and assessments of whatever nature HELD: Yes. The explicit language of Section 137 which authorizes the province to impose franchise tax notwithstanding any exemption granted by any law or other special laws is all- encompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws. The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used in Section 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exlcusio alterius. Therefore, in the absence of any provision of the Code to the contrary, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn. PAGE

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FIRST PHILIPPINE INDUSTRIAL CORPORATION vs. COURT OF APPEALS


[G.R. No. 125948 December 29, 1998] Digest by: RAMOS, Marinel M. PONENTE: Martinez FACTS: Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil pipelines, originally granted in 1967 and renewed by the Energy Regulatory Board in 1992. Sometime in January 1995, petitioner applied for a mayors permit with the Office of the Mayor of Batangas City. However, before the mayors permit could be issued, the respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code (LGC). After the City Treasurer assessed the business tax on the petitioner payable in four installments, the petitioner paid only the 1st installment under protest. Then petitioner filed a letter-protest addressed to the respondent City Treasurer, and claimed that their Company is exempt from paying tax on gross receipts for it can be considered a transportation contractor and thus exempted from business tax under the LGC (Sec. 133). The City Treasurer denied the protest contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under the LGC. Subsequently the petitioner filed with the RTC of Batangas City a complaint for tax refund againsts respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer. Respondents assert that pipelines are not included in the term common carrier which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the term common carrier under the said code pertains to the mode or manner by which a product is delivered to its destination. RTC dismissed the complaint holding that tax exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted only by clear and unequivocal provisions of law. CA affirmed RTCs decision. ISSUE: 1. Whether or not the petitioner is a common carrier or a transportation contractor 2. Whether or not the exemption sought for by petitioner is not clear under the law. HELD: 1. Yes. Petitioner is a common carrier. A common carrier may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. Art. 1732 of the Civil Code defines a common carrier as any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, PAGE

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that is, to all pers ons who choo se to empl oy its servi ces, and trans ports the good s by land and for com pens ation . The fact that petiti oner has a limit ed clien tele does not exclu de it from the defin ition of a com mon carri er. Also, the defin ition of com mon carri ers in the Civil Code mak es no disti nctio n as

to the means of transp orting, as long as it is by land, water or air. It does not provid e that the transp ortatio n of the passen gers or goods should be by motor vehicle. 2. No. Petitio ner is exempt ed from payme nt of tax From the foregoi ng disquis ition, there is no doubt that petitio ner is a comm on carrier and, therefo re, exempt from the busines s tax as provid ed for in Section 133 (j), of the Local Govern

ment Code . It is clear that the legisl ative inten t in exclu ding from the taxin g pow er of the local gove rnm ent unit the impo sitio n of busi ness tax agai nst com mon carri ers is to prev ent a dupli catio n of the socalle d com mon carri ers

tax. Petitio ner is already paying three (3%) percent commo n carrier s tax on its gross sales/e arnings under the Nation al Interna l Revenu e Code. To tax petitio ner again on its gross receipt s in its transp ortatio n of petrole um busines s would defeat the purpos e of the Local Govern ment Code. PAGE

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MANILA ELECTRIC COMPANY, vs. PROVINCE OF LAGUNA


[G.R. No. 131359. May 5, 1999] Digest by: RECENO, Pia Mitzi P. PONENTE: Vitug FACTS: On various dates, certain municipalities of the Province of Laguna including, Bian, Sta Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued resolutions through their respective municipal councils granting franchise in favor of petitioner Manila Electric Company (MERALCO) for the supply of electric light, heat and power within their concerned areas. On 19 January 1983, MERALCO was likewise granted a franchise by the National Electrification Administration to operate an electric light and power service in the Municipality of Calamba, Laguna. On the enactment of Republic Act No. 7160, otherwise known as the Local Government Code of 1991, local government units were enjoined to create their own sources of revenue,levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. The province of Laguna, then enacted Provincial Ordinance No. 01- 92, effective 01 January 1993, providing, in part, as follows: Sec. 2.09. Franchise Tax. - There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within this province, including the territorial limits on any city located in the province An amount of P19,520,628.42 was paid for tax under protest by petitioner MERALCO. The petitioner then sent a formal claim for refund to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. Petitioner claims that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which provides Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two per cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative. On 28 August 1995, the claim for refund of petitioner was denied in a letter signed by Governor Jose D. Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than the old decree ivoked by the petitioner. A complaint was filed by petitioner Meralco to the RTC for the refund of the amount paid for tax against the Province of Laguna and also Benito R. Balazo, in his capacity as the Provincial Treasurer of Laguna. RTC dismissed the complaint and ruled that the power to tax exercised by province of Laguna was valid. PAGE

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HELD: Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that, while the local government units are being strengthened and made more autonomous,[6] the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each local government unit will have its fair share of available resources; (c) the resources of the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform, and just. The Local Government Code of 1991 has incorporated and adopted, by and large the provisions of the now repealed Local Tax Code, which had been in effect since 01 July 1973, promulgated into law by Presidential Decree No. 231[7] pursuant to the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991 Code explicitly authorizes provincial governments, notwithstanding any exemption granted by any law or other special law, x x x (to) impose a tax on businesses enjoying a franchise. Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. The Code, in addition, contains a general repealing clause in its Section 534 which states that All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts.[14] These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution.[15] Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires. WHEREFORE, the instant petition is hereby DISMISSED. PAGE

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PHILIPPINE BASKETBALL ASSOCIATION vs. COURT OF APPEALS


[G.R. No. 119122. August 8, 2000] Digest by: RECENO, Pia Mitzi P. PONENTE: Purisima FACTS: Commissioner of Internal Revenue, herein respondent sent an assessment letter to the Philippine Basketball Association, herein petitioner; for the payment of deficiency amusement tax. Such deficiency tax amounted to P5, 864, 260.84 (including 25% surcharges and 25% interest for two years). On July 18, 1989, petitioner contested the assessment by filing a protest with respondent Commissioner who denied the same on November 6, 1989. The Court of Tax Appeals likewise denied the petition filed by petitioner. The decision of CTA was appealed to Court of Appeals who affirmed the decision of CTA thus dismissing petitioners appeal. Petitioner contends that PD 231, otherwise known as the Local Tax Code of 1973, transferred the power and authority to levy and collect amusement taxes from the sale of admission tickets to places of amusement from the national government to the local governments. Petitioner cited BIR Memorandum Circular No. 49-73 providing that the power to levy and collect amusement tax on admission tickets was transferred to the local governments by virtue of the Local Tax Code; and BIR Ruling No. 231-86 which held that the jurisdiction to levy amusement tax on gross receipts from admission tickets to places of amusement was transferred to local governments under P.D. No. 231, as amended.8 Further, petitioner opined that even assuming arguendo that respondent Commissioner revoked BIR Ruling No. 231-86, the reversal, modification or revocation cannot be given retroactive effect since even as late as 1988 (BIR Memorandum Circular No. 8-88), respondent Commissioner still recognized the jurisdiction of local governments to collect amusement taxes. ISSUE: 1. Is the amusement tax on admission tickets to PBA games a national or local tax? Otherwise put, who between the national government and local government should petitioner pay amusement taxes? 2. Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc. (VEI) subject to the payment of amusement tax? 3. If ever petitioner is liable for the payment of deficiency amusement tax, is it liable to pay a seventy-five percent (75%) surcharge on the deficiency amount due? HELD: The Court ruled that petitioner PBA is liable to pay amusement tax to the National Government, and not to the Local Government, in accordance with the rates prescribed by P.D. 1959. It is therein provided that the proprietor, lessee or operator of professional basketball games is required to pay amusement tax equivalent to 15% of the gross receipts to the BIR, which payment is a national tax. Said payment of amusement tax is in lieu of all other percentage taxes of whatever nature and description. PAGE

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While Section 13 of the Local Tax Code mentions other places of amusement, professional basketball games are definitely not within its scope. Under the principle of ejusdem generis, where general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as those specifically mentioned.9 Thus, in determining the meaning of the phrase other places of amusement, one must refer to the prior enumeration of theaters, cinematographs, concert halls and circuses with artistic expression as their common characteristic. Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and gaming. Likewise erroneous is the stance of petitioner that respondent Commissioners issuance of BIR Ruling No. 2318612 and BIR Revenue Memorandum Circular No. 8-8813 both upholding the authority of the local government to collect amusement taxes should bind the government or that, if there is any revocation or modification of said rule, the same should operate prospectively. It bears stressing that the government can never be in estoppel, particularly in matters involving taxes. It is a well-known rule that erroneous application and enforcement of the law by public officers do not preclude subsequent correct application of the statute, and that the Government is never estopped by mistake or error on the part of its agents. As regards to the second issue, the court finds the petitioners contention that income from the cession of streamer and advertising spaces to VEI is not subject to amusement tax untenable. The questioned proviso may be found in Section 1 of PD 1456 which states: SECTION 1. Section 268 of the National Internal Revenue Code of 1977, as amended, is hereby further amended to read as follows: Sec. 268. Amusement taxes. There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai, race tracks and bowling alleys, a tax equivalent to: xxx xxx xxx of their gross receipts, irrespective of whether or not any amount is charged or paid for admission. For the purpose of the amusement tax, the term gross receipts embraces all the receipts of the proprietor, lessee or operator of the amusement place. Said gross receipts also include income from television, radio and motion picture rights, if any. (A person, or entity or association conducting any activity subject to the tax herein imposed shall be similarly liable for said tax with respect to such portion of the receipts derived by him or it.) (emphasis ours) The foregoing definition of gross receipts is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee PAGE

