G.R. No. 106611 July 21, 1994COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.

COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS, respondents.Citytrust filed a claim for refund with BIR in the amount of P19,971,745.00 representing the allegedoverpayment of income tax as computed in its final income tax return for the calendar year endingDecember 31, 1985. To interrupt the prescriptive period, Citytrust filed a petition with the Court of TaxAppeals, claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985. TheOSG in their answer contended that the claim of Citytrust from 1983 was not properly documented andthat even if they are entitled for such claim the right to claim the same has prescribed with respect toincome tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the National InternalRevenue Code of 1977, as amended, since the petition was filed only on August 28, 1986. The case wassubmitted for decision based solely on the pleadings and evidence submitted by herein privaterespondent Citytrust because the petitioner failed to present evidence due to the failure of TaxCredit/Refund Division of the BIR to transmit the records of the case, as well as the investigation reportthereon, to the Solicitor General. The petitioner filed a motion to suspend the proceedings but the samewas denied. The case was decided and the Tax court ruled in ordering BIR to refund the overpaid tax forthe year 1984 and 1985 only. Petitioner filed a motion for reconsideration contending that Citytrust hasan outstanding tax liability amounting to P56M in 1984. Both parties filed a motion for reconsiderationwhich was denied by the CA and the court affirmed the decision of CTA. Hence this petition. Issue: Whether or not the state is bound to the mistakes committed by its agents Ruling: It is a long and firmly settled rule of law that the Government is not bound by the errorscommitted by its agents.

In the performance of its governmental functions, the State cannot be estoppedby the neglect of its agent and officers. Although the Government may generally be estopped through theaffirmative acts of public officers acting within their authority, their neglect or omission of public duties asexemplified 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 Governmentcannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of thenation through which the government agencies continue to operate and with which the Stateeffects its functions for the welfare of its constituents.

The errors of certain administrative officersshould never be allowed to jeopardize the Government's financial position, especially in the case at barwhere the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Wherefore the Judgment of CA is hereby set aside and the case isremanded to CTA

Commissioner of Internal Revenue vs. Cebu Portland Cement Co. G.R. No. L-29059, 15 December 1987

Facts: CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement Company, respondent, P 359,408.98 representing overpayments of ad valorem taxes on cement sold by it. Execution of judgement was opposed by the petitioner citing that private respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, there was still a P4 M plus balance they owed. The Court of Tax Appeals, in holding that the alleged sales tax liability of the private respondent was still being questioned and therefore could not be set-off against the refund, granted private respondent's motion. The private respondent questioned the assessed tax based on Article 186 of the Tax Code, contending that cement was adjudged a mineral and not a manufactured product; and thusly they were not liable for their alleged tax deficiency. Thereby, petitioner filed this petition for review.

Issue: Whether or not assessment of taxes can be enforced even if there is a case contesting it.

Held: The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. That is the reason why, save for the exception in RA 1125 , the Tax Code provides that injunction is not available to restrain collection of tax. Thereby, we hold that the respondent Court of Tax Appeals erred in its order.

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. 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.

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 1959showing 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.

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.

Glory Pearl D. AmwaoLLB-3B CHAVEZ V. ONGPIN G.R. No. 76778 June 6, 1990Sound Tax System (Fiscal Adequacy) Facts: Francisco Chavez, together with the Realty Owners Associ a t i o n o f t h e Philippines, challenged the constitutionality of Executive Order 7 3 providing for thecollection of real property taxes based on the 1984 real property values, as provided for u n d e r s e c t i o n 2 1 o f t h e R e a l P r o p e r t y T a x C o d e . C h a v e z a l l e g e d t h a t E O 7 3 accelerated the application of the general revision of assessments from January 1, 1988to January 1, 1987 thereby mandating an excessive increase in real property taxes by100% to 400% on improvements, and up to 100% on land; that any increase in thev a l u e o f r e a l p r o p e r t y b r o u g h t a b o u t b y t h e r e v i s i o n o f r e a l p r o p e r t y v a l u e s a n d assessments would necessarily lead to a proportionate increase in real property taxes ;that sheer oppression is the result of increasing real property taxes at a period of time when harsh economic conditions prevail; and that the increase in the market values of real property as reflected in the schedule of values was brought about only by inflation and economic recession. Issue: Whether or not revisions of values in real property taxes is consistent with asound tax system. Held: Yes. The general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. Moreover, without Executive Order No. 73,the basis for collection of real property taxes will still be the 1978 revision of property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax s ys t e m . F i s c a l adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations.

Diaz vs. Secretary of Finance (2011) Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Court treated the case as one of prohibition. Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution. The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees ,including tollway operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read into contracts. Issue: May toll fees collected by tollway operators be subjected to VAT (Are tollway operations a franchise and/or a service that is subject to VAT)? Ruling: When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the service providers under Section108 who allow others to use their properties or facilities for a fee. Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Tollway operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be p r o p e r l y t r e a t e d a s a t a x . T a x e s m a y b e i m p o s e d o n l y b y t h e g o v e r n m e n t u n d e r i t s s o v e r e i g n authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership