TAXATION 1 CASE DIGESTS CIR v. PINEDA GR No.

L-22734, September 15, 1967 21 SCRA 105 FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the inheritance. ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance. HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate. All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.

VERA v. FERNANDEZ GR No. L-31364 March 30, 1979 89 SCRA 199 FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy. The administrator opposed arguing that the claim was already barred by the statute of

limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever. ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes? HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel. CIR v. CA, CITY TRUST BANKING CORP. GR No. 86785, November 21, 1991 234 SCRA 348 FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes with the BIR by which the latter denied on the ground of prescription. Citytrust filed a petition for review before the CTA. The case was submitted for decision based solely on the pleadings and evidence submitted by the respondent because the CIR could not present any evidence by reason of the repeated failure of the Tax Credit/Refud Division of the BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. CTA rendered the decision ordering BIR to grant the respondent's request for tax refund amounting to P 13.3 million. ISSUE: Failure of the CIR to present evidence to support the case of the government, should the respondent's claim be granted? HELD: Not yet. It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect. Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and

with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Thus, it is proper that the case be remanded back to the CTA for further proceedings and reception of evidence.

COMMISSIONER v. ALGUE, INC. GR No. L-28896, February 17, 1988 158 SCRA 9 FACTS: Private respondent corporation Algue, Inc. filed its income tax returns for 1958 and 1959 showing deductions, for promotional fees paid, from their gross income, thus lowering their taxable income. The BIR assessed Algue based on such deductions contending that the claimed deduction is disallowed because it was not an ordinary, reasonable and necessary expense. ISSUE: Should an uncommon business expense be disallowed as a proper deduction in computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the government? HELD: No. Private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an xperimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. It is well-settled that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. 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.

CIR v. YMCA GR No. 124043, October 14, 1998 298 SCRA 83

FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts various programs beneficial to the public pursuant to its religious, educational and charitable objectives--leases out a portion of its premises to small shop owners, like restaurants and canteen operators, deriving substantial income for such. Seeing this, the commissioner of internal revenue (CIR) issued an assessment to private respondent for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA opposed arguing that its rental income is not subject to tax, mainly because of the provisions of Section 27 of NIRC which provides that civic league or organizations not organized for profit but operate exclusively for promotion of social welfare and those organized exclusively for pleasure, recreation and other non-profitble businesses shall not be taxed. ISSUE: Is the contention of YMCA tenable? HELD: No. 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."

DAVAO GULF LUMBER CORP v. CIR GR No. 117359, July 23, 1998 293 SCRA 77 FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the specific taxes paid by the oil companies, which were eventually passed on to the user--the petitioner in this case--in the purchase price of the oil products. Petitioner filed before respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations. However petitioner asserts that equity and justice demands that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435. ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products, and not on the taxes deemed paid and passed on to them, as end-users, by the oil companies? HELD: No. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equity." Thus, the tax refund should be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly

against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.

MARCOS II v. CA GR No. 120880, June 5, 1997 293 SCRA 77 FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR, and notices were constructively served to the Marcoses, however the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated. ISSUE: Is the contention of Bongbong Marcos correct? HELD: No. The deficiency income tax assessments and estate tax assessment are already final and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government. The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax.

REYES v. ALMANZOR

GR Nos. L-49839-46, April 26, 1991 196 SCRA 322 FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values, which entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted. ISSUE: Is the approach on tax assessment used by the City Assessor reasonable? HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.

PHIL. BANK OF COMMUNICATIONS v. CIR GR No. 112024, January 28, 1999 302 SCRA 250 FACTS: Petitioner PBCom filed its first and second quarter income tax returns, reported profits, and paid income taxes amounting to P5.2M in 1985. However, at the end of the year PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from CIR for a tax credit and tax refunds representing overpayment of taxes. Pending investigation of the respondent CIR, petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA). CTA denied its petition for tax credit and refund for failing to file within the prescriptive period to which the petitioner belies arguing the Revenue Circular No.7-85 issued by the CIR itself states that claim

for overpaid taxes are not covered by the two-year prescriptive period mandated under the Tax Code. ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid exemption to the NIRC? HELD: No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

PHIL. GUARANTY CO., INC. v. CIR GR No. L-22074, April 30, 1965 13 SCRA 775 FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies. ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them? HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and

those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state. The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents. Case Digests: Taxation i CIR v. PINEDA GR No. L-22734, September 15, 1967 21 SCRA 105 FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's share amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional share in the inheritance. ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance. HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate. All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the

Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.

