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COMMISSIONER OF INTERNAL REVENUE vs. CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS G.R. No. L-29059 December 15, 1987

FACTS: By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company the amount of P359,408.98, representing overpayments of ad valorem taxes on cement produced and sold by it after October 1957. On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private respondent, the latter moved for a writ of execution to enforce the said judgment. The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge. On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the alleged sales tax liability of the private respondent was still being questioned and therefore could not be set-off against the refund. ISSUE: Whether or not the judgment debt can be enforced against private respondents sales tax liability, the latter still being questioned. RULING: The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. The Tax Code provides: Sec. 291. Injunction not available to restrain collection of tax. - No court shall have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code. It goes without saying that this injunction is available not only when the assessment is already being questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the administrative level. There is all the more reason to apply the rule here because it appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still due from the private respondent. To require the petitioner to actually refund to the private respondent the amount of the judgment debt, which he will later have the right to allocate for payment of its sales tax liability, is in the Courts view an idle ritual.

COMMISSIONER OF INTERNAL REVENUE vs. ALGUE and THE COURT OF TAX APPEALS G.R. No. L-28896 February 17, 1988

FACTS: The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. RULING: The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

C.N. HODGES vs. MUNICIPAL BOARD OF THE CITY OF ILOILO G.R. No. L-18129 January 31, 1963

FACTS: On June 13, 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33, series of 1960, pursuant to the provisions of Republic Act No. 2264, known as the Local Autonomy Act, requiring any person, firm, association or corporation to pay a sales tax of 1/2 of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale of the motor vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has been paid. C. N. Hodges, who was engaged in the business of buying and selling second-hand motor vehicles in the City of Iloilo, is one of those affected by the enactment of the ordinance, and believing that the same is invalid for having been passed in excess of the authority conferred by law upon the municipal board, he filed on June 27, 1960 a petition for declaratory judgment with the Court of First Instance of Iloilo praying that said ordinance be declared void ab initio. The court a quo rendered decision on December 8, 1960 holding that that part of the ordinance which requires the owner of a used motor vehicle to pay a sales tax of 1/2 of 1% of the selling price is valid, but the portion thereof which requires the payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office is invalid for being repugnant to Section 2(h) of Republic Act 2264. Both parties have appealed. ISSUE: Whether or not the ordinance in question is valid even with regard to the portion which requires the payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office of said city. RULING: The City of Iloilo has the authority and power to approve the ordinance in question for it merely imposes a percentage tax on the sale of a second-hand motor vehicle that may be carried out within the city by any person, firm, association or corporation owning or dealing with it who may come within the jurisdiction. The requirement of the ordinance cannot be considered a tax in the light viewed by the court a quo for the same is merely a coercive measure to make the enforcement of the contemplated sales tax more effective. Well-settled is the principle that taxes are imposed for the support of the government in return for the general advantage and protection which the government affords to taxpayers and their property. Taxes are the lifeblood of the government. It is imperative that the power to impose them to be clothed with the implied authority to devise ways and means to accomplish their collection in the most effective manner. Without this implied power the end of government may falter or fail. If the power of municipalities are to be confined to those expressly granted by the law, in many cases they will be denied even the power of self-preservation as well as of the means necessary to accomplish the essential object of their creation. Hence in giving corporations authority to carry out the powers expressly granted to them, it is understood that they are also given the power to adopt such means as may be necessary for accomplishing their ends.

ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD G.R. No. L-4376 May 22, 1953

FACTS: The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the City of Manila challenge the validity Ordinance No. 3379 on the ground that (1) while it levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation. The respondents contend on their part that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation. ISSUE: Whether or not the ordinance is null and void. RULING: Coming to the ordinance in question, the Court finds that its title refers to it as "An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively for the repair, maintenance and improvement of its streets and bridges. While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valorem yet the Court cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what the Motor Vehicle Law intends to prevent, for the reason that, under said Act, municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and public highway. This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that the Court believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to. The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

ESSO STANDARD EASTERN, INC v. COMMISSIONER OF INTERNAL REVENUE G.R. Nos. L-28508-9, July 7, 1989

FACTS: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. Esso then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office. On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the margin fees paid on the ground that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense. However, Essos appeal was denied. ISSUE: (1) Whether or not the margin fees are taxes. (2) Whether or not the margin fees are necessary and ordinary business expenses. RULING: (1) No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. (2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Since the margin fees in question were incurred for the remittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct of the corporate affairs of Esso in New York, but certainly not in the Philippines.

PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY G.R. No. L-36081, April 24, 1989

FACTS: On December 24, 1969, the City Council of Quezon City adopted Ordinance No. 7997, otherwise known as the Market Code of Quezon City. Section 3 of said ordinance provides that privately owned and operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to the City, ... , as supervision fee. On July 15, 1972, Progressive Development Corporation (Progressive), owner and operator of a public market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against Quezon City on the ground that the supervision fee or license tax imposed by the above-mentioned ordinance is in reality a tax on income which Quezon City may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act. In its Answer, Quezon City, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income. The Solicitor General also filed an Answer arguing that the tax on gross receipts was not a tax on income but one imposed for the enjoyment of the privilege to engage in a particular trade or business which was within the power of Quezon City to impose. The lower court ruled that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like Quezon City, are empowered to impose and collect. ISSUE: Whether the tax imposed by Quezon City on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax. RULING: No. The tax imposed in the controverted ordinance constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which Progressive is engaged. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be reasonable. Local governments are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates.

PHILIPPINE AIRLINES, INC. v. EDU G.R. No. L- 41383, August 15, 1988

FACTS: The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes. Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees. Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Land Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory fees imposed as an incident of the exercise of the police power of the state and not revenue measures and, therefore, do not come within the exemption granted to PAL under its franchise. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell (Carbonell). The trial court dismissed PAL's complaint as it was moved by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc. From this judgment, PAL appealed to the Court of Appeals which in turn certified the case to the Supreme Court. ISSUE: Whether or not motor vehicle registration fees are considered as taxes. RULING: Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The motor vehicle registration fees are actually taxes intended for additional revenues of the government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears as Section 591-593 in the Land Transportation Code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee."

VILLEGAS v. HIU CHIONG TSAI PAO HO G.R. No. L-29646, November 10, 1978

FACTS: On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas). Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind. On May 4, 1968, Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila, filed a petition with the Court of First Instance of Manila to declare City Ordinance No. 6537 as null and void. One of his grounds for wanting the ordinance declared null and void is that as a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in taxation. The trial court declared City Ordinance No. 6537 null and void. Contesting the trial courts decision, Villegas filed the present petition. Villegas argues that City Ordinance No. 6537 cannot be declared null and void on the ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures and that City Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being principally a regulatory measure in nature. ISSUE: Whether or not City Ordinance No. 6537 is a tax or revenue measure. RULING: Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation.

COMPAIA GENERAL DE TABACOS DE FILIPINAS vs. CITY OF MANILA, ET AL G.R. No. L-16619 June 29, 1963

FACTS: Petitioner herein, Compania General de Tabacos de Filipinas(Tabacalera)filed action in the CFI Manila to recover from City of Manila(City ) the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816. Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it amounting to the sum of P15,208.00 under the three ordinances mentioned heretofore is an overpayment made by mistake, and therefore refundable. The City contends that for the permit issued to it granting proper authority to "conduct or engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816. Even assuming that Tabacalera is not subject to the payment of the sales taxes prescribed by the said three ordinances as regards its liquor sales, it is not entitled to the refund demanded for the following reasons-(a) The said amount was paid by the plaintiff voluntarily and without protest;(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose from the plaintiff's neglect of duty (c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and passed to the consumers; and (d) The said amount had been already expended by the defendant City for public improvements and essential services of the City government, the benefits of which are enjoyed, and being enjoyed by the plaintiff. ISSUE: Is license fee considered as tax. RULING: The term "tax" applies generally speaking to all kinds of exactions which become public funds. The term is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26). Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be

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subject to supervision or regulation by the state and by cities and municipalities authorized to act in the premises. (MacQuillin, supra, p. 445.) On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such merchandise. (Section 10 [o], Republic Act No. 409, as amended.). Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which it is obvious not anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may endanger public health and morals. On the other hand, what the three ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is already settled in this connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation. Case dismissed.

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AMERICAN MAIL LINE, ET AL vs. CITY OF BASILAN, ET AL G.R. No. L-12647 May 31, 1961

FACTS: On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180, Series of 1955, the pertinent part reads, Sec. 2. Section 1 of Ordinance No. 7 is hereby amended and adding thereto a new paragraph to be known as Section 1 (D), to read as follows: "Section 1 (D). Any foreign vessel engaged in coastwise trade which may anchor at any open bay, channel, or any loading point within the territorial waters of the City of Basilan for the purpose of loading or unloading logs or passengers and other cargoes shall pay an anchorage fee of 1/2 centavo (P.005) per registered gross ton of the vessel for the first twenty-four (24) hours, or part thereof, and for succeeding hours, or part thereof, PROVIDED, that maximum charge shall not exceed, seventy-five pesos (P75.00) per day, irrespective of the greater tonnage of the vessels." Appellees are foreign shipping companies licensed to do business in the Philippines, with offices in Manila. Their vessels call at Basilan City and anchor in the bay or channel within its territorial waters. As the city treasurer assessed and attempted to collect from them the anchorage fees prescribed in the aforesaid amendatory ordinance, they filed the present action for Declaratory Relief to have the courts determine its validity. Upon their petition the lower court issued a writ of preliminary injunction restraining appellants from collecting or attempting to collect from them the fees prescribed therein. Appellant contended that, through its city council, it had authority to enact the questioned ordinance in the exercise of either its revenue-raising power or of its police power. The question to be resolved is whether the City of Basilan has the authority to enact Ordinance 180 and to collect the anchorage fees prescribed therein. In support of the affirmative, appellant city relies upon the following provisions of its Charter (Republic Act 288): SEC. 14. General Powers and Duties of the Council. Except as otherwise provided by law, and subject to the conditions and limitations thereof, the Council shall have the following legislative powers: (a) To levy and collect taxes for general and special purposes in accordance with law. (c) To enact ordinances for the maintenance and preservation of peace and good morals. (v) To fix the charges to be paid by all watercraft landing at or using public wharves, docks, levees, or landing places. ISSUE: Is the ordinance valid exercise of taxing power of the City of Basilan. RULING: Under paragraph (a) sec. 14, R.A. 288, it is clear that the City of Basilan may only levy and collect taxes for general and special purposes in accordance with or as provided by law; in other words, the city of Basilan was not granted a blanket power of taxation. The use of the phrase "in accordance with law" which, in our opinion, means the same as

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"provided by law" clearly discloses the legislative intent to limit the taxing power of the City. Section 14(v) of Republic Act No. 288 does not authorize the City of Basilan to promulgate ordinances providing for the collection of "Anchorage" fees. This is clearly not included in the power granted by the provision under consideration "to fix the charges to be paid by all watercraft landing at or using public wharves, docks, levees, or landing places." That this is so is shown by the need which the City of Basilan had to enact the amendatory ordinance. It has been held that the power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes (Cu Unijeng vs. Patstone, 42 Phil. 818; Pacific Commercial Co. vs. Romualdez etc. et al., 46 Phil. 917; Arquiza etc. vs. Municipality of Zamboanga, 55 Phil. 653). In the Cu Unjieng case it was held that fees for purely regulatory purposes "may only be of sufficient amount to include the expenses of issuing the license and the cost of the necessary inspection or police surveillance, taking into account not only the expense of direct regulation but also incidental expenses. In Manila Electric Co. vs. Auditor General, 73 Phil. 129-135, it was also held that the regulatory fee "must be more than sufficient to cover the actual cost of inspection or examination as nearly as the same can be estimated. If it were possible to prove in advance the exact cost, that would be the limit of the fee." We believe that the fees required are extended for revenue purposes. In the first place, being cased upon the tonnage of the vessels, the fees have no proper or reasonable relation to the cost of issuing the permits and the cost of inspection or surveillance. In the second place, the fee imposed on foreign vessels 1/2 centavo per registered gross ton for the first 24 hours and which shall not exceed P75.00 per day exceeds even the harbor fee imposed by the National Government, which is only P50.00 for foreign vessels (sec. 2702 of the Tariff and Customs Code, Republic Act No. 1937, taken from Sec. 2, Republic Act No. 1317 which was enacted by Congress to raise revenues for the Port Works Fund). Lastly, appellant city's own contention that the questioned ordinance was enacted in the exercise of its power of taxation, makes it obvious that the fees imposed are not merely regulatory.

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JOHN H. OSMEA vs. OSCAR ORBOS et al G.R. No. 99886 March 31, 1993 FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account," . President Corazon C. Aquino promulgated E. O. 137 expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum products. The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to another government objective." Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created." The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected, which form part of the OPSF, should be maintained in a special account of the general fund for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad valorem taxes and the increases thereon. It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the State. The Solicitor General observes that the "argument rests on the assumption that the OPSF is a form of revenue measure drawing from a special tax to be expended for a special purpose." ISSUE: Are stabilization fees/ funds in the nature of tax RULING: Of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is not far different from the OPSF. In Gaston v. Republic Planters Bank, this Court upheld the legality of the sugar stabilization fees and explained their nature and character, viz, The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra). Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is

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satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent. What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax." The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State. It would seem that from the above-quoted ruling, the petition for prohibition should fail.

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REPUBLIC OF THE PHILIPPINES, vs. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

FACTS: Joint appeal by three sugar centrals, respondents herein. from a decision of the Court of First Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632. Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation . To realize and achieve the ends of the corporation, Sections 15 and 16 of the aforementioned law provide: Sec. 15. Capitalization. To raise the necessary funds to carry out the provisions of this Act and the purposes of the corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a period of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugar cane planters and the sugar centrals in the proportion of their corresponding milling share, and said levy shall constitute a lien on their sugar quedans and/or warehouse receipts. Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside to constitute a special fund to be known as the "Sugar Research and Stabilization Fund," which shall be available exclusively for the use of the corporation. All the income and receipts derived from the special fund herein created shall accrue to, and form part of the said fund to be available solely for the use of the corporation. On September 3, 1951 PHILSUGIN acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3 installments from the process of the sugar tax to be collected, under Republic Act 632. The evidence further discloses that the operation of the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred tremendous losses . Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not authorized by Republic Act 632 and that the continued operation of the said refinery was inimical to their interests, the appellants refused to continue with their contributions to the said fund. They maintained that their obligation to contribute or pay to the said Fund subsists only to the limit and extent that they are benefited by such contributions since Republic Act 632 is not a revenue measure but an Act which establishes a "Special assessments." Adverting to the finding of the lower court that proceeds of the said Fund had been used or applied to absorb the "tremendous losses" incurred by Philsugin in its "disastrous operation" of the said refinery, the appellants herein argue that they should not only be released from their obligation to pay the said assessment but be refunded, besides, of all that they might have previously paid thereunder. The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was authorized, a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government. Consequently, once it has been determined that no benefit accrues or inures to the property owners paying the assessment, or that the proceeds from the said assessment are being misapplied to the

16

prejudice of those against whom it has been levied, then the authority to insist on the payment of the said assessment ceases. ISSUE: Is the imposition of special assessment an exercise of the taxing power RULING: The Court deemed it relevant to discuss its holding in Lutz v. Araneta. The nature of a "special assessment" similar to the case at bar has already been discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. (Sec. 3).1wph1.t Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law." It then proceeds to enumerate the said purposes, among which are "to place the sugar industry in a position to maintain itself; ... to readjust the benefits derived from the sugar industry ... so that all might continue profitably to engage therein; to limit the production of sugar to areas more economically suited to the production thereof; and to afford laborers employed in the industry a living wage and to improve their living and working conditions. The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was unconstitutional because it was being "levied for the aid and support of the sugar industry exclusively," and therefore, not for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said: The basic defect in the plaintiff's position in his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means provided in Section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment,

17

but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist.

18

VICTORIAS MILLING CO., INC. vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL G.R. No. L-21183 September 27, 1968

FACTS: This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental. The disputed ordinance was approved by the municipal Council of Victorias on September 22, 1956 by way of an amendment to two municipal ordinances separately imposing license taxes on operators of sugar centrals and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity. For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items. Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff contends that the ordinance is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality. The trial court rendered its judgment declaring that "[t]here is no doubt that" the ordinance in question refers to license taxes or fees. If the defendant has the power to tax the plaintiff for purposes of revenue, it may do so by proper municipal legislation, but not in the guise of a license tax. Both plaintiff and defendant directly appealed to the Supreme Court. ISSUE: Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment or as a revenue measure? RULING: The present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.

19

WALTER LUTZ vs. J. ANTONIO ARANETA G.R. No. L-7859 December 22, 1955

FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes." Plaintiff, Walter Lutz seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to the Supreme Court. ISSUE: Is the tax provided for in Commonwealth Act No. 567 a pure exercise of the taxing power? RULING: Analysis of the Act, and particularly of section 6 will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power. The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection.

20

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) vs. COCOFED, ET AL. and BALLARES, ET AL., EDUARDO M. COJUANGCO JR. and the SANDIGANBAYAN (First Division) G.R. No. 147062-64 December 14, 2001

FACTS: The PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal. Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-called Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr. On January 23, 1995, the trial court rendered its final Decision nullifying and setting aside the Resolution of the Sandiganbayan which, as earlier stated, lifted the sequestration of the subject UCPB shares. The express impleading of herein Respondents COCOFED et al. was deemed unnecessary because "the judgment may simply be directed against the shares of stock shown to have been issued in consideration of ill-gotten wealth." Furthermore, the companies "are simply the res in the actions for the recovery of illegally acquires wealth, and there is, in principle, no cause of action against them and no ground to implead them as defendants in said case." ISSUE: Are the Coconut Levy Funds raised through the States police and taxing powers? RULING: Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for all public needs. Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State. Even if the money is allocated for a special purpose and raised by special means, it is still public in character. It is, therefore, the State's concern to make it a strong and secure source not only of the livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the imperatives of economic stability.

21

WENCESLAO PASCUAL vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL. G.R. No. L-10405 December 29, 1960

FACTS: On August 31, 1954, petitioner Wenceslao Pascual instituted this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" which projected feeder roads "do not connect any government property or any important premises to the main highway"; Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of action". ISSUE: Should appropriation using public funds be made for public purposes only? RULING: It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public purpose. The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public.