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or operator of the amusement place. The law being clear, there is no need for an extended interpretation. The last issue for resolution concerns the liability of petitioner for the payment of surcharge and interest on the deficiency amount due. Petitioner contends that it is not liable, as it acted in good faith, having relied upon the issuances of the respondent Commissioner. This issue must necessarily fail as the same has never been posed as an issue before the respondent court. Issues not raised in the court a quo cannot be raised for the first time on appeal. All things studiedly considered, the Court rules that the petitioner is liable to pay amusement tax to the national government, and not to the local government, in accordance with the rates prescribed by PD 1959. WHEREFORE, the Petition is DENIED PAGE

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MANILA INTERNATIONAL AIRPORT AUTHORITY vs. CA


[G.R. No. 155650. July 20, 2006] Digest by: RECENO, Pia Mitzi P. PONENTE: Carpio FACTS: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority (MIAA Charter), as amended. As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, including the runways and buildings (Airport Lands and Buildings) then under the Bureau of Air Transportation.4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines. On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due. Due to MIAAs tax delinquency, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061. The OGCC issued Opinion no. 147, clarifying Opinion no. 061 which pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments. MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings PAGE

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are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. ISSUE: Whether or not the airport lands an buildings of MIAA are exempt from real estate tax. HELD: The court rule that MIAAs Airport Lands and Buildings are exempt from real estate tax imposed by local governments. First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows: SEC. 2. General Terms Defined. - x x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied) 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. Section 234(a) of the Local Government Code exempts from real estate tax any real property owned by the Republic of the Philippines. This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing [t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities x x x. The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax. PAGE

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The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is subject to real estate tax. WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority. PAGE

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THE PROVINCE OF BULACAN vs. COURT OF APPEALS


[G.R. No. 126232 November 27, 1998] Digest by: RECENO, Pia Mitzi P. PONENTE: Romero FACTS: The Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as An Ordinance Enacting the Revenue Code of the Bulacan Province. Section 21 of such code provides: Sec. 21 Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction (Emphasis ours) Pursuant thereto, the Provincial Treasurer of Bulacan, assessed private respondent Republic Cement Corporation (hereafter Republic Cement) P2,524,692.13 for extracting limestone, shale and silica from several parcels of private land in the province during the third quarter of 1992 until the second quarter of 1993. Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on quarry resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993. The same was, however, denied by the Provincial Treasurer on January 17, 1994. Republic Cement, consequently filed a petition for declaratory relief with the Regional Trial Court of Bulacan on February 14, 1994. The province filed a motion to dismiss Republic Cements petition, which was granted by the trial court on May 13, 1993, which ruled that declaratory relief was improper, allegedly because a breach of the ordinance had been committed by Republic Cement. On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the trial courts dismissal of their petition. The Court, in a resolution dated July 27, 1994, referred the same to the Court of Appeals. Due to its allegedly unpaid taxes, the Province of Bulacan issued a warrant of levy against Republic Cement. Negotiations between Republic Cement and petitioners resulted in an agreement and modus vivendi on December 12, 1994, whereby Republic Cement agreed to pay under protest P1,262,346.00, 50% of the tax assessed by petitioner, in exchange for the lifting of the warrant of levy. CA ruled that Province of Bulacan has no legal authority. Hence this petition. ISSUE: Whether or not the provincial government could impose and/or assess taxes on quarry resources extracted by Republic Cement from private lands pursuant to Section 21 of Provincial Ordinance No. 3. PAGE

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HELD: The petition is devoid of merit. The appellate court, on the basis of Section 134, ruled that a province was empowered to impose taxes only on sand, gravel, and other quarry resources extracted from public lands, its authority to tax being limited by said provision only to those taxes, fees and charges provided in Article One, Chapter 2, Title One of Book II of the Local Government Code. 11 On the other hand, petitioners claim that Sections 129 12 and 186 13 of the Local Government Code authorizes the province to impose taxes other than those specifically enumerated under the Local Government Code. The Court of Appeals erred in ruling that a province can impose only the taxes specifically mentioned under the Local Government Code. As correctly pointed out by petitioners, Section 186 allows a province to levy taxes other than those specifically enumerated under the Code, subject to the conditions specified therein. A province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code. The National Internal Revenue Code levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code. WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit and the decision of the Court of Appeals is hereby AFFIRMED in toto. PAGE

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DRILON vs. LIM


[G.R. No. 112497 August 4, 1994] Digest by: RAMOS, Marinel M. PONENTE: Cruz FACTS: Filed before the Secretary of Justice are appeals of four oil companies and a taxpayer, seeking for the declaration of Ordinance No. 7794, otherwise known as the Manila Revenue Code, null and void for noncompliance with the prescribed procedure in the enactment of tax ordinances and for containing certain provisions as provided in Section 187 of the Local Government Code reading as follows: Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof; Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. Hon. Franklin Drilon found the said ordinance violative of Sec. 187 of the LGC for the procedural requirements for the enactment of tax ordinances as specified in the LGC had indeed not been observed.. In a petition for certiorari filed by the City of Manila, the RTC of Manila revoked the Secretarys resolution and sustained the ordinance, holding inter alia that the procedural requirements had been observed. More importantly, it declared Section 187 of the Local Government Code as unconstitutional because of its vesture in the Secretary of Justice of the power of control over local governments in violation of the policy of local autonomy mandated in the Constitution and of the specific provision therein conferring on the President of the Philippines only the power of supervision over local governments. ISSUE: 1. Whether or not Section 187 of the LGC is constitutional thus making Ordinance No. 7794 null and void 2. Whether or not there is compliance on the part of City of Manila in issuing Ordinance No. 7794 HELD: 1. Section 187 of the LGC is valid. Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he PAGE

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is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure. Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his own version of what the Code should be. He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment. He did not say that in his judgment it was a bad law. What he found only was that it was illegal. All he did in reviewing the said measure was determine if the petitioners were performing their functions in accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code. As we see it, that was an act not of control but of mere supervision. 2. There is compliance with the procedural requirements for the enactment of the ordinance. In his resolution, Secretary Drilon declared that there were no written notices of public hearings on the proposed Manila Revenue Code that were sent to interested parties as required by Art. 276(b) of the Implementing Rules of the Local Government Code nor were copies of the proposed ordinance published in three successive issues of a newspaper of general circulation pursuant to Art. 276(a). No minutes were submitted to show that the obligatory public hearings had been held. Neither were copies of the measure as approved posted in prominent places in the city in accordance with Sec. 511(a) of the Local Government Code. Finally, the Manila Revenue Code was not translated into Pilipino or Tagalog and disseminated among the people for their information and guidance, conformably to Sec. 59(b) of the Code. Judge Palattao found otherwise. Posting of the ordinance as approved is may be omitted and this omission does not affect its validity, considering that its publication in three successive issues of a newspaper of general circulation will satisfy due process. It has also not been shown that the text of the ordinance has been translated and disseminated, but this requirement applies to the approval of local development plans and public investment programs of the local government unit and not to tax ordinances. PAGE

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Part II:

Real Property Taxation

DAVAO SAWMILL CO., INC. vs. CASTILLO


[L-40411. August 7, 1935] Digest by: RAMOS, Marinel M. PONENTE: Malcolm FACTS: The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of the Philippine Islands. It has operated a sawmill in the Sitio of Maa, barrio of Tigatu, municipality of Davao, Province of Davao. However, the land upon which the business was conducted belonged to another person. On the land the sawmill company erected a building which housed the machinery used by it. Some of the implements thus used were clearly personal property, the conflict concerning machines which were placed and mounted on foundations of cement. In the contract of lease between the sawmill company and the owner of the land there appeared provisions which provides that on the expiration of the period agreed upon, all the improvements and buildings introduced and erected by the party of the second part shall pass to the exclusive ownership of the party of the first part without any obligation on its part to pay any amount for said improvements and buildings. In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the plaintiff in that action against the defendant in that action; a writ of execution issued thereon, and the properties now in question were levied upon as personalty by the sheriff. The plaintiff who was also the highest bidder proceeded to take possession of the machinery and other properties described in the corresponding certificates of sale executed in its favor by the sheriff of Davao. Petitioner claims that the property involved is a real property being mounted on cement and that a public sale must be held. ISSUE: Whether or not the property in question is a personal property. HELD: The machinery is considered a personal property. As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a number of occasions treated the machinery as personal property by executing chattel mortgages in favor of third persons. One of such persons is the appellee by assignment from the original mortgages. Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real property consists of 1. Land, buildings, roads and constructions of all kinds adhering to the soil; x x x x x x x x x 5. Machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade of industry. It must further be pointed out that while not conclusive, the characterization of the property as chattels by the appellant is indicative of intention and impresses upon the PAGE

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property the character determined by the parties. It is machinery which is involved; moreover, machinery not intended by the owner of any building or land for use in connection therewith, but intended by a lessee for use in a building erected on the land by the latter to be returned to the lessee on the expiration or abandonment of the lease. A similar question arose in Puerto Rico, and on appeal being taken to the United States Supreme Court, it was held that machinery which is movable in its nature only becomes immobilized when placed in a plant by the owner of the property or plant, but not when so placed by a tenant, a usufructuary, or any person having only a temporary right, unless such person acted as the agent of the owner. PAGE

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CITY OF BAGUIO vs. FERNANDO S. BUSUEGO