VERA v. FERNANDEZ GR No. L-31364 March 30, 1979 89 SCRA 199 FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy. The administrator opposed arguing that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever. ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes? HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. (CIR vs. Pineda, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel. CIR v. CA, CITY TRUST BANKING CORP. GR No. 86785, November 21, 1991 234 SCRA 348 FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes with the BIR by which the latter denied on the ground of prescription. Citytrust filed a petition for review before the CTA. The case was submitted for decision based solely on the pleadings and evidence submitted by the respondent because the CIR could not present any evidence by reason of the repeated failure of the Tax Credit/Refud Division of the BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. CTA rendered the decision ordering BIR to grant the respondent's request for tax refund amounting to P 13.3 million.

ISSUE: Failure of the CIR to present evidence to support the case of the government, should the respondent's claim be granted? HELD: Not yet. It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents. In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect. Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Thus, it is proper that the case be remanded back to the CTA for further proceedings and reception of evidence.

COMMISSIONER v. ALGUE, INC. GR No. L-28896, February 17, 1988 158 SCRA 9 FACTS: Private respondent corporation Algue, Inc. filed its income tax returns for 1958 and 1959 showing deductions, for promotional fees paid, from their gross income, thus lowering their taxable income. The BIR assessed Algue based on such deductions contending that the claimed deduction is disallowed because it was not an ordinary, reasonable and necessary expense. ISSUE: Should an uncommon business expense be disallowed as a proper deduction in computation of income taxes, corollary to the doctrine that taxes are the lifeblood of the government? HELD: No. Private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an xperimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. It is well-settled that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the

taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. 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.

CIR v. YMCA GR No. 124043, October 14, 1998 298 SCRA 83 FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts various programs beneficial to the public pursuant to its religious, educational and charitable objectives--leases out a portion of its premises to small shop owners, like restaurants and canteen operators, deriving substantial income for such. Seeing this, the commissioner of internal revenue (CIR) issued an assessment to private respondent for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA opposed arguing that its rental income is not subject to tax, mainly because of the provisions of Section 27 of NIRC which provides that civic league or organizations not organized for profit but operate exclusively for promotion of social welfare and those organized exclusively for pleasure, recreation and other non-profitble businesses shall not be taxed. ISSUE: Is the contention of YMCA tenable? HELD: No. 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."

DAVAO GULF LUMBER CORP v. CIR GR No. 117359, July 23, 1998 293 SCRA 77 FACTS: Republic Act No. 1435 entitles miners and forest concessioners to the refund of 25% of the specific taxes paid by the oil companies, which were eventually passed on to the user--the petitioner in this case--in the purchase price of the oil products. Petitioner filed before respondent Commissioner of Internal Revenue (CIR) a claim for refund in the amount representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations. However petitioner asserts that equity and justice

demands that the refund should be based on the increased rates of specific taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. Public respondent, on the other hand, contends that it should be based on specific taxes deemed paid under Sections 1 and 2 of RA 1435. ISSUE: Should the petitioner be entitled under Republic Act No. 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products, and not on the taxes deemed paid and passed on to them, as end-users, by the oil companies? HELD: No. According to an eminent authority on taxation, "there is no tax exemption solely on the ground of equity." Thus, the tax refund should be based on the taxes deemed paid. Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.

MARCOS II v. CA GR No. 120880, June 5, 1997 293 SCRA 77 FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR, and notices were constructively served to the Marcoses, however the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated. ISSUE: Is the contention of Bongbong Marcos correct? HELD: No. The deficiency income tax assessments and estate tax assessment are already final and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government. The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's

sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax.

REYES v. ALMANZOR GR Nos. L-49839-46, April 26, 1991 196 SCRA 322 FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values, which entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted. ISSUE: Is the approach on tax assessment used by the City Assessor reasonable? HELD: No. The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.