22

OSMEA VS. ORBOS G.R. No. 99886 March 31, 1993

FACTS: In October 1984, Pres. Marcos issued P.D. 1956 creating a Special Account in the General Fund designated as the Oil Price Stabilization Fund designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, E.O. 1024 was issued reclassifying OPSF as a trust liability account and ordering such fund to be released from the National Treasury to the Ministry of Energy for investment in government securities. In February 1987, Pres. Aquino amended P.D. 1956 by issuing E.O. 137, expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of Finance. As of 31 March 1991, the status of the OPSF showed a Terminal Fund Balance deficit. To abate the worsening deficit, the Energy Regulation Board issued an Order approving the pump prices of petroleum products. At the rate of recoupment, the deficit should have been fully recovered already but respondents, as alleged by petitioner, are poised to accept, process and pay claims not authorized under P.D. 1956. Petitioner also claims that the creation of the trust fund violates Section 29(3) of Article VI of the Constitution. Under the said provision, the monies collected under P.D. 1956 must be treated as a special fund, not a trust fund. And that if a special tax is collected for a special purpose, the revenue generated therefrom shall be treated as a special fund to be used only for the purpose indicated, and not channeled to another government objective. ISSUE: Do the powers granted to the ERB under P.D. 1956 partake of the nature of the taxation power of the State? RULING: NO. The OPSF was established "for the purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum products. While the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State.

23

PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. VS. MUNICIPALITY OF TANAUAN G.R. No. L-31156 February 27, 1976

FACTS: In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance Nos. 23 and 24 ISSUEd by the Municipality of Tanauan, Leyte as null and void. Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of bottles produced and corked during the month. On the other hand, Municipal Ordinance No. 27 levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of the municipality a tax of one centavo (P0.01) on each gallon of volume capacity. For the purpose of computing the taxes due, the person, firm, company, partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax. ISSUES: 1. Is Section 2 of R.A. 2264 an undue delegation of the power of taxation? 2. Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or specific taxes? RULING: 1. NO. The power of taxation is purely legislative and cannot be delegated to the executive or judicial department of the government without infringing upon the theory of separation of powers. But as an exception, the theory does not apply to municipal corporations. Legislative powers may be delegated to local governments in respect of matters of local concern. This is sanctioned by immemorial practice. By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. (There is no express provision in the 1935 Constitution granting the power of taxation to local governments. The power was first vested by the 1973 Constitution.) 2. NO. The Municipality of Tanauan discovered that manufacturers could increase the volume contents of each bottle and still pay the same tax rate since tax is imposed on every bottle corked. To combat this scheme, Municipal Ordinance No. 27 was enacted. As such, it was a repeal of Municipal Ordinance No. 23. In the stipulation of facts, the parties admitted that the Municipal Treasurer was enforcing Municipal Ordinance No. 27 only. Hence, there was no case of double taxation.

24

SOCIAL SECURITY SYSTEM VS. CITY OF BACOLOD G.R. No. L-35726 July 21, 1982

FACTS: Petitioner Social Security System, for operation purposes, maintains a five-storey building in Bacolod City occupying four parcels of land. Said lands and buildings were assessed for taxation. Petitioner failed to pay the realty taxes for the years 1968, 1969 and 1970. Consequently, the City of Bacolod levied upon said lands and buildings and declared them forfeited in its favor. In protest, petitioner wrote the city mayor through the city treasurer seeking reconsideration of the forfeiture proceeding on the ground that it is a government-owned and controlled corporation and as such, should be exempt from payment of real estate taxes. No action was however taken. Thereafter, petitioner filed an action in court for the nullification of the court proceedings. The court ruled that the properties of petitioner are not exempt from the payment of real property tax because these are not one of the exemptions under Section 29 of the Charter of Bacolod City and there is no other law providing for its exemption. ISSUE: Should the subject properties maintained by petitioner SSS be exempt from payment of real property tax? RULING: YES. Whether a government owned and controlled corporation is performing governmental or proprietary function is immaterial. Section 29 of the Charter of Bacolod City does not contain any qualification whatsoever in providing for the exemption from real estate taxes of "lands and buildings owned by the Commonwealth or Republic of Philippines." Hence, when the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose. Further, P.D. 24 has amended the Social Security Act of 1954 expressly exempting the SSS from payment of any tax thereby removing all doubts as to its exemption.

25

SEA-LAND SERVICE, INC. VS. COURT OF APPEALS G.R. No. 122605 April 30, 2001

FACTS: Petitioner Sea-Land Service Incorporated, an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to transport military household goods and effects of U.S. military personnel assigned to the Subic Naval Base. Sea-Land paid its corresponding corporate income tax for the taxable year 1984 at the rate of 1.5% in accordance with Section 25(a)(2) of the National Internal Revenue Code in relation to Article 9 of the RP-US Tax Treaty. Subsequently, Sea-Land filed a claim for refund alleging that the taxes it paid were made in mistake because under the RP-US Military Base Agreement, it is exempt from the payment of taxes. The pertinent provision provides: "No national of the United States, or corporation organized under the laws of the United States, shall be liable to pay income tax in the Philippines in respect of any profits derived under a contract made in the United States with the government of the United States in connection with the construction, maintenance, operation and defense of the bases, or any tax in the nature of a license in respect of any service or work for the United States in connection with the construction, maintenance, operation and defense of the bases." ISSUE: Does the income that petitioner derived from services in transporting the household goods and effects of U.S. military personnel fall within the tax exemption provided in the RP-US Military Bases Agreement? RULING: NO. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. The transport or shipment of household goods and effects of U.S. military personnel is not included in the term "construction, maintenance, operation and defense of the bases. Neither could the performance of this service to the U.S. government be interpreted as directly related to the defense and security of the Philippine territories

26

COMMISSIONER OF INTERNAL REVENUE vs. MITSUBISHI METAL CORPORATION G.R. No. L-54908. January 22, 1990

FACTS: On April 17, 1970, Atlas Consolidated Mining and Development Corporation entered into a Loan and Sales Contract with Mitsubishi Metal Corporation, a Japanese corporation licensed to engage in business in the Philippines, for purposes of the projected expansion of the productive capacity of the former's mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of $20,000,000.00, United States currency. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates produced for a period of fifteen (15) years. Mitsubishi thereafter applied for a loan with the ExportImport Bank of Japan (Eximbank) for purposes of its obligation under said contract. Its loan application was approved on May 26, 1970 in the equivalent sum of $20,000,000.00 in United States currency at the then prevailing exchange rate. The records in the Bureau of Internal Revenue show that the approval of the loan by Eximbank to Mitsubishi was subject to the condition that Mitsubishi would use the amount as a loan to Atlas and as a consideration for importing copper concentrates from Atlas, and that Mitsubishi had to pay back the total amount of loan by September 30, 1981. Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the latter totaling P13,143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in the amount of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the National Internal Revenue Code, as amended by Presidential Decree No. 131, and duly remitted to the Government. ISSUE: Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29 of the tax code and, therefore, exempt from withholding tax. RULING: The court ruled in the negative. Eximbank had nothing to do with the sale of the copper concentrates since all that Mitsubishi stated in its loan application with the former was that the amount being procured would be used as a loan to and in consideration for importing copper concentrates from Atlas. Such an innocuous statement of purpose could not have been intended for, nor could it legally constitute, a contract of agency. The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the sole creditor of ATLAS, the former being the owner of the $20 million upon completion of its loan contract with EXIMBANK of Japan. It is settled a rule in this jurisdiction that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which the petitioners have failed to discharge. Significantly, private respondents are not among the entities which, under Section 29 of the tax code, are entitled to exemption and which should indispensably be the party in interest in this case.

27

31st INFANTRY POST EXCHANGE vs. POSADAS G.R. No. 33403. September 4, 1930

FACTS: The 31st Infantry Post Exchange is a post exchange constituted in accordance with Army regulations and the laws of the United States. in the course of its duly authorized business transactions, the Exchange made many purchases of various and diverse commodities, goods, wares and merchandise from various merchants in the Philippines. The Commissioner collected a sales tax of 1 1/2 % of the gross value of the commodities, etc. from the merchants who sold said commodities to the Exchange. A formal protest was lodged by the Exchange. ISSUE: Whether or not the petitioner is exempt from the sales tax imposed against its suppliers. RULING: The court ruled in the negative. Taxes have been collected from merchants who made sales to Army Post Exchanges since 1904 (Act 1189, Section 139). Similar taxes are paid by those who sell merchandise to the Philippine Government, and by those who do business with the US Army and Navy in the Philippines. Herein, the merchants who effected the sales to the Post Exchange are the ones who paid the tax; and it is the officers, soldiers, and civilian employees and their families who are benefited by the post exchange to whom the tax is ultimately shifted. The tax laid upon the merchants who sell to the Army Post Exchanges does not interfere with the supremacy of the US Government, nor does it interfere with the operations of its instrumentalities, such as the US Army, to such extent or in such a manner as to render the tax illegal. The tax does not deprive the Army of the power to serve the Government as it was intended to serve it, or hinder the efficient exercise of its power. An Army Post Exchange, although an agency within the US Army, cannot secure exemption from taxation for merchants who make sales to the Post Exchange.

28

COMMISSIONER OF INTERNAL REVENUE vs. MARUBENI CORPORATION G.R. No. 137377. December 18, 2001

FACTS: Respondent Marubeni Corporation is a foreign corporation and is duly registered to engage in business in the Philippines. Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine the books of accounts of the Manila branch office of respondent corporation. In the course of the examination, petitioner found respondent to have undeclared income from two (2) contracts in the Philippines. Petitioner's revenue examiners recommended an assessment for deficiency income, branch profit remittance, contractor's and commercial broker's taxes. Respondent questioned this assessment. Respondent then received a letter form petitioner assessing respondent several deficiency taxes. On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals. The first petition questioned the deficiency income, branch profit remittance and contractor's tax assessments in petitioner's assessment letter. The second questioned the deficiency commercial broker's assessment. Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of the income tax amnesty should comply with certain requirements. In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986. On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64. ISSUES: Whether or not herein respondent's deficiency tax liabilities were extinguished upon respondent's availment of tax amnesty under Executive Orders Nos. 41 and 64. RULING: The main controversy in this case lies in the interpretation of the exception to the amnesty coverage of E.O. Nos. 41 and 64. There are three (3) types of taxes involved herein income tax, branch profit remittance tax and contractor's tax. These taxes are covered by the amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however, that respondent is disqualified from availing of the said amnesties because the latter falls under the exception in Section 4 (b) of E.O. No. 41. Petitioner's claim cannot be sustained. Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax amnesty those taxpayers "with income tax cases already filed in court as of the effectivity hereof." The point of reference is the date of effectivity of E.O. No. 41. The difficulty lies with respect to the contractor's tax assessment and respondent's availment of the amnesty under E.O. No. 64 including estate and donor's taxes and tax on business. In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should be construed strictly against the taxpayer. The term "income tax cases" should be read as to refer to estate and donor's taxes and taxes on business while the word "hereof," to E.O. No. 64. Since Executive Order No. 64 took effect on November 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivity referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986. There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original issuance. Neither is it necessarily implied from E.O. No. 64 that it or any of its provisions should apply retroactively.

29

REAGAN vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. L-26379, 27. December 27, 1969

FACTS: William Reagan imported a tax-free 1960 Cadillac car with accessories valued at US $ 6,443.83, including freight, insurance and other charges. After acquiring a permit to sell the car from the base commander of Clark Air Base, Reagan sold the car to a certain Willie Johnson Jr. of the US Marine Corps stationed in Sangley Point, Cavite for US$ 6,600. Johnson sold the same, on the same day to Fred Meneses, a Filipino. As a result of the transaction, the Commissioner rendered Reagan liable for income tax in the sum of P2,970. Reagan claimed that he was exempt as the transaction occurred in Clark Air Base, which as he contends is a base outside the Philippines. ISSUE: Whether or not petitioner Reagan was covered by the tax exemption. RULING: The court ruled in the negative. The Philippines, as an independent and sovereign country, exercises its authority over its entire domain. Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign rights. It may allow another power to participate in the exercise of jurisdictional right over certain portions of its territory. By doing so, it by no means follows that such areas become impressed with an alien character. The areas retain their status as native soil. Clark Air Base is within Philippine territorial jurisdiction to tax, and thus, Reagan was liable for the income tax arising from the sale of his automobile in Clark. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. Reagan has not done so, and cannot do so.

30

TIU vs. COURT OF APPEALS GR. No. 127410 January 20, 1999

FACTS: Congress, with the approval of the President, passed into law RA 7227 entitled "An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes." Section 12 thereof created the Subic Special Economic Zone and granted there to special privileges. President Ramos issued Executive Order No. 97, clarifying the application of the tax and duty incentives. The President issued Executive Order No. 97-A, specifying the area within which the tax-and-duty-free privilege was operative. The petitioners challenged before this Court the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. This Court referred the matter to the Court of Appeals. Proclamation No. 532 was issued by President Ramos. It delineated the exact metes and bounds of the Subic Special Economic and Free Port Zone, pursuant to Section 12 of RA 7227. Respondent Court held that "there is no substantial difference between the provisions of EO 97-A and Section 12 of RA 7227. In both, the 'Secured Area' is precise and well-defined as '. . . the lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended . . .'" ISSUE: Whether or not Executive Order No. 97-A violates the equal protection clause of the Constitution RULING: No. The Court found real and substantive distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonable classification. The fundamental right of equal protection of the laws is not absolute, but is subject to reasonable classification. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class. Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. The Supreme Court believed it was reasonable for the President to have delimited the application of some incentives to the confines of the former Subic military base. It is this specific area which the government intends to transform and develop from its status quo ante as an abandoned naval facility into a self-sustaining industrial and commercial zone, particularly for big foreign and local investors to use as operational bases for their businesses and industries.

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JOHN PEOPLES ALTERNATIVE COALITION vs. BCDA GR. No. 119775 October 24, 2003

FACTS: Republic Act No. 7227 set out the policy of the government to accelerate the sound and balanced conversion into alternative productive uses of the former military bases. It created Bases Conversion and Development Authority. It also created the Subic Special Economic and Free Port Zone. It granted the Subic SEZ incentives. It expressly gave authority to the President to create through executive proclamation, subject to the concurrence of the local government units directly affected, other Special Economic Zones in the areas covered. BCDA entered into a Memorandum of Agreement and Escrow Agreement with Tuntex and Asiaworld. BCDA, Tuntex and Asiaworld executed a Joint Venture Agreement. The Sangguniang Panlungsod of Baguio City asked BCDA to exclude all the barangays partly or totally located within Camp John Hay from the reach or coverage of any plan or program for its development. The sanggunian adopted and submitted a 15-point concept for the development of Camp John Hay. BCDA, Tuntex and AsiaWorld agreed to some, but rejected or modified the other proposals. They stressed the need to declare Camp John Hay a SEZ as a condition precedent in accordance R.A. No. 7227. The sanggunian requested the Mayor to order the determination of realty taxes which may be collected from real properties of Camp John Hay. It was intended to intelligently guide the sanggunian in determining its position on whether Camp John Hay be declared a SEZ, it being of the view that such declaration would exempt the camps property and the economic activity therein from local or national taxation. The sanggunian passed a resolution seeking the issuance by President Ramos of a presidential proclamation declaring an area of 288.1 hectares of the camp as a SEZ. President Ramos issued Proclamation No. 420 which established a SEZ on a portion of Camp John Hay. ISSUE: Whether Proclamation No. 420 is constitutional RULING: While the grant of economic incentives may be essential to the creation and success of SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no support therein. Neither does the same grant of privileges to the John Hay SEZ find support in the other laws specified under Section 3 of Proclamation No. 420, which laws were already extant before the issuance of the proclamation or the enactment of R.A. No. 7227. More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress.

COCONUT OIL REFINERS ASSOCIATION INC. vs. BCDA

32

G.R. No. 132527 July 29, 2005

FACTS: Republic Act No. 7227 was enacted providing for the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special economic zones in order to promote the economic and social development of Central Luzon in particular and the country in general. President Ramos issued Executive Order No. 80 which declared that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. The CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under RA 7227. The CSEZ Main Zone covering the Clark Air Base proper shall have all the investment incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited incentives. The full incentives in the Clark SEZ Main Zone and the limited incentives in the Clark SEZ Sub-Zone shall be determined by the BCDA. BCDA passed Board Resolution No. 93-05-034 allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. The President issued EO No. 97, Clarifying the Tax and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227. EO 97-A was issued, Further Clarifying the Tax and Duty-Free Privilege Within the Subic Special Economic and Free Port Zone. ISSUE: Whether or not Executive Order No. 97-A, Section 5 of Executive Order No. 80, and Section 4 of BCDA Board Resolution No. 93-05-034 are null and void RULING: Executive Order No. 97-A provides guidelines to govern the tax and duty-free privileges within the Secured Area of the Subic Special Economic and Free Port Zone. Paragraph 1.6 thereof states that (t)he sale of tax and duty-free consumer items in the Secured Area shall only be allowed in duly authorized duty-free shops. The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12 of Republic Act No. 7227 that . . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments. The Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and dutyfree removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of Republic Act No. 7227. Said Section clearly provides that exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.

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PROVINCE OF ABRA vs. HERNANDO G.R. No. L-49336 August 31, 1981
FACTS: On the face of this certiorari and mandamus petition, it clearly appears that the actuation of respondent Judge Hernando left much to be desired. There was a denial of a motion to dismiss an action for declaratory relief by Roman Catholic Bishop of Bangued desirous of being exempted from a real estate tax followed by a summary judgment granting such exemption, without even hearing the side of petitioner. It was the submission of counsel that an action for declaratory relief would be proper only before a breach or violation of any statute, executive order or regulation. Moreover, there being a tax assessment made by the Provincial Assessor on the properties of respondent, petitioner failed to exhaust the administrative remedies available under PD No. 464 before filing such court action. Respondent Judge alleged that there "is no question that the real properties sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of Bangued, Inc." The very next sentence assumed the very point it asked when he categorically stated: "Likewise, there is no dispute that the properties including their procedure are actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or charitable purposes." For him then: "The proper remedy of the petitioner is appeal and not this special civil action." ISSUE: Whether or not the properties of respondent Roman Catholic Bishop should be exempt from taxation RULING: Respondent Judge would not have erred so grievously had he merely compared the provisions of the present Constitution with that appearing in the 1935 Charter on the tax exemption of "lands, buildings, and improvements." There is a marked difference. Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation." The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of ":lands, buildings, and improvements," they should not only be "exclusively" but also "actually and "directly" used for religious or charitable purposes. The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation. According to Commissioner of Internal Revenue v. Guerrero: "From 1906, in Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the constant and uniform holding that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer..

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TOLENTINO vs. SECRETARY OF FINANCE G.R. No. 115455 October 30, 1995

FACTS: Motions were filed seeking reconsideration of the Supreme Court decision dismissing the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in these cases. ISSUES: 1. Whether or not R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI Sec. 24 of the Constitution. 2. Whether or not R.A. No. 7716 is violative of press freedom and religious freedom under Art. III Secs. 4 and 5 of the Constitution. 3. Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the Constitution. 4. Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10 of the Constitution. 5. Whether or not there is violation of the due process clause under Art. III Sec. 1 of the Constitution. RULING: 1. While Art. VI Sec. 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is referred may do any of the following: (1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee bill; or (4) to make no report at all. (A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 25 (1950)) To except from this procedure the amendment of bills which are required to originate in the House by prescribing that the number of the House bill and its other parts up to the enacting clause must be preserved although the text of the Senate amendment may be incorporated in place of the original body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as any which the Senate could have made. 2. Since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. In withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with the

35

latter's sale of religious books and pamphlets, is unconstitutional. A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on those engaged in the sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise of its right to propagate. However, the VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution. 3. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, Sec. 17(1) of the 1973 Constitution from which the present Art. VI, Sec. 28(1) was taken. Sales taxes are also regressive. 4. "Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. 5. On the alleged violation of due process, hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different from the giving of advisory opinion that does not really settle legal issues. We are told that it is our duty under Art. VIII, Sec. 1 (2) to decide whenever a claim is made that "there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government." This duty can only arise if an actual case or controversy is before us. Under Art. VIII, Sec. 5 our jurisdiction is defined in terms of "cases" and all that Art. VIII, Sec.1 (2) can plausibly mean is that in the exercise of that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by any branch or instrumentality of the government. Put in another way, what is granted in Art. VIII Sec.1, (2) is "judicial power," which is "the power of a court to hear and decide cases pending between parties who have the right

36

to sue and be sued in the courts of law and equity", as distinguished from legislative and executive power. Without an actual case coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the government.

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ABAKADA Guro Party List vs. Ermita G.R. No. 168056 September 1, 2005

FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional. ISSUES: 1. Whether or not there is a violation of Article VI, Section 24 of the Constitution. 2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution. 3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the Constitution. 4. Whether or not there is a violation of the rule on taxation under Article VI Sec. 28(1) of the Constitution. RULING: 1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the House revenue bill. Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later substituted by House Bill No. 355 2. Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority. While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends. The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and making recommendations is the kind of subsidiary activity which the legislature may perform through its members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of modern society is impossible in the absence of accurate information on the part of the

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legislators, and any reasonable method of securing such information is proper. The Constitution as a continuously operative charter of government does not require that Congress find for itself every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible for Congress itself properly to investigate. Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and fourfifth percent (24/5%) or the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.[ 3. The input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege. The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The state may change or take away rights, which were created by the law of the state, although it may not take away property, which was vested by virtue of such rights. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness. While the implementation of the law may yield varying end results depending on ones profit margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business. The equal protection clause does not require the universal application of the laws on all persons or things without distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among equals as determined according to a valid classification. By classification is meant the grouping of persons or things similar to each other in certain particulars and different from all others in these same particulars. 4. Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and transaction. Neither does the law make any distinction as to the type of industry or trade that will bear the

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70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1,500,000.00. Also, basic marine and agricultural food products in their original state are still not subject to the tax, thus ensuring that prices at the grassroots level will remain accessible. The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation."

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MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. vs. DEPARTMENT OF FINANCE SECRETARY G.R. No. 108524 November 10, 1994

FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under Sec. 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. Petitioner sought to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner organization as the classification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under Sec. 103(b) of the NIRC ISSUES: 1. Whether or not copra is an agricultural food or non-food product for purposes of the provision of the NIRC. 2. Whether there is violation of due process because petitioner was not heard before the ruling was made. 3. Whether there is violation of equal protection clause because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. RULING: 1. In interpreting Sec.103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state. Moreover, as the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under Sec. 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes." 2. There is a distinction in administrative law between legislative rules and interpretative rules. There would be force in petitioner's argument if the circular in question were in the nature of a legislative rule. But it is not. It is a mere interpretative rule.The reason for this distinction is that a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing. The inquiry is not into the validity but into the correctness or propriety of the rule. As a matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to the

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rule; (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule. Respondent Commissioner did not err in not considering copra as an "agricultural food product" within the meaning of Sec. 103(b) of the NIRC. That previous Commissioners considered it so, is not reason for holding that the present interpretation is wrong. The Commissioner of Internal Revenue is not bound by the ruling of his predecessors. To the contrary, the overruling of decisions is inherent in the interpretation of laws. 3. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently.

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COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS G.R. No. 119761 August 29, 1996

FACTS: Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes. The Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. The initial position of the CIR was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. RA No. 7654, was enacted and became effective on 03 July 1993. It amended Section 142(c)(1) of the NIRC. About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93") Reclassification of Cigarettes Subject to Excise Tax, was issued by the BIR. Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. The CTA upheld the position of Fortune Tobacco and adjudged RMC No. 37-93 as defective. ISSUES: 1. Whether or not there is a violation of the due process of law. 2. Whether or not RMC No. 37-93 infringed on uniformity of taxation. RULING: 1. Yes. It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and

43

subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. The Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance. 2. Yes. Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in privileges and liabilities. Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate and the tax must operate with the same force and effect in every place where the subject may be found. Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, thus suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands have not been similarly included within the scope of the circular.

44

COMMISSIONER OF INTERNAL REVENUE vs. LINGAYEN GULF OF ELECTRIC POWER G.R. No. L-23771 August 4, 1988

FACTS: The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant serving the adjoining municipalities of Lingayen and Binmaley, Pangasinan, pursuant to the municipal franchise granted it by their respective municipal councils, under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, respectively. Section 10 of these franchises provides that said grantee shall pay 2% of their gross earnings obtained thru this privilege. On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the private respondent the total amount of P19,293.41 representing deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954 as prescribed in Section 259 of the National Internal Revenue Code, instead of the lower rates as provided in the municipal franchises.Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, granting to the private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same municipalities of Pangasinan. Section 4 thereof provides that: In consideration of the franchise and rights hereby granted, the grantee shall pay into the Internal Revenue office of each Municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the gross receipts from electric current sold or supplied under this franchise. The petitioner submits that the said law is unconstitutional insofar as it provides for the payment by the private respondent of a franchise tax of 2% of its gross receipts, while other taxpayers similarly situated were subject to the 5% franchise tax imposed in Section 259 of the Tax Code, thereby discriminatory and violative of the rule on uniformity and equality of taxation. ISSUE: Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uniformity and equality of taxation" clause of the Constitution. RULING: Uniformity means that all property belonging to the same class shall be taxed alike The Legislature has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed violative of the equal protection clause. Charters or special laws granted and enacted by the Legislature are in the nature of private contracts. They do not constitute a part of the machinery of the general government. They are usually adopted after careful consideration of the private rights in relation with resultant benefits to the State ... in passing a special charter the attention of the Legislature is directed to the facts and circumstances which the act or charter is intended to meet. The Legislature considers and makes provision for all the circumstances of a particular case." In view of the foregoing, we find no reason to disturb the respondent court's ruling upholding the constitutionality of the law in question.

45

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN vs. TAN G.R. No. 81311 June 30, 1988

FACTS: This petition seeks to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273. Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states: Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. ISSUE: Whether or not EO 273 was enacted by the president with grave abuse of discretion and whether or not such law is unconstitutional. RULING: Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened." The petitioners have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.

46

SISON vs. ANCHETA G.R. No. L-59431 July 25, 1984

FACTS: Petitioner assailed the validity of Section 1 of Batas Pambansa Blg. 135 which further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. Petitioner as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character. For petitioner, therefore, there is a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. ISSUE: Whether or not BP 135 Sec 1 is violative of due procee and equal protection clause. RULING: The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. Due process was not violated. According to the Constitution: "The rule of taxation shag be uniform and equitable." This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. " The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "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,... As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation."

47

VILLEGAS vs. HUI CHIONG TSAI PAO G.R. No. L-29646 November 10, 1978

FACTS: Ordinance No. 6537 was passed by the Municipal Board of Manila on February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on March 27, 1968. Section 1 of said Ordinance No. 6537 prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind. In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null and void: 1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in taxation; 2) As a police power measure, it makes no distinction between useful and non-useful occupations, imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration and that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers: 3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their rights to life, liberty and property and therefore, violates the due process and equal protection clauses of the Constitution. ISSUE: Whether or not the 50.00 employment permit fee imposed by virtue of Ordinance No. 6537 is a violation of the equal protection clause. RULING: The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive. Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of the power which has been granted to him by the ordinance.

48

VILLANUEVA v. CITY OF ILOILO G.R. No. 26521 December 28, 1968

FACTS: The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: 1) tenement house, P25.00anually; 2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart Aldequer, P24.00 per apartment; 3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Villanueva, owners of 4 tenement houses containing 34 apartments. In City of Iloilo v. Villanueva, the ordinance was declared ultra vires, it not appearing that the power to tax owners of tenement houses is one among those granted to the City of Iloilo by its Charter. The municipal board of Iloilo City, believing that with the passage of RA 2264 (Local Autonomy Act), it had acquired authority to enact the same ordinance, enacted Ordinance 11 (An Ordinance imposing municipal license tax on persons engaged in the business of operating tenement houses). By virtue of the ordinance in question, the appellant City collected from spouses Villanueva. Eusebio Villanueva has likewise been paying real estate taxes on his property. The plaintiffs-appellees filed a complaint against the City of Iloilo praying that Ordinance 11 be declared invalid for being violative of the rule as to uniformity of taxation, and for depriving said plaintiffs equal protection clause of the Constitution. The lower court rendered judgment declaring the ordinance illegal. ISSUE: Does Ordinance 11 violate the rules of uniformity of taxation? RULING: No. This court has ruled that tenement houses constitute a distinct class of property. It has likewise ruled that taxes are uniform and equal when imposed upon all properties of the same class or character within the taxing authority. The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.

49

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC. v. CITY OF BUTUAN G.R. No. 22814 August 28, 1968

FACTS: The City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122. Ordinance No. 110 as amended, imposes a tax on any person, association, etc. of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff Pepsi-Cola paid under protest. The plaintiff filed a complaint for the recovery of the amount paid under protest on the ground that Ordinance No. 110 is illegal, that the tax imposed is excessive and that it is unconstitutional. Plaintiff maintains that the ordinance is null and void because it is unjust and discriminatory. ISSUE: Whether or not the ordinance in question is violative of the uniformity required by the Constitution? RULING: Yes. Only sales by agents or consignees of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax. The classification to be valid and reasonable must be: 1) based upon substantial distinctions; 2)germane to the purpose of the ordinance; 3) applicable, not only to present conditions, but also to future conditions substantially identical to those present; and 4) applicable equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question.

50

ORMOC SUGAR COMPANY, INC. v. TREASURER OF ORMOC CITY G.R. No. 23794 February 17, 1968

FACTS: The Municipal Board of Ormoc City passed Ordinance No. 4 imposing on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to USA and other foreign countries. Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte a complaint against the City of Ormoc as well as its Treasurer, Municipal Board and Mayor alleging that the ordinance is unconstitutional for being violative of the equal protection clause and the rule of uniformity of taxation. The court rendered a decision that upheld the constitutionality of the ordinance. Hence, this appeal. ISSUE: Whether or not constitutional limits on the power of taxation, specifically the equal protection clause and rule of uniformity of taxation, were infringed? RULING: Yes. Equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where 1) it is based upon substantial distinctions; 2) these are germane to the purpose of the law; 3) the classification applies not only to present conditions, but also to future conditions substantially identical to those present; and 4) the classification applies only to those who belong to the same class. A perusal of the requisites shows that the questioned ordinance does not meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central for the coverage of the tax.

51

LUTZ v. ARANETA G.R. No. 7859 December 22, 1955

FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567 (Sugar Adjustment Act). Section 3 of the said law levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. Plaintiff Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Ledesma, seeks to recover from the Collector of Internal Revenue the sum paid by him as taxes alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiffs opinion is not a public purpose for which a tax may be constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case. ISSUE: Whether or not the law in question is constitutional? RULING: Yes. The tax levied is with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. The act is primarily an exercise of the police power. That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint. It appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly ruled that inequalities which result from a singling out of one particular for taxation or exemption infringe no constitutional limitation. It appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It cannot be said that devotion of tax money to improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes.

52

ASSOCIATION OF CUSTOMS BROKERS et al. vs. THE MUNICIPALITY BOARD of Manila et al. G.R. No. L-4376, May 22, 1953

FACTS: This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila on March 24, 1950.The petitioners which is composed of all brokers and public service operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service operator of the trucks in said City, challenge the validity of said ordinance on the ground that (1) while it levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila. The respondents contend on their part that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under its Revised Charter and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation. The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board the power "to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding." It is contended that this power is broad enough to confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city limits. ISSUE: Whether or not Ordinance No. 3379 is valid as held by the CFI of Manila. RULING: The Motor Vehicles Law, as amended, (Act No. 3992) provides that no fees may be exacted or demanded for the operation of any motor vehicle other than those therein provided, the only exception being that which refers to the property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it can only refers to property tax as a different interpretation would make it repugnant to the Motor Vehicle Law. Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a Property Tax on All Motor Vehicles Operating within the City of Manila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively for the repair, maintenance and improvement of its streets and bridges." While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an

53

occupation, it will be considered an excise." The ordinance in question while it refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to.

54

EASTERN THEATRICAL CO., INC., ET AL. vs. VICTOR, ALFONSO G.R. No. L-1104 May 31, 1949

FACTS: Twelve corporation engaged in motion picture business filed a complaint to impugn the validity of Ordinance No. 2958 of the City of Manila- AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES THEATRICAL SHOWS AND BOXING EXHIBITION. Plaintiffs, operator of theaters in Manila And distributor of local or imported films impugns Sections 1, 2 and 4 of said ordinance as null and void upon the following grounds: (a) For violation the Constitution more particular the provision regarding the uniformity and equality of taxation and the equal protection of the laws; (b) because it contravenes, violates and is inconsistent with, existing national legislation more particularly revenue and tax laws and (c) because it is unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and recognizes principles of taxation and licensing laws. On the other hand, the defendant argues that the ordinance was passed by the Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the license fee for and regulate the business of theatrical performances public exhibition circus and other performances and places of amusement and that the graduated tax required by said ordinance being applied to all cinematographs, theaters, vaudeville companies theatrical show and boxing exhibitions similarly situated and as a class without distinction or exception the same does not violate the prohibition against uniformity and equality of taxation. The lower court upheld the validity of Ordinance No. 2958. Hence this petition. The plaintiff argues that Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven schedules and other details of said ordinance are, in every respect, identical with the amusement tax provided by section 260 of Commonwealth Act No. 466. It further argued that the power granted to the City of Manila by section 2444(m) of the Revised Administrative Code is limited to the authority to impose a tax on business, with exclusion of the power to impose a tax amusement. ISSUE: Whether or not Ordinance No. 2958 violated the principle of equality and uniformity of taxation enjoined by the Constitution. RULING: No, the said Ordinance does not violate the principle of equality and uniformity of taxation. The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance.

55

PHILIPPINE TRUST COMPANY vs. YATCO G.R. Nos. L-46255, 46256, 46259 and 46277 January 23, 1940

FACTS: Prior to the filing of these suits, and for a number of years, the plaintiffs-appellants had been paying capital and deposit taxes without protest, formerly under section 111 of Act No. 1189, and later under section 1499 of the Revised Administrative Code of 1917, as amended. Appellants challenge the constitutionality of the aforesaid section of the Revised Administrative Code, principally on the grounds that it violates the rule regarding uniformity of taxation, and that it is discriminatory, and therefore violative of the equal protection clause of the Constitution. Appellants stoutly maintain that although the foregoing provision is of general application and operates on all banks of the same kind doing business in the Philippines, the exemption of the National City Bank of New York from the impositions therein specifically provided (National City Bank of New York v. Posadas [296 U.S. 497, 80 Law ed. 351], makes the law discriminatory and violates the rule of uniformity in taxation ISSUE: Whether or not the said section of the Revised Administrative Code violates the rule on uniformity of taxation. RULING: No. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. Section 1499 of the Revised Administrative Code, as amended, applies uniformly to, and operates on, all banks in the Philippines without distinction and discrimination, and if the National City Bank of New York is exempted from its operation because it is a federal instrumentality subject only to the authority of Congress, that alone could have the effect of rendering it violative of the rule of uniformity. In every well-regulated and enlightened state or government, certain descriptions of property and also certain institutions are exempt from taxation, but these exemptions have never been regarded as disturbing the rules of taxation, even where the fundamental law had ordained that it should be uniform. The method of assessment prescribed in section 1502, in relation to section 1499, of the Revised Administrative Code, for domestic banks while different from that prescribed for foreign banks is permissible. This conclusion flows from the legal proposition that "a state may impose a different rate of taxation upon a foreign corporation for the privilege of doing business within the state than it applies to its own corporations upon the franchise which the state grants in creating them."

56

CHURCHILL vs. CONCEPCION G.R. No. 11572 September 22, 1916

FACTS: Section 100 of Act No. 2339 imposed an annual tax of P4 per square meter upon "electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on premises not occupied by buildings." This section was subsequently amended by Act No. 2432, effective by reducing the tax on such signs, billboards, etc., to P2 per square meter or fraction thereof. Francis A. Churchill and Stewart Tait, owners of a sign or billboard containing an area of 52 square meters constructed on private property in the city of Manila and exposed to public view, were taxes thereon P104. The tax was paid under protest. Plaintiffs assailed that they were gaining lesser profit than what they ought to receive because of the tax imposed by the said law. However, it was proven that there was no attempt on the part of the plaintiffs to raise the advertising rates in order to cope up with the said tax rates. It will thus be seen that the contention that the rates charged for advertising cannot be raised is purely hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test, and that the plaintiffs themselves admit that a number of other persons have voluntarily and without protest paid the tax herein complained of. ISSUE: Is the tax void for lack of uniformity? RULING: A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. The words "uniform throughout the United States," as required of a tax by the Constitution, do not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is therefore the only uniformity which is prescribed by the Constitution. A tax is uniform, within the constitutional requirement, when it operates with the same force and effect in every place where the subject of it is found. "Uniformity," as applied to the constitutional provision that all taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. The statute under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or in other words, "the rule of taxation" upon such signs is uniform throughout the Islands. The rule does not require taxes to be graded according to the value of the subject or subjects upon which they are imposed, especially those levied as privilege or occupation taxes. It is not for the judiciary to say that the classification upon which the tax is based "is mere arbitrary selection and not based upon any reasonable grounds." The Legislature selected signs and billboards as a subject for taxation and it must be presumed that it, in so doing, acted with a full knowledge of the situation.