[L-29772. September 18, 1980] Digest by: RAMOS, Marinel M. PONENTE: Malcolm FACTS: A tax collection suit is instituted by the City of Baguio, against appellant Fernando S. Busuego, after it was established that the defendant and the Government Service Insurance System (GSIS), a government corporation, executed, by and between themselves, a Contract to Sell over a parcel of land although the agreed purchase price for the property has not yet been fully paid and the GSIS has up to the present time, title of the property in question but the defendant is using the same. It has also been established that under Commonwealth Act No. 186, the GSIS as well as its property are exempt from payment of all types and kinds of taxes; that the property involved in this case has been consistently assessed (amounting to P1,656) by the City of Baguio in the name of the GSIS; and that demands were made on the defendant for payment of the aforesaid taxes but said defendant refused and failed to pay the same. Also it was undisputed that defendant has paid the amount of P287.80 for realty taxes due for the year 1963 and he is demanding for refund from petitioner. The city court rendered judgment in favor of plaintiff sentencing defendant to pay the sum of P1,656.00.00 with legal interest from the filing of complaint on August 18, 1966 the same is fully paid. Upon appeal, CFI, concluding that the contract entered into by the parties was a perfected contract of sale, likewise held that defendant as owner was liable for the realty taxes on the property, and, therefore, likewise ordered defendant to pay the same amount as adjudged by the city court. Paragraph 2 of the contract entered into by the GSIS and the defendant-appellant manifests the latters willingness at the signing thereof to pay and shoulder all taxes and assessments on the subject property and insurance thereon during the term of the said contract. However, appellants purchaser after having voluntarily paid taxes due on the property in the amount of P287.00 for the year 1963 backed out of his undertaking upon discovering that section 28(c) of Commonwealth Act 186 exempts the GSIS from the payment of taxes. His theory is that while title to the property has not passed to him, per paragraph 4 of the contract, and ownership remains with the seller, there could not be any obligation to pay taxes on the property that should be assumed by him as purchaser, since the owner-seller, in whom title remains, is exempt from taxes. ISSUE: Whether or not defendant-appellant, an installment purchaser of a parcel of land and its building and improvements within a housing project belonging to the Government Service Insurance System (GSIS) liable to pay realty taxes thereon from the time possession of such property was transferred to him, although pending full payment of the purchase price the seller GSIS as a government corporation exempt from the payment of taxes retains ownership and title over the property. PAGE

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HELD: Defendant-Appellant is liable for the payment of Real Property Tax. The court of first instance may have erred in pronouncing the Contract to Sell as a perfected contract of sale, contrary to its very terms that title remained with the seller who undertook to execute a final deed of absolute sale and deliver to the purchaser title to the property only after completion of the stipulated payments, but this is not decisive of the issue. The delivery of possession by the seller GSIS to the purchaser was clearly with the intention of passing to the latter the possession, use of and control over said property, and all the other attributes of ownership, short of the naked ownership such that it included in said transfer the incidental obligation to pay the taxes thereon, for nothing more was left to the GSIS except its right to receive full payment of the purchase price. The fact that in the contract to sell the GSIS, although aware of its own exemption from taxation stipulated and exacted from the purchaser the payment of taxes amounts to an interpretation on its part that such an immunity was not to be transmitted to a private person who becomes the beneficial owner and user of the property. Verily, this interpretative regulation by the administrative agency officially charged with the duty of administering and enforcing Commonwealth Act 186 which contains the tax-exempting provision at issue carries great weight in determining the operation of said provision. The position taken by the GSIS is but in conformity with Section 40(a) of Presidential Decree No. 464 entitled The Real Property Tax Code promulgated on May 20, 1974 which reads as follows: Exemptions from Real Property Tax. The exemptions shall be as follows: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned corporation so exempt by its charter; Provided, however, That this exemption shall not apply to real property of the above-named entitles the beneficial use of which has been granted, for consideration or otherwise, to a taxable person x x x. Thus under this provision, while the GSIS may be exempt from real estate tax the exemption does not cover property belonging to it where the beneficial use thereof has been granted for consideration or otherwise to a taxable person. There can be no doubt that under the provisions of the contract in question, the purchaser to whose possession the property had been transferred was granted beneficial use thereof. It follows on the strength of the provision sec. 40(a) of PD 464 that the said property is not exempt from the real property tax. While this decree just cited was still inexistent at the time the taxes at issue were assessed on the herein appellant, indeed its above quoted provision sheds light upon the legislative intent behind the provision of Commonwealth Act 186, pertaining to exemption of the GSIS from taxes. The end result is but in consonance with the established rule in taxation that exemptions are held strictly against the taxpayer and liberally in favor of the taxing authority. PAGE

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Reyes, et al. v. Almanzor


[GR Nos. L-49839-46. April 26, 1991] Digest by: REY, Floyd Ericson M. PONENTE: Paras FACTS: Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands on which anothers dwelling is located, where such rentals do not exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. The Reyeses, were precluded from raising the rentals and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values. The revision, as expected, entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that the reassessments made were excessive, unwarranted, inequitable, confiscatory and unconstitutional considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted. The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among others, the summary of the yearly rentals to show the income derived from the properties. Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the different market values of the real property situated in the same vicinity where the subject properties of petitioners are located. The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners maintain that the Income Approach method would have been more realistic for in disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties affected. On the other hand, Board of Tax Assessment Appeals maintains that when income is affected by some sort of price control, the same is rejected in the consideration and study of land values as in the case of properties affected by the Rent Control Law for they do not project the true market value in the open market. Thus, respondents opted instead for the Comparable Sales Approach on the ground that the value estimate of the properties predicated upon prices paid in actual, market transactions would be a uniform and a more credible standards to use especially in case of mass appraisal of properties PAGE

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ISSUE: Whether or not the respondent Board was correct in adopting the Comparable Sales Approach method in fixing the assessed value. HELD: No. Under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes is that the property must be appraised at its current and fair market value. By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with the market value of properties not so covered. The former has naturally a much lesser market value in view of the rental restrictions. In the case at bar, not even the factors determinant of the assessed value of subject properties under the comparable sales approach were presented by the public respondents, namely: (1) that the sale must represent a bonafide arms length transaction between a willing seller and a willing buyer and (2) the property must be comparable property. Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties. PAGE

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Pecson v. Court of Appeals


[G.R. No.105360. May 25, 1993] Digest by: REY, Floyd Ericson M. PONENTE: Quiason FACTS: Petitioner was the registered owner of a parcel of land in Quezon City consisting of 256 sq. meters and covered by TCT No. 79912 of the Registry of Deeds of Quezon City. For non-payment of realty taxes, petitioners property was sold at public auction on November 12, 1980 by respondent Regis. Notices of sale were sent to petitioner at No. 79 Paquita Street, Sampaloc, Manila, and were published in the Times Journal on October 6, 13, and 30, 1980. A final notice to exercise the right of redemption dated September 14, 1981 was sent to petitioner at No. 79 Paquita Street, Sampaloc, Manila. There being no redemption made after one-year from the date of the auction sale, a Final Bill of Sale was executed on April 19, 1982 by respondent Regis in favor of respondent Nepomuceno. The Regional Trial Court, Quezon City, consolidated title in favor of respondent Nepomuceno and directed the Register of Deeds of Quezon City to cancel TCT No. 79912 and issue a new one in lieu thereof, in the name of respondent Nepomuceno. On October 25, 1983, respondent Nepomuceno executed a Deed of Absolute Sale on the subject property in favor of respondents Tan and Nuguid for P103,000.00. On December 8, 1983, the Register of Deeds of Quezon City cancelled Nepomucenos title to the property and issued TCT No. 308506 in the names of respondents Tan and Nuguid. Petitioner argues that respondent Regis sent the notices to him at No. 79 Paquita St., Sampaloc, Manila which was not his address. He claims that his correct Manila address is No. 1009 Paquita St., Sampaloc and his correct Quezon City address is No. 79, Kamias Road, Quezon City. He admits that on the dates the notices were mailed, he was no longer residing in Manila but in Quezon City. ISSUE: Whether or not the requirements of posting and announcement of the sale under the Real Property Tax Code were complied with. HELD: Yes. Under the said provisions of the law, notices of the sale of the public auction may be sent to the delinquent taxpayer, either (i) at the address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located or (ii) at his residence, if known to such treasurer or barrio captain. What appeared in the records of the Office of the City Treasurer of Quezon City as the address of petitioner was 1009 Paquita, Manila, and below the number 1009 was the number 79. From this entry, one can deduce that the taxpayer had transferred his residence to No. 79 Paquita, Sampaloc, Manila from No. 1009 Paquita, Sampaloc, Manila. In the register for PAGE

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the tax year s starti ng from 1982 (Exh. S; also Exh. 3), the addr ess of petiti oner was reco rded as 79 Paqu ita, Mla. The Cour t of Appe als adva nced the theo ry that the num ber 79 was furni shed by petiti oner hims elf, basi ng its concl usio n on the addr ess give n by petiti oner in his com

plaint, which was No. 79 Kamias Road, Quezon City. Petitio ners content ion that he would have receive d the notices had they been sent to No. 1009 Paquita , Sampal oc, Manila, becaus e the occupa nts thereof forwar ded the letters addres sed to him to his Quezon City residen ce, loses force when one conside rs that the Court of First Instanc e of Quezon City sent him a notice, in connec tion with

the proc eedi ngs for the cons olida tion of title, at No. 1009 Paqu ita St., Sam palo c, Mani la, whic h rema ined uncl aime d. The petiti oner shou ld kno w that if an own er fails to pay the real estat e taxes on prop erty, the said prop erty shall be sold at publi c aucti on to reco ver the

delinqu ent taxes. When petitio ners proper ty was sold at a public auction in Decem ber 1980, the tax delinqu ency must have accum ulated for several years. It was only on July 12, 1982 that the order for consoli dation of title in the name of respon dent Nepom uceno was issued and it was only on Decem ber 8, 1983 that the title over the proper ty was transfe rred to respon dents Tan and Nuguid

. All thro ugho ut thes e year s, petiti oner neve r displ ayed an inter est in payi ng the real estat

e taxes on the proper ty. Worse, he introdu ced improv ements thereo n withou t reporti ng the same for tax purpos es PAGE