PHIL. BANK OF COMMUNICATIONS v. CIR

GR No. 112024, January 28, 1999 302 SCRA 250 FACTS: Petitioner PBCom filed its first and second quarter income tax returns, reported profits, and paid income taxes amounting to P5.2M in 1985. However, at the end of the year PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from CIR for a tax credit and tax refunds representing overpayment of taxes. Pending investigation of the respondent CIR, petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA). CTA denied its petition for tax credit and refund for failing to file within the prescriptive period to which the petitioner belies arguing the Revenue Circular No.7-85 issued by the CIR itself states that claim for overpaid taxes are not covered by the two-year prescriptive period mandated under the Tax Code. ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid exemption to the NIRC? HELD: No. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

PHIL. GUARANTY CO., INC. v. CIR GR No. L-22074, April 30, 1965 13 SCRA 775 FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The premiums paid by such companies were excluded by the petitioner from its gross income when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter protested the assessment on the ground that the premiums are not subject to tax for the

premiums did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due from foreign companies. ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign insurance companies, which deprives the government from collecting the tax due from them? HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in question were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state. The petitioner's defense of reliance of good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes by the mistakes or errors of its agents.

PHILEX MINING CORP. v. CIR GR No. 125704, August 28, 1998 294 SCRA 687 FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities. ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner? HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

NORTH CAMARINES LUMBER CO., INC. v. CIR GR No. L-12353, September 30, 1960 109 PHIL 511 FACTS: The petitioner sold more than 2M boardfeet of logs to General Lumber Co. with the agreement that the latter would pay the sales taxes. The CIR, upon consultation officially advised the parties that the bureau interposes no objection so long as the tax due shall be covered by a surety. General Lumber complied, but later failed, with the surety, to pay the tax liabilities, and so the respondent collector required the petitioner to pay thru a letter dated August 30, 1955. Twice did the petitioner filed a request for reconsideration before finally submitting the denied request for appeal before the Court of Tax Appeals. The CTA dismissed the appeal as it was clearly filed out of time. The petitioner had consumed thirty-three days from the receipt of the demand, before filing the appeal. Petitioner argued that in computing the 30-day period in perfecting the appeal the letter of the respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30, 1955. ISSUE: Is the contention of the petitioner tenable? HELD: No. This contention is untenable. We cannot countenance that theory that would make the commencement of the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure would be detrimental to the interest of the Government, for "taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need."

LUTZ v. ARANETA GR No. L-7859, December 22, 1955 98 PHIL 148

FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an imminent threat of loss and needed to be stabilized by imposition of emergency measures. ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the purpose of which is not for the benefit of the general public but for the rehabilitation only of the sugar industry? HELD: Yes. 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 to fully play, subject only to the test of reasonableness; and it is not contended that the means provided in the law 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.

GOMEZ v. PALOMAR GR No. L-23645, October 29, 1968 25 SCRA 827 FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants exemptions. The law in question requires an additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing the said stamp. ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection clause? HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. The reason for this is that

traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax exemptions have never been thought of as raising revenues under the equal protection clause.

PUNSALAN v. MUN. BOARD OF CITY OF MANILA GR No. L-23645, October 29, 1968 95 PHIL 46 FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a CPA, and a pharmacist--sought the annulment of Ordinance No.3398 of the City of Manila which imposes a municipal occupation tax on persons exercising various professions in the city and penalizes non-payment of the tax, contending in substance that this ordinance and the law authorizing it constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation. The burden of plaintiffs' complaint is not that the professions to which they respectively belong have been singled out for the imposition of this municipal occupation tax, but that while the law has authorized the City of Manila to impose the said tax, it has withheld that authority from other chartered cities, not to mention municipalities. ISSUE: Does the law constitute a class legislation? Is it for the Court to determine which political unit should impose taxes and which should not? HELD: No. It is not for the courts to judge what particular cities or municipalities should be empowered to impose occupation taxes in addition to those imposed by the National Government. That matter is peculiarly within the domain of the political departments and the courts would do well not to encroach upon it. Moreover, as the seat of the National Government and with a population and volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces. PHILEX MINING CORP. v. CIR GR No. 125704, August 28, 1998 294 SCRA 687 FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of

P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities. ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner? HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

NORTH CAMARINES LUMBER CO., INC. v. CIR GR No. L-12353, September 30, 1960 109 PHIL 511 FACTS: The petitioner sold more than 2M boardfeet of logs to General Lumber Co. with the agreement that the latter would pay the sales taxes. The CIR, upon consultation officially advised the parties that the bureau interposes no objection so long as the tax due shall be covered by a surety. General Lumber complied, but later failed, with the surety, to pay the tax liabilities, and so the respondent collector required the petitioner to pay thru a letter dated August 30, 1955. Twice did the petitioner filed a request for reconsideration before finally submitting the denied request for appeal before the Court of Tax Appeals. The CTA dismissed the appeal as it was clearly filed out of time. The petitioner had consumed thirty-three days from the receipt of the demand, before filing the appeal. Petitioner argued that in computing the 30-day period in perfecting the appeal the letter of the respondent Collector dated January 30, 1956, denying the second request for reconsideration, should be considered as the final decision contemplated in Section 7, and not the letter of demand dated August 30, 1955. ISSUE: Is the contention of the petitioner tenable? HELD: No. This contention is untenable. We cannot countenance that theory that would make the commencement of the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a

tax assessment. Such an absurd procedure would be detrimental to the interest of the Government, for "taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need."

