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Villanueva v City of Iloilo (privilege tax) Assoc.

of Custom Brokers v Municipal Board

Relying on the passage of RA 2264 or the Local Autonomy (privilege tax)
Act, Iloilo enacted Ordinance 11 Series of 1960, imposing a Facts:
The disputed ordinance (Ordinance 3379) was passed by the
municipal license tax on tenement houses in accordance with
Municipal Board of the City of Manila under the authority
the schedule of payment provided by therein. conferred by section 18(p) of RA 409 which confers upon the
Villanueva and the other appellees are apartment owners from municipal board the power “to tax motor and other vehicles
whom, the city collected license taxes by virtue of Ordinance operating within the City of Manila the provisions of any
11. Appellees aver that the said ordinance is unconstitutional existing law to the contrary notwithstanding. “
for RA 2264 does not empower cities to impose apartment The plaintiff, an association composed of all brokers and public
taxes; that the same is oppressive and unreasonable for it service operators of Motor Vehicles in the City of Manila filed
this petition for declaratory relief challenging the validity of the
penalizes those who fail to pay the apartment taxes; that it
ordinance on the following grounds; that it while it levies a so-
constitutes not only double taxation but treble taxation; and, called property tax, it is in reality a license fee which is beyond
that it violates uniformity of taxation. the power of the board to impose; that the said ordinance goes
Issues: against the rule on uniformity of taxation; and, that the said
1. Does the ordinance impose double taxation? imposition constitutes double taxation.
2. Is Iloilo city empowered by RA 2264 to impose tenement
Issues: Can the city validly enact such ordinance?
Held: Held: No. The Motor Vehicle Law (Section 70[b]) provides that
1. While it is true that appellees are taxable under the NIRC no fees may be exacted or demanded for the operation of any
as real estate dealers, and taxable under Ordinance 11, motor vehicle other than those therein provided , the only
double taxation may not be invoked. This is because the exception being that which refers to property tax which may be
same tax may be imposed by the national government as imposed by municipal corporations. While the ordinance refers
well as by the local government. The contention that 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
appellees are doubly taxed because they are paying real
purpose of raising funds to be expanded exclusively for the
estate taxes and the tenement tax is also devoid of merit. repair, maintenance and improvement of streets and bridges in
A license tax may be levied upon a business or occupation said city. Because of this, the ordinance in question merely
although the land or property used in connection therewith imposes a license fee although under the cloak of being an ad
is subject to property tax. In order to constitute double valorem tax to circumvent the prohibition provided by the Motor
taxation, both taxes must be the same kind or character. Vehicle Law.
Real estate taxes and tenement taxes are not of the same
2. RA 2264 confers local governments broad taxing powers.
The imposition of the tenement taxes does not fall within
the exceptions mentioned by the same law. It is argued
however that the said taxes are real estate taxes and thus,
the imposition of more the 1 per centum real estate tax
which is the limit provided by CA 158, makes the said
ordinance ultra vires. The court ruled that the tax in
question is not a real estate tax. It does not have the
attributes of a real estate tax. By the title and the terms of
the ordinance, the tax is a municipal tax which means an
imposition or exaction on the right to use or dispose of
property, to pursue a business, occupation or calling, or to
exercise a privilege. Tenement houses being offered for
rent or lease constitute a distinct form of business or
calling and as such, the imposition of municipal tax finds
support in Section 2 of RA 2264.

If a tax is in its nature an excise, it does not become a property tax because it is proportioned
It is not a tax on the land on which the tenement houses are erected, although both land and in the amount to the value of the property used in connection with the occupation, privilege or
tenement houses may belong to the same owner. Te tax is not a fixed proportion of the act which is taxed. Every excise by necessarily must finally fall upon and be paid by property
assessed value of the tenement houses, and does not require the intervention of the and so may be indirectly a tax upon property; but if it is really imposed upon the performance
assessors or appraisers. It is not payable at a designated time or date, and is not enforceable of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered
against the tenement houses either by sale or distraint. excise.
Philippine Acetylene Co., Inc. v CIR (Indirect Tax; CIR v. Gotamco (Indirect Tax ; Nature of Tax Exemption)
also in Nature of Tax Exemption) FACTS: The World Health Organization entered into a Host
Facts: Petitioner is a corporation engaged in the manufacture Agreement between the Philippine government. Section 11 of
and sale of oxygen and acetylene gases. It made various sales that Agreement provides, that "the Organization, its assets,
of its product to the National Power Corporation (NPC) an
income and other properties shall be: (a) exempt from all direct
agency of the government and to Voice of America (VOA) an
agency of the US government. The respondent assessed and indirect taxes. It is understood, however, that the
against and demanded from the petitioner the payment of Organization will not claim exemption from taxes which are, in
deficiency sales tax and surcharge as provided by Sections fact, no more than charges for public utility services; . . .
186 and 183 of the NIRC. Petitioner denied liability on the * When the WHO decided to construct a building for its office, it
payment of the tax based on the sales made to these agencies informed the bidders that building to be constructed belonged
stating that the same are exempt from taxation because the to an organization with diplomatic status and thus exempt from
NPC is exempt from taxation by virtue of RA 947 Sec2 and
the payment of all fees, licenses, and taxes, and that therefore
because VOA is exempt as well because of the Bases
Agreement. their bids "must take this into account and should not include
items for such taxes, licenses and other payments to
Issue: Is petitioner exempt from paying the percentage taxes Government agencies."
on the sales made to NPC and VOA? * John Gotamco and Sons, Inc. won the bid.
* CIR gave an Opinion that the 3% contractors tax was exempt
Held: No. The percentage tax provided by Section 286 of the but CIR reversed his opinion and stated that "as the 3%
NIRC is a tax on the producer or manufacturer and not a tax on
contractor's tax is not a direct nor an indirect tax on the WHO,
the purchaser. Section 183 of the NIRC provide that sales tax
shall be paid by the manufacturer or producer who must make but a tax that is primarily due from the contractor, the same is
a true and complete return of the amount of his or her or its not covered by . . . the Host Agreement."
gross monthly sales, receipts or earnings or gross value of * CIR demanded from Gotamco the 3% tax plus surcharge
output actually removed from the factory or mill warehouse and * CIR alleges that Host Agreement void. Even if valid,
within twenty days after the end of each month, pay the tax contractor’s tax is not indirect tax in view of the Agreeement.
due thereon.
* Gotamco appealed to the CTA. CTA for Gotamco.
Since the tax imposed by section 186 is a tax on the
manufacturer or producer and not a tax on the purchaser, ISSUE: WON Gotamco should pay the 3% contractor's tax
petitioner could not be considered exempt. under Section 191 of NIRC on the gross receipts it realized
from the construction of the WHO office?
As regards VOA, petitioner is also not exempt from percentage HELD: NO, contractor’s tax is indirect tax coming within
tax because the Bases Agreement only exempts from tax sales purview of the Host Agreement.
made “for exclusive use in the construction, maintenance and As to the Agreement, it is valid since less formal types of
operation or defense of the bases,” or sales to the
international agreements may be entered into by the Chief
quartermaster. Sales of goods to any other party even if it be
an agency of the US, or even the quartermaster but for a Executive and become binding without the concurrence of the
different purpose are not exempt from tax. legislative body. The Agreement comes within this category; it
is a valid and binding international agreement even without the
It is a familiar learning in the American law of taxation that concurrence of the Philippine Senate.
tax exemption must be strictly construed and that the As to the tax, as correctly held by CTA: In context, direct
exemption will not be held to be conferred unless the taxes are those that are demanded from the very person who,
terms under which it is granted clearly and distinctly show
it is intended or desired, should pay them; while indirect taxes
that such was the intention of the parties.
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. (Pollock vs. Farmers, L & T Co.) The
contractor's tax is of course payable by the contractor but 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. And it is an indirect tax on the WHO
because, although it is payable by the petitioner, the latter can
shift its burden on the WHO. In the last analysis it is the WHO
that will pay the tax indirectly through the contractor and it
certainly cannot be said that 'this tax has no bearing upon the
World Health Organization.
Phil. Acetylene not applicable since the Host Agreement, in
specifically exempting the WHO from "indirect taxes,"
contemplates taxes which, although not imposed upon or paid
by the Organization directly, form part of the price paid or to be
paid by it. It is the clear intention of the Agreement to exempt
the WHO from "indirect" taxation.
Wells Fargo Bank v CIR (Situs of Taxation) CIR v Japan Airlines (JAL) (Situs of Taxation)
Facts: Facts:
Birdie Lillian Eye, died on September 16, 1932 at Los Angeles JAL is a foreign corporation engaged in the business of
California, the place of her alleged last residence and domicile. International air carriage. Since mid-July of 1957, JAL had
Among the properties she left was her one half conjugal shares maintained an office at the Filipinas Hotel, Roxas Boulevard
in 70,000 shares of stock in Benguet Consolidated Mining Manila. The said office did not sell tickets but was merely for
Company, an anonymous partnership organized and existing the promotion of the company. On July 17 1957, JAL
under the laws of the Philippines, with its principal office in constituted PAL as its agent in the Philippines. PAL sold tickets
Manila. She left a will which was duly admitted to probate in for and in behalf of JAL.
California where her estate was administered and settled. On June 1972, JAL then received deficiency income tax
Petitioner is the trustee of the trust created by the will. The assessments notices and a demand letter from petitioner for
Federal and State of California’s inheritance taxes due on said years 1959 through 1963. JAL protested against said
shares have been duly paid. The respondent now claims that assessments alleging that as a non-resident foreign
the same shares of stocks are also subject to inheritance tax corporation, it as taxable only on income from Philippines
here in the Philippines. Hence, this petition for declaratory sources as determined by section 37 of the Tax Code, there
judgment was instituted by plaintiff to ascertain whether the being no income on said years, JAL is not liable for taxes.
shares are still subject to inheritance tax.
Issue: WON proceeds from sales of JAL tickets sold in the
Issue: May inheritance taxes be imposed on the said Philippines are taxable as income from sources within the
shares? Philippines.