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Mathay, Jr. v. Macalincag


[G.R. No. 97618. December 16, 1993] Digest by: REY, Floyd Ericson M. PONENTE: Narvasa FACTS: Petitioner Mathay, a member of Congress and registered owner of lands in Quezon City, sought the perpetual enjoinment, as unconstitutional and void, of the schedule of market values prepared by respondent City Assessor for all classes of real property situated in Quezon City and the oppressive and excessive real estate tax increases being implemented by respondents City Assessor and City Treasurer pursuant to the illegal schedule of market values and unlawful approval, all in violation of the Constitution and laws. The essential foundation of the petitioners thesis of the nullity of the schedule of market values is that it was prepared by the respondent City Assessor alone, independently of the other City Assessors within the Metropolitan Manila Area, this being in patent violation of the explicit requirement of Section 9 of Presidential decree No. 921 which provides that the Schedule of Values that will serve as the basis for the appraisal and assessment for taxation purposes of real properties located within the Metropolitan Area shall be prepared jointly by the City Assessors of the Districts created under Section one hereof, with the City Assessor of Manila acting as Chairman. Similar actions were initiated before the Supreme Court by Rufino S. Javier, registered owner of real estate in the Municipality of Pasig, against respondent Macalincag and the Municipal Assessor and the Municipal Treasurer of Pasig, Metro Manila and by Consuelo Puyat - Reyes, a registered owner of real estate property in the Municipality of Makati, against respondent Secretary of Finance acting through Macalincag, the Municipal Assessor and the Municipal Treasurer of Makati. The Supreme Court appointed the Central Board of Assessment Appeals to take cognizance of the factual issues raised in these cases by virtue of referral by this Court in the exercise of its extraordinary or certiorari jurisdiction which should not be confused with its appellate jurisdiction over appealed assessment cases under Section 36 of P.D. 464 otherwise known as the Real Property Tax Code. The Board is acting as a Courtappointed fact-finding commission to assist the Court in resolving the factual issues raised. ISSUE: Whether or not the Schedule of Market Values prepared by respondent City Assessor is void. HELD: Yes. The Board held that Section 9 of P.D. 921 is specific and mandatory. The undisputed fact that the City Assessor of Quezon City solely prepared the Schedule of Market Values in question, without the participation of the other City Assessors of Metropolitan Manila, with the PAGE

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City Assessor of Manila acting as Chairman, indicates that the said Schedule of Market Values was prepared contrary to and unauthorized under Section 9 of P.D. 921 and its implementing rule on Section 1.02 of AR No. 7-77. The conclusion is, therefore, inevitable that the said Schedule of Market Values, having been prepared by the respondent City Assessor contrary to the express provision of and without authority under Section 9 is illegal and therefore void. An illegal act confers no rights, creates no duties, and in the eyes of the law, it is as if the same had never existed. It can be slain at sight. Such is the case of the questioned Schedule of Market Values, which is hereby declared void and without force and effect. Therefore, the realty tax rates based on the Schedule of Market Values are likewise void and unenforceable. The Supreme Court agrees with the Boards conclusion that the Schedules of Market Values for real properties located in Quezon City, the Municipality of Pasig and the Municipality of Makati, respectively prepared solely by the City Assessor of Quezon City, and the Municipal Assessors of Pasig and Makati, failed to comply with the explicit requirements of Presidential Decree No. 921 in relation to the corresponding Administrative Regulations promulgated by the Department of Finance (No. 7-77) on July 25, 1977, and are on that account illegal and void. PAGE

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Patalinghug v. Court of Appeals


[G.R. No. 104786. January 27, 1994] Digest by: REY, Floyd Ericson M. PONENTE: Romero FACTS: On November 17, 1982, the Sangguniang Panlungsod of Davao City enacted Ordinance No. 363, series of 1982 otherwise known as the Expanded Zoning Ordinance of Davao City, which states that A C-2 District shall be dominantly for commercial and compatible industrial uses as provided xxx Funeral Parlors/Memorial Homes with adequate off street parking space and provided that they shall be established not less than 50 meters from any residential structures, churches and other institutional buildings. Acting on the complaint of several residents of Barangay Agdao, Davao City that the construction of petitioners funeral parlor violated Ordinance No. 363, since it was allegedly situated within a 50-meter radius from the Iglesia ni Kristo Chapel and several residential structures, the Sangguniang Panlungsod conducted an investigation and found that the nearest residential structure, owned by Wilfred G. Tepoot is only 8 inches to the south ........... A case was filed by the private respondents for the declaration of nullity of a building permit. The lower court found that the residential building owned by Cribillo and Iglesia ni Kristo chapel are 63.25 meters and 55.95 meters away, respectively from the funeral parlor and that although the residential building owned by certain Mr. Tepoot is adjacent to the funeral parlor, and is only separated therefrom by a concrete fence, said residential building is being rented by a certain Mr. Asiaten who actually devotes it to his laundry business with machinery thereon. However, on appeal, the Court of Appeals ruled that although the buildings owned by Cribillo and Iglesia ni Kristo were beyond the 50-meter residential radius prohibited by Ordinance 363, the construction of the funeral parlor was within the 50-meter radius measured from the Tepoots building. The Appellate Court disagreed with the lower courts determination that Tepoots building was commercial and ruled that although it was used by Mr. Tepoots lessee for laundry business, it was a residential lot as reflected in the tax declaration. ISSUE: Whether or not the declaration for taxation purposes should be binding even though the property has been declared as a commercial area. HELD: No. A tax declaration is not conclusive of the nature of the property for zoning purposes. A property may have been declared by its owner as residential for real estate taxation purposes but it may well be within a commercial zone. A discrepancy may thus exist in the determination of the nature of property for real estate taxation purposes vis-a-vis the determination of a property for zoning purposes. PAGE

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A tax decla ratio n only enab les the asses sor to ident ify the same for asses sme nt level s. In fact, a tax decla ratio n does not bind a provi ncial /city asses sor, for unde r Sec. 22 of the Real Estat e Tax Code , appr aisal and asses sme nt are base d on the actu al use irres pecti ve of any previ ous asses sme

nt or taxpay ers valuati on thereo n, which is based on a taxpay ers declara tion. In fact, a piece of land declare d by a taxpay er as residen tial may be assesse d by the provinc ial or city assesso r as comme rcial becaus e its actual use is comme rcial. Even if Tepoot s buildin g was declare d for taxatio n purpos es as residen tial, once a local govern ment has reclassi fied an area as comme rcial that determ

inati on for zoni ng purp oses must prev ail. PAGE

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Ty, et. al. vs. Trampe

[G.R. No. 117577; December 1, 1995] Digest by: RUAYA, Ronald S. PONENTE: Panganiban FACTS: Herein petitioners Ty and MVR Picture Tube Inc. both own lands and buildings in the municipality of Pasig. On January 1994, the Municipal Assessor of Pasig sent a notice of assesment with respect to the petitioners properties within the municipality. Finding the new assessment to be higher than previous assessments, petitioners sought the reconsideration of the assessor. At the same time, petitioners sought before the Regional Trial presided by public respondent Judge Trampe for a Petition for Prohibition with prayer for a restraining order and/or writ of preliminary injunction to declare null and void the new schedule of values and the corresponding assessments and to enjoin the collection of real estate taxes based on said assessments. However respondent denied the petition and the subsequent motion for reconsideration. Petitioners averred in the said petition that the new schedule of values and tax assessment be declared void as it was solely done by the municipal assessor hence it did not comply with PD 921 requiring a jointly agreed schedule of values for assessment of the municipal assessor and the assessors within the Assessment District. Moreover, they aver that the stark increase in the new assessment reaching as high as 500% was oppressive and confiscatory. In denying the petition, respondent judge ruled that the new schedule of values for assessment was valid since PD 921 was already repealed by RA 7160 or Local Government Code and that the petitioners have also failed to exhaust all administrative remedies in accordance to Sec. 226 and 252 of RA 7160 before filing a suit before the courts. Thus the petitioners filed a Petition for Review before the Supreme Court. ISSUE: Whether or not PD 921 was repealed by RA 7160, whether petitioners failed to exhaust all administrative remedies before going to court and whether the new assessment can be deemed oppressive and confiscatory? HELD: The Supreme Court found that PD 921 was neither expressly nor impliedly repealed by RA 7160, the respondent failed to harmonize the provisions of PD 921 and RA 7160; the latter law sought to provide autonomy and efficient functioning of the local governments while PD 921 ensured efficiency and effectiveness in the assessment of real property in the Assessment Districts of Metro Manila by requiring a jointly agreed schedule of values by all of the assessors in the district. As such, it would be apropos to harmonize the two laws in line with the intent of these laws where the autonomy of local governments may be enhanced as intended by RA 7160 by grouping themselves together as is the case in PD 921 with regard to real estate assessments. By this harmonization, both the preamble of P.D. 921 decreeing PAGE

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that the real estate taxes shall not unduly burden the taxpayer and the operative principle of decentralization provided under Sec. 3, R.A. 7160 encouraging local government units to consolidate or coordinate their efforts, services and resources shall be fulfilled. As such, PD 921 still being an existing law, it is thus required that any schedule of values for new assessment as proposed by a municipal assessor must be jointly agreed upon by other municipal, city assessors of the Assessment District and any new schedule of values made solely by a municipal assessor is illegal and void. As to the issue of failure of petitioner to exhaust all administrative remedies, the Supreme Court ruled that such requirement was not absolutely necessary in the case at bar since it was from the start, purely a question of law and is thus within the ambit of the courts to remedy. Having already decided upon the two prior issues, the SC no longer decided whether the new schedule of values for tax assesment were oppressive or confiscatory amounting to being unconstitutional. It is axiomatic that the constitutionality of a law, regulation, ordinance or act will not be resolved by courts if the controversy can be, as in this case it has been, settled on other grounds. The Supreme Court ordered that the Decision and Order of respondent Judge be reversed and set aside. And to declare as null and void the questioned Schedule of Market Values for properties in Pasig prepared by respondent Assessor, as well as the corresponding assessments and real estate tax increases based thereon; and enjoining the respondent Treasurer from collecting the real estate tax increases made on the basis of said Schedule and assessments. PAGE