LUTZ v. ARANETA GR No. L-7859, December 22, 1955 98 PHIL 148 FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an imminent threat of loss and needed to be stabilized by imposition of emergency measures. ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the purpose of which is not for the benefit of the general public but for the rehabilitation only of the sugar industry? HELD: Yes. 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 to fully play, subject only to the test of reasonableness; and it is not contended that the means provided in the law 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.

GOMEZ v. PALOMAR GR No. L-23645, October 29, 1968 25 SCRA 827 FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants exemptions. The law in question requires an additional 5 centavo stamp for every mail being posted, and no mail shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal protection clause? HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in classification. The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax exemptions have never been thought of as raising revenues under the equal protection clause.

PUNSALAN v. MUN. BOARD OF CITY OF MANILA GR No. L-23645, October 29, 1968 95 PHIL 46 FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a CPA, and a pharmacist--sought the annulment of Ordinance No.3398 of the City of Manila which imposes a municipal occupation tax on persons exercising various professions in the city and penalizes non-payment of the tax, contending in substance that this ordinance and the law authorizing it constitute class legislation, are unjust and oppressive, and authorize what amounts to double taxation. The burden of plaintiffs' complaint is not that the professions to which they respectively belong have been singled out for the imposition of this municipal occupation tax, but that while the law has authorized the City of Manila to impose the said tax, it has withheld that authority from other chartered cities, not to mention municipalities. ISSUE: Does the law constitute a class legislation? Is it for the Court to determine which political unit should impose taxes and which should not? HELD: No. It is not for the courts to judge what particular cities or municipalities should be empowered to impose occupation taxes in addition to those imposed by the National Government. That matter is peculiarly within the domain of the political departments and the courts would do well not to encroach upon it. Moreover, as the seat of the National Government and with a population and volume of trade many times that of any other Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the professions, so that it is but fair that the professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces.

TIO vs. VRB

151 SCRA 208 GR No. L-75697, June 18, 1987 "The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another."

FACTS: The petitioner assails the validity of PD 1987 entitled an "Act creating the Videogram Regulatory Board," citing especially Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government. Petitioner contends that aside from its being a rider and not germane to the subject matter thereof, and such imposition was being harsh, confiscatory, oppressive and/or unlawfully restraints trade in violation of the due process clause of the Constitution.

ISSUE: Is PD 1987 a valid exercise of taxing power of the state?

HELD: Yes. It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as those rest in the discretion of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another.

CITY OF BAGUIO vs. DE LEON

25 SCRA 938 GR No. L-24756, October 31, 1968 "There is no double taxation where one tax is imposed by the state and the other is imposed by the city."

FACTS: The City of Baguio passed an ordinance imposing a license fee on any person, entity or corporation doing business in the City. The ordinance sourced its authority from RA No. 329, thereby amending the city charter empowering it to fix the license fee and regulate businesses, trades and occupations as may be established or practiced in the City. De Leon was assessed for P50 annual fee it being shown that he was engaged in property rental and deriving income therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is no statury authority which expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation, and violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD: No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code empowering the City Council not only to impose a license fee but to levy a tax for purposes of revenue, thus the ordinance cannot be considered ultra vires for there is more than ample statury authority for the enactment thereof. Second, an argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. And third, violation of uniformity is out of place it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof.

BAGATSING vs. RAMIREZ

74 SCRA 306 GR No. L-41631, December 17, 1976 "The entrusting of the collection of the fees to private entities does not destroy the public purpose of a tax ordinance."

FACTS: Aside from the issue on publication, private respondent bewails that the market stall fees imposed in the disputed City Ordinance No. 7522, which regulates public markets and prescribes fees for rentals of stalls, are diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the City of Manila to the said corporation in a "Management and Operating Contract."

ISSUE: Does the delegation of the collection of taxes to a private entity invalidates a tax ordinance and defeats its public purpose?