Held: Yes. Originally the settled law in the US is that Held: The ticket sales are taxable.
intangibles have only one situs for the purpose of inheritance Citing the case of CIR v BOAC, the court reiterated that the
tax, and that such situs is in the domicile of the decedent at the source of an income is the property, activity or service that
time of his death. But this rule has been relaxed due to (1) the produced the income. For the source of income to be
recognition of the inherent power of each government to tax considered as coming from the Philippines, it is sufficient that
persons, properties and rights within its jurisdiction and the income is derived from activity within the Philippines.
enjoying thus, the protection of its laws; and (2) upon the The absence of flight operations to and from the Philippines is
principle that as to intangibles, a single location in space is not determinative of the source of income or the situs of
hardly possible considering the multiple, distinct relationships income taxation. The test of taxability is the source, and the
which may be entered into with respect thereto. source of the income is that activity which produced the
income. In this case, as JAL constitutes PAL as its agent, the
It is the identity or association of intangibles with the person of sales of JAL tickets made by PAL is taxable.
their owner at his domicile which gives jurisdiction to tax. But
when the taxpayer extends his activities with respect to his
intangibles, so as to avail himself of the protection and benefit
of the laws of another state, in such a way as to bring his
person or property within the reach of the tax gatherer there,
the reason for a single place of taxation no longer obtains.
In this case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled therein. The owner
residing in California has extended her activities with respect to
her intangibles so as to avail herself of the protection and
benefit of the Philippine laws. The jurisdiction of the Philippine
government to impose tax must be upheld.
COLLECTOR V. LARA (multiplicity of situs) Annotated, p. 469-470). In the United States, for estate tax
FACTS:Hugo H. Miller, an American citizen, was born in Santa purposes, a resident is considered one who at the time of his
Cruz, California, U.S.A., in 1883. In 1905, he came to the death had his domicile in the United States, and in American
Philippines. From 1906 to 1917, he was connected with the jurisprudence, for purposes of estate and taxation, "residence"
public school system, first as a teacher and later as a division is interpreted as synonymous with domicile, and that—
superintendent of schools. After his retirement, Miller accepted The incidence of estate and succession has
an executive position in the local branch of Ginn & Co., book historically been determined by domicile and
publishers with principal offices in New York and Boston, situs and not by the fact of actual residence.
U.S.A., up to the outbreak of the Pacific War. Miller lived at the (Bowring vs. Bowers)
Manila Hotel. He never lived in any residential house in the At the time of his death, Miller had his residence or
Philippines. After the death of his wife in 1931, he transferred domicile in Santa Cruz, California. During his stay in the
from the Manila Hotel to the Army and Navy Club, where he country, Miller never acquired a house for residential purposes
was staying at the outbreak of the Pacific War. On January 17, for he stayed at the Manila Hotel and later on at the Army and
1941, Miller executed his last will and testament in Santa Cruz, Navy Club. The bulk of his savings and properties were in the
California, in which he declared that he was "of Santa Cruz, United States. To his home in California, he had been sending
California". On December 7, 1941, because of the Pacific War, souvenirs. In November, 1940, Miller took out a property
the office of Ginn & Co. was closed, and Miller joined the insurance policy and indicated therein his address as Santa
Board of Censors of the United States Navy. During the war, Cruz, California, this aside from the fact that Miller, as already
he was taken prisoner by the Japanese forces in Leyte, and in stated, executed his will in Santa Cruz, California, wherein he
January, 1944, he was transferred to Catbalogan, Samar, stated that he was "of Santa Cruz, California".
where he was reported to have been executed by said forces
on March 11, 1944. *** As to the shares of stocks issued by Philippine
Testate proceedings were instituted before the Court corporations, an exemption was granted to the estate by virtue
of California in Santa Cruz County, which subsequently issued of Section 122 of the Tax Code, which provides as follows:
an order and decree of settlement of final account and final . . ."And Provided, however, That no tax shall be
distribution. The Bank of America, National Trust and Savings collected under this Title in respect of intangible
Association of San Francisco California, co-executor named in personal property (a) if the decedent at the time of his
Miller's will, filed an estate and inheritance tax return with the death was a resident of a foreign country which at the
Collector, covering only the shares of stock issued by time of his death did not impose a transfer tax or
Philippine corporations. After due investigation, the Collector death tax of any character in respect of intangible
assessed estate and inheritance taxes, which was received by personal property of citizens of the Philippines not
the said executor. The estate of Miller protested said residing in that country, or (b) if the laws of the foreign
assessment. This assessment was appealed by De Lara as country of which the decedent was resident at the
Ancilliary Administrator before the Board of Tax Appeals, which tune of his death allow a similar exemption from
appeal was later heard and decided by the Court of Tax transfer taxes or death taxes of every character in
Appeals. respect of intangible personal property owned by
In determining the "gross estate" of a decedent, under citizen, of the Philippine not residing in that foreign
Section 122 in relation to section 88 of our Tax Code, it is first country.
necessary to decide whether the decedent was a resident or a
non-resident of the Philippines at the time of his death. The Affirmed, with modification.
Collector maintains that under the tax laws, residence and
domicile have different meanings; that tax laws on estate and
inheritance taxes only mention resident and non-resident, and
no reference whatsoever is made to domicile except in Section
93 (d) of the Tax Code; that Miller during his long stay in the
Philippines had required a "residence" in this country, and was
a resident thereof at the time of his death, and consequently,
his intangible personal properties situated here as well as in
the United States were subject to said taxes. The Ancilliary
Administrator, however, equally maintains that for estate and
inheritance tax purposes, the term "residence" is synonymous
with the term domicile.

ISSUE: W/N the estate is liable to file an estate and

inheritance tax return besides those covering shares of stocks
issued by Philippine corporations.

HELD: No. The Court agrees with the Court of Tax Appeals
that at the time that The National Internal Revenue Code was
promulgated in 1939, the prevailing construction given by the
courts to the "residence" was synonymous with domicile. and
that the two were used intercnangeabiy. Moreover, there is
reason to believe that the Legislature adopted the American
(Federal and State) estate and inheritance tax system (see e.g.
Report to the Tax Commision of the Philippines, Vol. II, pages
122-124, cited in I Dalupan, National Internal Revenue Code
CIR v. Juliane Baier-Nickel (Multiplicity of Situs) income she derived from said activities is not subject to
Facts: Philippine income taxation.
Respondent Juliane Baier-Nickel, a non-resident
German citizen, is the President of JUBANITEX, Inc., a Issue/s: W/N respondent’s sales commission income is
domestic corporation engaged in “[m]anufacturing, marketing taxable in the Philippines.
on wholesale only, buying or otherwise acquiring, holding,
importing and exporting, selling and disposing embroidered Held/Ratio: Yes.
textile products.” Through JUBANITEX’s General Manager, Section 25 of the NIRC provides that non-resident
Marina Q. Guzman, the corporation appointed and engaged aliens, whether or not engaged in trade or business, are
the services of respondent as commission agent. It was subject to Philippine income taxation on their income received
agreed that respondent will receive 10% sales commission on from all sources within the Philippines. Thus, the keyword in
all sales actually concluded and collected through her efforts. determining the taxability of non-resident aliens is the income’s
In 1995, respondent received the amount of “source.”
P1,707,772.64, representing her sales commission income “Source of income” relates to the property,
from which JUBANITEX withheld the corresponding 10% activity or service that produced the income. With respect
withholding tax amounting to P170,777.26, and remitted the to rendition of labor or personal service, as in the instant case,
same to the Bureau of Internal Revenue (BIR). On October it is the place where the labor or service was performed that
17, 1997, respondent filed her 1995 income tax return determines the source of the income. There is therefore no
reporting a taxable income of P1,707,772.64 and a tax due of merit in petitioner’s interpretation which equates source of
P170,777.26. income in labor or personal service with the residence of the
Respondent filed a claim to refund the amount of payor or the place of payment of the income.
P170,777.26 alleged to have been mistakenly withheld and The decisive factual consideration here is not the
remitted by JUBANITEX to the BIR. Respondent contended capacity in which respondent received the income, but the
that her sales commission income is not taxable in the sufficiency of evidence to prove that the services she rendered
Philippines because the same was a compensation for her were performed in Germany.
services rendered in Germany and therefore considered as The settled rule is that tax refunds are in the nature of
income from sources outside the Philippines. tax exemptions and are to be construed strictissimi juris
The CTA rendered a decision denying her claim. It against the taxpayer. The faxed documents presented by
held that the commissions received by respondent were respondent did not constitute substantial evidence, or that
actually her remuneration in the performance of her duties as relevant evidence that a reasonable mind might accept as
President of JUBANITEX and not as a mere sales agent adequate to support the conclusion that it was in Germany
thereof. The income derived by respondent is therefore an where she performed the income producing service which
income taxable in the Philippines because JUBANITEX is a gave rise to the reported monthly sales in the months of March
domestic corporation. and May to September of 1995. She thus failed to discharge
On petition with the Court of Appeals, the latter the burden of proving that her income was from sources
reversed the Decision of the CTA, holding that respondent outside the Philippines and exempt from the application of our
received the commissions as sales agent of JUBANITEX and income tax law.
not as President thereof. And since the “source” of income
means the activity or service that produce the income, the Petition GRANTED. The June 28, 2000 Decision of the Court
sales commission received by respondent is not taxable in the of Tax Appeals in C.T.A. Case No. 5633, which denied
Philippines because it arose from the marketing activities respondent’s claim for refund of income tax paid for the year
performed by respondent in Germany. 1995 is REINSTATED.
Petitioner maintains that the income earned by
respondent is taxable in the Philippines because the source
thereof is JUBANITEX, a domestic corporation located in the
City of Makati. It further argued that since respondent is the
President of JUBANITEX, any remuneration she received from
said corporation should be construed as payment of her overall
managerial services to the company and should not be
interpreted as a compensation for a distinct and separate
service as a sales commission agent.
Respondent, on the other hand, claims that the
income she received was payment for her marketing services.
She contended that income of nonresident aliens like her is
subject to tax only if the source of the income is within the
Philippines. Source, according to respondent is the situs of the
activity which produced the income. And since the source of
her income were her marketing activities in Germany, the
Alcan v. Treasurer of Manila CIR v. Solidbank (Double Taxation: Strict Sense)
(Double Taxation: Strict Sense) Facts: For the calendar year 1995, [respondent] seasonably
filed its Quarterly Percentage Tax Returns reflecting gross
receipts (pertaining to 5% [Gross Receipts Tax] rate) in the
total amount of P1,474,691,693.44 with corresponding gross
receipts tax payments in the sum of P73,734,584.60.
On January 30, 1996, [the Court of Tax Appeals]
rendered a decision in CTA Case No. 4720 entitled Asian Bank
Corporation vs. Commissioner of Internal Revenue[,] wherein it
was held that the 20% final withholding tax on [a] bank’s
interest income should not form part of its taxable gross
receipts for purposes of computing the gross receipts tax.
On June 19, 1997, on the strength of the
aforementioned decision, [respondent] filed with the Bureau of
Internal Revenue [BIR] a letter-request for the refund or
issuance of [a] tax credit certificate in the aggregate amount of
P3,508,078.75, representing allegedly overpaid gross receipts
tax for the year 1995.
The CTA rendered its decision ordering petitioner to
refund in favor of respondent the reduced amount of
P1,555,749.65 as overpaid [gross receipts tax] for the year
The CA held that the 20% FWT on a bank’s interest
income did not form part of the taxable gross receipts in
computing the 5% GRT, because the FWT was not actually
received by the bank but was directly remitted to the
government. The appellate court curtly said that while the Tax
Code “does not specifically state any exemption, x x x the
statute must receive a sensible construction such as will give
effect to the legislative intention, and so as to avoid an unjust
or absurd conclusion.

Issue/s:W/N the 20% final withholding tax on [a] bank’s

interest income forms part of the taxable gross receipts in
computing the 5% gross receipts tax.

Held/Ratio: Yes, the amount of interest income withheld in

payment of the 20% FWT forms part of gross receipts in
computing for the GRT on banks.
Two types of taxes are involved in the present
controversy: (1) the GRT, which is a percentage tax; and (2)
the FWT, which is an income tax. As a bank, petitioner is
covered by both taxes.
“Gross receipts” refer to the total, as opposed to the
net, income. These are therefore the total receipts before any
deduction for the expenses of management. Webster’s New
International Dictionary, in fact, defines gross as “whole or
No Double Taxation
The two taxes, subject of this litigation, are different
from each other. The basis of their imposition may be the
same, but their natures are different, thus leading us to a final
Double taxation means taxing the same property
twice when it should be taxed only once; that is, “x x x taxing
the same person twice by the same jurisdiction for the same
thing.” It is obnoxious when the taxpayer is taxed twice, when
it should be but once. Otherwise described as “direct duplicate
taxation,” the two taxes must be imposed on the same subject China Bank v. CA (Constitutionality of Double Taxation)
matter, for the same purpose, by the same taxing authority, Facts: The Court of Appeals affirmed the Decision of the Court
within the same jurisdiction, during the same taxing period; and of Tax Appeals, which granted China Banking Corporation
they must be of the same kind or character. (“CBC”) a tax refund or credit of P123,278.73 but denied due to
insufficiency of evidence the remainder of CBC’s claim for
First, the taxes herein are imposed on two P1,140,623.82.
different subject matters. The subject matter of the FWT is On 20 July 1994, CBC paid P12,354,933.00 as gross
the passive income generated in the form of interest on receipts tax on its income from interests on loan investments,
deposits and yield on deposit substitutes, while the subject commissions, services, collection charges, foreign exchange
matter of the GRT is the privilege of engaging in the business profits and other operating earnings during the second quarter
of banking. of 1994.
A tax based on receipts is a tax on business rather On 30 January 1996, the Court of Tax Appeals in
than on the property; hence, it is an excise rather than a Asian Bank Corporation v. Commissioner of Internal Revenue
property tax. It is not an income tax, unlike the FWT. These ruled that the 20% final withholding tax on a bank’s passive
two taxes are entirely distinct and are assessed under different interest income does not form part of its taxable gross receipts.
provisions. On 19 July 1996, CBC filed with the Commissioner of
Second, although both taxes are national in scope Internal Revenue (“Commissioner”) a formal claim for tax
because they are imposed by the same taxing authority -- refund or credit of P1,140,623.82 from the P12,354,933.00
the national government under the Tax Code -- and gross receipts tax that CBC paid for the second quarter of
operate within the same Philippine jurisdiction for the 1994. Citing Asian Bank, CBC argued that it was not liable for
same purpose of raising revenues, the taxing periods they the gross receipts tax - amounting to P1,140,623.82 - on the
affect are different. The FWT is deducted and withheld as sums withheld by the Bangko Sentral ng Pilipinas as final
soon as the income is earned, and is paid after every calendar withholding tax on CBC’s passive interest income in 1994.
quarter in which it is earned. On the other hand, the GRT is Disputing CBC’s claim, the Commissioner asserted
neither deducted nor withheld, but is paid only after every that CBC paid the gross receipts tax pursuant to Section 119
taxable quarter in which it is earned. (now Section 121) of the National Internal Revenue Code (“Tax
Third, these two taxes are of different kinds or Code”) and pertinent Bureau of Internal Revenue (“BIR”)
characters. The FWT is an income tax subject to withholding, regulations. The Commissioner argued that the final
while the GRT is a percentage tax not subject to withholding. withholding tax on a bank’s interest income forms part of its
In short, there is no double taxation, because gross receipts in computing the gross receipts tax. The
there is no taxing twice, by the same taxing authority, Commissioner contended that the term “gross receipts” means
within the same jurisdiction, for the same purpose, in the entire income or receipt, without any deduction.
different taxing periods, some of the property in the
territory. Subjecting interest income to a 20% FWT and Issue/s:W/N the 20% final withholding tax on interest income
including it in the computation of the 5% GRT is clearly should form part of CBC’s gross receipts in computing the
not double taxation. gross receipts tax on banks;

Petition granted. Held/Ratio: Yes. As commonly understood, the term “gross

receipts” means the entire receipts without any deduction.
Deducting any amount from the gross receipts changes the
result, and the meaning, to net receipts. Any deduction from
gross receipts is inconsistent with a law that mandates a tax on
gross receipts, unless the law itself makes an exception.
The Court of Tax Appeals reversed its ruling in Asian Bank. In
Far East Bank & Trust Co. v. Commissioner and Standard
Chartered Bank v. Commissioner, both promulgated on 16
November 2001, the tax court ruled that the final withholding
tax forms part of the bank’s gross receipts in computing the
gross receipts tax. The tax court also held in Far East Bank
and Standard Chartered Bank that the exclusion of the final
withholding tax from gross receipts operates as a tax
exemption which the law must expressly grant. No law
provides for such exemption.

On Double Taxation: There is no double taxation when

Section 121 of the Tax Code imposes a gross receipts tax on
interest income that is already subjected to the 20% final
withholding tax under Section 27 of the Tax Code. The gross
receipts tax is a business tax under Title V of the Tax Code, City of Baguio v. De Leon
while the final withholding tax is an income tax under Title II of (Constitutionality of Double Taxation)
the Code. There is no double taxation if the law imposes two Facts:An ordinance of the City of Baguio imposed a license
different taxes on the same income, business or property. fee on any person, firm, entity or corporation doing business in
Constitutionality: City of Baguio v. De Leon: the City of Baguio. Fortunato de Leon was held liable as a real
As to why double taxation is not violative of due process, estate dealer with a property therein worth more than P10,000,
Justice Holmes made clear in this language: “The but not in excess of P50,000, and therefore obligated to pay
objection to the taxation as double may be laid down on under such ordinance the P50 annual fee.
one side . . . . The 14th Amendment [the due process In its decision of December 19, 1964, the lower court declared
clause] no more forbids double taxation than it does the above ordinance as amended, valid and subsisting, and
doubling the amount of a tax, short of confiscation or held defendant-appellant liable for the fees therein prescribed
proceedings unconstitutional on other grounds.” With as a real estate dealer.
that decision rendered at a time when American Its validity on constitutional grounds is challenged because of
sovereignty in the Philippines was recognized, it the allegation that it imposed double taxation, which is
possesses more than just a persuasive effect. To some, it repugnant to the due process clause, and that it violated the
delivered the coup de grace to the bogey of double requirement of uniformity.
taxation as a constitutional bar to the exercise of the
taxing power. It would seem though that in the United Issue/s: W/N the ordinance is valid.
States, as with us, its ghost, as noted by an eminent critic,
still stalks the juridical stage. In a 1947 decision, however, Held/Ratio: Yes. The source of authority for the challenged
we quoted with approval this excerpt from a leading ordinance is supplied by Republic Act No. 329, amending the
American decision: ‘Where, as here, Congress has clearly city charter of Baguio2 empowering it to fix the license fee and
expressed its intention, the statute must be sustained regulate "businesses, trades and occupations as may be
even though double taxation results.’ established or practiced in the City."
On double taxation: As to why double taxation is not violative
Reversed. of due process, Justice Holmes made clear in this language:
"The objection to the taxation as double may be laid down on
one side. ... The 14th Amendment [the due process clause]
no more forbids double taxation than it does doubling the
amount of a tax, short of confiscation or proceedings
unconstitutional on other grounds." With that decision
rendered at a time when American sovereignty in the
Philippines was recognized, it possesses more than just a
persuasive effect. To some, it delivered the coup de grace to
the bogey of double taxation as a constitutional bar to the
exercise of the taxing power. It would seem though that in the
United States, as with us, its ghost as noted by an eminent
critic, still stalks the juridical state. In a 1947 decision, however,
we quoted with approval this excerpt from a leading
American decision: "Where, as here, Congress has clearly
expressed its intention, the statute must be sustained
even though double taxation results."
At any rate, it has been expressly affirmed by us that such an
"argument against double taxation may not be invoked
where one tax is imposed by the state and the other is
imposed by the city ..., it being widely recognized that
there is nothing inherently obnoxious in the requirement
that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and
the political subdivisions thereof."
On uniformity: 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;
CIR v. SC Johnson & Son (Tax Treaties) Delpher v. IAC (Tax avoidance)
Facts: Facts
• S. C. Johnson and Son, Inc. entered into a license The Pacheco siblings leased a piece of real estate to
agreement with SC Johnson and Son, United States of Construction Components International Inc., providing that
America (USA) during the existence or after the term of the lease that should
• For the use of the trademark or technology, S. C. Johnson
the lessor decide to sell the property leased, it shall first be
and Son, Inc. was obliged to pay SC Johnson and Son,
USA royalties based on a percentage of net sales and offered to the lessee and the lessee has the priority to buy
subjected the same to 25% withholding tax on royalty under similar conditions.
payments Construction Components International, Inc. assigned
• S. C. Johnson and Son, Inc. filed with the International its rights and obligations under the contract of lease in favor of
Tax Affairs Division (ITAD) of the BIR a claim for refund of Hydro Pipes Philippines, Inc. with the signed conformity of the
overpaid withholding tax on royalties arguing that the Pacheco siblings.
preferential tax rate of 10% should apply to them
A deed of exchange was executed between the
Issue Pachecos and Delpher Trades Corporation whereby the former
Whether or not SC Johnson and Son, USA is entitled to the conveyed to the latter the leased property together with
"most favored nation" tax rate of 10% on royalties as provided another parcel of land for 2,500 shares of stock of defendant
in the RP-US Tax Treaty in relation to the RP-West Germany corporation with a total value of P1,500,000.00.
Tax Treaty.
Whether or not the "Deed of Exchange" of the properties
NO. Under Article 13 of the RP-US Tax Treaty, the Philippines
may impose one of three rates — 25 percent of the gross executed by the Pachecos and Delpher Trades Corporation
amount of the royalties; 15 percent when the royalties are paid was meant to be a contract of sale which, in effect, prejudiced
by a corporation registered with the Philippine Board of the private respondent's right of first refusal over the leased
Investments and engaged in preferred areas of activities; or property included in the "deed of exchange."
the lowest rate of Philippine tax that may be imposed on Held/Ratio
royalties of the same kind paid under similar circumstances to NO. In effect, the Delpher Trades Corporation is a
a resident of a third state.
The RP-US and the RP-West Germany Tax Treaties do not business conduit of the Pachecos. What they really did was to
contain similar provisions on tax crediting. invest their properties and change the nature of their
Since the RP-US Tax Treaty does not give a matching tax ownership from unincorporated to incorporated form by
credit of 20 percent for the taxes paid to the Philippines on organizing Delpher Trades Corporation to take control of their
royalties as allowed under the RP-West Germany Tax Treaty, properties and at the same time save on inheritance taxes.
private respondent cannot be deemed entitled to the 10 The "Deed of Exchange" of property between the
percent rate granted under the latter treaty for the reason that
Pachecos and Delpher Trades Corporation cannot be
there is no payment of taxes on royalties under similar
circumstances. considered a contract of sale. There was no transfer of actual
ownership 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 under the lease contract.
Yutivo v. CTA (Tax avoidance) Republic v. Gonzales (Tax evasion)
Facts Facts
Yutivo Sons Hardware Co. bought a number of cars Since 1946, Blas Gonzales, has been a private concessionaire
and trucks from General Motors Overseas Corporation. As in the U.S. Military Base at Clark Field, Angeles City: He was
importer, GM paid sales tax prescribed by sections 184, 185 engaged in the manufacture of furniture and, per agreement
and 186 of the Tax Code on the basis of its selling price to with base authorities, supplied them with his manufactured
Yutivo. Said tax being collected only once on original sales, articles.
Yutivo paid no further sales tax on its sales to the public. The appellant filed his income tax returns for the years 1946
Southern Motors, Inc. was organized to engage in the and 1947, respectively, with the then Municipal Treasurer of
business of selling cars, trucks and spare parts. Angeles, Pampanga.
After the incorporation of SM and until the withdrawal Upon investigation, however, the BIR discovered that for the
of GM from the Philippines in the middle of 1947, the cars and years 1946 and 1947, the appellant had been paid a total of
trucks purchased by Yutivo from GM were sold by Yutivo to P2,199,920.50 for furniture delivered by him to the base
SM which, in turn, sold them to the public in the Visayas and authorities. Compared against the sales figure provided by the
Mindanao. base authorities, therefore, the amount of P1,787,848.32
declared by the appellant as his total sales for the two tax
Issue years in question was short or underdeclared by some
Whether or not Southern Motors, Inc. was organized as a tax P412,072.18. Accordingly, the appellee considered this last
evasion device. mentioned amount as unreported item of income of the
Held/Ratio appellant for 1946.
NO. SM was organized in June, 1946 when it could Further investigation into the appellant's 1946 profit and loss
not have caused Yutivo any tax savings. From that date up to statement disclosed "local sales," that is, sales to persons
June 30, 1947, or a period of more than one year, GM was the other than the United States Army, in the amount of
importer of the cars and trucks sold to Yutivo, which, in turn P124,510.43. As a result, the appellee likewise considered the
resold them to SM. During that period, it is not disputed that said amount as unreported income for the said year. The full
GM as importer, was the one solely liable for sales taxes. amount of P124,510.43 was considered as taxable income
Neither Yutivo or SM was subject to the sales taxes on their because the appellant could not produce the books of account
sales of cars and trucks. The sales tax liability of Yutivo did not on the same upon which any deduction could be based.
arise until July 1, 1947 when it became the importer and simply
continued its practice of selling to SM. The decision, therefore, Issues
of the Tax Court that SM was organized purposely as a tax 1. Whether or not Gonzales is subject to Philippine tax laws
evasion device runs counter to the fact that there was no tax to pursuant to the United States-Philippine Military Bases
evade. Agreement
2. Whether or not Gonzales is guilty of fraud.

1. YES. None of the mentioned covenants shields a
concessionaire, like the appellant, from the payment of the
income tax. For one thing, even the exemption in favor of
members of the United States Armed Forces and nationals of
the United States does not include income derived from
Philippine sources.
The appellant cannot seek refuge in the use of "excise" or
"other taxes or imposts" in paragraph 1 of Article XVIII of the
Military Bases Agreement, because, as already stated, said
terms are employed with specific application to the right to
establish agencies and concessions within the bases and to
the merchandise or services sold or dispensed by such
agencies or concessions.
2. YES. As rightly argued by the Solicitor General's office, since
fraud is a state of mind, it need not be proved by direct
evidence but may be inferred from the circumstances of the
case. The failure of the appellant to declare for taxation
purposes his true and actual income derived from his
furniture business at the Clark Field Air Base for two
consecutive years is an indication of his fraudulent intent to
cheat the Government of its due taxes.
CIR v. Estate of Benigno Toda (Tax evasion) Greenfield v. Meer (Exemption from Taxation)
Facts:CIC authorized Benigno P. Toda, Jr., President and Facts
owner of 99.991% of its issued and outstanding capital stock, Since the year 1933, the plaintiff has been
to sell the Cibeles Building and the two parcels of land on continuously engaged in the embroidery business. In 1935, the
which the building stands for an amount of not less than P90
plaintiff began engaging in buying and selling mining stocks
30 August 1989, Toda purportedly sold the property for P100 and securities for his own exclusive account and not for the
million to Altonaga, who, in turn, sold the same property on the account of others.
same day to Royal Match Inc. (RMI) for P200 million. These The plaintiff has not been a dealer in securities as
two transactions were evidenced by Deeds of Absolute Sale defined in section 84 (t) of Commonwealth Act No. 466; he has
notarized on the same day by the same notary public. no established place of business for the purchase and sale of
For the sale of the property to RMI, Altonaga paid capital gains mining stocks and securities; and he was never a member of
tax in the amount of P10 million.
any stock exchange.
On 16 April 1990, CIC filed its corporate annual income tax
return for the year 1989, declaring, among other things, its gain The plaintiff filed an income tax return where he
from the sale of real property in the amount of P75,728.021. claims a deduction of P67,307.80 representing the net loss
After crediting withholding taxes of P254,497.00, it paid sustained by him in mining stocks securities during the year
P26,341,207 for its net taxable income of P75,987,725. 1939. The defendant disallowed said item of deduction on the
On 12 July 1990, Toda sold his entire shares of stocks in CIC ground that said losses were sustained by the plaintiff from the
to Le Hun T. Choa for P12.5 million, as evidenced by a Deed sale of mining stocks and securities which are capital assets,
of Sale of Shares of Stocks.
Issue: WON this is a case of tax evasion or tax avoidance. and that the loss arising from the sale of the same should be
Held/Ratio: Tax avoidance and tax evasion are the two most allowed only to the extent of the gains from such sales, which
gains were already taken into consideration in the computation
common ways used by taxpayers in escaping from taxation.
Tax avoidance is the tax saving device within the means of the alleged net loss of P67,307.80.
sanctioned by law. It should be used by the taxpayer in good
faith and at arms length. Tax evasion is a scheme used
Whether the personal and additional exemptions granted by
outside of those lawful means and when availed of, it usually
section 23 of Commonwealth Act No. 466 should be
subjects the taxpayer to further or additional civil or criminal
considered as a credit against or be deducted from the net
Tax evasion connotes the integration of three factors: income, or whether it is the tax on such exemptions that should
(1) the end to be achieved, i.e., the payment of less than that be deducted from the tax on the total net income.
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 Personal and additional exemptions claimed by appellant
should be credited against or deducted from the net income.
"evil," in "bad faith," "willfull," or "deliberate and not accidental";
(3) a course of action or failure of action which is unlawful. "Exception is an immunity or privilege; it is freedom from a
charge or burden to which others are subjected." (If the
All these factors are present in the instant case. amounts of personal and additional exemptions fixed in section
That Altonaga was a mere conduit finds support in the 23 are exempt from taxation, they should not be included as
admission of respondent .Estate that the sale to him was part part of the net income, which is taxable. There is nothing in
of the tax planning scheme of CIC. said section 23 to justify the contention that the tax on personal
The scheme resorted to by CIC in making it appear exemptions (which are exempt from taxation) should first be
that there were two sales of the subject properties, i.e., from fixed, and then deducted from the tax on the net income.
CIC to Altonaga, and then from Altonaga to RMI cannot be
considered a legitimate tax planning. It is tainted with fraud.
Here, it is obvious that the objective of the sale to
Altonaga was to reduce the amount of tax to be paid. The
transfer from him to RMI would result to 5% individual capital
gains tax, instead of 35% corporate income tax. Altonaga’s
sole purpose of acquiring and transferring title of the properties
on the same day was to create a tax shelter. Altonaga never
controlled the property and did not enjoy the normal benefits
and burdens of ownership. 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.
In a nutshell, the intermediary transaction, i.e., the
sale of Altonaga, which was prompted more on the mitigation
of tax liabilities than for legitimate business purposes
constitutes tax evasion.
CIR v. PLDT (Nature of Taxation Exemption) Basco v. Pagcor (Nature of Power to grant tax exemption)
* PLDT paid to the BIR taxes for the for equipment, * PAGCOR was created and given a franchise under PD 1067.
machineries and spare parts it imported for its business. * Petitioner filed a petition on the grounds that the PAGCOR
* After such payment, it wrote to the BIR to seek a confirmatory Charter is contrary to morals, public policy and order, and
ruling on its exemption privileges. The BIR issued a ruling because it constitutes a waiver of the right of Manila City
stating that PLDT is exempt from all taxes including the 10% government's right to impose taxes and license fees, which is
value-added tax (VAT) on its importations of equipment, recognized by law. They assail Section 13 par. (2) of P.D. 1869
machineries and spare parts necessary in the conduct of its which exempts PAGCOR, as the franchise holder from paying
business covered by the franchise. any "tax of any kind or form, income or otherwise, as well as
* Based on the BIR ruling, PLDT filed a claim for tax fees, charges or levies of whatever nature, whether National or
credit/refund of the VAT, compensating taxes, advance sales Local."
taxes and other taxes it had been paying in its importation of
various equipment, machineries and spare parts needed for its ISSUE: WON PAGCOR Charter is violative of the autonomy of
operations. the local government?
* PLDT filed with the CTA a petition for review. CTA granted
the credit/refund. BIR’s MfR denied. HELD: NO, it is not violative of the law.
* BIR appealed to CA which affirmed CTA judgment. Hence Manila's power to impose license fees on gambling, has long
this appeal. been revoked. As early as 1975, the power of local
governments to regulate gambling thru the grant of "franchise,
ISSUE: WONPLDT is exempt from paying VAT, compensating licenses or permits" was withdrawn by P.D. No. 771 and was
taxes, advance sales taxes and internal revenue taxes on its vested exclusively on the National Government
importations? (Note: Since the case doesn't directly say anything about the
"nature of the power to grant tax exemption", use the doctrine
HELD: YES, PLDT exempt from paying direct taxes but not mentioned in the case [which speaks of the "nature of the
indirect taxes (ie VAT). power to tax"] and extend them to tax exemption.)
Taxation is the rule, exemption is the exception. Statutes Manila has no inherent right to impose taxes. Thus, "the
granting tax exemptions must be construed in strictissimi Charter or statute must plainly show an intent to confer that
juris against the taxpayer and liberally in favor of the power or the municipality cannot assume it". Its "power to tax"
taxing authority. To him who claims a refund or exemption therefore must always yield to a legislative act which is
from tax payments rests the burden of justifying the superior having been passed upon by the state itself which has
exemption by words too plain to be mistaken and too the "inherent power to tax".
categorical to be misinterpreted. Local governments have no power to tax instrumentalities of
the National Government. "The states have no power by
Tax exemption represents a loss of revenue to the government taxation or otherwise, to retard, impede, burden or in any
and must, therefore, not rest on vague inference. When manner control the operation of constitutional laws enacted by
claimed, it must be strictly construed against the taxpayer who Congress to carry into execution the powers vested in the
must prove that he falls under the exception. If an exemption is federal government. (MC Culloch v. Marland, 4 Wheat 316, 4 L
found to exist, it must not be enlarged by construction, since Ed. 579)"
the reasonable presumption is that the state has granted in The power of local government to "impose taxes and fees" is
express terms all it intended to grant at all, and that, unless the always subject to "limitations" which Congress may provide by
privilege is limited to the very terms of the statute the favor law.
would be extended beyond dispute in ordinary cases. DISPOSITIVE: PAGCOR Charter valid since exemption was
granted by Congress.
DISPOSITIVE: CA modified. PLDT to get refund on advance
sales tax and compensating tax it paid less the VAT due on the
MACEDA v. MACARAIG(Rationale/Ground for tax 6395. From the preamble of PD 938, it is evident that the
exemption & Construction of Statutes Granting Tax Exemption provisions of PD 938 were not intended to be strictly construed
– Exemption) against NAPOCOR. On the contrary, the law mandates that it
FACTS: (same as 1991 case) should be interpreted liberally so as to enhance the tax exempt
* CA 120 created NAPOCOR as a public corporation to status of NAPOCOR. It is recognized principle that the rule on
strict interpretation does not apply in the case of exemptions in
undertake the development of hydraulic power and the
favor of government political subdivision or instrumentality.
production of power from other sources. The basis for applying the rule of strict construction to
* RA 358 (1949) granted NAPOCOR tax and duty exemption statutory provisions granting tax exemptions or
privileges. RA 6395 (1971) revised the charter of the deductions, even more obvious than with reference to the
NAPOCOR, tasking it to carry out the policy of the national affirmative or levying provisions of tax statutes, is to
electrification, and provided in detail NAPOCOR’s tax minimize differential treatment and foster impartiality,
fairness, and equality of treatment among tax payers.
exceptions. PD 380 (1974) specified that NAPOCOR’s
The reason for the rule does not apply in the case of
exemption includes all taxes, etc. imposed “directly or exemptions running to the benefit of the government itself or its
indirectly.” agencies. In such case the practical effect of an exemption is
* PD 938 integrated the exemptions in favor of GOCCs merely to reduce the amount of money that has to be handled
including their subsidiaries; however, empowering the by government in the course of its operations. For these
President or the Minister of Finance, upon recommendation of reasons, provisions granting exemptions to government
the Fiscal Incentives Review Board (FIRB) to restore, partially agencies may be construed liberally, in favor of non tax liability
of such agencies.
or completely, the exemptions withdrawn or revised.
In the case of property owned by the state or a city or
* The FIRB issued Resolution 10-85 (7 February 1985)
other public corporations, the express exemption should
restoring the duty and tax exemptions privileges of NAPOCOR
not be construed with the same degree of strictness that
for period 11 June 1984- 30 June 1985. Resolution 1-86
applies to exemptions contrary to the policy of the state,
(1January 1986) restored such exemption indefinitely effective
since as to such property “exemption is the rule and
1 July 1985. EO 93 (1987) again withdrew the exemption.
taxation the exception.”
FIRB issued Resolution 17-87 (24 June 1987) restoring
NAPOCOR’s exemption, which was approved by the President
DISPOSITIVE: NAPOCOR exempt from tax.
on 5 October 1987.
* Since 1976, oil firms never paid excise or specific and ad
valorem taxes for petroleum products sold and delivered to
NAPOCOR. Oil companies started to pay specific and ad
valorem taxes on their sales of oil products to NAPOCOR only
in 1984.
* NAPOCOR claimed for a refund (P468.58 million). Only
portion thereof, corresponding to Caltex, was approved and
released by way of a tax credit memo. The claim for refund of
taxes paid by PetroPhil, Shell and Caltex amounting to
P410.58 million was denied.
* NAPOCOR moved for reconsideration, starting that all
deliveries of petroleum products to NAPOCOR are tax exempt,
regardless of the period of delivery.
ISSUE: WON NAPOCOR cease to enjoy exemption from
indirect tax when exemption in PD 938 is in general terms.
HELD: NO, NAPOCOR still exempt. Tax exemptions are
undoubtedly to be construed strictly but not so grudgingly as
knowledge that many impositions taxpayers have to pay are in
the nature of indirect taxes. To limit the exemption granted the
National Power Corporation to direct taxes notwithstanding the
general and broad language of the statute will be to thwart the
legislative intention in giving exemption from all forms of taxes
and impositions without distinguishing between those that are
direct and those that are not.

1991 case held: NAPOCOR is a non-profit public corporation

created for the general good and welfare, and wholly owned by
the government of the Republic of the Philippines. From the
very beginning of the corporation’s existence, NAPOCOR
enjoyed preferential tax treatment “to enable the corporation to
pay the indebtness and obligation” and effective
implementation of the policy enunciated in Section 1 of RA
CIR v. CA (Construction of Statutes granting tax Luzon Stevedoring v. CTA (Construction of Statutes
exemption:general rule) granting tax exemption:general rule)
Facts: FACTS:
* YMCA is a non-stock, non-profit institution, which conducts * Luzon Stevedoring for the and maintenance of its tugboats,
various programs and activities that are beneficial to the public, imported various engine parts and other equipment for which it
especially the young people, pursuant to its religious, paid, under protest, the assessed compensating tax.
educational and charitable objectives. * Unable to secure a tax refund from the CIR, it filed a petition
* CIR issued an assessment including surcharge and interest, in the CTA.
for deficiency tax. * CTA denied its petition hence this appeal.
* YMCA protested but denied by the CIR, so it filed in the CTA. * Luzon Stevedoring argues contends that tugboats are
* CTA ruled in favor of YMCA, so CIR appealed to CA embraced and included in the term cargo vessel under the tax
* CA in favor of CIR but upon MfR by YMCA, it ruled in favor of 4
exemption provisions of Sec. 190 of the NIRC, as amended by
the latter. Hence, this petition. RA 3176.
* CIR argues the income received by YMCA enumerated in * CTA argues that "tugboats" are not "Cargo vessel" because
Section 27 (now Section 26) of the NIRC is, as a rule, they are neither designed nor used for carrying and/or
exempted from the payment of tax “in respect to income transporting persons or goods by themselves but are mainly
received by them as such,” the exemption does not apply to employed for towing and pulling purposes. Hence, Luzon
income derived “xxx from any if their properties, real or Stevedoring should be taxed.
personal, or from any of their activities conducted for profit, ISSUE: WON Luzon Stevedoring should be exempt from tax?
regardless, of the disposition made of such income xxx.” HELD: NO, tugboats not embraced in the provision hence
* YMCA argues that it is an exempt organization due to its Luzon Stevedoring doesn't come under the exemption.
nature and because the income it derives from renting its "As the power of taxation is a high prerogative of sovereignty,
space and the fees it derives from parking is minimal (therefore the relinquishment is never presumed and any reduction or
not for profit). dimunition thereof with respect to its mode or its rate, must be
ISSUE: WON the income derived from rentals of real strictly construed, and the same must be coached in clear and
property owned by YMCA exempt from tax? unmistakable terms in order that it may be applied." (84 C.J.S.
HELD: NO, YMCA not exempt organization since it doesn't pp. 659-800), More specifically stated, the general rule is that
come within the purview of the provision. any claim for exemption from the tax statute should be
Because taxes are the lifeblood of the nation, the Court has strictly construed against the taxpayer.
always applied the doctrine of strict interpretation in DISPOSITIVE: Luzon Stevedoring doesn't come under the
construing tax exemptions. A claim of statutory exemption purview of the exception. Pay tax liability.
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." Where the language of the
law is clear and unambiguous, its express terms must be
Laws allowing tax exemption are construed strictissimi juris.
DISPOSITIVE: YMCA to pay tax liability.

“SEC. 27. Exemptions from tax on corporations. -- The
following organizations shall not be taxed under this Title in
respect to income received by them as such --
xxx xx
x xxx
(g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure,
recreation, and other non-profitable purposes, no part of the
net income of which inures to the benefit of any private 4
stockholder or member; Sec. 190. Compensating tax. — ... And Provided further, That
xxx xx the tax imposed in this section shall not apply to articles to be
x xxx used by the importer himself in the manufacture or preparation
Notwithstanding the provision in the preceding paragraphs, of articles subject to specific tax or those for consignment
the income of whatever kind and character of the foregoing abroad and are to form part thereof or to articles to be used by
organization from any of their properties, real or personal, or
the importer himself as passenger and/or cargo vessel,
from any of their activities conducted for profit, regardless of
the disposition made of such income, shall be subject to the whether coastwise or oceangoing, including engines and spare
tax imposed under this Code. (as amended by Pres. Decree parts of said vessel. ....
No. 1457)”
MACEDA v. MACARAIG (Construction of Statutes The basis for applying the rule of strict construction to statutory
Granting Tax Exemption – Exemption) provisions granting tax exemptions or deductions, even more
obvious than with reference to the affirmative or levying
provisions of tax statutes, is to minimize differential treatment
* CA 120 created NAPOCOR as a public corporation to and foster impartiality, fairness, and equality of treatment
undertake the development of hydraulic power and the among tax payers.
production of power from other sources. The reason for the rule does not apply in the case of
* RA 358 (1949) granted NAPOCOR tax and duty exemption exemptions running to the benefit of the government itself or its
privileges. RA 6395 (1971) revised the charter of the agencies. In such case the practical effect of an exemption is
merely to reduce the amount of money that has to be handled
NAPOCOR, tasking it to carry out the policy of the national
by government in the course of its operations. For these
electrification, and provided in detail NAPOCOR’s tax reasons, provisions granting exemptions to government
exceptions. PD 380 (1974) specified that NAPOCOR’s agencies may be construed liberally, in favor of non tax liability
exemption includes all taxes, etc. imposed “directly or of such agencies.
indirectly.” In the case of property owned by the state or a city or
* PD 938 integrated the exemptions in favor of GOCCs other public corporations, the express exemption should
including their subsidiaries; however, empowering the not be construed with the same degree of strictness that
President or the Minister of Finance, upon recommendation of applies to exemptions contrary to the policy of the state,
the Fiscal Incentives Review Board (FIRB) to restore, partially since as to such property “exemption is the rule and
or completely, the exemptions withdrawn or revised. taxation the exception.”
* The FIRB issued Resolution 10-85 (7 February 1985) DISPOSITIVE: NAPOCOR exempt from tax.
restoring the duty and tax exemptions privileges of NAPOCOR
for period 11 June 1984- 30 June 1985. Resolution 1-86 DISSENTING, Cruz: It is important to note that when P.D. Nos.
(1January 1986) restored such exemption indefinitely effective 1931 and 1955 were issued by President Marcos, the rule
1 July 1985. EO 93 (1987) again withdrew the exemption. under the 1973 Constitution was that "no law granting a tax
FIRB issued Resolution 17-87 (24 June 1987) restoring exemption shall be passed without the concurrence of a
NAPOCOR’s exemption, which was approved by the President majority of all the members of the Batasang Pambansa." (Art.
on 5 October 1987. VIII, Sec. 17[4]). Laws are usually passed by only a majority of
* Since 1976, oil firms never paid excise or specific and ad those present in the chamber, there being a quorum, but not
valorem taxes for petroleum products sold and delivered to where it grants a tax exemption. This requires an absolute
NAPOCOR. Oil companies started to pay specific and ad majority. Yet, despite this stringent limitation on the national
valorem taxes on their sales of oil products to NAPOCOR only legislature itself, such stricture does not inhibit the President
in 1984. and the FIRB in the exercise of their delegated power. It would
* NAPOCOR claimed for a refund (P468.58 million). Only seem that the delegate has more power than the principal.
portion thereof, corresponding to Caltex, was approved and Significantly, this limitation is maintained in the present
released by way of a tax credit memo. The claim for refund of Constitution under Article VI, Section 28(4).
taxes paid by PetroPhil, Shell and Caltex amounting to The ponencia holds that the rule of strict construction is not
P410.58 million was denied. applicable where the grantee is an agency of the government
* NAPOCOR moved for reconsideration, starting that all itself, like the MPC in the case before us. I notice, however,
that the ultimate beneficiaries of the expected tax credit will be
deliveries of petroleum products to NAPOCOR are tax exempt,
the oil companies, which certainly are not part of the Republic
regardless of the period of delivery. of the Philippines. As the tax refunds will not be enjoyed by the
MPC itself, I see no reason why we should be exceptionally
ISSUE: WON NAPOCOR cease to enjoy exemption from lenient in applying the exception.
indirect tax when PD 938 stated the exemption in general Sarmiento: Acetylene's pronouncement is founded on the very
terms. science of taxation—that indirect taxes are no taxes for
purposes of exemption, and that consequently, one who did
not pay taxes can not claim an exemption although the price
HELD: NO, NAPOCOR still exempt.
he paid for the goods included taxes. To enable him to claim
NAPOCOR is a non-profit public corporation created for the an exemption, as the majority would now enable him
general good and welfare, and wholly owned by the (Acetylene having been "abrogated"), is, I submit, to defeat the
government of the Republic of the Philippines. From the very very laws of science.
beginning of the corporation’s existence, NAPOCOR enjoyed The theory of "indirect taxes" and that no exemption is possible
preferential tax treatment “to enable the corporation to pay the therefrom, so I reiterate, are well-settled concepts of taxation,
indebtness and obligation” and effective implementation of the as the law of supply and demand is to the law of economics. A
policy enunciated in Section 1 of RA 6395. From the preamble President is said (unfairly) to have attempted it, but one can
of PD 938, it is evident that the provisions of PD 938 were not not repeal the law on supply and demand.
intended to be strictly construed against NAPOCOR. On the
contrary, the law mandates that it should be interpreted
liberally so as to enhance the tax exempt status of
NAPOCOR. It is recognized principle that the rule on strict
interpretation does not apply in the case of exemptions in
favor of government political subdivision or
PHILEX. v. CIR, CA, CTA (Set- Off) CIR v. ESSO(Set-off)
FACTS: Facts: ESSO overpaid its 1959 income tax by P221,033.00. It
* BIR sent a letter to Philex asking it to settle its tax liabilities. was accordingly granted a tax credit. However, ESSOs
* Philex protested the demand stating that it has pending payment of its income tax for 1960 was found to be short by
P367,994. So the Commissioner demanded payment of the
claims for VAT input credit/refund. Therefore these claims for
deficiency, with interest. ESSO paid under protest, including
tax credit/refund should be applied against the tax liabilities. the interest as reckoned by the Commissioner.
* BIRfound no merit in Philex's position since these pending
claims have not yet been established or determined with ESSO’s contention: The interest was more than that properly
certainty. due. It should not have been required to pay interest on the
* Philex raised the issue to the CTA and CA which both total amount of the deficiency tax, P367,994.00, but only on the
favored CIR. amount of P146,961.00—representing the difference between
said deficiency and ESSOs earlier overpayment. ESSO thus
* A few days after the denial of its MfR on the CA decision,
asked for a refund.
Philex was able to obtain its VAT input credit/refund. Hence,
this petition. CIR’s contention: It denied the claim for refund. Income taxes
* Philex argues that that the refund/credit should off-set its tax are determined and paid on an annual basis, such
liabilities since both had already become "due and determination and payment are separate and independent
demandable, as well as fully liquidated;" hence, legal transactions; and a tax credit could not be considered until it
compensation can properly take place. has been finally approved and the taxpayer notified. Since in
this case, the tax credit was approved only on August 5, 1964,
* Respondents argues that taxes cannot be subject to set-off
it could not be availed of in reduction of ESSOs earlier tax
on compensation since claim for taxes is not a debt or contract. deficiency for 1960; as of that year there was no tax credit to
speak of. In support of this, the Commissioner invokes the
ISSUE: Whether tax liabilities could be subject to set-off? Section 51 of the Tax Code:
(d) Interest on deficiency. — Interest upon the amount
HELD: NO, tax liabilities could not be set-off. determined as deficiency shall be assessed at the same
time as the deficiency and shall be paid upon notice and
Taxes cannot be subject to compensation for the simple
demand from the Commissioner of Internal Revenue; and
reason that the government and the taxpayer are not creditors shall be collected as a part of the tax...
and debtors of each other.
Taxes cannot be subject to set-off or compensation, thus: ESSO appealed to the Court of Tax Appeals, which in turn
...there can be no off-setting of taxes against the claims that ordered payment to ESSO of its "refund-claim. Hence, this
the taxpayer may have against the government. A person appeal by the Commissioner.
cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being
Was it proper to apply ESSO’s tax credit in reducing the total
collected. The collection of a tax cannot await the results of a deficiency subject to interest? YES.
lawsuit against the government. (Francia v. Intermediate
Appellate Court). Ratio Decidendi:
Aforementioned ruling has been applied in Caltex Philippines, 1. Regardless of CIR’s assertions, the fact is that as early as
Inc. v. Commission on Audit, which reiterated that: ...a July 15, 1960, the Government already had in its hands the
taxpayer may not offset taxes due from the claims that he may sum representing excess payment. Having been paid and
received by mistake, that sum unquestionably belonged to
have against the government. Taxes cannot be the subject of
ESSO, and the Government had the obligation to return it to
compensation because the government and taxpayer are not ESSO.
mutually creditors and debtors of each other and a claim for 2. The obligation to return money mistakenly paid arises from
taxes is not such a debt, demand, contract or judgment as is the moment that payment is made, and not from the time
allowed to be set-off. that the payee admits the obligation to reimburse. The
A taxpayer cannot refuse to pay his taxes when they fall due obligation of the payee to reimburse results from the
mistake, not from the payee's confession of the mistake or
simply because he has a claim against the government or that
recognition of the obligation to reimburse. In other words,
the collection of the tax is contingent on the result of the since the amount of P221,033.00 belonging to ESSO was
lawsuit it filed against the government. already in the hands of the Government as of July, 1960, it
was neither legally nor logically possible for ESSO
thereafter to be considered a debtor of the Government;
and whatever other obligation ESSO might subsequently
incur in favor of the Government would have to be reduced
by that sum, in respect of which no interest could be
3. "Nothing is better settled than that courts are not to give
words a meaning which would lead to absurd or
unreasonable consequences.” "Statutes should receive a
sensible construction, such as will give effect to the
legislative intention and so as to avoid an unjust or absurd
Holding: Petition denied, CTA affirmed.
Dumlao v. Comelec (Taxpayer’s Suit) Lozada & Igot v. Comelec (Taxpayer’s Suit)
Facts: This is a Petition for Prohibition seeking to enjoin Facts: This is a petition for mandamus filed as a
COMELEC from implementing certain provisions of BP 51, 52, representative suit for and in behalf of those who wish to
and 53 for being unconstitutional. participate in the election irrespective, to compel the
respondent COMELEC to call a special election to fill up
The petitioners: Patricio Dumlao, is a former Governor of existing vacancies) in the Interim Batasan Pambansa. The
Nueva Vizcaya, who has filed his certificate of candidacy for petition is based on Section 5(2), Article VIII of the 1973
said position. Romeo B. Igot, is a taxpayer, a qualified voter Constitution which reads:
and a member of the Bar. Alfredo Salapantan, Jr., is also a (2) In case a vacancy arises in the Batasang Pambansa
taxpayer, a qualified voter, and a resident of San Miguel, Iloilo. eighteen months or more before a regular election, the
Commission on Election shall call a special election to be
(Dumlao’s contention will be skipped as his situation was not held within sixty (60) days after the vacancy occurs to
dicussed in the discussion on taxpayer’s suits) elect the Member to serve the unexpired term.

Igot’s and Salapantanan’s contentions: Assail the ff: The petitioners: Petitioner Lozada claims that he is a taxpayer
Sec. 4. ... and a bonafide elector of Cebu City and a transient voter of
Any person who has committed any act of disloyalty to the Quezon City, Metro Manila, who desires to run for the position
State, including acts amounting to subversion, in the Batasan Pambansa; while petitioner Romeo B. Igot
insurrection, rebellion or other similar crimes, shall not be alleges that, as a taxpayer, he has standing to petition by
qualified to be a candidate for any of the offices covered mandamus the calling of a special election as mandated by the
by this Act, or to participate in any partisan political activity 1973 Constitution.
COMELEC opposed the petition alleging, that 1) petitioners
ISSUE: Do the petitioners have standing to sue? NO. lack standing to file the instant petition for they are not the
proper parties to institute the action; 2) this Court has no
Ratio Decidendi: jurisdiction to entertain this petition; and 3) Section 5(2), Article
1. "the person who impugns the validity of a statute must have VIII of the 1973 Constitution does not apply to the Interim
a personal and substantial interest in the case such that he Batasan Pambansa.
has sustained, or will sustain, direct injury “.
In the case of petitioners Igot and Salapantan, it was ISSUE: Do the petitioners have standing to sue? NO.
only during the hearing, that Igot is said to be a
candidate for Councilor. Even then, it cannot be denied Ratio Decidendi:
that neither one has been convicted nor charged with I. No standing as taxpayers
acts of disloyalty, nor disqualified from being candidates. 1. As taxpayers, petitioners may not file the instant petition, for
Theirs is a generated grievance. They have no personal nowhere therein is it alleged that tax money is being illegally
nor substantial interest at stake. They can claim no locus spent. The act complained of is the inaction of the
standi. COMELEC and therefore, involves no expenditure of public
2. It is true that petitioners Igot and Salapantan have instituted funds.
this case as a taxpayer's suit, and that the rule has been 2. It is only when an act complained of involves the illegal
relaxed, thus: expenditure of public money that the so-called taxpayer suit
... there are many decisions nullifying at the instance of may be allowed.
taxpayers, laws providing for the disbursement of public 3. What the case at bar seeks is one that entails expenditure of
funds, upon the theory that "the expenditure of public public funds. (In other words, they are effectively asking for
funds, by an officer of the State for the purpose of the government to spend, not questioning the validity of
administering an unconstitutional act constitutes a such spending). Moreover, such spending could actually be
misapplication of such funds," which may be enjoined at illegal because it would be spent for a purpose that, as will
the request of a taxpayer. be shown, COMELEC has no authority to call for.
3. However, the statutory provisions questioned in this case, II. No standing as voters
do not directly involve the disbursement of public funds. 1. As voters, neither have petitioners the requisite interest or
While, concededly, the elections to be held involve the personality to qualify them to maintain and prosecute the
expenditure of public moneys, nowhere in their Petition do present petition.
said petitioners allege that their tax money is "being 2. The unchallenged rule is that the person who impugns the
extracted and spent in violation of specific constitutional validity of a statute must have a personal and substantial
protections against abuses of legislative power", or that interest in the case such that he has sustained, or will
there is a misapplication of such funds by respondent sustain, direct injury as a result of its enforcement.
COMELEC, or that public money is being deflected to any 3. In the case before Us, the alleged inaction of the COMELEC
improper purpose. Neither do petitioners seek to restrain to call a special election would adversely affect only the
respondent from wasting public funds through the generalized interest of all citizens. Petitioners' standing to
enforcement of an invalid or unconstitutional law. sue may not be predicated upon an interest of the kind
4. Besides, the institution of a taxpayer's suit, per se is no alleged, which is held in common by all members of the
assurance of judicial review. As held by this Court in Tan vs. public because of the necessarily abstract nature of the
Macapagal, this Court is vested with discretion as to injury supposedly shared by all citizens. Concrete injury,
whether or not a taxpayer's suit should be entertained. actual or threatened, is that indispensable element of a
dispute which serves in part to cast it in a form traditionally
Holding: Petition denied. capable of judicial resolution.

Holding: Petition denied.

Gonzales v. Marcos (Taxpayer’s Suit) CIR v. CA, ROH Auto (BIR Rules and Regulations)
Facts: Facts:
The action is centered on the validity of the creation in EO41 was promulgated declaring a one-time tax amnesty
EO 30 of a trust for the benefit of the Filipino people under the on unpaid income taxes, later amended to include estate and
name and style of the Cultural Center of the Philippines. donor's taxes and taxes on business, for the taxable years
It was likewise alleged that the Board of Trustees did 1981 to 1985.
accept donations from the private sector and did secure from Availing itself of the amnesty, R.O.H. Auto Products filed,
the Chemical Bank of New York a loan of $5 million tax amnesty returnms and paid the amnesty taxes due.
guaranteed by the National Investment & Development Prior to this availment, CIR assessed the ROH deficiency
Corporation as well as $3.5 million received from President income and business taxes in an aggregate amount of
Johnson of the United States in the concept of war damage P1,410,157.71.
funds, all intended for the construction of the Cultural Center ROH wrote back to state that since it had been able to
building estimated to cost P48 million. avail itself of the tax amnesty, the deficiency tax notice should
forthwith be cancelled and withdrawn.
Respondents contention: petitioner did not have the requisite The request was denied by the Commissioner on the
personality to contest as a taxpayer the validity of the ground that Revenue Memorandum Order No. 4-87, dated 09
executive order in question, as the funds held by the Cultural February 1987, implementing Executive Order No. 41, had
Center came from donations and contributions, not one construed the amnesty coverage to include only assessments
centavo being raised by taxation. issued by the Bureau of Internal Revenue after the
promulgation of the executive order on 22 August 1986 and not
ISSUE: to assessments theretofore made.
Does the petitioner have standing to sue? NO.

Ratio Decidendi: ISSUE:

1. It was pointed out as "one more valid reason" why such an Is ROH covered by the tax amnesty? YES.
outcome was unavoidable was that "the funds administered Was the CIR’s position correct? NO.
by the President of the Philippines came from donations
[and] contributions [not] by taxation." Ratio Decidendi:
2. Accordingly, there was that absence of the "requisite 1. The added exception urged by petitioner Commissioner
pecuniary or monetary interest." based on Revenue Memorandum Order No. 4-87, further
3. This is not to retreat from the liberal approach followed in restricting the scope of the amnesty clearly amounts to an
Pascual v. Secretary of Public Works, foreshadowed by act of administrative legislation quite contrary to the
People v. Vera, where the doctrine of standing was first fully mandate of the law which the regulation ought to
discussed. It is only to make clear that petitioner, judged by implement.
orthodox legal learning, has not satisfied the elemental 2. The authority of the Secretary of Finance, in conjunction with
requisite for a taxpayer's suit. the CIR, to promulgate rules and regulations for the
4. Moreover, even on the assumption that public funds raised enforcement of internal revenue laws cannot be
by taxation were involved, it does not necessarily follow that controverted. Neither can it be disputed that such rules and
such kind of an action to assail the validity of a legislative or regulations, as well as administrative opinions and rulings,
executive act has to be passed upon. This Court, as held in ordinarily should deserve weight and respect by the courts.
the recent case of Tan v. Macapagal, "is not devoid of Much more fundamental than either of the above, however,
discretion as to whether or not it should be entertained." is that all such issuances must not override, but must
remain consistent and in harmony with, the law they seek to
Holding: Petition denied. apply and implement. Administrative rules and regulations
are intended to carry out, neither to supplant nor to modify,
the law.
3. If, as the Commissioner argues, EO 41 had not been
intended to include 1981-1985 tax liabilities already
assessed 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