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Talento vs. Escalada

[G.R. No. 180884; June 27, 2008] Digest by: RUAYA, Ronald S. PONENTE: Ynares-Santiago FACTS: Private respondent Petron Corporation operates several machineries and equipment in Lamao, Limay, Bataan. On June of 2007 the Provincial Assessors Office of Bataan delivered a notice of revised assessment over the corporations machineries and equipment totalling to a tax liability of Php 1, 731, 025, 403 for the period from 1994 to 2006. Petron sought an appeal with the Local Board of Assessment Appeals on August 17, 2007 averring that the revised assessment included items already declared and that the period covered by the assessment exceeded 10 years, which is prohibited by the Local Government Code (LGC). Together with the said petition, Petron sought approval of a surety bond amounting to some Php 1.2 billion. However on August 22, 2008, Petron received from the Provincial Treasurers Office a letter of final notice of delinquent real property tax with a warning that should Petron be unable to settle its tax liabilities, its properties shall be levied and sold at public auction. Thus Petron sent a letter to the Provincial Treasurer stating that any levy on thier property pending the LBAA would be premature, but the treasurer replied by citing Sections 231 and 252 of the LGC whereby on a payment under protest by Petron will bar the levy and sale of its property. On September 2008, a warrant for levy was issued prompting Petron to seek its lifting with the LBAA and posted the surety bond of Php 1.2 billion but the treasurer subsequently issued a notice of sale of petrons properties prompting Petron to seek for a TRO with the RTC. The RTC granted a TRO provided Petron add some Php 500 million to the bond to be equivalent to its outstanding tax liability. Treasure sought the TRO dissolution but was denied, hence petitioner treasurer sought recourse before the Supreme Court through Rule 65 of the Rules of Court questionaing the issuance of the TRO. ISSUE: Whether or not Provincial Treasurer acted accordingly in not supending the collection of the tax liability of Petron and whether the TRO was properly issued? HELD: As to the issuance of the TRO, the Supreme Court found it to be an appropriate relief for Petron. As established by law, a TRO may be issued if and when the conditions for its issuance are met as required under Rule 58 Section 3 of the Rules of Court enumerating the grounds and also when the following requisites are met: (1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent and paramount necessity for the writ to prevent serious damage. From the facts shown, clearly the entire operation of Petron in Bataan hinges on the actions of the provincial Treasurer since the value of the property sought to be levied amounted to Php 1.7 billion, a significant amount that could undoubtedly hamper Petrons existence in the area. PAGE

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Moreover, the recourse sought by petitioner before the Supreme Court was improper; resort to Rule 65 is only available when all means of appeal are already availed of or are not available, in this case, the petitioner has not sought reconsideration before the RTC that ordered the TRO nor did the petitioner seek the proper remedy before the Court of Appeals through Rule 45. Although litigation is not a battle of technicalities, the SC emphasized that that procedure must be followed for the orderly and efficient administration of justice and is a matter of jurisdiction. In fact, petitioner was also beyond the reglementary period to question the order. With regard to the Provincial Treasurers continued enforcement of the levy despite the LBAA appeal, the SC gave focus to the LBAA Rules of Procedure whereby it is stated in Section 7, Rule V that: An appeal shall not suspend the collection of the corresponding realty taxes on the real property subject of the appeal as assessed by the Provincial, City or Municipal Assessor, x x x. An appeal may be entertained but the hearing thereof shall be deferred until the corresponding taxes due on the real property subject of the appeal shall have been paid under protest or the petitioner shall have given a surety bond, x x x. Corollarily, Section 11 of Republic Act No. 9282, which amended Republic Act No. 1125 (The Law Creating the Court of Tax Appeals) provides: No appeal taken to the Court of Appeals from the Collector of Internal Revenue x x x shall suspend the payment, levy, distraint, and/or sale of any property for the satisfaction of his tax liability as provided by existing law. Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the processing may suspend the collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more t h a n double the amount with the Court. Thus, although it is true that the LBAA or the courts generally cannot suspend the payment of taxes even on appeal, however should a bond be posted, it is proper to suspend. PAGE

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FELS Energy Inc. vs. Province of Batangas

[G.r. No. 168557; February 16, 2007] Digest by: RUAYA, Ronald S. PONENTE: Callejo Sr. FACTS: POLAR Energy Inc., an electric company entered into a 5-year lease agreement with the National Power Corporation (NPC), a GOCC, for the former to provide and operate diesel power barges to be moored at Balayan Bay in Calaca, Batangas. In the said agreement, there is a stipulation whereby the NPC shall be responsible for the payment of all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic of the Philippines or any agency or instrumentality... Thereafter, the rights of POLAR were assigned to petitioner company FELS Energy Inc. On August 1995 FELS received an assessment of real property taxes for their power barges from the Provincial Assessor of Batangas, thus prompting FELS to refer the matter to NPC and reminded the latter of their supposed agreement for NPC to pay such taxes, at the same time, FELS authorized NPC to represent it with regard to the assessment of the Provincial Assessor. NPC sought a reconsideration with the Provincial Assessor which was denied, NPC petitioned the Local Board of Assessment Appeals (LBAA) to set aside the Provincial Assessors assessment and to declare the barges as non-taxable, but the LBAA declared they were real property for purposes of taxation since they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the barges-FELS, a private corporation-is the one being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time. NPC now sought recourse from the Central Board of Assessment Appeals (CBAA) seeking to set aside and lift the levy made upon the barges, initially the CBAA ruled favorably for NPC but reversed itself and affirmed the LBAA decision prompting NPC as well as FELS to seek remedy before the Court of Appeals who also affirmed the the CBAAs decision primarily on the basis that the period with which to file an appeal before the LBAA had lapsed and thus the right of the local government to collect the taxes due with respect to the taxpayers property had become absolute. ISSUE: Whether or not FELS is liable to pay the real property taxes due for the power barges? HELD: Yes, FELS remains liable for the payment of the real property taxes for their power barges. On the matter of prescription to appeal before the LBAA, it is clear in RA 7160 Sec. 226 that upon the receipt of the notice of assessment, the 60-day period to appeal should the PAGE

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taxpayer wish to, begins and will run uninterrupted. It is not on the receipt of the denial of the Provicial Assessor as claimed by petitioners since a recourse before the provncial assessor is not the remedy sanctioned by law. The taxpayers failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits. Moreover, contrary to FELS argument that the mistake of NPC in seeking recourse before the provincial assessor instead of the LBAA does not bind them, their act of authorizing NPC to represent them means they are bound and any subsequent action by FELS on the same matter is barred by res judicata and forum-shopping. Thus the SC denied FELS petition and affirmed the CAs decision. Nevertheless, the SC expounded on the taxability of the subject property-- the power barges are deemed to be real property as defined in Article 415 (9) of the New Civil Code: docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. As to the contention that the power barges being leased by NPC are excempt from real propery tax according RA7160, the SC explained that for such provision of RA 7160 to apply, the machinery must be actually, directly and exclusively used by the government or its instrumentalities which is not the situation in this case since it is still FELS who operate the power barges according to the agreement. Moreover, the excemption contemplated in RA 7160 as can be applied in the case at bar pertains only to excemption that NPC enjoys, such previlege does not extend to FELS which is a private entity. Lastly, the rule on tax excemption applies; that there should be strict construction of laws granting exemptions. PAGE

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Mactan Cebu Intl Airport Authority vs. Marcos

[G.R. No. 120082; September 11, 1996] Digest by: RUAYA, Ronald S. PONENTE: Davide, Jr. FACTS: Herein petitioner Mactan Cebu International Airport Authority (MCIAA) was created by RA 6958 to introduce a body that would undertake the operations and administration of airports in the Province of Cebu. As provided in its charter; MCIAA is mandated to principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, x x x and such other airports as may be established in the Province of Cebu x x x. In line with its creation, Sec. 14 of RA 6958 provides: The Authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities x x x. However, in October 1994, the Office of the Treasurer of Cebu demanded from MCIAA the payment of real estate taxes from its parcels of lands amounting to Php 2.2 million, and when a warrant for levy was issued, MCIAA was forced to pay under protest. MCIAA argues that Sec. 14 of RA 6958 or its original charter expressly provides that it is excempt form payment of real estate taxes. Moreover, MCIAA further avers that RA 7160 or the Local Government Code (LGC) in particular Sec. 133 provides that: Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: x x x (o) Taxes, fees or charges of any kind on the national government, its agencies a n d instrumentalities and local government units. Hence, MCIAA avers that being a government intrumentality performing governmental functions, then it falls under the exemption provided under Sec. 133. But such argument was to no avail when it sought a Petition for Declaratory Relief before the respondent Judge Marcos of RTC Cebu City. When MCIAA sought for reconsideration, the same was denied by respondent, primarily on the premise that MCIAA does not qualify as an instrumentality of the government, hence it does not qualify for excemption, and that the excemption granted to it by its charter was repealed by RA 7160 through Sections 193, 232 and 234 of the LGC. ISSUE: Whether or not MCIAA is excempted from paying real estate taxes in the city of Cebu based on its charter and based on RA 7160s excemptions? HELD: No, the Supreme Court held that the excemption granted by the legislature to MCIAA through its charter has already been revoked. Such is the power to tax that it is unlimited but through legislature, certain limitations may be imposed as well as certain prviliges such as excemptions. However it is always subject to the decision of the legislature. In the case at bar, when legislature enacted RA 7160, it intended to further increase the autonomy of PAGE

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local governments. One such autonomy is fiscal autonomy, thus the legislature has deligated it the power to tax, in particular real estate taxes upon the properties within its jurisdiction. In giving local governments autonomy in imposing taxes, it expressly revoked the previous excemptions granted to various agencies and GOCCs, such as the provisions of Sec. 193, 232 and 234, which upon closer scrutiny of the Supreme Court clearly shows that MCIAAs excemption was revoked. Section 133 provides the general excemptions while 193, 232 and 234 further specify those agencies and instrumentalities that are specified to continue to enjoy excemptions, unfortunately for MCIAA it is not one of those; the provision that previously included GOCCs with tax excemptions in its charters was no longer retained, nor does MCIAA qualify as an instrumentality as it merely is a GOCC exerciseing proprietary functions. This is further shown in the fact that in its charter, MCIAA is deemed a taxable person merely enjoying excemption as per the provisions of its charter, but since it has been revoked, being a taxable person still, MCIAA is thus subject to real estate tax. The rule is that strict construction is used when it comes to tax excemption, clearly, had the legislature intended MCIAA to continue to be excempted, it would have expressed so. Instead, legislature intended to increase local fiscal autonomy, as such, it can only be the legislatures intention to revooke the excemption so that the local government may benefit from the additional income that it can gain from these entities such as MCIAA within their territory. Thus, MCIAAs petition is denied, the RTCs decision is affirmed. PAGE

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SESBREO vs. CENTRAL BOARD OF ASSESSMENT APPEALS

[G.R. No. 106588. March 24, 1997] Digest by: SANTOS, Maricar J. PONENTE: Panganiban FACTS: Petitioner purchased from Estrella Benedicto Tan two (2) parcels of land.The conveyance included a residential house of strong materials constructed on the lots abovementioned located in Cebu City. Thereafter, petitioner declared the real property constructed on the said lots for purpose of tax assessment as a residential house of strong materials with a floor area of sixty (60) square meters. Effective in the year 1980, the declared property was assessed by Respondent City Assessor of Cebu City under Tax Declaration No. 02-20454 at a market value of P60,000.00 and an assessed value of P36,900.00. The field inspectors of the Cebu City Assessor discovered that the real property declared and assessed under Tax Declaration No. 02-20454 was actually a residential building consisting of four (4) storeys with a fifth storey used as a roof deck. These findings were confirmed by the Board of Commissioners in an ocular inspection conducted on the subject property. Petitioner protested the new assessment for being excessive and unconscionable, 8 contending that it was increased by more than 1,000% as compared to its previous market value of P60,000.00. He questioned the new assessment before the Local Board of Assessment Appeals of Cebu City, which however dismissed petitioners appeal. Hence, petitioner elevated his case to Respondent Central Board of Assessment Appeals which ordered some modification. Petitioner then filed a motion for reconsideration. During the hearing on said motion, the parties submitted a joint manifestation or compromise agreement. The same was assailed by petitioner. ISSUE: Wheteher or not Respondent CBAA gravely erred in resolving the matter of back taxes which was never raised in issue in the Local Board of Assessment Appeals of Cebu City or in the appeal by the petitioner before the Central Board of Assessment Appeals (CBAA). HELD: The petition has no merit. The CBAA decision dared September 30, 1991 and the assailed Resolution dated July 28, 1992 show that petitioner failed to pay under protest the tax assessed against his property. This is a violation of Section 64 of Presidential Decree No. 464 20 which requires that, before a court may entertain any suit assailing the validity of a tax assessment, the taxpayer must first pay under protest the tax assessed against him. The said section provides: Sec. 64. Restriction upon power of court to impeach tax. No court shall entertain any suit assailing the validity of tax assessed under this Code until the PAGE

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taxpayer shall have paid, under protest, the tax assessed against him nor shall any court declare any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes, or of failure to perform their duties within this time herein specified for their performance unless such irregularities, informalities or failure shall have impaired the substantial rights of the taxpayer; nor shall any court declare any portion of the tax assessed under the provisions of Code invalid except upon condition that the taxpayer shall pay the just amount of the tax, as determined by the court in the pending proceeding. For the foregoing lapses, if for no other, this case ought to be dismissed. As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration. 21 The Court has held in several cases, however, that an appellate court has an inherent authority to review unassigned errors (1) which are closely related to an error properly raised, or (2) upon which the determination of the error properly assigned is dependent, or (3) where the Court finds that consideration of them is necessary in arriving at a just decision of the case. In the present case, we hold that Respondent CBAA did not err in considering the issue of back taxes, the same being closely related to an error properly raised. Petitioner himself assailed the subject assessment before the Respondent CBAA for being excessive and unconscionable. In resolving this issue, Respondent CBAA was duty-bound to review the factual antecedents of the case and to apply thereon the pertinent provisions of law. In the process, Respondent CBAA applied Section 25 of PD 464 which had authorized the imposition of back taxes. In any event, consideration of the question of the back taxes is essential to a just decision on the case, as will be shown below. Section 24 merely lays down the general rule that assessments under PD 464 are to be given prospective application. It cannot be construed in such a manner as to eliminate the imposition of back taxes. If Section 24, instead of Section 25, were made to apply as suggested by petitioner, he would in effect be excused from the payment of back taxes on the undeclared excess area of his property. The Court, clearly, cannot allow a taxpayer evade his obligation to the government by letting him pay taxes on property based on its gross undervaluation at P60,000.00, when the same had then a current market value of P449,860.00. PAGE

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LOPEZ vs. CITY OF MANILA

[G.R. No. 127139. February 19, 1999] Digest by: SANTOS, Maricar J. PONENTE: QUISUMBING, J.: FACTS: Sec. 219 of Republic Act 7160 (R.A. 7160) or the Local Government Code of 1991 requires the conduct of the general revision of real property as follows: General Revision of Assessment 2 and Property Classification The provincial, city or municipal assessor shall undertake a general revision of real property assessments within two (2) years after the effectivity of this Code and every three (3) years thereafter. Mrs. Lourdes Laderas, the newly appointed City Assessor of Manila, received Memorandum Circular No. 04-95 , from the Bureau of Local Government Finance, Department of Finance. This memorandum relates to the failure of most of the cities and municipalities of Metropolitan Manila, including the City of Manila, to conduct the general revision of real property. In the year 1995, the increase in valuation of real properties compared to the year- 1979 market values ranges from 600% to 3,330%, but the City Assessors office initially fixed the general average of increase to 1,700%. Mrs. Laderas felt that the increase may have adverse reactions from the public, hence, she ended up reducing the increase in the valuation of real properties to 1,020%. With the implementation of Manila Ordinance No. 7894, the tax on the land owned by the petitioner was increased by five hundred eighty percent (580%). With respect to the improvement on petitioners property, the tax increased by two hundred fifty percent (250%). As a consequence of these increases, petitioner Jaime C. Lopez, filed a special proceeding for the declaration of nullity of the City of Manila Ordinance No. 7894 with preliminary injunction and prayer for temporary restraining order (TRO). The petition alleged that Manila Ordinance No. 7894 appears to be unjust, excessive, oppressive or confiscatory. As a result, Manila Ordinance No. 7905 reduced the tax increase of petitioners residential land to one hundred fifty-five percent (155%), while the tax increase for residential improvement was eighty-two percent (82%). The maximum tax increase on classified commercial estates is three hundred percent (300%) but the tax increase on commercial land was only, two hundred eightyeight percent (288%), and seventy-two percent (72%) on commercial portion of the improvement. The court directed the issuance of a writ of injunction and denied, in the meanwhile, the motion to dismiss by the respondent. PAGE

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On October 24, 1996, the trial court granted the motion to dismiss filed by the respondent. The dismissal order was justified by petitioners failure to exhaust the administrative remedies and that the petition had become moot and academic when Manila Ordinance No. 7894 was repealed by Manila Ordinance No. 7905. ISSUE: Whether or not the tax is excessive, oppressive or confiscatory. HELD: As a general rule, where the law provides for the remedies against the action of an administrative board, body, or officer, relief to courts can be sought only after exhausting all remedies provided. The reason rests upon the presumption that the administrative body, if given the chance to correct its mistake or error, may amend its decision on a given matter and decide it properly. Therefore, where a remedy is available within the administrative machinery, this should be resorted to before resort can be made to the courts, not only to give the administrative agency the opportunity to decide the matter by itself correctly, but also to prevent unnecessary and premature resort to courts. 9 This rule, however, admits certain exceptions. With regard to question on the legality of a tax ordinance, the remedies available to the taxpayers are provided under Section 187, 226, and 252 of R.A. 7160. Sec. 187 of R.A. 7160 provides, that the taxpayer may question the constitutionality or legality of tax ordinance on appeal within thirty (30) days from effectivity thereof, to the Secretary of Justice. The petitioner after finding that his assessment is unjust, confiscatory, or excessive, must have brought the case before the Secretary of Justice for question of legality or constitutionality of the city ordinance. Under Section 226 of R.A. 7160, an owner of real property who in not satisfied with the assessment of his property may, within sixty (60) days from notice of assessment, appeal to the Board of Assessment Appeals. Should the taxpayers question the excessiveness of the amount of tax, he must first pay the amount due, in accordance with Section 252 of R.A. 7160. Then, he must request the annotation of the phrase paid under protest and accordingly appeal to the Board of Assessment Appeals by filing a petition under oath together with copies of the tax declarations and affidavits or documents to support his appeal. 12 We have carefully scrutinized the record of this case and we found no cogent reason to depart from the findings made by the trial court on this point. As correctly found by the trial court, the petition does not fall under any of the exceptions to excuse compliance with the rule on exhaustion of administrative remedies, to wit: One of the reasons for the doctrine of exhaustion is the separation of powers which enjoins upon the judiciary a becoming policy of non-interference with matters coming PAGE

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primarily within the competence of other department .......... Sec. 212. Preparation of Schedule of Fair Market Values Before any general revision of property assessment is made pursuant to the provisions of this Title, there shall be prepared a schedule of fair market values by the provincial, city and the municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units [LGU] for enactment by ordinance of the sanggunian concerned. The schedule of fair market values shall be published in a newspaper of general circulation in the province, city or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two other conspicuous public places therein. Sec. 221. Date of Effectivity of Assessment of Reassessment All assessments or reassessments made after the first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year: Provided, however, That the reassessment of real property due to its partial or total destruction, or to a major change in its actual use, or to any great and sudden inflation or deflation of real property values, or to the gross illegality of the assessment when made or to any other abnormal causes, shall be made within ninety (90) days from the date any such cause or causes occurred, and shall take effect at the beginning of the quarter next following assessment. The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of R.A. 7160, to wit: (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned. (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province, city or municipality concerned or the posting in the provincial capitol or other places as required by law. It was clear from the records that Mrs. Lourdes Laderas, the incumbent City Assessor, prepared the fair market values of real properties and in preparation thereof, she considered the fair market values prepared in the calendar year 1992. Upon that basis, the City Assessors Office updated the schedule for the year 1995. In fact, the initial schedule of fair market values of real properties showed an increase in real estate costs, which rages from 600% 3,330 % over the values determined in the year 1979. However, after a careful study on the movement of prices, Mrs. Laderas eventually lowered the average increase to 1,020%. Thereafter, the proposed ordinance with the schedule of the fair market values of real properties was published in the Manila Standard on October 28, 1995 and Balita on November 1, 1995. 18 Under the circumstances of this case, was compliance with the requirement provided under Sec. 212 of R.A. 7160. Thereafter, on January 1, 1996, the Sanggunian approved Manila Ordinance No. 7894. The schedule of values of real properties in the City of Manila, which formed an integral part of the ordinance, was likewise approved on the same date. Coming down to specifics, we find it desirable to lay down the procedure in computing the real property tax. With the introduction of assessment levels, tax rates could be maintained, PAGE

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although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax. Moreover, classes and values of real properties can be given proper consideration, like assigning lower assessment levels to residential properties and higher levels to properties used in business. Although, we are in full accord with the ruling of the trial court, it is likewise necessary to stress that Manila Ordinance No. 7905 is favorable to the taxpayers when it specifically states that the reduced assessment levels shall be applied retroactively to January 1, 1996. The reduced assessment levels multiplied by the schedule of fair market values of real properties, provided by Manila Ordinance No. 7894, resulted to decrease in taxes. To that extent, the ordinance is likewise, a social legislation intended to soften the impact of the tremendous increase in the value of the real properties subject to tax. The lower taxes will ease, in part, the economic predicament of the low and middle-income groups of taxpayers. PAGE

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CAGAYAN ROBINA SUGAR MILLING CO. vs. COURT OF APPEALS

[G. R. No. 122451. October 12, 2000] Digest by: SANTOS, Maricar J. PONENTE: QUISUMBING, J.: FACTS: The Assets Privatization Trust (APT) offered for sale all the assets and properties of the Cagayan Sugar Corporation (CASUCO), which had been foreclosed and transferred to APT by the Development Bank of the Philippines. The APT set the floor bid price for the said properties at three hundred fifty five million pesos (P355,000,000.00). Petitioner, as the highest bidder, acquired the aforesaid properties for a total price of P464,000,000.00. Among the properties bought by petitioner were sugar mill machineries located at the CASUCO millsite in Sto. Domingo, Piat, Cagayan. The market value of these machineries was pegged at P391,623,520.00 and the assessed value was set at P313,298,820.00 under Tax Declaration No. 5355. The Provincial Assessor of Cagayan issued a Notice of Assessment of Real Property to petitioner covering the machineries installed at the CASUCO millsite based on the market value of P391,623,520.00 and the assessed value thereof at P313,298,820.00. Petitioner appealed the assessment to the LBAA, on the ground that it was excessive, erroneous, and unjust. The LBAA resolved that the basis of the market value for assessment purposes of the properties acquired by petitioner should be the APT floor bid price of P355,000,000.00. The LBAA then deducted from this amount the value of the land (P4,721,130.00), the total market value of the buildings (P17,605,340.00), to derive the market value of the machineries, amounting to P332,673,530.00. By further deducting the value of machineries not subject to real property tax, the LBAA fixed the market value of the petitioners machineries at P260,327,060.00 for assessment purposes. The LBAA ordered the Provincial Assessor of Cagayan to make the necessary amendments, as a result of which Declaration No. 5514 was issued, putting the assessed value of petitioners machineries at P208,261,650.00. The petitioner filed with the CBAA an Appeal of Assessment identical with its earlier appeal. The CBAA dismissed petitioners appeal on the ground that it was time-barred. ISSUE: Whether or not the Court of Appeals err in finding the assessment of petitioners machineries proper and correct under the Real Property Tax Code. HELD: We note that the real property tax being assessed and collected against petitioners machineries is for 1990. Hence, in this case, the applicable law is the Real Property Tax Code (P.D. No. 464), and not the Local Government Code of 1991 (R.A. No. 7160). We agree with petitioner that Section 28 of the Real Property Tax Code provides for a formula for computing the current market value of machineries. However, Section 28 must PAGE

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be read in consonance with Section 3 of the said law, which defines market value. Under the latter provision, the LBAA and CBAA were not precluded from adopting various approaches to value determination, including adopting the APT floor bid price for petitioners properties. As correctly pointed out by the CBAA and affirmed by the court a quo:Valuation on the basis of a floor bid price is not bereft of any basis in law. One of the approaches to value is the Sales Analysis Approach or the Market Data Approach where the source of market data for valuation is from offer of sales or bids of real property. Valuation based on the floor bid price belongs to this approach, pursuant to Section 3(n) Tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise.[10] In the instant case, petitioner failed to show that the use by the LBAA and CBAA of the APT floor bid price, pursuant to Section 3 (n) of the Real Property Tax Code was incorrect and done in bad faith. The method used by the LBAA and CBAA cannot be deemed erroneous since there is no rigid rule for the valuation of property, which is affected by a multitude of circumstances and which rules could not foresee nor provide for. Worthy of note, petitioner has not shown that the current market value of its properties would be significantly lower if its proposed formula is adopted. A party challenging an appraisers finding of value is required not only to prove that the appraised value is erroneous but also what the proper value is. Factual findings of administrative agencies, which have acquired expertise in their field, are generally binding and conclusive upon the Court. The Court will not presume to interfere with the intelligent exercise of the judgment of men specially trained in appraising property. PAGE

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LIGHT RAIL TRANSIT AUTHORITY v. CENTRAL BOARD OF ASSESSMENT APPEALS


[G.R. No. 12716. October 12, 2000] Digest by: SANTOS, Maricar J. PONENTE: PANGANIBAN FACTS: The LIGHT RAIL TRANSIT AUTHORITY (LRTA) is a government-owned and controlled corporation created and organized under Executive Order No. 603, dated July 12, 1980 x x x primarily responsible for the construction, operation, maintenance and/or lease of light rail transit system in the Philippines, giving due regard to the reasonable requirements of the public transportation of the country. LRTA acquired real properties x x x constructed structural improvements, such as buildings, carriageways, passenger terminal stations, and installed various kinds of machinery and equipment and facilities for the purpose of its operations. It entered into a Contract of Management with the Meralco Transit Organization (METRO) in which the latter undertook to manage, operate and maintain the Light Rail Transit System owned by the LRTA subject to the specific stipulations contained in said agreement, including payments of a management fee and real property taxes. Respondent-Appellee City Assessor of Manila assessed the real properties of [petitioner], consisting of lands, buildings, carriageways and passenger terminal stations, machinery and equipment which he considered real property under the Real Property Tax Code, to commence with the year 1985. Petitioner paid its real property taxes on all its real property holdings, except the carriageways and passenger terminal stations including the land where it is constructed on the ground that the same are not real properties under the Real Property Tax Code, and if the same are real property, these are for public use/purpose, therefore, exempt from realty taxation, which claim was denied by the Respondent-Appellee City Assessor of Manila. Aggrieved by the action of the Respondent-Appellee City Assessor, filed an appeal with the Local Board of Assessment Appeals of Manila. Appellee, herein, after due hearing , denied petitioners appeal.The Court of Appeals held that petitioners carriageways and passenger terminal stations constituted real property or improvements thereon and, as such, were taxable under the Real Property Tax Code. ISSUE: Whether or not the Honorable Court of Appeals erred in not holding that the carriageways and terminal stations of petitioner are not improvements for purposes of the Real Property Tax Code. HELD: The Petition has no merit. The Real Property Tax Code,[6] the law in force at the time of the assailed assessment in 1984, mandated that there shall be levied, assessed and collected PAGE

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in all provinces, cities and municipalities an annual ad valorem tax on real property such as lands, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted.[7] The character of tax as a property tax must be determined by its incidents, and form the natural and legal effect thereof. It is irrelevant to associate the carriageways and/or the passenger terminals as accessory improvements when the view of taxability is focused on the character of the property. The latter situation is not a novel issue as it has already been resolved by this Honorable Court in the case of City of Manila vs. IAC (GR No. 71159, November 15, 1989) wherein it was held: The New Civil Code divides the properties into property for public and patrimonial property (Art. 423), and further enumerates the property for public use as provincial road, city streets, municipal streets, squares, fountains, public waters, public works for public service paid for by said [provinces], cities or municipalities; all other property is patrimonial without prejudice to provisions of special laws. (Art. 424, Province of Zamboanga v. City of Zamboanga, 22 SCRA 1334 [1968]) The foregoing enumeration in law does not specify or include carriageway or passenger terminals as inclusive of properties strictly for public use to exempt petitioners properties from taxes. Precisely, the properties of petitioner are not exclusively considered as public roads being improvements placed upon the public road, and this separability nature of the structure in itself physically distinguishes it from a public road. Considering further that carriageways or passenger terminals are elevated structures which are not freely accessible to the public, viz-a-viz roads which are public improvements openly utilized by the public, the former are entirely different from the latter. Though the creation of the LRTA was impelled by public service -- to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila -- its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives.[9] Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government- owned or controlled corporation. Basis of Assessment Is Actual Use of Real Property. Under the Real Property Tax Code, real property is classified for assessment purposes on the basis of actual use,[10] which is defined as the purpose for which the property is principally or predominantly utilized by the person in possession of the property. PAGE