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

PASCUAL vs. SECRETARY OF PUBLIC WORKS 110 PHIL 331 GR No. L-10405, December 29, 1960 "A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such expenditure, is merely incidental in the promotion of a particular enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction, upon the ground that RA No. 920, which apropriates funds for public works particularly for the construction and improvement of Pasig feeder road terminals. Some of the feeder roads, however, as alleged and as contained in the tracings attached to the petition, were nothing but projected and planned subdivision roads, not yet constructed within the Antonio Subdivision, belonging to private respondent Zulueta, situated at Pasig, Rizal; and which projected feeder roads do not connect any government property or any important premises to the main highway. The respondents' contention is that there is public purpose because people living in the subdivision will directly be benefitted from the construction of the roads, and the government also gains from the donation of the land supposed to be occupied by the streets, made by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of justifying an expenditure of the government?

HELD: No. 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 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.

COMMISSIONER vs. BOAC 149 SCRA 395 GR No. L-65773-74 April 30, 1987

"The source of an income is the property, activity or service that produced the income. For such source to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines."

FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to 1971. BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom, and is engaged in the international airline business. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines. Consequently, it did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the assessments, it maintained a general sales agent in the Philippines Wamer Barnes and Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering passengers and cargoes. The CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC income from Philippine sources since no service of carriage of passengers or freight was performed by BOAC within the Philippines and, therefore, said income is not subject to Philippine income tax. The CTA position was that income from transportation is income from services so that the place where services are rendered determines the source.

ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and accordingly, taxable?

HELD: Yes. The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR 524 SCRA 73, 103 GR Nos. 141104 & 148763, June 8, 2007 "The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or statute law and should not be permitted to stand on vague implications."

"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."

FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition for review before the CTA. The latter denied the claims on the grounds that for zero-rating to apply, 70% of the company's sales must consists of exports, that the same were not filed within the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim for refund/credit. The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on every end of the applicable quarters; and that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for refund/credit of input VAT?

HELD: No. Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as exports because these export processing zones are to be managed as a separate customs territory from the rest of the Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the period claimed for not being established and substantiated by appropriate and sufficient evidence. Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications.

BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA 8 SCRA 224 GR No. L-18125, May 31, 1963 "A tax on property of the Government, whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket."

FACTS: National Waterworks and Sewerage Authority (NWSA), a public corporation owned by the Government of the Philippines as well as all property comprising waterworks and sewerage systems placed under it, took over the Cabuyao-Sta. Rosa-Bian Waterworks System in 1956. It was assessed by the Provincial Assessor of Laguna, for purposes of real estate taxes, on the real properties owned by Cabuyao Waterworks. The respondent protested claiming it is exempted from the payment of real estate taxes in view of the nature and kind of said property and functions and activities of petitioner. The petitioner denied the protest arguing that such real properties are subject to real estate tax because although said properties belong to the Republic of the Philippines, the same holds it, not in its governmental, political or sovereign capacity, but in a private, proprietary or patrimonial character, which, allegedly, is not covered by the exemption contained in section 3(a) of Republic Act No. 470.

ISSUE: Are the real properties owned by the respondent public corporation subject to real estate tax?

HELD: No. Republic Act No. 470 makes no distinction between property held in a sovereign, governmental or political capacity and those possessed in a private, proprietary or patrimonial character. And where the law does not distinguish neither may we, unless there are facts and circumstances clearly showing that the lawmaker intended the contrary, but no such facts and circumstances have been brought to our attention. Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly suggest that the object of exemption is considered more from the view point of dominion, than from that of domain. Moreover, taxes are financial burdens imposed for the purpose of raising revenues with which to defray the cost of the operation of the Government, and a tax on property of the Government, whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket. Hence, it would not serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on account of the paper work, time and consequently, expenses it would entail.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN 24 SCRA 789 GR No. L-22814, August 28, 1968 "The classification made in the exercise of power to tax, to be valid, must be reasonable ."

FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under protest, to the City of Butuan, and collected by the latter, pursuant to its Municipal Ordinance No. 110 which plaintiff assails as null and void because it partakes of the nature of an import tax, amounts to double taxation, highly unjust and discriminatory, excessive, oppressive and confiscatory, and constitutes an invlaid delegation of the power to tax. The ordinance imposes taxes for every case of softdrinks, liquors and other carbonated beverages, regardless of the

volume of sales, shipped to the agents and/or consignees by outside dealers or any person or company having its actual business outside the City.

ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

HELD: Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a tax on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax. It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation. The classification made in the exercise of this authority, to be valid, must, however, be reasonable and this requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the classification applies equally to all those who belong to the same class.

PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF TANAUAN 69 SCRA 460 GR No. L-31156, February 27, 1976 "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.

FACTS: Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to declare Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act,

unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27 denominated as "municipal production tax" of the Municipality of Tanauan, Leyte, null and void. Ordinance 23 levies and collects "from soft drinks producers and manufacturers a tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked, and Ordinance 27 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. Aside from the undue delegation of authority, appellant contends that it allows double taxation, and that the subject ordinances are void for they impose percentage or specific tax.

ISSUE: Are the contentions of the appellant tenable?

HELD: No. On the issue of undue delegation of taxing power, it is settled that the power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people. It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern. 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. Also, there is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, so that double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the other by the city or municipality. On the last issue raised, the ordinances do 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.

OSMEA vs. ORBOS 220 SCRA 703 GR No. 99886, March 31, 1993 " To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies that the legislature determines matter of principle and lays down fundamental policy."

FACTS: Senator John Osmea assails the constitutionality of paragraph 1c of PD 1956, as amended by EO 137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose additional amounts on petroleum products which proceeds shall accrue to the Oil Price Stabilization Fund (OPSF) established for the reimbursement to ailing oil companies in the event of sudden price increases. The petitioner avers that the collection on oil products establishment is an undue and invalid delegation of legislative power to tax. Further, the petitioner 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. 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.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. 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 as a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump rates,

P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund.

VILLEGAS vs. HIU CHIONG 86 SCRA 270 GR No. L-29646, November 10, 1978 "A tax law should be declared invalid if it fails to lay down standards to guide or limit the actions of the taxing authority."

FACTS: The Municipal Board of Manila enacted Ordinance No. 6537 which prohibits aliens from being employed or to engage or participate in any position or occupation or business, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00. The repondent challenged the validity of the ordinance upon the contention that it does not qualify as a valid exercise of the power to tax for as a revenue measure imposed on aliens employed in the City of Manila, the ordinance is discriminatory and violative of the rule of the uniformity in taxation, and 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:

ISSUE: Is there a valid exercise of the taxing power of the local government?

HELD: None. First, the ordinance is not a regulatory or police power measure; it is but a revenue measure guise in a police power measure. Second, 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. On the illegal delegation part of the argument, Ordinance No. 6537 is void for it does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful.

ESSO STANDARD EASTERN, INC. vs. ACTING COMMISSIONER OF CUSTOMS 18 SCRA 488 GR No. L-21841, October 28, 1966 "Exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority."

FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc., claims for the refund of special import taxes paid pursuant to the provision of RA 1394 which imposed a special import tax "on all goods, articles or products imported or brought into the Philippines." Exempt from this tax, by express mandate of Section 6 of the same law are "machinery, equipment, accessories, and spare parts, for the use of industries, miners, mining enterprises, planters and farmers". Petitioner argued that the importation it made of gas pumps used by their gasoline station operators should fall under such exemptions, being directly used in its industry. The Collector of Customs of Manila rejected the claim, and so as the Court on Tax Appeals. The CTA noted that the pumps imported were not used in the processing of gasoline and other oil products but by the gasoline stations, owned by the petitioner, for pumping out, from underground barrels, gasoline sold on retail to customers.

ISSUE: Is the contention of the petitioner tenable? Does the subject imports fall into the exemptions?

HELD: No. The contention runs smack against the familiar rules that exemption from taxation is not favored, and that exemptions in tax statutes are never presumed. Which are but statements in adherence to the ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tested by this precept, we cannot indulge in expansive construction and write into the law an exemption not therein set forth. Rather, we go by the reasonable assumption that where the State has granted in express terms certain exemptions, those are the exemptions to be considered, and no more. Since the law states that, to be tax exempt, equipment and spare parts should be "for the use of industries", the coverage herein should not be enlarged to include equipment and spare parts for use in dispensing gasoline at retail. 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 uniformp ro v is o 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.

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.

2. 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 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.

Tan vs. Del Rosario

237 SCRA 324

Facts:

Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT) under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and different treatment in the professionals which petitioners assail as unconstitutional for being isolative of the equal protection clause in the constitution.

Issue: Is the contention meritorious?

Ruling:

No. uniformity of taxation, like the hindered concept of equal protection, merely require that all subjects or objects of taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity, does not offend classification as long as it rest on substantial distinctions, it is germane to the purpose of the law. It is not limited to existing only and must apply equally to all members of the same class.

The legislative intent is to increasingly shift the income tax system towards the scheduled approach in taxation of individual taxpayers and maintain the present global treatment on taxable corporations. This classification is neither arbitrary nor inappropriate.

Tan vs. Del Rosario

237 SCRA 324

Facts:

Petitioner seeks declaration of unconstitutionality of RA7496 (also known as Simplified Net Income Taxation) due to violation of the following constitutional provision: Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. The petitioner stressed that it violates the equal protection clause as it only imposed taxes upon one who practice his profession and not to those who are engaged to single proprietorship. Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws.

Issue: Whether or not RA 7496 violates the aforestated provision of the constitution

Held: The SC ruled in the negative. The said law is not arbitrary; it is germane to the purpose of the law and; applies to all things of equal conditions and of same class. It is neither violative of equal protection clause due to the existence of substantial difference between one who practice his profession alone and one who is engaged to proprietorship. Further, the SC said that RA 7496 is just an amendatory provision of the code of taxpayers where it classifies taxpayers in to four main groups: Individuals, Corporations, Estate under Judicial Settlement and Irrevocable Trust. The court would have appreciated the contention of the petitioner if RA 7496 was an independent law. But since it is attached to a law that has already classified taxpayers, there is no violation of equal protection clause.

CALTEX PHILIPPINES VS CA G.R. 925585 MAY 8, 1992

FACTS: In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance. Petitioner requested COA for the early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs. COA denied the same.

ISSUE: Whether or not petitioner can avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement.

RULING: It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually debtors and creditors 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 oil companies merely acted as agents for the government in the latters collect ion since taxes are passed unto the end-users, the consuming public.

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

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 a forenamed 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.

[G.R. No. 153866. February 11, 2005] COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES), respondent. DECISION

PANGANIBAN, J.: Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or VAT. Although export sales are not deemed exempt transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT. Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such refund or credit. The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002 Decision of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the Decision reads as follows: WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit. The Facts The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows: As jointly stipulated by the parties, the pertinent facts x x x involved in this case are a s follows: 1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange Commission to do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu; 2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform the duties of his office, including, among others, the duty to act and approve claims for refund or tax credit; 3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of recording components primarily used in computers for export. Such registration was made on 6 June 1997; 4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No. 97-083-000600-V issued on 2 April 1997;

5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent]; 6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu; 7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for VAT refund. The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the [petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of Petition for Review in order to toll the running of the two-year prescriptive period. For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit: 1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary investigation/examination by [petitioners] Bureau; 2. Since taxes are presumed to have been collected in accordance with laws and regulations, the [respondent] has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected x x x; 3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that: A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund. 4. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is due to the fact that claims for refund/credit [partake of] the nature of an exemption from tax. Thus, it is incumbent upon the [respondent] to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the [respondent] to prove the same is fatal to its claim for tax credit. He who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications; 5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation to Section 103 of the Tax Code, as amended. As [respondents] business is not subject to VAT, the capital goods and services it alleged to have purchased are considered not used in VAT taxable business. As such, [respondent] is not entitled to refund of input taxes on such capital goods pursuant to Section

4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations. 6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on filing of a written claim for refund within two (2) years from the date of payment of tax. On July 19, 2001, the Tax Court rendered a decision granting the claim for refund. Ruling of the Court of Appeals The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit certificate (TCC) in favor of respondent in the reduced amount of P12,122,922.66. This sum represented the unutilized but substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999. The appellate court reasoned that respondent had availed itself only of the fiscal incentives under Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of those under both Presidential Decree No. (PD) 66, as amended, and Section 24 of RA 7916. Respondent was, therefore, considered exempt only from the payment of income tax when it opted for the income tax holiday in lieu of the 5 percent preferential tax on gross income earned. As a VAT-registered entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT. Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.1031 of RR 7-95 were applicable. Having paid the input VAT on the capital goods it purchased, respondent correctly filed the administrative and judicial claims for its refund within the twoyear prescriptive period. Such payments were -- to the extent of the refundable value -- duly supported by VAT invoices or official receipts, and were not yet offset against any output VAT liability. Hence this Petition. Sole Issue Petitioner submits this sole issue for our consideration: Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999. The Courts Ruling

The Petition is unmeritorious.