Holding: CA affirmed.
CIR V. CA, CTA, & Fortune Tobacco CIR v. Telefunken (BIR Rules and Regulations)
(BIR Rules and Regulations) FACTS: Telefunken is a domestic corporation registered with
Facts: the Board of Investments (BOI) as an export producer on a
CIR, through RMC 37-93, aims to collect deficiencies on preferred pioneer status under RA 6135.
ad valorem taxes against Fortune Tobacco following a
From October 1979 to September 1981, Telefunken produced
reclassification of foreign branded cigarettes, as per RA 7654.
Fortune Tobacco raised the issue of the propriety of the semi-conductor devices amounting to P92,843,774.00 which
assessment to the CTA, which decided against the CIR. CTA were entirely sold to foreign markets. BIR denied Telefunken’s
was affirmed by CA. request for a tax refund/tax credit from the contractor’s tax
which it paid for said amount.
Telefunken contended that under the provisions of Section 7 of
ISSUE: RA 6135 in relation to Section 8 (a) of RA 5186 (The
Is RMC 37-93 a mere interpretative ruling, therefore not
Investment Act), it was exempted from the payment of all
requiring, for its effectivity, hearing and filing with the UP Law
Center? NO. national internal revenue taxes for the period in question,
except for income tax.
Ratio Decidendi: Section 7 of RA. 6135 (the law under which Telefunken is
1. When an administrative rule is merely interpretative, its registered) provides that registered export producers in a
applicability needs nothing further than its bare issuance for pioneer status are entitled to the incentives provided in
it gives no real consequence more than what the law itself section 8 (a) of RA 5186.
has already prescribed.
On the other hand CIR argues that the law speaks of firms
2. When, upon the other hand, the administrative rule goes
beyond merely providing for the means that can facilitate or registered under RA 5186 only and thus, the privilege of tax
render least cumbersome the implementation of the law but exemption does not apply to firms registered under RA 6135.
substantially adds to or increases the burden of those
governed, it behooves the agency to accord at least to ISSUE: WON Telefunken, registered under RA 6135 as a
those directly affected a chance to be heard, and thereafter pioneer export producer, is exempted from payment of the 3%
to be duly informed, before that new issuance is given the
contractor's tax from October 1979 to September 1981.
force and effect of law.
3. A reading of RMC 37-93, particularly considering the HELD: YES.
circumstances under which it has been issued, convinces 1. The controlling statute is Section 205 (16) of the 1977
us that the circular cannot be viewed simply as a corrective National Internal Revenue Code which states:
measure or merely as construing Section 142(c)(1) of the Sec. 205. Contractors, proprietors or operators of dockyards
NIRC, as amended, but has, in fact and most importantly, and others. A contractor's tax of three percentum of gross
been made in order to place "Hope Luxury," "Premium receipts is hereby imposed on the following:
More" and "Champion" within the classification of locally
xxx xxx xxx
manufactured cigarettes bearing foreign brands and to
thereby have them covered by RA 7654. (16) Business agents and other independent contractors
4. Specifically, the new law would have its amendatory including private detective or watchman agencies, except
provisions applied to locally manufactured cigarettes which gross receipts of a pioneer enterprise registered with the Board
at the time of its effectivity were not so classified as bearing of Investments under Republic Act 5186. (As amended by P.D.
foreign brands. (Prior to the issuance of the questioned No. 1457 , June 11, 1978)
circular, "Hope Luxury," "Premium More," and "Champion" There is no difference between the gross receipts of
cigarettes were in the category of locally manufactured
pioneer enterprises registered with the Board of
cigarettes not bearing foreign brand subject to 45% ad
valorem tax.) Investments under RA 6135 and the gross receipts of
5. Hence, without RMC 37-93, the enactment of RA 7654, registered pioneer enterprises under RA 5186. In fact
would have had no new tax rate consequence on private the CIR himself had ruled in this vein on February 4,
respondent's products. 1974 in the case of Asian Transmission Corporation.
6. Evidently, in order to place "Hope Luxury," "Premium More,"
and "Champion" cigarettes within the scope of the
amendatory law and subject them to an increased tax rate, 5
Sec. 7. Incentives to registered export producers — Registered
the now disputed RMC 37-93 had to be issued. export producers. — Registered export producers unless they already
7. In so doing, the BIR not simply intrepreted the law; verily, it enjoy the same privileges under other laws shall be entitled to the
legislated under its quasi-legislative authority. The due incentives set forth in parahraphs (h), (i) and (j) of Section 7 of
observance of the requirements of notice, of hearing, and of
Republic Act Numbered Fifty-one hundred eigthy-six, known as the
publication should not have been then ignored.
Investment Incentives Act; and registered export producers that are
pioneer enterprises shall be entitled also to the incentives set
forth in paragraphs (a), (b) and (c) of Section 8 of the said Act. In
Holding: CTA, CA affirmed.
addition to the said incentives, and in lieu of other incentives provided
in Section 7 and in Section 9 of that Act, registered export producer
shall be entitled to benefits and incentives as enumerated hereunder:

“ Pursuant to Section 7 of Republic Act No. 6135, that corporation as
a registered export producer on a pioneer status is entitled to the same
tax incentives granted to a pioneer industry set forth in section 8(a) of
This 1974 ruling was based the same on Section CIR v. Mega Gen. Merch (BIR Rules and Regulations)
191(16) of the Tax Code which states: FACTS:
Sec. 191. Contractors, proprietors or operators of dockyards, (BACKGROUND)Prior to the promulgation of P.D. No. 392 on
and others. — A contractor's tax of three per centum of the February 18, 1974, importations of all kinds of paraffin wax
gross receipts is hereby imposed on the following: were subject to 7% advance sales tax on landed costs plus
xxx xxx xxx 25% mark up pursuant to Section 183(b) now Section 197(II) in
(16) Business agents and other independent contractors relation to Section 186 (now Section 200) of the Tax Code.
except persons, associations and corporations under contract With the promulgation of P.D. No. 392, a new provision for the
for embroidery and apparel for export, as well as their agents imposition of specific tax was added to Section 142 of the Tax
and contractors and except gross receipts of or from a pioneer Code (effective Feb 18 1974)
industry registered with the Board of Investments under the On April 1975 Mega wrote the CIR for clarification as to
provisions of Republic Act Numbered Five Thousand one whether imported crude paraffin wax is subject to specific tax
hundred and eighty-six. (Emphasis supplied) or advance sales tax. On May 14, 1975 Former Commissioner
A comparison of the above with the previously quoted Section Misael P. Vera in his reply ruled that only wax used as high
205(16) of the 1977 Tax Code reveals that both provisions pressure lubricant and micro crystallin is subject to specific tax;
specifically mention pioneer industries registered with the that paraffin which was used as raw material in the
Board of Investments under Republic Act No. 5186 as exempt manufacture of candles, wax paper, matches, crayons, drugs,
from payment of the contractor's tax. appointments etc., is subject to the 7% advance sales tax, the
2. Also, this 1974 ruling has not been abrogated with the tax to be based on the landed cost thereof, plus 25% mark-up.
passage of the 1977 Tax Code, Section 205(16) which Due to Commissioner Vera's ruling Mega filed several
expressly mentions only pioneer enterprises registered with the claims for tax refund/tax credit of the specific tax paid by
Board of Investments under RA 5186 as exempt from the them.
contractor's tax (though with no reference being made However, on January 28, 1977, then Acting CIR Efren Plana
regarding pioneer enterprises registered under RA 6135). denied Mega’s claim. According to him the law does not make
Lastly, under Sec. 246 of the National Internal Revenue any distinction as to the kind of wax subject to specific tax.
Code, rulings of the BIR may not be given retroactive During the pendency of Mega’s request for reconsideration, an
effect, if the same is prejudicial to the taxpayer. investigation was conducted by the BIR in connection with the
importations of wax and petroleum that arrived in the
country on or subsequent to the date of the ruling of
January 28, 1977 and it was ascertained that Mega owes
the government specific tax for importation of paraffin wax
on June 21, 1977 and August 17, 1977 which gave rise to the
letter of assessment dated May 8, 1978.
Prior, however, to the issuance of said letter of assessment of
May 8, 1978, CIR in a letter dated January 11, 1978, granted
Mega’s claim for refund or tax credit since the importation
which had arrived in Manila on April 18, 1975 was covered by
the ruling of May 14, 1975 (before its revocation by the ruling
of January 28, 1977).
Issue: WON Mega’s importation of crude paraffin wax on June
21 and August 17, 1977 are subject to specific tax under
Section 142(i) of the Tax Code promulgated on February 18,
HELD: Yes.
Contrary to the CTA’s ruling , the Court believes that the letter
of Commissioner Plana dated January 11, 1978 did not in any

Section 142. Specific tax on manufactured oils and other
fuels.—On refined and manufactured mineral oils and other
motor fuels, there shall be collected the following taxes:

xxx xxx xxx

republic Act No. 5186. Under this latter provision, a pioneer industry is
exempt from all taxes under the National Internal Revenue Code,
(i) Greases, waxes and petroleum, per kilogram,
except income tax. In other words, both a registered export thirty-five centavos; ...
producer on a pioneer status under Republic Act No. 6135 and a
pioneer industry under Republic Act No. 5186 are entitled to the
same tax exemption benefits under the Tax Code.” 8
Excerpt from CTA ruling:
way revoke his ruling dated January 28,1977 which ruling CIR v. Burroughs (BIR Rules and Regulations)
applied the specific tax to wax (without distinction). The FACTS:In March 1979, the branch office of Burroughs Ltd. in
reason he removed in 1978 private respondent's liability the country applied with the Central Bank for authority to remit
for the specific tax was NOT because he wanted to revoke, to its parent company abroad branch profit amounting to
expressly or implicitly, his ruling of January 28, 1977 but P7,647,058.00.
because the P321,436.79 tax referred to importation On March 14, 1979, it paid the 15% branch profit remittance
BEFORE January 28, 1977 and hence still covered by the tax pursuant to Sec. 24 (b) (2) (ii) . Based on this law
ruling of Commissioner Vera, Burroughs Ltd remitted to its head office the amount of
Mega’s request for refund of the amount of P321,436.79 was P6,499,999.30
granted in CIR’s letter dated January 11, 1978 because the However on December 24, 1980 Burroughs Ltd. filed a written
importation of private respondent was made on April claim for the refund or tax credit of the amount of P172,058.90
18,1975 wherein petitioner made clear that all importation of representing alleged overpaid branch profit remittance tax.
crude paraffin wax only after the ruling of January 28, 1977, is BIR ruled in favor of the refund on January 21, 1980.
subject to specific tax CIR contends that there should be no refund because
The importation which gave rise to the assessment in the Memorandum Circular No. 8-82 dated March 17, 1982 had
amount of P275,652.00 subject of this case, was made on revoked and/or repealed the BIR ruling of January 21, 1980.
June 27, 1977 and August 17, 1977 and that the petitioner's Said memorandum circular states-
ruling of January 28,1977 was not revoked or overruled by his “Considering that the 15% branch profit remittance tax is
letter of January 11, 1978 granting respondent corporation's imposed and collected at source, necessarily the tax base
request for refund of the amount of P321,436.79. should be the amount actually applied for by the branch with
the Central Bank of the Philippines as profit to be remitted
Issue: WON Burroughs Limited is entitled to a refund (in the
amount of P172,058.90).
Held: Yes. In a BIR ruling dated January 21, 1980 by then
Acting Commissioner of Internal Revenue Hon. Efren I. Plana
the aforequoted provision had been interpreted to mean that
"the tax base upon which the 15% branch profit remittance tax
... shall be imposed...(is) the profit actually remitted abroad
and not on the total branch profits out of which the remittance
is to be made."
What is applicable in the case at bar is still the BIR Ruling of
January 21, 1980 because Burroughs Ltd. paid the branch
profit remittance tax in question on March 14, 1979.
Memorandum Circular No. 8-82 dated March 17, 1982
cannot be given retroactive effect in the light of Section
327 of the National Internal Revenue Code.
The prejudice that would result to private Burroughs Ltd. by a
retroactive application of Memorandum Circular No. 8-82 is
beyond question for it would be deprived of the substantial
amount of P172,058.90.

Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head
office shall be subject to a tax of fifteen per cent (15 %) ...
Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of
the rules and regulations promulgated in accordance with the preceding section or any of the
“ To make petitioner liable for specific tax after it has made the importations, would surely
rulings or circulars promulgated by the Commissioner shag not be given retroactive application
prejudice petitioner as it would be subject to a tax liability of which the Bureau of Internal
Revenue has not made it fully aware. As a result, the rulings of May 8, 1978 and February 15, if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the
1980 having been issued long after the importations on June 21 and August 1 7, 1977 in following cases (a) where the taxpayer deliberately misstates or omits material facts from his
question cannot be applied with legal effect in this case because to do so will violate the return or in any document required of him by the Bureau of Internal Revenue; (b) where the
prohibition against retroactive application of the rulings of executive bodies. Rulings or facts subsequently gathered by the Bureau of Internal Revenue are materially different from
circulars promulgated by the Commissioner of Internal Revenue, such as the rulings of the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN
January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any Broadcasting Corp. v. CTA, 108 SCRA 151-152)
retroactive application, where to do so, as it did in the case at bar, would prejudice the
ABS-CBN v. CTA (BIR Rules and Regulations) HELD: No. Sec. 338-A (now Sec. 327) of the Tax Code
FACTS: ABS-CBN is engaged in the business of telecasting applies in this case. Rulings or circulars promulgated by the
local as well as foreign films acquired from foreign corporations CIR have no retroactive application where to so apply
not engaged in trade or business within the Philippines. The them would be prejudicial to taxpayers. The retroactive
applicable law wrt the income tax of non-resident corporations application of Memorandum Circular No. 4-71 prejudices ABS-
is section 24 (b) of the National Internal Revenue Code, as CBN since:
amended by Republic Act No. 2343 dated June 20, 1959 .
On April 12, 1961, in implementation of said provision, the CIR a) it was issued only in 1971, or 3 years after 1968, the last
issued General Circular No. V-334 . Pursuant to the year that petitioner had withheld taxes under General Circular
foregoing, ABS-CBN dutifully withheld and turned over to the No. V-334.
BIR the amount of 30% of one-half of the film rentals paid by
it to foreign corporations not engaged in trade or business b) the assessment and demand on petitioner to pay deficiency
within the Philippines. The last year that ABS-CBN withheld withholding income tax was also made three years after 1968
taxes pursuant to the foregoing Circular was in 1968. for a period of time commencing in 1965.
On June 27, 1968, RA 5431 amended Section 24 (b) of the
Tax Code increasing the tax rate from 30 % to 35 % and c) ABS-CBN was no longer in a position to withhold taxes due
revising the tax basis from "such amount" referring to rents, from foreign corporations because it had already remitted all
etc. to "gross income." film rentals and no longer had any control over them when the
On February 8, 1971, the CIR issued Revenue new Circular was issued.
Memorandum Circular No. 4-71, revoking General Circular And in so far as the enumerated exceptions (to non-
No. V-334, and holding that the latter was "erroneous for lack retroactivity) are concerned, ABS-CBN does not fall under any
of legal basis," because "the tax therein prescribed should be of them.
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: WON respondent can apply General Circular No. 4-71
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

(b) Tax on foreign corporations.-(1) Non-resident corporations.- There shall be levied,
collected, and paid for each taxable year, in lieu of the tax imposed by the preceding
paragraph, upon the amount received by every foreign corporation not engaged in trade or
business within the Philippines, from an sources within the Philippines, as interest, dividends,
rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and income, a tax equal to
thirty per centum of such amount. (Emphasis supplied)

“ In connection with Section 24 (b) of Tax Code, the amendment introduced by Republic Act
No. 2343, under which an income tax equal to 30% is levied upon the amount received by
every foreign corporation not engaged in trade or business within the Philippines from all
sources within this country as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable annual or
periodical gains, profits, and income, it has been determined that the tax is still imposed on
income derived from capital, or labor, or both combined, in accordance with the basic principle
of income taxation (Sec. 39, Income Tax Regulations), and that a mere return of capital or
investment is not income (Par. 5,06, 1 Mertens Law of Federal 'Taxation). Since according to
the findings of the Special Team who inquired into business of the non-resident foreign film
distributors, the distribution or exhibition right on a film is invariably acquired for a
consideration, either for a lump sum or a percentage of the film rentals, whether from a parent
company or an independent outside producer, a part of the receipts of a non-resident foreign
film distributor derived from said film represents, therefore, a return of investment.
xxx xxx xxx “
13 14
Amended version: As inserted by Republic Act No. 6110 on August 9, 1969, it provides:
(b) Tax on foreign corporations.-(1) Non-resident corporations.-A foreign corporation not
engaged in trade or business in the Philippines including a foreign life insurance company not Sec. 338-A. Non-retroactivity of rulings. - Any revocation, modification, or reversal of and of
engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five the rules and regulations promulgated in accordance with the preceding section or any of the
per cent of the gross income received during each taxable year from all sources within the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given
Philippines, as interests, dividends, rents, royalties, salaries, wages, premiums, annuities, retroactive application if the relocation, modification, or reversal will be prejudicial to
compensations, remunerations for technical services or otherwise, emoluments or other fixed the taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or
omits material facts from his return or any document required of him by the Bureau of Internal
or determinable annual, periodical or casual gains, profits, and income, and capital gains, Revenue: (b) where the facts subsequently gathered by the Bureau of Internal Revenue are
Provided however, That premiums shah not include reinsurance premiums. (Emphasis materially different from the facts on which the ruling is based; or (c) where the taxpayer acted
supplied) in bad faith. (italics for emphasis)
CIR v. Benguet Corp (BIR Rules and Regulations)
FACTS:(Benguet Corporation is a domestic corporation While it is true, as CIR alleges, that government is not
engaged in the exploration, development and operation of estopped from collecting taxes which remain unpaid on
mineral resources, and the sale or marketing thereof to various account of the errors or mistakes of its agents and/or officials
entities. It is a value added tax (VAT) registered enterprise.) and there could be no vested right arising from an erroneous
interpretation of law, these principles must give way to
The transactions in question occurred during the period exceptions based on and in keeping with the interest of justice
between 1988 and 1991. Under Sec. 99 of NIRC as amended and fairplay. (then the Court cited the ABS-CBN case).
by E.O. 273 s. 1987 then in effect, any person who, in the
course of trade or business, sells, barters or exchanges goods, (sub-issue)
renders services, or engages in similar transactions and any 2. The adverse effect is that Benguet Corp became the
person who imports goods is liable for output VAT at rates of unexpected and unwilling debtor to the BIR of the amount
equivalent to the total VAT cost of its product, a liability it
either 10% or 0% (zero-rated) depending on the classification
previously could have recovered from the BIR in a zero-rated
of the transaction under Sec. 100 of the NIRC. scenario or at least passed on to the Central Bank had it
known it would have been taxed at a 10% rate. Thus, it is
In January of 1988, Benguet applied for and was granted clear that Benguet suffered economic prejudice when its
by the BIR zero-rated status on its sale of gold to Central consummated sales of gold to the Central Bank were
Bank. On 28 August 1988 VAT Ruling No. 3788-88 was taken out of the zero-rated category. The change in the VAT
issued which declared that the sale of gold to Central Bank is rating of Benguet’s transactions with the Central Bank resulted
in the twin loss of its exemption from payment of output
considered as export sale subject to zero-rate pursuant to VAT and its opportunity to recover input VAT, and at the
Section 100 of the Tax Code, as amended by EO 273. same time subjected it to the 10% VAT sans the option to
pass on this cost to the Central Bank, with the total
Relying on its zero-rated status and the above issuances, prejudice in money terms being equivalent to the 10% VAT
Benguet sold gold to the Central Bank during the period of 1 levied on its sales of gold to the Central Bank.
August 1989 to 31 July 1991 and entered into transactions that
3. Even assuming that the right to recover Benguets excess
resulted in input VAT incurred in relation to the subject sales of
payment of income tax has not yet prescribed, this relief would
gold. It then filed applications for tax refunds/credits
only address Benguet’s overpayment of income tax but not the
corresponding to input VAT.
other burdens discussed above. Verily, this remedy is not a
feasible option for Benguet because the very reason why it
However, such request was not granted due to BIR VAT
was issued a deficiency tax assessment is that its input VAT
Ruling No. 008-92 dated 23 January 1992 that was issued
was not enough to offset its retroactive output VAT. Indeed,
subsequent to the consummation of the subject sales of
the burden of having to go through an unnecessary and
gold to the Central Ban`k which provides that sales of gold to
cumbersome refund process is prejudice enough.
the Central Bank shall not be considered as export sales and
thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008-
92 withdrew, modified, and superseded all inconsistent BIR

Both petitioner and Benguet agree that the retroactive

application of VAT Ruling No. 008-92 is valid only if such
application would not be prejudicial to the Benguet pursuant
Sec. 246 of the NIRC.

WON Benguet’s sale of gold to the Central Bank during the
period when such was classified by BIR issuances as zero-
rated could be taxed validly at a 10% rate after the
consummation of the transactions involved. NO.

SUB ISSUE: (WON there was prejudice to Benguet Corp due

to the new BIR VAT Ruling. YES.

(main issue):
1. At the time when the subject transactions were
consummated, the prevailing BIR regulations relied upon by
Benguet ordained that gold sales to the Central Bank were
zero-rated. Benguet should not be faulted for relying on the
BIRs interpretation of the said laws and regulations.
BPI Leasing v.CA,CTA,CIR (BIR Rules & Regulations)
FACTS:For the calendar year 1986, BLC paid the CIR a total
of P1,139,041.49 representing 4% "contractor’s percentage
tax" imposed by Section 205 of the NIRC based on its gross
rentals from equipment leasing for said year.

On November 10, 1986, CIR issued Revenue Regulation 19-

86. Section 6.2 thereof provided that finance and leasing
companies registered under RA 5980 shall be subject to gross
receipt tax of 5%-3%-1% on actual income earned. This
means that companies registered under Republic Act
5980, such as BLC, are not liable for "contractor’s
percentage tax" under Section 205 but are, instead, subject
to "gross receipts tax" under Section 260 (now Section 122)
of the NIRC.

Since BLC had earlier paid the "contractor’s percentage tax for
its 1986 lease rentals BLC filed a claim for a refund with the
CIR on April 1988 for the amount representing the difference
between what it had paid as "contractor’s percentage tax" and
what it should have paid for "gross receipts tax."

1. WON Revenue Regulation 19-86 is legislative rather than
interpretative in character.
2. WON it should retroact to the date of effectivity of the law it
seeks to interpret.

1. NO. Section 1 of Revenue Regulation 19-86 plainly states
that it was promulgated pursuant to Section 277 of the NIRC.
Section 277 (now Section 244) is an express grant of authority
to the Secretary of Finance to promulgate all needful rules and
regulations for the effective enforcement of the provisions of
the NIRC.

2.NO. The principle is well entrenched that statutes, including

administrative rules and regulations, operate prospectively
only, unless the legislative intent to the contrary is manifest by
express terms or by necessary implication. In the present
case, there is no indication that the revenue regulation may
operate retroactively.

Furthermore, there is an express provision stating that it "shall

take effect on January 1, 1987," and that it "shall be
applicable to all leases written ON OR AFTER the said
date." Being clear on its prospective application, it must be
given its literal meaning and applied without further
interpretation. Thus, BLC is not in a position to invoke the
provisions of Revenue Regulation 19-86 for lease rentals it
received prior to January 1, 1987.

Administrative issuances may be distinguished according to their nature and substance:
legislative and interpretative. A legislative rule is in the matter of subordinate legislation,
designed to implement a primary legislation by providing the details thereof. An interpretative
rule, on the other hand, is designed to provide guidelines to the law which the administrative
agency is in charge of enforcing.