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Taxation 1 Case Digests

Pepsi-Cola vs Mun. of Tanauan (G.R. No. L-31156 Feb 27,1976)

The legislative power to create political corporations for purposes of local self government courts with it the power to confer on such local government agencies the power to tax. Facts: Pepsi commenced a complaint with preliminary injunction before the CFI of Leyte for that court to declare Section 2 of R.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing authority as well as declare Municipal Ordinance Nos. 23 & 27 series of 1962 of Municipality of Tanauan, Leyte null and void. Municipal Ordinance 23 levies and collects from softdrinks producers and manufacturers at ai of 1/16th of a centavo for every bottle of softdrink corked. On the other hand, Municipal Ordinance 27 levies and collects on softdrinks produced or manufactured within the territorial jurisdiction of the municipality a tax of 1 centavo on each gallon of volume capacity. Both are denominated as municipal production tax Issues: a) WoN section 2 of R.A. 2264 is an undue delegation of power b) WoN Ordinances 23 & 27 constitute double taxation and impose percentage or specific tax c) WoN Ordinances 23 and 27 are unjust and unfair Held: a) No, it is true that power of taxation 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 but the exception lies in the case of municipal corporations to which the said theory does not apply. Legislative concerns may be delegated to local governments in respect of matters of local concerns. By necessary implication, the legislative power to create political corporations for purposes of local self-government courts with it the power to confer on such local government agencies the power to tax. The constitution grants local government the autonomous authority to create their owns ources of revenue and to levy taxes. b) No, the difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No.23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon(128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No.27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of thelatter, even without words to that effect. Plaintiff-appellantin its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned therein." The limitation applies, particularly to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. But, the imposition of "a tax of one centavo (P0.01)on each gallon of volume capacity on all sort drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of

determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. Nor can the tax levied betreated as a specific tax. Specific taxes are those imposed onspecified articles, such as distilled spirits, wines, fermentedliquors, products of tobacco other than cigars and cigarettes,matches firecrackers, manufactured oils and other fuels,coal, bunker fuel oil, diesel fuel oil, cinematographic films,playing cards, saccharine, opium and other habit-formingdrugs. Soft drink is not one of those specified.c) The tax of one (P0.01) on each gallon (128 fluid ounces,U.S.) of volume capacity on all softdrinks, produced ormanufactured, or an equivalent of 1 centavos per case, cannot be considered unjust and unfair. An increasein the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This is in line with the constitutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that isgiven expression in the Local Tax Code (PD No. 231, July 1,1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant.

CIR vs. Algue Inc. (G.R. No. L-28896 Feb 17, 1988)
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 theapparently conflicting interests of the authorities and the taxpayers so thatthe real purpose of taxation, which is the promotion of the common good,may be achieved. Facts: Philippine Sugar Estate Development Company appoints Algue as its agent authorizing it to sell its land, factories and oil manufacturing process. Family members Guevara et al worked for the formation of Vegetable Oil Investment Corp inducing persons to invest in it. After its incorporation largely through the promotion of Guevara et al, Vegetable Oil Investment Corporation of the Philippines (VOIC) purchased PSEDC properties. For the sale, Algue received as agent a commission of 126k and it was from this commission that the75k promotional fees were paid to Alberto Guevara Jr. et al. Issue: WON the collector of Internal Revenue correctly disallowed the 75k deduction claimed by private respondent Algue as legitimate business expensed in its income tax returns 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 experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. 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.

Phil. Guaranty Co., Inc. vs. CIR, CTA GR No. L-22074, April 30, 1965
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 vs. CIR, CTA, GR No. 120324, April 21, 1999 FACTS:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals nd decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2 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. 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.

Pascual vs. Secretary of Public Works, GR No. L-10405, Dec. 29, 1960
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.

City of Baguio vs. De Leon GR No. L-24756, Oct. 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.