57

MANILA ELECTRIC COMPANY v. PROVINCE OF LAGUNA and BENITO BALAZO in his capacity as Provincial Treasurer of Laguna G.R. No. 131359. May 5, 1999.

FACTS Manila Electric Company (MERALCO) was granted a franchise from certain municipalities of Laguna. On September 13, 1991, Republic Act 7160, otherwise known as the Local Government Code of 1991 was enacted, enjoining loval government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to this Code, respondent province enacted a Provincial Ordinance providing that a tax on business enjoying franchise, at a rate of 50% of 1% of the gross annual receipts... On the basis of such ordinance, the Provincial Treasurer sent a demand letter to MERALCO for the tax payment. MERALCO paid under protest. Thereafter, a formal claim for refund was sent by MERALCO to the Provincial Treasurer claiming that the franchise tax it had paid and continue to pay to the National Government already includes the franchise tax as provided under Presidential Decree 551- Section 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current. And such franchise tax shall be be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current.". The claim was denied. MERALCO filed an appeal with the trial court but was dismissed. Thus the petition. ISSUE Whether the imposition of a franchise tax under section 2.09 of the Laguna Provincial Ordinance No. 01-92 violates the non-impairment clause of the Constitution. RULING No. Although local governments do not have the inherent power to tax, such power may be delegated to them either by basic law or by statute. This is provided under Article X of the 1987 Constitution. The rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. The Local Government Code of 1991 repealed the Tax Code. It explicitly authorizes provincial governments, notwithstanding any exemption granted by any law, or other special laws, xxx (to) impose a tax on business enjoying a franchise. The phrase, in lieu of all taxes have to give way to the peremptory language of the Local Government Code. The Court also held that contractual exemptions, where the non-impairment clause can be rightly invoked are such as those contained in government bonds or debentures. These are not to be confused with a franchise.

58

THE PROVINCE OF MISAMIS ORIENTAL represented by its PROVINCIAL TREASURER v. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY G.R. No. L-45355. January 12, 1990

FACTS Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on June 17, 1961 under Republic Act 3247. It was amended by Republic Act 3570 and Republic Act 6020. All uniformly provide that -Sec.3...That the said franchise tax of three per centum of the gross earnings shall be in lieu of all taxes and assessments of whatever authority upon privileges earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee from which taxes and assessments the grantee is hereby expressly exempted. On June 28, 1973, the Local Tax Code was promulgated which provides-Sec. 9. Franchise Tax.Any provision of special laws to the contrary notwithstanding, the province may impose a tax on businesses enjoying franchise xxx. Pursuant thereto, the Province of Misamis enacted Provincial Revenue Ordinance No. 19. It demanded payment. CEPALCO refused to pay, alleging that it is exempt from all taxes except the franchise tax required by Republic Act 6020. The provincial fiscal upheld the ordinance. CEPALCO paid under protest. On appeal to the Secretary of Justice, ruled in favor of CEPALCO. The province filed a petition with the trial court but was dismissed. Thus, the petition. ISSUE Whether CEPALCO is exempt from paying the provincial franchise tax. RULING Yes. First off, there is no provision in PD No. 231 expressly or impliedly amending or repealing sec. 3 of RA 6020 which exempts CEPALCO. The rule is that a special and local statute applicable to a particular case is not repealed by a later statute which is general in its terms, provisions and application even if the terms of the general act are broad enough to include the cases in the special law unless there is manifest intent to repeal or alter the special law. The franchise of CEPALCO expressly exempts it from payment of all taxes of whatever authority except 3% tax on its gross earnings. Such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. Local Tax Regulation No. 3-75 issued by the Secretary of Finance on June 26, 1976, has made it crystal clear that the franchise tax provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be imposed on companies with franchises that do not contain the exempting clause in-lieu-of-all-taxes.

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CAGAYAN ELECTRIC POWER AND LIGHT CO., INC v. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS G.R. No. L-60126. September 25, 1985 FACTS: Petitioner Cagayan Electric Power and Light Co., Inc (CEPALCO) is the holder of a legislative franchise, Republic Act 3247 under which, it is exempted from taxes, and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires transformers, and insulators. On June 27, 1968, Republic Act 5431 amended Section 24 of the Tax Code, making the petitioner liable for income tax in addition to franchise tax. On August 4, 1969, Republic Act 6020 was enacted under which, the petitioner was again tax exempted. The Commissioner of Internal Revenue (CIR) sent a demand letter on February 15, 1973, requiring petitioner to pay the deficiency for income taxes for 1968-1971. Upon petitioner's contention, the CIR cancelled the assessments for 1970 but insisted those for 1968 and 1969. Petitioner filed a petition for review with the tax court which held petitioner responsible only for the period from January 1 to August 3, 1969, or before the passage of Republic Act 6420 which reiterated its tax exemption. Thus, the appeal. ISSUE: Whether petitioner's franchise is a contract which can be impaired by an implied appeal. RULING: Yes. Congress could impair petitioner's franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided in its franchise. The Constitution provides that a franchise is subject to amendment, alteration, or repeal by Congress when public interest so requires. Petitioner's franchise, under Republic Act 3247 also provide it is subject to the Constitution. Republic Act 5431 withdrew petitioner's exemption but was restored by subsequent enactment. Thus, it is only liable for the period of January 1 to August 3, 1969 when its tax exemption was modified.

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LEALDA ELECTRIC CO., INC v. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS G.R. No. L-16428. April 30, 1963 FACTS: On June 11, 1949, Alfredo, Mario and Benjamin Benito formed a partnership to operate an electric plant. Such electric plant was granted a franchise in the year 1915 to supply electric current to the municipalities of Albay. The franchise, the Certificate of public convenience and the electric plant was transferred to the said partnership. Under its franchise, the original grantee and successors-in-interest paid a franchise tax of 2% on the gross earnings, until October 1, 1946, when section 259 of the National Internal Revenue Code was amended by Republic Act 39, which increased the franchise tax to 5%. On a date undisclosed, petitioner filed a petition for refund contending that on its charter, it was liable to pay a franchise tax of 2% and not 5% of its earnings and receipts. As several petitions were not given definite action, thus petitioner filed with the Court of Tax Appeals (CTA) a petition, praying for refund from the period of January 20, 1947 to October 14, 1958. The CTA dismissed the petition. Thus, the petition, on the ground that Act No.2475, as amended by Act 2620, granting its franchise constitute a private contract between the petitioner and the Government and such cannot be amended, altered or repealed by Section 259 of the Tax Code. ISSUE Whether petitioner should pay 5% of his gross earnings. RULING Yes. Petitioner's franchise does not specifically state that the rate of the franchise tax shall be 2% of his gross earnings or receipts. It simply provides that the grantee and successors-in-interest shall pay the same franchise tax imposed upon other grantees at the time Act No. 2475 was enacted. Franchise holders did pay the rate of 2% until the rate was increased to 5%. Also, prior to its amendment, Section 259 of the Tax Code merely provided that grantees of franchises should pay on their gross earnings or receipts such taxes...as are specified in special charters upon whom franchises are conferred. This does not cover franchise holders whose charters did not specify the rate of franchise tax. It was covered under Section 10 of Act No. 3636. Consequently, section 259 of the Tax Code became the basic franchise tax to be paid by holders of all existing and future franchises. Such being the case, the act amending the section must be deemed applied to petitioner.

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J. CASANOVAS vs. JNO. S. HORD G.R. No. 3473 March 22, 1907

FACTS: In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may 1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is now the owner. That these were validly perfected mining concessions granted to prior to 11 April 1899 is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of Section 134 of Act 1189 (Internal Revenue Act). The defendant Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which plaintiff Casanovas paid under protest. ISSUE: Whether or not Section 134 of Act 1189 is valid. RULING: The deed constituted a contract between the Spanish Government and Casanovas. The obligation in the contract was impaired by the enactment of Section 134 of the Internal Revenue Law, thereby infringing the provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with Section 60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the laws under which they were granted. There is no claim in this case that there was any illegality in the procedure by which these concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed in the royal decree of 1867. As to the allegation that the section violates uniformity of taxation, the Court found it unnecessary to consider the claim in view of the result at which the Court has arrived.

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AMERICAN BIBLE SOCIETY vs. CITY OF MANILA G.R. No. L-9637 April 30, 1957

FACTS: Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions of the Revised Charter of the City of Manila. In the course of its ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialets. The acting City Treasurer of Manila required the society to secure the corresponding Mayors permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected. ISSUE: Whether or not the municipal ordinances violate the freedom of religious profession and worship. RULING: A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. are a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

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ABRA VALLEY COLLEGE, INC vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra G.R. NO. 39086 June 15, 1988

FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The trial court ruled for the government, holding that the second floor of the building is being used by the director for residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary injunction before the Supreme Court, by filing said petition on 17 August 1974. ISSUE: Whether or not the lot and building are used exclusively for educational purposes. RULING: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty taxes for Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes. Reasonable emphasis has always been made that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes (leased) and the second floor being used as incidental to education (residence of the director).

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COMMISSIONER OF INTERNAL REVENUE, vs. BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS OF THE PROTESTANT EPISCOPAL CHURCH IN THE U.S.A. and THE COURT OF TAX APPEALS G.R. No. L-19445 August 31, 1965

FACTS: Respondent Bishop of the Missionary District of the Philippines Islands of the Protestant, Episcopal Church in the U.S.A. is a corporation sole duly registered with the Securities and Exchange Commission. On the other hand, the Missionary District of the Philippine Islands of the Protestant Episcopal Church the U.S.A. (hereinafter referred to as Missionary District) is a duly incorporated and established religious society and owns and operates the St. Luke's Hospital in Quezon City, the Brent Hospital in Zamboanga City and the St. Stephen's High School in Manila. In 1957 to 1959, the Missionary District received various shipments of materials, supplies, equipment and other articles intended for use in the construction and operation of the new St. Lukes Hospital. On these shipments, the Commissioner collected compensation tax. The Missionary District filed claims for refund, but which was denied by the Commissioner on the ground that St. Lukes Hospital was not a charitable institution and therefore was not exempt from taxes because it admits pay patients. ISSUE: Whether or not the shipments for St. Lukes Hospital are tax-exempt. RULING: The following requisites must concur in order that a taxpayer may claim exemption under the law (1) the imported articles must have been donated; (2) the donee must be a duly incorporated or established international civic organization, religious or charitable society, or institution for civic religious or charitable purposes; and (3) the articles so imported must have been donated for the use of the organization, society or institution or for free distribution and not for barter, sale or hire. As the law does not distinguish or qualify the enjoyment or the exemption (as the Secretary of Finance did in Department Order 18, series of 1958), the admission of pay patients does not detract from the charitable character of a hospital, if its funds are devoted exclusively to the maintenance of the institution. Thus, the shipments are tax exempt.

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LLADOC v. Commissioner of Internal Revenue G.R. No. L-19201 June 16, 1965

FACTS: Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose intended. On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest. The tax amounted to P1,370.00 including surcharges, interests of 1% monthly from May 15, 1958 to June 15, 1960, and the compromise for the late filing of the return. Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals on November 2, 1960. In the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the donation, he was not the parish priest in Victorias; that there is no legal entity or juridical person known as the "Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax. It was also asserted that the assessment of the gift tax, even against the Roman Catholic Church, would not be valid, for such would be a clear violation of the provisions of the Constitution. The petitioner impugns the, fairness of the assessment with the argument that he should not be held liable for gift taxes on donation which he did not receive personally since he was not yet the parish priest of Victorias in the year 1957 when said donation was given. It is intimated that if someone has to pay at all, it should be petitioner's predecessor, the Rev. Fr. Crispin Ruiz, who received the donation in behalf of the Catholic parish of Victorias or the Roman Catholic Church. Following petitioner's line of thinking, we should be equally unfair to hold that the assessment now in question should have been addressed to, and collected from, the Rev. Fr. Crispin Ruiz to be paid from income derived from his present parish where ever it may be. It does not seem right to indirectly burden the present parishioners of Rev. Fr. Ruiz for donee's gift tax on a donation to which they were not benefited. ISSUE: Whether or not the Roman Catolic may be taxed. RULING: Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes. In the present case, what the Collector assessed was a donee's gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of

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gift inter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution. As well observed by the learned respondent Court, the phrase "exempt from taxation," as employed in the Constitution (supra) should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied.

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HERRERA v. QUEZON CITY BOARD OF ASSESSMENT GR.No.L-15270 September 30, 1961

FACTS: On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners to establish and operate the "St. Catherine's Hospital", located at 58 D. Tuazon, Sta. Mesa Heights, Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or about January 3, 1953, the petitioners sent a letter to the Quezon City Assessor requesting exemption from payment of real estate tax on the lot, building and other improvements comprising the hospital stating that the same was established for charitable and humanitarian purposes and not for commercial gain (Exhibit "F-2", pp. 8-9, BIR rec.). After an inspection of the premises in question and after a careful study of the case, the exemption from real property taxes was granted effective the years 1953, 1954 and 1955. Subsequently, however, in a letter dated August 10, 1955 the Quezon City Assessor notified the petitioners that the aforesaid properties were re-classified from exempt to "taxable" and thus assessed for real property taxes effective 1956, enclosing therewith copies of Tax Declarations Nos. 19321 to 19322 covering the said properties. The petitioners appealed the assessment to the Quezon City Board of Assessment Appeals, which, in a decision dated March 31, 1956 and received by the former on May 17, 1956, affirmed the decision of the City Assessor. A motion for reconsideration thereof was denied on March 8, 1957. From this decision, the petitioners instituted the instant appeal. The building involved in this case is principally used as a hospital. It is mainly a surgical and orthopedic hospital with emphasis on obstetrical cases, the latter constituting 90% of the total number of cases registered therein. The hospital has thirty-two (32) beds, of which twenty (20) are for charity-patients and twelve (12) for pay-patients. From the evidence presented by petitioners, it is made to appear that there are two kinds of charity patients (a) those who come for consultation only ("out-charity patients"); and (b) those who remain in the hospital for treatment ("lyingin-patients"). The out-charity patients are given free consultation and prescription, although sometimes they are furnished with free medicines which are not costly like aspirin, sulfatiazole, etc. The charity lying-in-patients are given free medical service and medicine although the food served to the pay-patients is very much better than that given to the former. Although no condition is imposed by the hospital on the admission of charity lying-inpatients, they however, usually give donations to the hospital. Petitioners also operate within the premises of the hospital the "St. Catherine's School of Midwifery" which was granted government recognition by the Secretary of Education on February 1, 1955 (Exhibit "F-3", p. 10, BIR rec.) This school has an enrollment of about two hundred students. The students are charged a matriculation fee of P300.00 for 1- years, plus P50.00 a month for board and lodging, which includes transportation to the St. Mary's Hospital. The students practice in the St. Catherine's Hospital, as well as in the St. Mary's Hospital, which is also owned by the petitioners. A separate set of accounting books is maintained by the school for midwifery distinct from that kept by the hospital. Aside from the St. Catherine and St. Mary hospitals, the petitioners declared that they also own lands and coconut plantations in Quezon Province, and other real estate in the City of Manila consisting of apartments for rent. The petitioner, Jose V. Herrera, is an architect, actively engaged in the practice of his profession, with office at Tuason Building, Escolta, Manila. He was formerly Chairman, Board of Examiners for Architects and Chairman, Board of Architects connected with the United Nations. He was also connected with the Allied Technologists which constructed the Veterans Hospital in Quezon City.

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ISSUE: Whether or not the lot, building and other improvements occupied by the St. Catherine Hospital are exempt from the real property tax. RULING: The Court of Tax Appeals decided the issue in the negative, upon the ground that the St. Catherine's Hospital "has a pay ward for ... pay-patients, who are charged for the use of the private rooms, operating room, laboratory room, delivery room, etc., like other hospitals operated for profit" and that "petitioners and their family occupy a portion of the building for their residence." With respect to petitioners' claim for exemption based upon the operation of the school of midwifery, the Court conceded that "the proposition might be proper if the property used for the school of midwifery were separate and distinct from the hospital." It added, however, that, "in the instant case, the portions of the building used for classrooms of the school of midwifery have not been shown to be exclusively for school purposes"; that said portions "rather ... have a dual use, i.e., for classroom and for hospital use, the latter not being a purpose that renders the property tax exempt;" that part of the building and lot in question "is used as a hospital, part as residence of the petitioners, part as garage, part as dormitory and part as school"; and that "the portion dedicated to educational and charitable purposes can not be identified from those destined to other uses; and the building is itself an indivisible unit of property." It should be noted, however, that, according to the very statement of facts made in the decision appealed from, of the thirty-two (32) beds in the hospital, twenty (20) are for charity-patients; that "the income realized from pay-patients is spent for improvement of the charity wards;" and that "petitioners, Dr. Ester Ochangco Herrera, as directress" of said hospital, "does not receive any salary," although its resident physician gets a monthly salary of P170.00. It is well settled, in this connection, that the admission of pay-patients does not detract from the charitable character of a hospital, if all its funds are devoted "exclusively to the maintenance of the institution" as a "public charity" (84 C.J.S., 617; see, also, 51 Am. Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). "In other words, where rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes of the institution, the mere fact that a profit has been made will not deprive the hospital of its benevolent character" (Prairie Du Chien Sanitarium Co. vs. City of Prairie Du Chien, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480). Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is "not limited to property actually indispensable" therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are "incidental to and reasonably necessary for" the accomplishment of said purposes, such as, in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns and residents" (84 C.J.S., 621), such as "athletic fields," including "a farm used for the inmates of the institution" (Cooley on Taxation, Vol. 2, p. 1430). Within the purview of the Constitutional exemption from taxation, the St. Catherine's Hospital is, therefore, a charitable institution, and the fact that it admits pay-patients does not bar it from claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income derived from pay-patients is devoted to the improvement of the charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from "out-charity patients" who come only for consultation.

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Again, the existence of "St. Catherine's School of Midwifery", with an enrollment of about 200 students, who practice partly in St. Catherine's Hospital and partly in St. Mary's Hospital, which, likewise, belongs to petitioners herein, does not, and cannot, affect the exemption to which St. Catherine's Hospital is entitled under our fundamental law. On the contrary, it furnishes another ground for exemption. Seemingly, the Court of Tax Appeals was impressed by the fact that the size of said enrollment and the matriculation fee charged from the students of midwifery, aside from the amount they paid for board and lodging, including transportation to St. Mary's Hospital, warrants the belief that petitioners derive a substantial profit from the operation of the school aforementioned. Such factor is, however, immaterial to the issue in the case at bar, for "all lands, building and improvements used exclusively for religious, charitable or educational purposes shall be exempt from taxation," pursuant to the Constitution, regardless of whether or not material profits are derived from the operation of the institutions in question. In other words, Congress may, if it deems fit to do so, impose taxes upon such "profits", but said "lands, buildings and improvements" are beyond its taxing power.

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BISHOP OF NUEVA SEGOVIA v. PROVINCIAL BOARD OF ILOCOS NORTE G.RNo.L-27588 December 31, 1927

FACTS: The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the churchyard, the convent and an adjacent lot used for a vegetable garden, containing an area off 1,624 square meters, in which there is a stable and a well for the use of the convent. In the center is the remainder of the churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955 square meters. As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the lot adjoining the convent and the lot which formerly was the cemetery with the portion where the tower stood. The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land tax, alleging that the collection of this tax is illegal. The lower court absolved the defendants from the complaint in regard to the lot adjoining convent and declared that the tax collected on the lot, which formerly was the cemetery and on the portion where the lower stood, was illegal. Both parties appealed from this judgment. RULING: The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home of the parties who presides over the church and who has to take care of himself in order to discharge his duties. In therefore must, in the sense, include not only the land actually occupied by the church, but also the adjacent ground destined to the ordinary incidental uses of man. Except in large cities where the density of the population and the development of commerce require the use of larger tracts of land for buildings, a vegetable garden belongs to a house and, in the case of a convent, it use is limited to the necessities of the priest, which comes under the exemption.lawphi1.net In regard to the lot which formerly was the cemetery, while it is no longer used as such, neither is it used for commercial purposes and, according to the evidence, is now being used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, which also comes within the exemption. The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without any special pronouncement as to costs.

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Commissioner of Internal Revenue v. Court of Appeals and YMCA G.R.No.L-124043 October 14, 1998

FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA. Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA: ISSUE: Whether or not the CTA ruling is correct. RULING Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption does not apply to income derived ". . . from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income . . . ." Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income [is] exclusively used for the accomplishment of its objectives." We agree with the commissioner. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest. and unmistakable from the language of the law on which it is based. Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear to be mistaken." In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. It is axiomatic that where the language of the law is clear and unambiguous, its express terms must be applied. Parenthetically, a consideration of the question of construction must not even begin, particularly when such question is on whether to apply a

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strict construction or a liberal one on statutes that grant tax exemptions to "religious, charitable and educational propert[ies] or institutions." The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the income from the properties must arise from activities 'conducted for profit' before it may be considered taxable." 23 This argument is erroneous. As previously stated, a reading of said paragraph ineludibly shows that the income from any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase "any of their activities conducted for profit" does not qualify the word "properties." This makes from the property of the organization taxable, regardless of how that income is used whether for profit or for lofty non-profit purposes. Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we.

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LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY and CONSTANTINO P. ROSAS G.R. No. 144104 June 29, 2004

FACTS: The petitioner, a non-stock and non-profit entity is the registered owner of a parcel of land where erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City but the former filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real property taxes which ruled that the petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable purposes. The petitioner sought relief from the Court of Appeals, which rendered judgment affirming the decision of the CBAA. Hence, this petition. The petitioner avers that it is a charitable institution within the context of Section 28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable institution is not altered by the fact that it admits paying patients and renders medical services to them, leases portions of the land to private parties, and rents out portions of the hospital to private medical practitioners from which it derives income to be used for operational expenses. The petitioner points out that for the years 1995 to 1999, 100% of its out-patients were charity patients and of the hospitals 282-bed capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the fact that it receives subsidies from the government attests to its character as a charitable institution. It contends that the "exclusivity" required in the Constitution does not necessarily mean "solely." Hence, even if a portion of its real estate is leased out to private individuals from whom it derives income, it does not lose its character as a charitable institution, and its exemption from the payment of real estate taxes on its real property. ISSUE: Whether or not the petitioner is a charitable institution hence its real properties are exempted from realty tax exemptions. RULING: Yes, the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual

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work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. However, even as we find that the petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Under Section 2 of Presidential Decree No. 1823, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2.

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76

Procter and Gamble Philippines Manufacturing Corp. vs. Municipality of Jagna G. R. No. L-24265 28 December 1979

FACTS: Petitioner Procter and Gamble Philippines Manufacturing Corp. is a consolidated corporation of Procter and Gamble Trading Company engaged in the manufacture of soap, edible oil, margarine and other similar products. Petitioner maintains a bodega in the municipality of Jagna, where it stores copra purchased in the municipality and ships the same for its manufacturing and other operations. In 1954, the Municipal Council of Jagna enacted Ordinance 4, imposing storage fees of all exportable copra deposite in the bodega within the jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid the municipality, allegedly under protest, storage fees. In 1964, it filed suit, wherein it prayed that the Ordinance be declared inapplicable to it, and if not, that it be declared ultra vires and void. ISSUE: Whether the Ordinance is void, as it amounts to double taxation. RULING: The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon municipalities by Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the Ordinance is actually a municipal license tax or fee on persons, firms and corporations exercising the privilege of storing copra within the municipalitys territorial jurisdiction. Such fees imposed do not amount to double taxation. For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. A tax on the companys products is different from the tax on the privilege of storing copra in a bodega situated within the territorial boundary of the municipality.

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PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL. G.R. No. L-31156 February 27, 1976

vs.

FACTS: On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company commenced a complaint before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264-the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. M. O. No. 23, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." On the other hand, M. O. No. 27, which was approved on October 28, 1962, levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.' The CFI of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal. Hence this petition. The petitioner contends Ordinances Nos. 23 and 27 constitute double taxation because these two ordinances cover the same subject matter and impose practically the same tax rate and impose percentage or specific taxes. ISSUES: Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes? RULING: No, the Ordinances does not constitute double taxation. Ordinance No. 23, which was approved levies or collects from soft drinks producers or manufacturers a tax of onesixteen (1/16) of a centavo for every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiffappellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendantsappellees. Ordinance No. 27 does not impose a percentage or a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned

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therein." As long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti The limitation applies, particularly, to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified.

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EUSEBIO VILLANUEVA, ET AL., vs. CITY OF ILOILO G.R. No. L-26521 December 28, 1968

FACTS: On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires (taxing tenement houses), enacted Ordinance 11, series of 1960 which taxes those involve in the business of renting apartment houses. In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal. ISSUE: 1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation? 2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? 3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause? RULING: 1. There is no double taxation. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of the same kind or character. 2. City of Iloilo is empowered by the Local Autonomy Act. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real

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estate tax. The imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees.. 3. A tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense."

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VICTORIAS MILLING CO., INC., plaintiff-appellant, vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL, defendant-appellant G.R. No. L-21183 September 27, 1968

FACTS: This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental. Ordinance No. 1 is labeled "An Ordinance Amending Ordinance No. 25, Series of 1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on Capacity Annual Output Respectively". Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series of 1956, null and void; ordering the refund of all license taxes paid and to be paid under protest. The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in Provincial Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality; (c) it constitutes double taxation; and (d) the national government has preempted the field of taxation with respect to sugar centrals or refineries. Judgment is rendered by the RTC (a) declaring that Ordinance No. 1, series of 1956, of the municipality of Victorias, Negros Occidental, is invalid; (b) ordering all officials of the defendant to observe the provisions of Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 Edition, with particular reference to any license taxes paid by the plaintiff under said Ordinance No. 1, series of 1956, after notice of this decision; and (c) ordering the defendant to refund to the plaintiff any and all such license taxes paid under protest after notice of this decision. ISSUES: Whether or not Ordinance No. 1, series of 1956, is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality Whether or not there is double taxation because in computing the amount of taxes to be paid by the sugar refinery the cost of the raw sugar coming from the sugar central is not deducted; ergo, plaintiff is taxed twice on the raw sugar. RULING 1. The ordinance does not single out Victorias as the only object of the ordinance. Said ordinance is made to apply to any sugar central or sugar refinery which may happen to operate in the municipality. So it is, that the fact that plaintiff is actually the sole operator of a sugar central and a sugar refinery does not make the ordinance discriminatory. Not even the name of plaintiff herein was ever mentioned in the ordinance now disputed. 2. We find no difficulty in saying that plaintiff's argument on double taxation does not inspire assent. First. The two taxes cover two different objects. Section 1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One occupation or business is different from the other. Second. The disputed taxes are imposed on occupation or business. Both taxes are not on sugar.

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The amount thereof depends on the annual output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff's argument perhaps could make out a point if the object of taxation here were the sugar it produces, not the business of producing it. Double taxation has been otherwise described as "direct duplicate taxation." 48 For double taxation to exist, "the same property must be taxed twice, when it should be taxed but once." 49 Double taxation has also been "defined as taxing the same person twice by the same jurisdiction for the same thing.

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COMPAIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee, vs. CITY OF MANILA, ET AL., defendants-appellants. G.R. No. L-16619 June 29, 1963

FACTS: Appellee Compania General de Tabacos de Filipinas hereinafter referred to simply as Tabacalera filed this action in the Court of First Instance of Manila to recover from appellants, City of Manila and its Treasurer, Marcelino Sarmiento also hereinafter referred to as the City the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816. Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it amounting to the sum of P15,208.00 under the three ordinances mentioned heretofore is an overpayment made by mistake, and therefore refundable. The City, on the other hand, contends that, for the permit issued to it granting proper authority to "conduct or engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; that, even assuming that Tabacalera is not subject to the payment of the sales taxes prescribed by the said three ordinances as regards its liquor sales, it is not entitled to the refund demanded for the following reasons:. (a) The said amount was paid by the plaintiff voluntarily and without protest;(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose from the plaintiff's neglect of duty; .(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and passed to the consumers; and(d) The said amount had been already expended by the defendant City for public improvements and essential services of the City government, the benefits of which are enjoyed, and being enjoyed by the plaintiff. ISSUE: Whether or not there is double taxation levied against Tabacalera and is thus entitled to a refund. RULING That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which it is obvious not anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may endanger public health and morals. On the other hand, what the three ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is already settled in this connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation. This is precisely the case with the ordinances involved in the case at bar. Appellee's contention that the City is repudiating its previous view expressed by its

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Treasurer in a letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 that a liquor dealer who pays the annual license fee under Ordinance No. 3358 is exempted from the wholesalers and retailers taxes under the other three ordinances mentioned heretofore is of no consequence. The government is not bound by the errors or mistakes committed by its officers, specially on matters of law.

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THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE CHAVES, and MANUEL DJ SIAYNGCO in their capacity as PROVINCIAL GOVERNOR, PROVINCIAL TREASURER, PROVINCIAL LEGAL ADVISER, respectively, petitioners, vs. THE HONORABLE COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION), REPUBLIC CEMENT CORPORATION, respondents. G.R. No. 126232 November 27, 1998

FACTS: On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as "An Ordinance Enacting the Revenue Code of the Bulacan Province." which was to take effect on July 1, 1992. Section 21 of the ordinance provides a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction. Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated November 11, 1993, assessed private respondent Republic Cement Corporation (hereafter Republic Cement) P2,524,692.13 for extracting limestone, shale and silica from several parcels of private land in the province during the third quarter of 1992 until the second quarter of 1993. Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on quarry resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993. The same was, however, denied by the Provincial Treasurer on January 17, 1994. Republic Cement, consequently filed a petition for declaratory relief with the Regional Trial Court of Bulacan on February 14, 1994. The province filed a motion to dismiss Republic Cement's petition, which was granted by the trial court on May 13, 1993, which ruled that declaratory relief was improper, allegedly because a breach of the ordinance had been committed by Republic Cement. ISSUE: Whether or not the provincial government could impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. RULING No. The National Internal Revenue Code levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code. A cursory reading of both would show that both refer to ordinary sand, stone, gravel, earth and other quarry resources extracted from public lands. Even if we disregard the limitation set by Section 133 of the Local Government Code, petitioners may not, impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands on the basis of Section 21 of Provincial Ordinance No. 3 as the latter clearly applies only to quarry resources extracted from public lands. Petitioners may not invoke the Regalian doctrine to

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extend the coverage of their ordinance to quarry resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government.

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Delpher Trades Corporation vs. IAC G.R. No. L-69259. January 26, 1988.

FACTS: Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila). The said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions. On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco. On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property together with another parcel of land for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00. On the ground that it was not given the first option to buy the property, respondent Hydro Pipes Philippines, Inc., a complaint for reconveyance of Lot. No. 1095 in its favor. The Court of First Instance of Bulacan ruled in favor of the plaintiff. The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.

ISSUE: Whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale. RULING: We rule for the petitioners. In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription. "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."

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Heng Tong Textiles Co., Inc. Vs CIR G.R. No. L-19737. August 26, 1968.

FACTS: In 1952 the Collector of Internal Revenue assessed against the petitioner deficiency sales taxes and surcharges for the year 1949 and the first four months of 1950 in the aggregate sum of P89,123.58. The assessment was appealed to the Board of Tax Appeals, whence the case was transferred to the Court of Tax Appeals upon its organization in 1954, and there was affirmed in its decision dated February 28, 1952. The deficiency taxes in question were assessed on importations of textiles from abroad. The goods were withdrawn from Customs by Pan- Asiatic Commercial Co., Inc., which paid, in the name of the petitioner, the corresponding advance sales tax under section 183(b) of the Internal Revenue Code. The assessment for the deficiency was made against the petitioner, Heng Tong Textiles Co., Inc. on the ground that it was the real importer of the goods and did not pay the taxes due on the basis of the gross selling prices thereof. ISSUE: Whether or not petitioner was guilty of fraud so as to warrant the imposition of a penalty of 50% on the deficiency. RULING: Petitioner excepts to the conclusion of the Court of Tax Appeals and avers that the importation papers were placed in the name of the petitioner only for purposes of accommodation, that is, to introduce the petitioner to textile suppliers abroad; and that the petitioner was not in a financial position to make the importations in question. These circumstances show nothing but a private arrangement between the petitioner and PanAsiatic Commercial, which in no way affected the role of the petitioner as the importer. If anything, we perceive in the entire set-up an arrangement through which the sales taxes due could be minimized, by having Pan- Asiatic Commercial, as indorsee of the goods, withdraw the same from Customs upon payment of the advance sales tax and then execute a sale thereof to Heng Tong Textiles at cost, or at a negligible profit. In our opinion, however, the arrangement resorted to does not by itself alone justify the penalty imposed. Section 183(a), paragraph 3, of the Internal Revenue Code, as amended by Republic Act No. 253, speaks of willful neglect to file the return or willful making of a false or fraudulent return. An attempt to minimize one's tax does not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his liability by any means which the law permits. "The intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified by mere speculation. This is because fraud is never lightly to be presumed." No such evidence is shown by the record in the case of the herein petitioner. It may even be true, as the petitioner insists, that it was Pan-Asiatic Commercial that financed the importations but placed them in the name of the petitioner as a matter of accommodation, in which case the element of fraud would be ruled out, although from the legal viewpoint and as far as the right of the Government to collect the taxes was concerned the petitioner was the real importer and hence must shoulder the tax burden. The decision of the Court of Tax Appeals is modified, by eliminating therefrom the penalty of 50% on the amount of deficiency sales taxes imposed, and is affirmed in all other respects.

89

Commissioner of Internal Revenues vs. Toda G.R. No. 147188. September 14, 2004

FACTS: On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding capital stock, to sell the Cibeles Building. On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. Three and a half years later Toda died. On 29 March 1994, the BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment from the CIR for deficiency income tax for the year 1989. The Estate thereafter filed a letter of protest. The Commissioner dismissed the protest. On 15 February 1996, the Estate filed a petition for review with the CTA. In its decision the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. Hence, the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a petition for review with the Court of Appeals. The Court of Appeals affirmed the decision of the CTA. Hence, this recourse to the SC. ISSUE: Whether or not this is a case of tax evasion or tax avoidance. RULING: Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or deliberate and not accidental; and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud. Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. 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 one of tax evasion. To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a single direct sale by CIC to RMI. CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The decision of the Court of Appeals is REVERSED and SET ASIDE.

90

Davao Gulf Lumber Corporation vs. CIR G.R. No. 117359. July 23, 1998.

FACTS: From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels. Said oil companies paid the specific taxes imposed on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to the petitioner in this case. Petitioner filed before Respondent CIR a claim for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations as forest concessionaire. On January 20, 1983, petitioner filed at the CTA a petition for review. The CTA rendered its decision finding petitioner entitled to a partial refund of specific taxes in the reduced amount of P2,923.15. In regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not on the higher rates actually paid by petitioner under the NIRC. Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153 and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. The Court of Appeals affirmed the CTA Decision. Hence, this petition for review. ISSUE: Whether or not petitioner is entitled to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils. RULING: At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435, which was enacted to provide means for increasing the Highway Special Fund. A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, [a] claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken. We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and found no expression of a legislative will authorizing a refund based on the higher rates claimed by petitioner. The mere fact that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support petitioners claim. When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher rates which were nonexistent at the time of its enactment, this Court cannot presume otherwise. A legislative lacuna cannot be filled by judicial fiat. The petition is hereby DENIED and the assailed Decision of the Court of Appeals is AFFIRMED.

91 PHILIPPINE ACETYLENE CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS G.R. No. L-19707 August 17, 1967 FACTS: The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. It made various sales of its products to the National Power Corporation and to the Voice of America an agency of the United States Government. The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683, on account of which the respondent Commission of Internal Revenue assessed against, and demanded from, the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to the Sec.186 of the National Internal Revenue Code. The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from taxation. ISSUE: Is the petitioner exempt from paying tax on sales it made to the 1) NPC and the 2) VOA because both entities are exempt from taxation? RULING: 1) No. SC hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible. It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price that the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. 2) No. Only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under Article V from taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are not free from the payment of the tax. ARTICLE V. Exemption from Customs and Other Duties
No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies or goods, including food stores and clothing, for exclusive use in the construction, maintenance, operation or defense of the bases, consigned to, or destined for, the United States authorities and certified by them to be for such purposes.