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Part II:

Tariff & Customs Laws

RODOLFO V. JAO V. COURT OF APPEALS

[G.R. No. 128314. May 29, 2002] Digest by: VILLANUEVA, Jenno Antonio G. PONENTE: YNARES-SANTIAGO, J. FACTS: Rodolfo and Perico were the sons and heirs of Spouses Ignacio Jao Tayag and Andrea v. Jao who died intestate on 1988 and 1989, respectively. The decedents left real estate, cash, shares of stock and other personal properties. Perico then instituted a petition in RTC Quezon City (QC) for the issuance of letters of administration over the estate of their parents, alleging among other things, that his brother Roberto was dissipating the estates assets and was receiving rentals from several properties without rendering the necessary accounting and forcibly opening vaults and disposing of the cash and valuables therein. Rodolfo moved to dismiss (MTD) the petition on the ground of improper venue. He alleged that the petition should have been instituted in Angeles City, Pampanga (AC) where their mother used to run a bakery and truly reside. He submitted documentary evidence previously executed by their parents such as income tax returns, voters affidavits, statement of assets and liabilities, real estate tax payments, vehicle registration and passports, all indicating that their residence was in AC. Perico countered that the residence at the time of death was in QC, as their parents who were already undergoing medical treatment in the Medical City in Mandaluyong have been staying in Rodolfos house in QC for four years and that in their death certificates, Rodolfo himself, filled in as place of residence, his address in QC and thereafter, affixed his signature. Rodolfo filed a rejoinder and asserted that he only put his address as reference and that he did so by mistake and in good faith and further maintaining that it is AC and not QC that should be the proper venue. Upon the failure of both parties to nominate for the estates administrator, the court appointed Carlos Sundiam and denied Rodolfos MTD, further ruling that he cannot disown his own representations by taking an inconsistent position on his own admission. Via petition for Certiorari, Rodolfo appealed and the CA affirmed the denial. MFR was also denied. ISSUE: Where should the settlement proceedings be had. HELD: The estate of an inhabitant of the Philippines shall be settled or letters of administration granted in the proper court located in the province where the decedent resides at the time of his death. (Sec. 1, Rule 73, RoC). Rodolfos contention invoking the case of Eusebio v. Eusebio was misplaced as the facts therein differed from the case at bar. Unlike in Eusebio, there is substantial proof that the decedents have transferred to Rs QC residence and other factors indicate that their stay was more than temporary. Rodolfo failed to sufficiently refute Pericos assertion that their elderly parents stayed in Rs house for some three to four years before they died in the late 1980s. Furthermore, the decedents respective death certificates state that they were both residents of Quezon City at the time of their demise. Significantly, it was Rodolfo himself who filled up his late mothers death certificate. To the SC, this unqualifiedly shows that at that time, at least, R recognized his deceased mothers residence to be QC. PAGE

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TRANSGLOBE INTERNATIONAL, INC. V CA

G.R. No. 126634. January 25, 1999 Digest by: VILLANUEVA, Jenno Antonio G. PONENTE: BELLOSILLO, J. FACTS: A shipment from Hong Kong arrived at the port of Manila, aboard the S/S Seadragon. Its inward foreign manifest indicated that it contained various hand tools. Acting on an information that the shipment violated provisions of tariff and customs code, the Economic Intelligence and Investigation Bureau (EIIB) agents seized the shipment while in transit to the container yard. The EIIB recommended seizure of the shipment, and for which a warrant of seizure and distraint was issued by the District Collector. For failure of petitioner, to appear during the hearing despite due notice, collector decreed the forfeiture of the shipment in favor of the government. ISSUE: Whether or not Transglobe is allowed to redeem the forfeited shipments. HELD: As a means of settlement under Sec. 2307, TCC, redemption of forfeited property is unavailing in 3 instances: 1. Where there is fraud; 2. Where the importation is absolutely prohibited; 3. Where the release of the property is contrary to law. The fraud contemplated by law must be actual and not constructive. It must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up same right. PAGE

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ACTING COMMISSIONER OF CUSTOMS vs. COURT OF TAX APPEALS


[G.R. No. 128314. May 29, 2002] Digest by: VILLANUEVA, Jenno Antonio G. PONENTE: YNARES-SANTIAGO, J. FACTS: On 20 February 1980, Andrulis representing himself as an American businessman on joint ventures with his Filipino counterparts, arrived in Manila and checked in at the Century Park Sheraton Hotel. Two days later, or on 22 February 1980, he left the hotel surreptitiously without paying for his bills in the amount of P2,000.00. Col. Felix Zerrudo, Chief Security Officer of the Hotel, timely discovered the scheduled departure of Andrulis on that same day, and immediately tippedoff the Customs authorities on Andrulis intention to abscond. At the Manila International Airport (MIA), the Customs authorities looked for Andrulis from among the passengers who were already on board Philippine Airlines Flight No. 501 bound for Singapore. Apprehensive, Andrulis locked himself inside the airplanes comfort room. In the course of negotiations for him to come out, he slipped through an opening bills worth US$300.00. Andrulis finally yielded to the authorities and surrendered the luggage he was carrying which, when opened by the authorities, contained various foreign currencies consisting of US$59,639.00; 53,100 Indonesian Rupiah, and Singapore $308.00. A criminal charge was filed before the Office of the City Fiscal, Pasay City, for violation of CB Circular No. 534 in relation to RA 265, the Central Bank Charter. The Assistant City Fiscal dismissed the charge on the rationalization that the Government had failed to present evidence that the currencies were not brought in by Andrulis. ISSUE: Who has the burden of proof in seizure or forfeiture proceedings.. HELD: The requirement of the law that the existence of probable cause should first be shown before firing of the forfeiture proceedings, had been fully met. When Andrulis was apprehended at the MIA and was found to have in his possession the various foreign currencies, he could not produce the required Central Bank authorization allowing him to bring them out of the country. This constituted prima facie evidence of infringement of the provisions of CB Circular No. 534 and provided sufficient basis for the seizure of the said foreign exchange. Probable cause having been shown, the burden of proof was upon Andrulis to establish that he fell within the purview of the exception prescribed in the second paragraph of the aforequoted Section 3 of CB Circular No. 534 in that he actually brought into the country the foreign currencies and was just taking them out. 7 This burden, Andrulis had failed to satisfactorily discharge. The legal presumption in Section 5(j), Rule 131 of the Rules of Court and Article 541 of the Civil Code, relied upon by respondent Court, are of a general character and cannot prevail over the specific provisions of the Tariff and Customs Code. PAGE

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CHEVRON PHILIPPINES, INC v. COMMISSIONER OF THE BUREAU OF CUSTOMS


[G.R. No. 178759, August 11, 2008] Digest by: VILLANUEVA, Jenno Antonio G. PONENTE: Corona, J. FACTS: The importations subject of this case arrived from March 8, 1996 to April 10, 1996 but were unloaded from the carrying vessels onto petitioner Chevron Philippines oil tanks over a period of three days from the date of their arrival. Subsequently, the import entry declarations (IEDs) were filed and 90% of the total customs duties were paid. The import entry and internal revenue declarations (IEIRDs) of the shipments were from May 10, 1996 to June 21, 1996. Petitioner paid the import duties at the rate of 3% as provided under RA 8180 (Downstream Oil Industry Deregulation Act of 1996). Prior to the effectivity of RA 8180 on April 16, 1996, the rate of duty on imported crude oil was 10%. Respondent demanded payment of the difference between the 10% and 3% tariff rates on the shipments but petitioner objected contending that the 3% tariff rate is applicable. It likewise raised the defense of prescription against the assessment pursuant to Section 1603 of the Tariff and Customs Code (TCC). However in the CTA en banc decision on 2007, it was held that it was the filing of the IEIRDs that constituted entry under the TCC and since these were filed beyond the 30-day period, they were not seasonably entered in accordance with Section 1301 in relation to Section 205 of the TCC. Consequently, they were deemed abandoned under Sections 1801 and 1802 of the TCC. It was also held that petitioner committed fraud when it failed to file the IEIRD within the 30day period with the intent to evade the higher rate. Thus, petitioner was ordered to pay respondent the total dutiable value of the oil shipments. ISSUE: 1. Whether or not the term entry under Section 1301 in relation to Section 1801 of the TCC refers to the IED or the IEIRD; 2. Whether or not the importations can be considered abandoned under Section 1801. HELD: 1. BOTH. The term entry in customs law has a triple meaning. It means (1) the documents filed at the customs house; (2) the submission and acceptance of the documents and (3) the procedure of passing goods through the customs house. The IED serves as basis for the payment of advance duties on importations whereas the IEIRD evidences the final payment of duties and taxes. The operative act that constitutes entry of the imported articles at the port of entry is the filing and acceptance of the specified entry form together with the other documents required by law and regulations. There is no dispute that the specified entry form refers to the IEIRD. Section 205 defines the precise moment when the imported articles are deemed entered. Under the relevant provisions of the TCC (Sec 205, 1301, 1802), both the IED and IEIRD should be filed within 30 days from the date of discharge of the last PAGE

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package from the vessel or aircraft. As a result, the position of petitioner, that the import entry to be filed within the 30-day period refers to the IED and not the IEIRD, has no legal basis. 2. YES. The law is clear and explicit. It gives a non-extendible period of 30 days for the importer to file the entry which we have already ruled pertains to both the IED and IEIRD. Thus under Section 1801 in relation to Section 1301, when the importer fails to file the entry within the said period, he shall be deemed to have renounced all his interests and property rights to the importations and these shall be considered impliedly abandoned in favor of the government. PAGE

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