Taxation Case Digest Part 1

Case TAXATION LAW Digests
San Beda College of Law
2005 CENTRALIZED BAR OPERATIONS
SUMMARY OF DOCTRINES
GENERAL PRINCIPLES
Tax Exemption of Charitab e In!tit"tion! To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution. !nder the "#$% and "#&$ 'onstitutions and (ep. Act )o. $"*+ in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and une,uivocal proof, that -a. it is a charitable institution and -b. its real properties are A'T!A//0, 12(3'T/0 and 34'/!5263/0 used for charitable purposes. 2f real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words 7dominant use7 or 7principal use7 cannot be substituted for the words 7used exclusively7 without doing violence to the 'onstitutions and the law. [LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY AND CONSTANTINO P. ROSAS. G.R. No. 144104. Jun !"# !004.$ Tax Exemption# Tr"!t F"n$! The 8ratuity 9lan will lose its tax-exempt status if the retirement benefits are released prior to the retirement of the employees. The trust funds of employees other than those of private employers are ,ualified for certain tax exemptions pursuant to 5ection *+-:., formerly 5ection ;%-b., of the )ational 2nternal (evenue 'ode. [DE%ELOP&ENT 'AN( OF THE PHILIPPINES vs. CO&&ISSION ON AUDIT. G.R. No. 144)1*. F +,u-,. 11# !004.$ In%ome Tax# Fina &ithho $in' Tax# Gro!! Re%eipt! Tax# Do"b e Taxation Although the <+= >?T on respondent :ank@s interest income was not actually received by respondent because it was remitted directly to the government, the fact that the amount redounded to the bank@s benefit makes it part of the taxable gross receipts in computing the ;= 8(T. The ;= 8(T (Sec. 119 of the Tax Code) is included under 7Title 6. Ather 9ercentage Taxes7 and is not subject to withholding. The <+= >?T, on the other hand, falls under 5ection <B-e.-". of 7Title 22. Tax on 2ncome.7 2n a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed the payor, a separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its payment. Abviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds are either actual or constructive. There is no double taxation because the taxes are imposed on two different subject matters. The subject matter of the >?T is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the 8(T is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property hence, it is an excise rather than a property tax. [CIR vs. SOLID'AN( CORP. G.R. No. 14/1"1. Nov 0+ , !)# !001.$
TAXATION LAW COMMITTEE AND DI EST !OOL

CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachel R. Saya SUBJECT HEADS: Jemina Sy (General Principles ! Casian" Ila#an (Inc"me Ta$a%i"n ! J&'n(ee G'illerm" (Trans)er Ta$es ! Ryan C" (Ta$ Reme(ies ! E(*in T"rres (+"cal Ta$a%i"n an( Real Pr"per%y Ta$a%i"n C&ris%ian Ca,rera (Tari)) an( C's%"ms C"(e ! -a(e%%e A.'r (Anne$es ! E(i.er Enri/'e.! (Anne$es DIGEST POO+: Sam Acere%! Ian Camara! R"el Cas%r"! Ri. Cima)ranca! Emman'el Ric" C"rp'.! Jeenice (e Sa#'n! R"0ane El"pre! Amelyn Ja1ill"nar! 21e%%e +a,ra("r! Jesse%%e +a,ria#a! -il(re( -a,an#l"! R',y -ae -apana"! Reyn"l( -a%a! Elise" Pi%ar#'e! 3r"s&ell Sa're! C&arrisimae 4en%'ra

Case T AXATION LAW Digests
Tax Exemption of Spe%ia E%onomi% (one! 2t is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Ather than 'ongress, the 'onstitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The claimed statutory exemption of the Cohn Day 53E from taxation should be manifest and unmistakable from the language of the law on which it is based it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably expressed. [JOHN HAY PEOPLES ALTERNATI%E COALITION vs. %ICTOR LI&. G.R. No. 11"22). O34o+ , !4# !001.$ Per%enta'e tax on pa)n!hop!# *a i$it+ of Re,en"e Memoran$"m Or$er! an$ Cir%" ar! ?hile it is true that pawnshops are engaged in the business of lending money, they are not considered 7lending investors7 for the purpose of imposing the ;= percentage taxes becauseF ". pawnshops and lending investors were subjected to different tax treatments <. 'ongress never intended pawnshops to be treated in the same way as lending investors %. 5ection ""* of the )2(' of "#$$, as amended by 3.A. )o. <$%, subjects to percentage tax dealers in securities and lending investors only. ?hen an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance, for it gives no real conse,uence more than what the law itself has already prescribed. ?hen, on the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. [CIR vs. &ICHEAL J. LHUILLIER PA5NSHOP# INC. G.R. No. 1)0"42. Ju6. 1)# !001.$ Carr+in' for)ar$ of ex%e!! or o,erpai$ in%ome tax The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only. 5ection *# of the old )2(' provides that in case the corporation is entitled to a refund of the excess estimated ,uarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated ,uarterly income tax liabilities for the taxable ,uarters of the succeeding year. [A' LEASING AND FINANCE CORPORATION vs. CIR. G.R. No. 11/14!. Ju6. /# !001.$
TA- ENFORCEMENT AND ADMINISTRATION