92

Commissioner of Internal Revenue vs. Courts of Tax Appeal, et al G.R. No. 115349 April 18, 1997

FACTS: Ateneo de Manila is an educational institution with auxiliary units and branches all over the Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal personality separate and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies. On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor's tax the value of which was later on, upon private respondents request for reinvestigation, reduced to P46,516.41, Unsatisfied, Private respondent filed in the Court of Tax Appeals a petition for review of the said letter-decision of the petitioner which rendered a decision in its favor and ordered the tax assessment cancelled. ISSUE: Is Ateneo de Manila University, through its auxiliary unit or branch the Institute of Philippine Culture performing the work of an independent contractor and, thus, subject to the three percent contractor's tax levied by then Section 205 of the National Internal Revenue Code? RULING: No, The Supreme Court held that Ateneo de Manila University is not subject to the contractors tax. It explained that to fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent contractor be engaged in the business of selling its services. The Court, however, found no evidence that Ateneo's Institute of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. In the first place, the petitioner has presented no evidence to prove its bare contention that, indeed, contracts for sale of services were ever entered into by the private respondent. Moreover, the Court of Tax Appeals accurately and correctly declared that the funds received by the Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations which are tax-exempt" as shown by private respondent's compliance with the requirement of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational institution. Therefore, it is clear that the funds received by Ateneo's Institute of Philippine Culture are not given in the concept of a fee or price in exchange for the performance of a service or delivery of an object. Rather, the amounts are in the nature of an endowment or donation given by IPC's benefactors solely for the purpose of sponsoring or funding the research with no strings attached.

93

Caltex Philippines, Inc. v. Commission on Audit G.R. No. 92585 May 8, 1992

FACTS: Respondent Commission on Audit (COA) directed petitioner Caltex Philippines, Inc. (CPI) to remit to the Oil Price Stabilization Fund (OPSF) its collection of the additional tax on petroleum products pursuant to P.D. 1956, as well as unremitted collections of the above tax covering the years 1986, 1987 and 1988, with interests and surcharges, and advising it that all its claims for reimbursements from the OPSF shall be held in abeyance pending such remittance. COA further directed petitioner oil company to desist from further offsetting the taxes collected against outstanding claims for 1989 and subsequent periods. Its motion for reconsideration of the eventual decision of the COA on the matter having been denied, CPI imputes that respondent commission erred in preventing the former from exercising the right to offset its remittances against the reimbursement vis--vis the OPSF. ISSUE: Whether or not the amounts due to the OPSF from petitioner may be offset against the latters outstanding claims from said fund? RULING: No. It is settled that a taxpayer may not offset taxes due from claims that he may have against the Government. Taxes cannot be the subject of compensation because the Government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set off. The Court further ruled that taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the Government. Taxes may be levied for a regulatory purpose such as to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest, a concern which is within the police power of the State to address.

94

LUZON STEVEDORING CORPORATION vs. COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE G.R. No. No. L-30232 July 29, 1988

FACTS: Herein petitioner imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, it filed a Petition for Review with the Court of Tax Appeals in order to be granted a refund. Petitioner contends that tugboats are included in the term cargo vessels which are exemped from compensating tax under article 190 of the National Internal Revenue Code. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax. On the other hand, respondent contends that "tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes. ISSUE: Whether or not tugboats are included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. RULING: No. tugboats are not included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. The Supreme Court explained that under the definition of tugboat, a diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. Which clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms.

95

NATIONAL DEVELOPMENT COMPANY vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. No. L-53961 June 30, 1987

FACTS: National Development Company (NDC) is a domestic corporation with principal offices in Manila. It entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of twelve ocean-going vessels. Initial payments were made in cash and through irrevocable letters of credit. Fourteen promissory notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines. Thereafter, remaining payments and the interests thereon were remitted in due time by the NDC to Tokyo. After the vessels were delivered, the NDC remitted to the shipbuilders in Tokyo the sinterest on the balance of the purchase price. No tax was withheld. The Commissioner of Internal Revenue held that the interest remitted to the Japanese shipbuilders on the unpaid balance of the purchase price of the vessels acquired by petitioner is subject to income tax under the Tax Code. The petitioner argues that the Japanese shipbuilders were not subject to tax under the Tax Code. Petitioner contends that the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code which provides that: Section 29(b) - Exclusion from gross income. - The following items shall not be included in gross income and shall be exempt from taxation under this Title: (4) Interest on Government Securities. - Interest upon the obligations of the Government of the Republic of the Philippines or any political subdivision thereof, but in the case of such obligations issued after approval of this Code, only to the extent provided in the act authorizing the issue thereof. Furthermore petitioner contends that taxes on the interest remitted could not be collected because of the undertaking signed by the Secretary of Finance in each of the promissory notes guarantying the due and punctual payment of both principal and interest of the promissory notes. ISSUE: Whether petitioner should not be held liable due to the undertaking signed by the Secretary of Finance and because the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code as alleged by petitioner. RULING: No. Petitioner should be held liable. There is nothing in Section 29(b)[4] of the Tax Code exempting the interests from taxes. Furthermore in the said undertaking, petitioner has not established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any doubt concerning this question must be resolved in favor of the taxing power. It is not the NDC that is being taxed. It was the income of the Japanese shipbuilders and not the Republic of the Philippines that was subject to the tax the NDC did not withhold. In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders.

96

MANILA ELECTRIC COMPANY vs. Commissioner of Internal Revenue G.R. Nos. No. L-29987s and L-23847 October 22, 1975

FACTS: MERALCO is the holder of a franchise by the Municipal Board of the City of Manila to Mr. Charles M. Swift and later assumed and taken over by petitioner to construct, maintain, and operate an electric light, heat, and power system in the City of Manila and its suburbs. In two separate occasions, MERALCO imported copper wires, transformers, and insulators for use in the operation of its business. The Collector of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating tax for the said importation. MERALCO claims for a refund alleging that it was exempted from such compensating tax based on paragraph 9 of its franchise which provides that the percentage tax payable by petitioner as fixed therein "shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers and insulators of the grantee from which taxes and assessments the grantee is hereby expressly exempted." The Court of Tax Appeals held that MERALCO is not exempt from paying the compensating tax provided for in Section 190 (compensating tax) of the National Internal Revenue Code, the purpose of which is to "place casual importers, who are not merchants on equal putting with established merchants who pay sales tax on articles imported by them." The court further stated that MERALCO's claim for exemption from the payment of the compensating tax is not clear or expressed. Hence, this appeal. ISSUE: Whether or not petitioner is exempted to pay compensating tax for its purchase or receipt of commodities, goods, wares, or merchandise outside the Philippines. RULING: No. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer. In the case at bar, the Court is not aware whether or not the tax exemption provisions contained in Par. 9, Part Two of Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal franchise granted because no admissible copy of Ordinance of the said Board was ever presented in evidence by the petitioner. Furthermore there is no "plain and unambiguous terms" declaring petitioner MERALCO exempt from paying a compensating tax on its imports of poles, wires, transformers, and insulators. The last clause of paragraph 9 merely reaffirms, what has been expressed in the first sentence that petitioner is exempted from payment of property tax. A compensating tax is not a property tax but an excise tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. It is not the act of importation that is taxed under section 190, but the use of imported goods not subjected to sales tax" because "the compensating tax was expressly designed as a substitute to make up or compensate for the revenue lost to the government through the avoidance of sales taxes by means of direct purchases abroad.

97

ERNESTO M. MACEDA vs. HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President; HON. VICENTE R. JAYME, in his capacity as Secretary of the Department of Finance; HON. SALVADOR MISON, in his capacity as Commissioner, Bureau of Customs; HON. JOSE U. ONG, in his capacity as Commissioner of Internal Revenue; NATIONAL POWER CORPORATION; the FISCAL INCENTIVES REVIEW BOARD; Caltex (Phils.) Inc.; Pilipinas Shell Petroleum Corporation; Philippine National Oil Corporation; and Petrophil Corporation G.R. No. No. 88291 May 31, 1991 and G.R. No. No. 88291 June 8, 1993

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

98

NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Presidential Decree No. 938 amended the tax exemption of NPC by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings." the NPC electric power rates did not carry the taxes and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to the government, no part thereof was recovered from the sale of electricity produced. As a consequence, as of our most recent information, some P1.55 B in claims represent amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order to the Bureaus concerned for the resumption of the processing of these claims.

99

COMMISSIONER OF INTERNAL REVENUE vs. JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS G.R. No. No. L-31092 February 27, 1987

FACTS: The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. An agreement was entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. The WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila. A bidding was held for the building construction. The WHO informed the bidders that the building to be constructed belonged to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies." Thereafter, the construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of for the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. WHO. The WHO issued a certification that the bid of John Gotamco & Sons, should be exempted from any taxes in connection with the construction of the World Health Organization office building because such can be considered as an indirect tax to WHO. However, The Commissioner of Internal Revenue contends that the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered by the tax exemption agreement ISSUE: Whether or not the said 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO by the government. RULING: Yes. The 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO. Hence, petitioner cannot be held liable for such contractors tax. The Supreme Court explained that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. While it is true that the contractor's tax is payable by the contractor, However in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax against the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO.

100

Commissioner of Internal Revenue vs. Court of Appeals and YMCA G.R. No. 124043, October 14, 1998

FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. The Commissioner of Internal Revenue issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the Commissioner denied the claims of YMCA. YMCA filed a petition for review at the Court of Tax Appeals. The CTA ruled in favor of the YMCAs exemption holding that the leasing of private respondents facilities and the operation of the parking lot are reasonably incidental to and necessary for the accomplishment of its objectives. The tax court thus dismissed the 1980 deficiency fixed, contractors and income taxes, but sustained the deficiency expanded withholding tax and withholding taxes on wages for the same year. The Commissioner elevated the case to the Court of Appeals which initially decided in its favor by reinstating the assessment of deficiency fixed, contract of Appeals which initially decided in its favor by reinstating the assessment of deficiency fixed, contractors and income taxes. However, finding merit in YMCAs motion for reconsideration , the appellate court reversed itself and promulgated the first assessed resolution dated September 28, 1995 granting said motion of YMCA by affirming the CTAs decision in toto. On February 29, 1996, the Court of Appeals denied the Commissioners motion for reconsideration. ISSUE: Whether or not the rental income of YMCA on its real estate is subject to tax. RULING: The Court ruled that the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. A reading of said paragraph ineludibly shows that the income from any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase "any of their activities conducted for profit" does not qualify the word "properties." This makes income from the property of the organization taxable, regardless of how that income is used - whether for profit or for lofty non-profit purposes.

101

Nitafan vs. Commissioner of Internal Revenue G.R. No. L-78780, July 23, 1987

FACTS: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to continue the deduction of withholding taxes from salaries of the Justices of the Supreme Court and other members of the judiciary. This was affirmed by the Supreme Court en banc on December 4, 1987. Petitioners are the duly appointed and qualified Judges presiding over Branches 52, 19 and 53, respectively, of the RTC, National Capital Judicial Region, all with stations in Manila. They seek to prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, from making any deduction of withholding taxes from their salaries. They contend that this constitutes diminution of salary contrary to Section 10, Article VIII of the 1987 Constitution, which provides that the salary of the members of the Supreme Court and judges of lower courts shall be fixed by law and that during their continuance in office, their salary shall not be decreased. With the filing of the petition, the Court deemed it best to settle the issue through judicial pronouncement, even if it had dealt with the matter administratively. The Supreme Court dismissed the petition for prohibition. ISSUE: Whether or not the salaries of judges are subject to tax. RULING: The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers. Although such intent was somehow and inadvertently not clearly set forth in the final text of the 1987 Constitution, the deliberations of the 1986 Constitutional Commission negate the contention that the intent of the framers is to revert to the original concept of non-diminution of salaries of judicial officers. Hence, the doctrine in Perfecto v. Meer and Endencia vs. David do not apply anymore. Justices and judges are not only the citizens whose income has been reduced in accepting service in government and yet subject to income tax. Such is true also of Cabinet members and all other employees.

102

Province of Abra vs. Hernando G.R. No. L-49336, August 31, 1981

FACTS: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of Bangued. The bishop claims tax exemption from real estate tax based on the provisions of Section 17, paragraph 3, Article VII of the 1973 Constitution. He filed an action for declaratory relief. Judge Hernando of the CFI Abra presided over the case. The petitioner province filed a motion to dismiss, based on lack of jurisdiction, which was denied. It was followed by a summary judgment granting the exemption without hearing the side of the petitioner. The Supreme Court granted the petition, set aside the June 19, 1978 resolution, and ordered the respondent judge, or whoever is acting on his behalf, to hear the case on merit; without costs. ISSUE: Whether or not the properties of the Bishop of Bangued are tax-exempt. RULING: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as they should not only be exclusively but also actually and directly used for religious purposes. Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that there is compliance with the constitutional provision that allows an exemption. There was an allegation of lack of jurisdiction and of lack of cause of action, which should have compelled the judge to accord a hearing to the province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not favored and is never presumed, so that if granted, it must be strictly construed against the taxpayer. There must be proof of the actual and direct use of the lands, buildings, and improvements for religious (or charitable) purposes to be exempted from taxation. The case was remanded to the lower court for a trial on merits.

103

Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation G.R. No. 54908 and G.R. No. 80041, January 22, 1990

FACTS: Mitsubishi Metal Corporation, a Japanese corporation licensed to do business in the Philippines, entered into a Loan and Sale Contract with Atlas Consolidated Mining and Development Coporation whereby Mitsubishi lent $20,000,000 for the expansion of the latters mines, particularly the installation of a new concentrator for copper production. Atlas, in turn, undertook to sell to Mitsubishi all of the copper concentrates produced by said machine for 15 years. For this purpose, Mitsubishi applied for and was grabted a loan by the Export- Import Bank of Japan (Eximbank) and a consortium of Japanese banks. As agreed upon between Mitsubishi and Atlas, the latter gave interest payments for 1974 and 1975 amounting to P13,143,966.79, with the corresponding 15% tax thereon withheld and remitted to the Government as required by the Tax Code. On March 5, 1976, Mitsubishi filed a claim for tax credit of the sum of P1,972,595.01 representing the tax withheld on the interest payment. That claim, not having been acted upon by the BIR, Mitsubishi then filed a petition contending that Mitsubishi was a mere agent of Eximbank, a Japanese Government financing institution which financed the loan. Such governmental status of Eximbank was the basis of Mitsubishis claim for exemption from paying tax on the interest payments pursuant to Section 29 (b) (8) (A) (now, Section 32 [B][7][a], 1997 NIRC). The CTA granted the tax credit in favor of Mitsubishi, which later executed a waiver in favor of Atlas. ISSUE: Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation and thus exempt from withholding tax. RULING: It is settled that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which onus private respondents have failed to discharge. The taxability of a party cannot be blandly glossed over on the basis of a supposed broad, pragmatic analysis alone without substantial supportive evidence, lest governmental operations suffer due to diminution of much needed funds.

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Commissioner of Internal Revenue vs Gotamco and Sons, Inc. G.R. No. L-31092 February 27, 1987

FACTS: The World Health Organization (WHO) entered into a Host Agreement with the Republic of the Philippines which provides that "the Organization, its assets, income and other properties shall be exempt from all direct and indirect taxes. When the WHO decided to construct a building to house its own offices in Manila, it entered into a further agreement with the Government that it may import into the country materials and fixtures required for the construction free from all duties and taxes. After inviting bids, the contract was awarded to respondent John Gotamco & Sons, Inc. for the stipulated price of P370,000.00. Thereafter, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. Hence, petitioner brought the case to the Supreme Court. Petitioner maintains the position that the contractor's tax is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it. ISSUE: Whether or not John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code. RULING: No, The Supreme Court held that Respondent John Gotamco and Sons, Inc. is not required to pay the 3% contractors tax under the National Internal Revenue Code. It explained that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. 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. 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. Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the Supreme Court affirmed the appealed decision.

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31st Infantry Post Exchange vs. Posadas G.R. No. 33403 September 4, 1930

FACTS: Petitioner Thirty-first Infantry Post Exchange is an agency within the United States Army, under the control of the officers of the Army. All of the goods sold to and purchased by the petitioner are intended for resale to and are in fact resold to the officers, soldiers and the civilian employees of the Army, and their families. Juan Posadas, Jr., Collector of Internal Revenue of the Philippine Islands, and his predecessors in that office, have collected from the merchants who made the sales of the commodities, goods, wares, and merchandise to the plaintiff Exchange, taxes at the rate of one and one-half per centum on the gross value in money of the commodities. The effect of the demand and collection of taxes was to increase the cost thereof to the plaintiff Exchange. Contending that the merchandises are exempted from taxes, petitioner brought the case before the Supreme Court. ISSUE: Whether or not merchandise is relieved from said tax when it is sold to the Army or Navy of the United States for resale to individuals by means or through the post exchanges or ship's stores RULING: No, The Supreme Court ruled that merchandise is not exempted from taxes when it is sold to the Army of the United States for resale. It explained that although The revenue laws at that time provided that "no specific tax shall be collected on any articles sold and delivered directly to the United States Army or Navy for actual use or issue by the Army or Navy, and any taxes which have been paid on articles so sold and delivered for such use or issue shall be refunded upon such sale and delivery, the Court is not inclined to believe that goods sold to the soldiers and sailors of the Army and Navy, even though they be sold through said exchanges by the intervention of officers of the Army and Navy, are goods sold directly to the United States Army or Navy for actual use or issue by the Army or Navy. They are goods sold for the use and benefit of the post exchanges, etc., and not for the actual use or issue by the Army or Navy. Furthermore, the money used for the purchase of merchandise sold through the post exchanges, etc., is not supplied by, nor for, the United States Army and Navy. Neither does the money received in the resale of such merchandise through the post exchanges, etc., become a part of the general funds of the Army and Navy.

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PLDT vs. City of Davao G.R. No. 143867 August 22, 2001

FACTS: Petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayor's Permit to operate its Davao Metro Exchange. However, Respondent City of Davao withheld action on the application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for the first to the fourth quarter of 1999. Petitioner protested the assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the year 1997 and the first to the third quarters of 1998. Petitioner contended that it was exempted from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance (BLGF) citing Section 23 of RA 7925 which provides equality of treatment in the telecommunication industry. Nevertheless, respondent Adelaida B. Barcelona, City Treasurer of Davao, denied the protest and claim for tax refund of petitioner. ISSUE: Whether or not PLDT is exempted to pay the local franchise tax. RULING: No, the Supreme Court held that Petitioner PLDT is not exempted from the local franchise tax because it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. It explained that the acceptance of petitioner's theory would result in absurd consequences. To illustrate: In its franchise, Globe is required to pay a franchise tax of only one and one-half percentum (1%) of all gross receipts from its transactions while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioner's theory would require that, to level the playing field, any "advantage, favor, privilege, exemption, or immunity" granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all other telecommunications franchises will have to be adjusted to "level the playing field" so to speak. This could not have been the intent of Congress in enacting sec. 23 of Rep. Act 7925. Petitioner's theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption, or immunity to all telecommunications entities. Furthermore, the court emphasized that tax exemptions are highly disfavored.

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Sea-Land Services, Inc. vs. Court of Appeals G.R. No. 122605 April 30, 2001

FACTS: Petitioner Sea-Land Service Incorporated (SEA-LAND), an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to transport military household goods and effects of U.S. military personnel assigned to the Subic Naval Base. SEA-LAND filed with the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Return (ITR) and paid the income tax due thereon of 1.5% as required in Section 25 (a)(2) of the National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty, amounting to P870,093.12. Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with the BIR. However, before the said claim for refund could be acted upon by public respondent Commissioner of Internal Revenue, petitioner filed a petition for review with the Court of Tax Appeals (CTA) to judicially pursue its claim for refund and to stop the running of the two-year prescriptive period under the then Section 243 of the NIRC. The CTA rendered its decision denying SEA-LANDs claim for refund of the income tax it paid in 1984. ISSUE: Whether or not the income that petitioner derived from services in transporting the household goods and effects of U.S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RP-US Military Bases Agreement. RULING: No, The Supreme Court held that the petitioner is not included in the tax exemption provided in the RP-US Military Bases Agreement. It explained that although the Military Bases agreement provides that no US national shall be liable to pay income tax in the Philippines in respect of any profits derived under a contract made in the United States with the government of the United States in connection with the construction, maintenance, operation and defense of the bases it is obvious that the transport or shipment of household goods and effects of U.S. military personnel is not included in the term "construction, maintenance, operation and defense of the bases." Neither could the performance of this service to the U.S. government be interpreted as directly related to the defense and security of the Philippine territories. Furthermore, laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. The law "does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted."

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MANILA ELECTRIC COMPANY VS. PROVINCE OF LAGUNA G.R. No. 131359. May 5, 1999

FACTS: Province of Laguna by virtue of existing laws then in effect, issued resolutions through their respective municipal councils granting franchise in favor of petitioner Manila Electric Company (MERALCO) for the supply of electric light, heat and power within their concerned areas. On 19 January 1983, MERALCO was likewise granted a franchise by the National Electrification Administration to operate an electric light and power service in the Municipality of Calamba, Laguna. On 12 September 1991, Local Government Code of 1991, was enacted enjoining(directing) local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial Ordinance No. 01-92 providing, in part, as follows: Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within this province, including the territorial limits on any city located in the province. Respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19,520,628.42, under protest. A formal claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551 which read: Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two per cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current. Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the twentieth day of the month following the end of each calendar quarter or month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current. The claim for refund of petitioner was denied in a letter signed by Governor Jose D. Lina. In denying the claim, respondents relied on a more recent law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than the old decree invoked by petitioner.

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Petitioner MERALCO filed with the Regional Trial Court of Sta Cruz, Laguna, a complaint for refund, with a prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order, against the Province of Laguna. Petitioner is also contending that their franchise contains a provision, to quote: shall be in lieu of all taxes of every name and nature, which exempts them from payment of the tax on its corporate franchise. The trial court dismissed the complaint. Hence, this petition. ISSUE: Whether or not the tax exemption should be withdrawn to give way to the authoritative language of the Local Government Code specifically providing for the withdrawal of such exemption without violating the Constitutiion. RULING: Yes. While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires. The Code, in addition, contains a general repealing clause in its Section 534; thus: Section 534. Repealing Clause. x x x. (f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly.

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TIU VS. COURT OF APPEALS G.R. NO. 127410. JANUARY 20, 1999

FACTS: Congress passed into law RA 7227. Section 12 thereof created the Subic Special Economic Zone and granted thereto special privileges, among others: (c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In case of conflict between national and local laws with respect to tax exemption privileges in the Subic Special Economic Zone, the same shall be resolved in favor of the latter; The President issued Executive Order No. 97-A (EO 97-A), specifying the area within which the tax-and-duty-free privilege was operative, viz.: Section 1.1. The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ [Subic Special Economic and Free Port Zone]. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and duty-free. Consumption items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area for sale to nonSSEFPZ registered enterprises shall be subject to the usual taxes and duties, except as may be provided herein On October 26, 1994, the petitioners challenged before this Court the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. In a Resolution dated June 27, 1995, this Court referred the matter to the Court of Appeals, pursuant to Revised Administrative Circular No. 1-95. Citing Section 12 of RA 7227, petitioners contend that the SSEZ encompasses (1) the City of Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly occupied by the Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within which the special privileges granted to the entire zone would apply to the present fenced-in former Subic Naval Base only. It has thereby excluded the residents of the first two components of the zone from enjoying the benefits granted by the law. It has effectively discriminated against them, without reasonable or valid standards, in contravention of the equal protection guarantee. Respondent Court held that there is no substantial difference between the provisions of EO 97-A and Section 12 of RA 7227. The appellate court concluded that such being the case, petitioners could not claim that EO 97-A is unconstitutional, while at the same time maintaining the validity of RA 7227. The Court of Appeals further justified the limited application of the tax incentives as being within the prerogative of the legislature, pursuant to its avowed purpose [of serving]

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some public benefit or interest. It ruled that EO 97-A merely implements the legislative purpose of [RA 7227]. ISSUE: Whether the provisions of Executive Order No. 97-A confining the application of R.A. 7227 granting tax and duty incentives only to businesses and residents within the secured area and excluding the residents of the zone outside of the secured area is discriminatory or not. RULING: No. We rule in favor of the constitutionality and validity of the assailed EO. Said Order is not violative of the equal protection clause; neither is it discriminatory. Rather, we find real and substantive distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonable classification. Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all members of the same class. There are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called secured area and the present business operators outside the area. On the one hand, we are talking of billion-peso investments and thousands of new jobs. On the other hand, definitely none of such magnitude. In the first, the economic impact will be national; in the second, only local. Even more important, at this time the business activities outside the secured area are not likely to have any impact in achieving the purpose of the law, which is to turn the former military base to productive use for the benefit of the Philippine economy. There is, then, hardly any reasonable basis to extend to them the benefits and incentives accorded in RA 7227. Additionally, as the Court of Appeals pointed out, it will be easier to manage and monitor the activities within the secured area, which is already fenced off, to prevent fraudulent importation of merchandise or smuggling. We believe it was reasonable for the President to have delimited the application of some incentives to the confines of the former Subic military base. It is this specific area which the government intends to transform and develop from its status quo ante as an abandoned naval facility into a self-sustaining industrial and commercial zone, particularly for big foreign and local investors to use as operational bases for their businesses and industries. Why the seeming bias for big investors? Undeniably, they are the ones who can pour huge investments to spur economic growth in the country and to generate employment opportunities for the Filipinos, the ultimate goals of the government for such conversion. The classification is, therefore, germane to the purposes of the law. We believe that the classification set forth by the executive issuance does not apply merely to existing conditions. As laid down in RA 7227, the objective is to establish a selfsustaining, industrial, commercial, financial and investment center in the area. There will, therefore, be a long-term difference between such investment center and the areas outside it. Lastly, the classification applies equally to all the resident individuals and businesses within the secured area. The residents, being in like circumstances or contributing directly to the achievement of the end purpose of the law, are not categorized further. Instead, they are all similarly treated, both in privileges granted and in obligations required.

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MACTAN CEBU INTERNATIONAL AIRPORT VS. MARCOS G.R. No. 120082. September 11, 1996

FACTS: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, x x x and such other airports as may be established in the Province of Cebu x x x (Sec. 3, RA 6958). Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter: Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities x x x. On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner. Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units: Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: a) x x x xxx o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Government Code that took effect on January 1, 1992: Section 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (underscoring supplied) xxx Section 234. Exemptions from Real Property Taxes. x x x (a) xxx xxx (e) xxx Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all persons,

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whether natural or juridical, including government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code. As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was compelled to pay its tax account under protest and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29, 1994. The trial court dismissed the petition. ISSUE: Can the City of Cebu demand payment of realty taxes on several parcels of land belonging to the petitioner? RULING: Yes. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn.

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COMMISSIONER OF INTERNAL REVENUE vs. FRANK ROBERTSON G.R. Nos. 70116-19. August 12, 1986

FACTS: The question involving this case is the scope of the tax exemption provision in Article XII, Par. 2, of the RP-US Military Bases Agreement of 1947, quoted as follows: 2. No national of the United States serving in or employed in the Philippines in connection with the construction, maintenance, operation or defense of the bases and residing in the Philippines by reason only of such employment, or his spouse and minor children and dependent parents of either spouse, shall be liable to pay income tax in the Philippines except in respect of income derived from Philippine sources or sources other than the United States sources. The private respondents are citizens of the United States; holders of American passports and admitted as Special Temporary Visitors under Section 9 (a) visa of the Philippine Immigration Act of 1940, as amended; civilian employees in the U.S. Military Base in the Philippines in connection with its construction, maintenance, operation, and defense; and incomes are solely derived from salaries from the U.S. government by reason of their employment in the U.S. Bases in the Philippines." The Court a quo after due hearing, rendered its judgment in favor of respondents cancelling and setting aside the assessments for deficiency income taxes of respondents for the taxable years 1969-1972, inclusive of interests and penalties. Petitioner Commissioner of Internal Revenue now comes before the Supreme Court assigning one alleged error, to wit: The Court of Tax Appeals erred in holding that private respondents are, by virtue of Article XII, Par 2 of the RP-US Military Bases Agreement of 1947, exempt from Philippine income tax. Petitioner argues that the laws granting tax exemptions must be construed in strictissimi juris against the taxpayer. Petitioner avers that private respondents have failed to discharge this burden. ISSUE: Whether or not the public respondent erred in holding that private respondents are exempted from paying Philippine income ax. RULING: The law and the facts of the case are so clear that there is no room left for Us to doubt the validity of private respondents' defense. In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement: he must be a national of the United States employed in connection with the construction, maintenance, operation or defense, of the bases, residing in the Philippines by reason of such employment, and the income derived is from the U.S. Government (Art. XII par. 2 of PI-US Military Bases Agreement of 1947). Said circumstances are all present in the case at bar. Likewise, We find no justifiable reason to disturb the findings and rulings of the lower court in its decision.

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Basco vs PAGCOR G.R. No. 91649. May 14, 1991

FACTS: On July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law. To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified. But petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." ISSUE: Whether or not P.D. 1869 constitutes a waiver of the right of the city of Manila to impose taxes and legal fees to PAGCOR. RULING: The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax". The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" which has the power to "create and abolish municipal corporations" due to its "general legislative powers". Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. This doctrine emanates from the "supremacy" of the National Government over local governments.

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Republic vs IAC G.R. No. L-69344. April 26, 1991

FACTS: On April 15, 1980, the Republic of the Philippines, through the Bureau of Internal Revenue, commenced an action to collect from the spouses Antonio Pastor and Clara ReyesPastor deficiency income taxes for the years 1955 to 1959. The Pastors filed a motion to dismiss the complaint, but the motion was denied. On August 2, 1975, they filed an answer admitting there was an assessment against them of P17,117.08 for income tax deficiency but denying liability therefor. They contended that they had availed of the tax amnesty under P.D.'s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes amounting to P10,400 or 10% of their reported untaxed income under P.D. 23, P2,951.20 or 20% of the reported untaxed income under P.D. 213, and a final payment on October 26, 1973 under P.D. 370 evidenced by the Government's Official Receipt No. 1052388. Consequently, the Government is in estoppel to demand and compel further payment of income taxes by them. The Government alleged that the private respondents were not qualified to avail of the tax amnesty under P.D. 213 for the benefits of that decree are available only to persons who had no pending assessment for unpaid taxes. Since the Pastors did in fact have a pending assessment against them, they were precluded from availing of the amnesty granted in P.D.'s Nos. 23 and 213. The Government further argued that "tax exemptions should be interpreted strictissimi juris against the taxpayer." ISSUE: Whether or not the payment of deficiency income tax under the tax amnesty and its acceptance by the Government operated to divest the Government of the right to further recover from the taxpayer, even if there was an existing assessment against the latter at the time he paid the amnesty tax. RULING: Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct, since the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No. 213, and were granted not merely an exemption, but an amnesty, for their past tax failings, the Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax. A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate. The rule is that in case of doubt, tax statutes are to be construed strictly against the Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly declares.

117

Commissioner of Internal Revenue vs CA G.R. No. 108358. January 20, 1995

FACTS: On 22 August 1986, E.O. 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donor's taxes and taxes on business, for the taxable years 1981 to 1985. Availing itself of the amnesty, respondent R.O.H. Auto Products Philippines, Inc., filed, in October 1986 and November 1986, its Tax Amnesty Return and Supplemental Tax Amnesty Return, respectively, and paid the corresponding amnesty taxes due. Prior to this availment, petitioner Commissioner of Internal Revenue, in a communication received by private respondent on 13 August 1986, assessed the latter deficiency income and business taxes for its fiscal years ended 30 September 1981 and 30 September 1982 in an aggregate amount of P1,410,157.71. The taxpayer wrote back to state that since it had been able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The request was denied by the Commissioner, on the ground that Revenue Memorandum Order 4-87, implementing E.O. 41, had construed the amnesty coverage to include only assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments theretofore made. ISSUE: Whether or not the position taken by the Commissioner coincides with the meaning and intent of E.O. 41. RULING: The period of the amnesty was later extended to 05 December 1986 from 31 October 1986 by E.O. 54, dated 04 November 1986, and, its coverage expanded, under E.O. 64, dated 17 November 1986, to include estate and honors taxes and taxes on business. If, as the Commissioner argues, E.O. 41 had not been intended to include 1981-1985 tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it. It might not be amiss to recall that the taxable periods covered by the amnesty include the years immediately preceding the 1986 revolution during which time there had been persistent calls, all too vivid to be easily forgotten, for civil disobedience, most particularly in the payment of taxes, to the martial law regime. It should be understandable then that those who ultimately took over the reigns of government following the successful revolution would promptly provide for abroad, and not a confined, tax amnesty.

118

Hilado vs Collector of Internal Revenue GR L-9408. October 31, 1956

FACTS: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City. He is claiming a deductible item of P12,837.65 from his gross income under the General Circular V-123 issued by the Collector of Internal Revenue. Subsequently, the Secretary of Finance, through the Collector, issued General Circular V-139 which revoked and declared void Circular V-123. It provided that losses of property which occurred in World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. Thereafter, the deductions were disallowed. ISSUE: Whether or not Hilado can claim compensation for destruction of his property during the war under the laws in effect at that time. RULING: Philippines Internal Revenue Laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the end of 1945, there was no law which Hilado could claim for the destruction of his properties during the battle for the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1948, the payment of claims by the War Damage Commission depended upon its discretions non-payment of which does not give rise to any enforceable right. Assuming that the loss (deductible item) represents a portion of the 75% of his war damage claim, the amount would be at most a proper deduction of his 1950 gross income (not on his 1951 gross income) as the last installment and notice of discontinuation of payment by the War Damage Commission was made in 1950.

119

Misamis Oriental Association of Coco Traders, inc. vs. Department of Finance Secretary G.R. No. 108524. November 10, 1994

FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. Under Sec. 103(b) of the NIRC, the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution. The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under 103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds. ISSUES: (1) Whether the BIR is the proper the competent government agency to determine the proper classification of food products. (2) Whether RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution. RULING: The court, as to the first issue, ruled in the affirmative. The BIR, as the government agency charged with the implementation and interpretation of the tax laws, is entitled to great respect. In interpreting Section 103 of the NIRC, the Commissioner of Internal Revenue correctly gave it a strict construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state. The ruling was made by the Commissioner of Internal Revenue in the exercise of his power under 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes. With regard to the second issue, the court ruled in the negative. Petitioner likewise claims that RMC No. 47-91 is violative of the equal protection clause because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers. The argument has no merit. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. It is not true that oil millers are exempt from VAT. Pursuant to 102 of the NIRC, they are subject to 10% VAT on the sale of services.

120

Commissioner of Internal Revenue vs. Court of Appeals and Alhambra Industries, Inc. G.R. No. 117982. February 6, 1997

FACTS: Alhambra Industries, Inc. is a domestic corporation engaged in the manufacture and sale of cigar and cigarette products. On 7 May 1991 private respondent received a letter dated 26 April 1991 from the Commissioner of Internal Revenue assessing it deficiency Ad Valorem Tax (AVT) in the amount P 488,396.62. Private respondent filed a protest against the proposed assessment with a request that the same be withdrawn and cancelled. Petitioner denied such protest. The dispute arose from the discrepancy in the taxable base on which the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated 4 October 1988 which excluded the VAT from the tax base in computing the fifteen percent (15%) excise tax due; and, (2) BIR Ruling 017-91 dated 11 February 1991 which included back the VAT in computing the tax base for purposes of the fifteen percent (15%) ad valorem tax. ISSUE: Whether Sec. 142 (d) of the Tax Code, which provides for the inclusion of the VAT in the tax base for purposes of computing the 15% ad valorem tax, is the applicable law in the instant case as it specifically applies to the manufacturer's wholesale price of cigar and cigarette products and not Sec. 127 (b) of the Tax Code which applies in general to the wholesale of goods or domestic products. RULING: Sec. 142 being a specific provision applicable to cigar and cigarettes must prevail over Sec. 127 (b), a general provision of law insofar as the imposition of the ad valorem tax on cigar and cigarettes is concerned. Consequently, the application of Sec. 127 (b) to the wholesale price of cigar and cigarette products for purposes of computing the ad valorem tax is patently erroneous. Accordingly, BIR Ruling 473-88 is void ab initio as it contravenes the express provisions of Sec. 142 (d) of the Tax Code. Moreover, the phrase unless otherwise provided in Section 127 (b) purports of exceptions to the general rule contained therein, such as that of Section 142, last paragraph thereof which explicitly provides that in the case of cigarettes, the tax base for purposes of the ad valorem tax shall include, among others, the value-added tax. However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it would be assessed deficiency excise tax. Admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer. The BIR is now ordered to refund private respondent of the collected taxes form the latter.

121

Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc G.R. No. L-23771. August 4, 1988

FACTS: The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant serving the adjoining municipalities of Lingayen and Binmaley, both in the province of Pangasinan, pursuant to the municipal franchise granted it by their respective municipal councils. On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the private respondent the total amount of P19,293.41 representing deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts. The private respondent requested for a reinvestigation of the case on the ground that instead of incurring a deficiency liability, it made an overpayment of the franchise tax. In its letters dated July 2, and August 9, 1958 to the petitioner Commissioner, the private respondent protested the said assessment and requested for a conference with a view to settling the liability amicably. In his letters dated July 25 and August 28, 1958, the Commissioner denied the request of the private respondent. Thus, the appeal to the respondent Court of Tax Appeals. Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, granting to the private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same municipalities of Pangasinan and comes with it a tax equal to two per centum of the gross receipts from electric current sold or supplied under this franchise. ISSUES: (1) Whether or not the 5% franchise tax prescribed in Section 259 of the National Internal Revenue Code assessed against the private respondent on its gross receipts realized before the effectivity of R.A- No. 3843 is collectible. (2) Whether or not the respondent taxpayer is liable for the fixed and deficiency percentage taxes in the amount of P3,025.96 for the period before the approval of its municipal franchises. RULING: R.A. No. 3843 provided that the private respondent should pay only a 2% franchise tax on its gross receipts, "in lieu of any and all taxes and/or licenses of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national, now or in the future ... and effective further upon the date the original franchise was granted, no other tax and/or licenses other than the franchise tax of two per centum on the gross receipts ... shall be collected, any provision of law to the contrary notwithstanding." Thus, by virtue of R.A- No. 3843, the private respondent was liable to pay only the 2% franchise tax, effective from the date the original municipal franchise was granted. As to the second issue, the legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover the period before the franchise was granted, i.e. before February 24, 1948. However, as pointed out by the respondent court in its findings, during the period covered by the instant case, that is from January 1, 1946 to December 31, 1961, the private respondent paid the amount of P34,184.36, which was very much more than the amount rightfully due from it. Hence, the private respondent should no longer be made to pay for the deficiency tax in the amount of P3,025.98 for the period from January 1, 1946 to February 29, 1948.

122

ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals G.R. No. L-52306. October 12, 1981

FACTS: During the period pertinent to this case, petitioner corporation was engaged in the business of telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or business within the Philippines. for which petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals. In implementing Section 4(b) of the Tax Code, the Commissioner issued General Circular V-334. Pursuant thereto, ABSCBN Broadcasting Corp. dutifully withheld and turned over to the BIR 30% of of the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. The last year that the company withheld taxes pursuant to the Circular was in 1968. On 27 June 1908, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30% to 35% and revising the tax basis from such amount referring to rents, etc. to gross income. In 1971, the Commissioner issued a letter of assessment and demand for deficiency withholding income tax for years 1965 to 1968. The company requested for reconsideration; where the Commissioner did not act upon. ISSUES: Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be retroactively applied. RULING: Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply them would be prejudicial to taxpayers. Herein ,the prejudice the company of the retroactive application of Memorandum Circular 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. The company was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and had no longer control over them when the new circular was issued. Insofar as the enumerated exceptions are concerned, the company does not fall under any of them.

123

Philippine Bank of Commerce (PBcom) v. Commissioner of Internal Revenue (CIR) G.R. No. 112024. January 28, 1999

FACTS: Petitioner PBcom paid its quarterly income tax for the first and second quarters of 1985 totalling to Php5, 016,954.00. Subsequently, PBcom suffered losses so that when it filed its Annual Income Tax for the year- ended December 31, 1986, it reported a net loss and declared no tax payable for the year. Petitioner also earned rental income for both 1985 and 1986 and the corresponding tax thereof was with held and remitted by the lessees to the BIR. On August 7, 1987 or after more than two years from payment of taxes, PBcom filed for a tax refund. Pending investigation of the BIR, petitioner filed a petition for review with the Court of Tax Appeals. The CTA denied the tax refund on the ground that application for refund must be made within two years from the payment of tax as provided by the National Internal Revenue Code. Petitioner contended that the two year period has been changed to ten years upon a memorandum issued by the Commissioner of Internal Revenue. The Court of Appeal affirmed in toto the ruling of the CTA. ISSUE: Did the CTA erred in denying the plea for tax refund on the ground of prescription? RULING: No. The relaxation of revenue regulation by a memorandum issued by the BIR is not warranted as it disregards the two year period set by law. Section 230 of the National Internal Revenue Code of 1977 provides for the two year period for filing a claim for refund or credit. When the Acting Commissioner of Internal Revenue issued a memorandum changing the prescriptive period of two years to ten years, such circular created a clear inconsistency with the provision of Section 230 of NIRC. In so doing, the BIR did not simply interpret the law, rather it legislated guidelines contrary to the statute passed by the congress.

124

Commissioner of Internal Revenue v. Tokyo Shipping Co.LTD G.R. No. L-68252. May 26, 1995

FACTS: Private Respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. Nasutra chartered M/V Gardenia to load raw sugar in the Philippines. Soriamont Agency paid the required income and common carrier taxes for its transaction with Nasutra. However, upon arrival, the vessel found no sugar for loading. Private respondent, therefore, filed a claim for tax credit before the petitioner Commissioner of Internal Revenue for erroneous payment. Due to the failure of petitioner to act promptly on the matter, private respondent filed a petition for review before the Court of Tax Appeals (CTA) which favoured the tax credit. Petitioner filed a motion for reconsideration, but it was denied by the CTA, hence this petition contending that private respondent has the burden of proof to support its claim of refund, that it failed to prove that it did not realize any receipt from its charter agreement and it suppressed evidence when it did not present its charter agreement. ISSUE: Whether or not private respondent failed to prove that it derived no receipt from its charter agreement, hence, not entitled to a refund. RULING: We find no merit in the petition. The respondent Court of Tax Appeals held that sufficient evidence has been adduced by private respondent proving that it derived no receipt from its charter agreement with Nasutra. The Clearance Vessel to a Foreign Port issued by the District Collector of Customs support such finding. Moreover, the BIR examiner and its appellate division both recommended the approval of private respondents claim of tax refund. The power of taxation is sometimes called the power to destroy. It should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally, and uniformly, lest the tax collector kill the hen that lays the egg. And in order to maintain the general publics trust and confidence in the government, this power must be used fairly and not treacherously.

125

Reyes v. Almonzor G.R. Nos. L-49839 46. April 26, 1991

FACTS: The National legislature enacted R.A. 6359 which prohibits an increase in monthly rentals of dwelling unit or land on which anothers dwelling is located, where the rental does not exceed Php300.00. The act also suspended article 1673 of the Civil Code thereby disallowing ejectment of lessees. These prohibitions were made absolute by the filing of Presidential Decree 20. Consequently, petitioners herein are precluded from increasing monthly rentals and in ejecting the lessees. The respondent city assessor of Manila reassessed the value of the petitioners properties based on the scheduled market value thereof. This entailed an increase in the tax rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals averring that the reassessment was excessive, unwarranted, inequitable, confiscatory and unconstitutional considering that the tax imposed upon them is greater than the annual income derived from the property. They also argued that the income approach should have been used in determining the land values instead of the comparable sales approach. The Board of tax Assessment Appeals considered the assessment valid and the same was affirmed by the Central Board of Assessment appeals, hence this petition. ISSUE: Did the board err in adopting the comparable sales approach in fixing the assessed value of the properties? RULING: The petition is impressed with merit. It is unquestionable that both the Comparable Sales Approach and the Income Approach are generally acceptable methods of appraisal for taxation purposes. However, it is conceded that the proprietary of one, as against the other would depend on several factors. Hence, as early as 1923, it has been stressed that the assessors , in finding the value of the property, have to consider all the circumstances and elements of value and must exercise a prudent discretion in reaching conclusions. The power to tax is an attribute of sovereignty. It is the strongest of all powers of government. But for all its plenitude, the power to tax is not confined as there are restrictions. Adversely affecting as it does property rights, both the due process and equal protection may properly be invoked to invalidate a revenue measure.

126

Commissioner of Internal Revenue v. Algue, Inc., and the Court of Tax Appeals G.R. No. L 28896. February 17, 1988

FACTS: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it a delinquency income tax for the year 1958 and 1959. After four days from its receipt, Algue filed a letter of protest which was stamped and received by the petitioner. Despite the protest, private respondent received a warrant of distraint and levy. Algue refused to receive it on the ground of pending protest until it was finally informed that the BIR was not taking any action on the protest. It therefore filed a petition for review of the decision of the Commissioner of Internal Revenue (CIR) with the Court of Tax Appeals. The CTA ruled in favour of Algue holding that the Php75, 000.00 in dispute shall be considered as deductible from income it being in the form of promotional expense and contrary to petitioners contention that it was not an ordinary and reasonable business expense. ISSUE: Did the Collector of Internal Revenue correctly disallow the deduction claimed by private respondent Algue as legitimate business expense in its Income Tax Return? RULING: We agree with respondent court that the amount of promotional fee was not excessive and was reasonable, hence, allowing the deduction of the disputed amount in the Income Tax Return of private respondent. The finding of respondent court is in accordance with the provision of the Tax Code on deductions from gross income. The solicitor general is correct in saying that the burden to prove the validity of claimed deduction is on the tax payer. The private respondent has proved this. The amount in dispute was necessary and reasonable in the light of the efforts of the respondent corporation to induce investors. It is said that without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard earned income to the taxing authority, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

127

ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT G.R. No. L-67649, June 28, 1988

FACTS: Engracio Francia is the registered owner of a residential lot and a two-story house located in Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic for the sum of P4,116.00. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction pursuant the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. Thelower court rendered a decision against his favor. The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review. ISSUE: Whether or not the contention of Francia that his tax delinquency of P2,400.00 has been extinguished by legal compensation is correct claiming that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. RULING: This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... "The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..."

128

COMMISSIONER OF INTERNAL REVENUE vs. ITOGON-SUYOC MINES, INC. G.R. No. L-25299, July 29, 1969

FACTS: Respondent Itogon-Suyoc Mines, Inc. filed on January 13, 1961, its income tax return for the fiscal year 1959-1960. It declared a taxable income of P114,368.04 and a tax due thereon amounting to P26,310.41, for which it paid on the same day, the amount of P13,155.20 as the first installment of the income tax due. On May 17, 1961, petitioner filed an amended income tax return, reporting therein a net loss of P331,707.33. It thus sought a refund from the Commissioner of Internal Revenue, now the petitioner. On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the fiscal year 1960-1961, setting forth its income tax liability to the tune of P97,345.00, but deducting the amount of P13,155.20 representing alleged tax credit for overpayment of the preceding fiscal year 1959-1960. 0n December 18, 1962, petitioner Commissioner of Internal Revenue assessed against the respondent the amount of P1,512.83 as 1% monthly interest on the aforesaid amount of P13,155.20 from January 16, 1962 to December 31, 1962. The basis for such an assessment was the absence of legal right to deduct said amount before the refund or tax credit thereof was approved by petitioner Commissioner of Internal Revenue. Such an assessment was contested by respondent before the Court of Tax Appeals which ruled in its favor. Hence this petition for review. ISSUE: Whether or not the Court of Tax Appeals erred when it absolved respondent corporation "from liability to pay the sum of P1,512.83 as 1% monthly interest for delinquency in the payment of income tax for the fiscal year 1960-1961. RULING: It could not be error for the Court of Tax Appeals, considering the admitted fact of overpayment, entitling respondent to refund, to hold that petitioner should not repose an interest on the aforesaid sum of P13,155.20 "which after all was paid to and received by the government even before the incidence of the tax in question." It would be, according to the Court of Tax Appeals, "unfair and unjust" to do so. The National Internal Revenue Code provides that interest upon the amount determined as a deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner of Internal Revenue at the specified. It is made clear, however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not yet refunded, may be deducted from the tax to be paid. There is no question respondent was entitled to a refund. Instead of waiting for the sum involved to be delivered to it, it deducted the said amount from the tax that it had to pay. That it had a right to do according to the law. It is true a doubt could have arisen due to the fact that as of the time such a deduction was made, the Commissioner of Internal Revenue had not as yet approved such a refund. It is an admitted fact though that respondent was clearly entitled to it, and petitioner did not allege otherwise. Nor could he do so. Under all the circumstances disclosed therefore, the applicability of the legal provision allowing such a deduction from the amount of the tax to be paid cannot be disputed.

129

MELECIO R. DOMINGO vs. HON. LORENZO C. GARLITOS G.R. No. L-18994, June 29, 1963

FACTS: This is a petition for certiorari and mandamus against respondent judge seeking to annul certain orders of the court and for an order in this Court to direct respondent to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The Court has nothing further to add to its order and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. ISSUE: Whether or not the petitioner has the clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. RULING: The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. Another ground for denying the petition is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price.

130

REPUBLIC OF THE PHILIPPINES vs. MAMBULAO LUMBER COMPANY, ET AL. G.R. No. L-17725, February 28, 1962

FACTS: There are three causes of action in this case in which the defendants admitted all these three liabilities with an aggregate amount of P4, 802.37. Though such liabilities are admitted it interposed the defense though exhibits that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The total amount of the reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the contention of the defendant that since the Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges. ISSUE: Whether or not the sum of P9,127.50 paid by defendant company to plaintiff as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from defendant to plaintiff. RULING: The court find defendants claim devoid of any merit. Note that there is nothing in the law which requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used, the same should be refunded to him. The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion.

131

The Anti-Graft League of the Philippines, Inc v. San Juan G.R. No. 97787. August 1, 1996

FACTS: Acting upon an authority granted by the Office of the President, the Province was able to negotiate with respondent Ortigas & Co., Ltd. (Ortigas) for the acquisition of four parcels of land located in Ugong Norte, Pasig. Three deeds of absolute sale were executed on April 22 and May 9, 1975, whereby Ortigas transferred its ownership over a total of 192,177 square meters of land to the Province at P110.00 per square meter. The projected construction, however, never materialized because of the decimation of the Provinces resources brought about by the creation of the Metro Manila Commission (MMC) in 1976. The said property was eventually sold to Valley View Realty Development Corporation (Valley View) for P700.00 per square meters. The said property was eventually sold to Valley View Realty Development Corporation (Valley View) for P700.00 per square meter or a total of P134,523,900.00, of which 30 million was given as downpayment. On May 10, 1988, after learning about the sale, Ortigas filed before Branch 151 of the Regional Trial Court of Pasig an action for rescission of contract plus damages with preliminary injunction against the Province. Docketed as Civil No. 55904, the complaint alleged that the Province violated one of the terms of its contracts with Ortigas by selling the subject lots which were intended to be utilized solely as a site for the construction of the Rizal Technological Colleges and the Rizal Provincial Hospital. ISSUE: Is the present action a taxpayers suit? RULING: Petitioner and respondents agree that to constitute a taxpayers suit, two requisites must be met, namely, that public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed, and that the petitioner is directly affected by the alleged ultra vires act. In the case at bar, disbursement of public funds was only made in 1975 when the Province bought the lands from Ortigas at P110.00 per square meter in line with the objectives of P.D. 674. Undeniably, as a taxpayer, petitioner would somehow be adversely affected by an illegal use of public money. When, however, no such unlawful spending has been shown, as in the case at bar, petitioner, even as a taxpayer, cannot question the transaction validly executed by and between the Province and Ortigas for the simple reason that it is not privy to said contract. In other words, petitioner has absolutely no cause of action, and consequently no locus standi, in the instant case.

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Joya et.al. vs. PCGG, G.R. No. 96541 August 24, 1993

FACTS: All thirty-five (35) petitioners in this Special Civil Action for Prohibition and Mandamus with Prayer for Preliminary Injunction and/or Restraining Order seek to enjoin the Presidential Commission on Good Government (PCGG) from proceeding with the auction sale scheduled on 11 January 1991 by Christie's of New York of the Old Masters Paintings and 18th and 19th century silverware seized from Malacaang and the Metropolitan Museum of Manila and placed in the custody of the Central Bank. On 9 August 1990, Mateo A.T. Caparas, then Chairman of PCGG, wrote then President Corazon C. Aquino, requesting her for authority to sign the proposed Consignment Agreement between the Republic of the Philippines through PCGG and Christie, Manson and Woods International, Inc. (Christie's of New York, or CHRISTIE'S) concerning the scheduled sale on 11 January 1991 of eighty-two (82) Old Masters Paintings and antique silverware seized from Malacaang and the Metropolitan Museum of Manila alleged to be part of the ill-gotten wealth of the late President Marcos, his relatives and cronies. On 14 August 1990, then President Aquino, through former Executive Secretary Catalino Macaraig, Jr., authorized Chairman Caparas to sign the Consignment Agreement allowing Christie's of New York to auction off the subject art pieces for and in behalf of the Republic of the Philippines. On 15 August 1990, PCGG, through Chairman Caparas, representing the Government of the Republic of the Philippines, signed the Consignment Agreement with Christie's of New York. ISSUE: Can petitioners as taxpayers challenge the validity of the acts of the PCGG? RULING: No. They lack basis in fact and in law. These paintings legally belongs to the foundation or corporation or the members thereof, although the public has been given the opportunity to view and appreciate these paintings when they were placed on exhibit. Similarly, as alleged in the petition, the pieces of antique silverware were given to the Marcos couple as gifts from friends and dignitaries from foreign countries on their silver wedding and anniversary, an occasion personal to them Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the government. A taxpayer's suit can prosper only if the governmental acts being questioned involve disbursement of public funds upon the theory that the expenditure of public funds by an officer of the state for the purpose of administering an unconstitutional act constitutes a misapplication of such funds, which may be enjoined at the request of a taxpayer.

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Lozada vs. COMELEC G.R. No. L-59068 January 27, 1983

FACTS: This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a representative suit for and in behalf of those who wish to participate in the election irrespective of party affiliation, to compel the respondent COMELEC to call a special election to fill up existing vacancies numbering twelve (12) in the Interim Batasan Pambansa. The petition is based on Section 5(2), Article VIII of the 1973 Constitution which reads: (2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term. Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution. As reason for their petition, petitioners allege that they are "... deeply concerned about their duties as citizens and desirous to uphold the constitutional mandate and rule of law ...; that they have filed the instant petition on their own and in behalf of all other Filipinos since the subject matters are of profound and general interest. " The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that petitioners lack standing to file the instant petition for they are not the proper parties to institute the action ISSUE: As taxpayers, may the petitioners file the instant petition? RULING: As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a statute.