Tax A!!e!!ment! !npaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. To impose the real property tax on the subse,uent owner that was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. 2f the taxpayer is not satisfied with the action of the local assessor in the assessment of his property, he has the right, under 5ection %+ of 9.1. )o. B*B, to appeal to the /ocal :oard of Assessment Appeals by filing a verified petition within sixty -*+. days from service of said notice of assessment. 2f the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due becomes absolute upon the expiration of such period, with respect to the taxpayer@s property. A notice of assessment as provided for in the (eal 9roperty Tax 'ode should effectively inform the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties.
S$B&ECT C'AI"!E"SONS
2005 CENT"ALI#ED BA" O!E"ATIONS EXEC$TI%E COMMITTEE AND
Ma(i)el A*a(entos (O1er5all C&airpers"n ! "onald &al+an,a( (O1er5all 4ice C&air ! -olanda Tolentino (4C5Aca(s ! Jennife( Ang (4C5 Secre%aria% ! &o. Ind/)ti0o (4C53inance ! Elaine Mas/1at (4C5EDP ! Anna Ma(ga(ita E(es (4C5+"#is%ics &onat2an Mang/nda.ao (P"li%ical +a* ! 3(an)is Benedi)t "eot/ta( (+a,"r +a* ! "o+/ald !adilla (Ci1il +a* ! C2a(+aine To((es (Ta$a%i"n +a* ! Ma(1 Da0id Ma(tine, (Criminal +a* ! a(n. L/isa Aleg(e (C"mmercial +a* ! &in1. Ann $. (Reme(ial +a* ! &a)1ie Lo/ Ba/tista (+e#al E%&ics
5ection *B of the (9T', prohibits courts from declaring any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes except upon the condition that the taxpayer pays the just amount of the tax, as determined by the court in the pending proceeding. [&ERALCO vs. NELIA A. 'ARLIS. G.R. No. 114!11. Jun !"# !004.$ Tax A!!e!!ment# Proper Ser,i%e The legal obligation on the executor, administrator or any of the legal heirs, to inform respondent '2( of the decedentGs death under Section 104 of the 1977 NIRC pertains only to Hall cases of transfer subject to taxI or where the Hgross value of the estate exceeds 9%,+++I. 2t has absolutely no applicability to a case for deficiency of income tax. ?hen an estate is under administration, notice must be sent to the administrator of the estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all orders of the court. [ESTATE OF THE LATE JULIANA DIEZ vs. CIR. G.R. No. 1)))41. J-nu-,. !2#!004.$ Tax A!!e!!ment# Proper Ser,i%e ?here the notice of assessment is sent to the companyGs old business address, despite the fact that the new address has been communicated to the :2(, there is then no valid assessment by the :2( 5ince there was a failure to effect a timely valid assessment, the period for filing a criminal case for 9A'@s tax liabilities had prescribed by the time 'ommissioner instituted the criminal cases against 9A'Gs former officers. [CIR vs. 'PI# -s LIQUIDATOR OF PARA&OUNT ACCEPTANCE CORPORATION. G.R. No. 11)44*. S 74 0+ , !1# !001.$ Re,en"e Re'" ation!# Nat"re# App i%ation Administrative issuances may be distinguished according to their nature and substanceF legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law, which the administrative agency is in charge of enforcing. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. Tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. ['PI LEASING CORP. vs. COURT OF APPEALS. G.R. No. 1!2*!4. Nov 0+ , 1/# !001.$
LOCAL TA-ATION
Lo%a Taxation# *a i$it+ of a M"ni%ipa Or$inan%e :y express language of 5ections ";% and ";; of (A )o. $"*+, local government units, through their 5anggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. Dowever, 5ection "%%-e. of (A )o. $"*+ prohibits the imposition, in the guise of wharfage, of fees J as well as all other taxes or charges in any form whatsoever J on goods or merchandise. [PAL&A DE%ELOP&ENT CORPORATION vs. &UNICIPALITY OF &ALANGAS. G.R. No. 1)!4"!. O34o+ , 1*# !001.$


Lo%a Taxation# Po)er! of Cit+ A!!e!!or! The determination made by the respondent 'ity Assessor with regard to the taxability of the subject real properties s,uarely falls within its power to assess properties for taxation purposes subject to appeal before the /ocal :oard of Assessment Appeals. The authority to receive evidence, as basis for classification of properties for taxation, is legally vested on the respondent 'ity Assessor whose action is appealable to the /ocal :oard of Assessment Appeals and the 'entral :oard of Assessment Appeals, if necessary. [SYSTE&S PLUS CO&PUTER COLLEGE OF CALOOCAN CITY vs. LOCAL GO%ERN&ENT OF CALOOCAN CITY. G.R. No. 14*1/!. Au8us4 2# !001.$
REAL PROPERTY TA-ATION

Tax Exemption# Rea Propert+ Tax an$ ."!ine!! Tax The exemption of public property from taxation does not extend to improvements made thereon by homesteaders or occupants at their own expense. The warehouse in the instant case is thus, taxable it being a mere improvement built on an alleged property of public dominion. Any income or profit generated by an entity, even of a corporation organiKed without any intention of realiKing profit in the conduct of its activities, is subject to tax. ?hat matters is the established fact that it leased out its building to ten private entities from which it regularly earned substantial income. Thus, in the absence of any proof of exemption therefrom, petitioner is liable for the assessed business taxes. [PHILIPPINE PORTS AUTHORITY vs. CITY OF ILOILO. G.R. No. 10"2"1. Ju6. 14# !001.$
TARIFF AND CUSTOMS CODE

/"ri!$i%tion of the Co e%tor of C"!tom! 0 Commi!!ioner of C"!tom! There is no ,uestion that (egional Trial 'ourts are devoid of any competence to pass upon the validity or regularity of seiKure and forfeiture proceedings conducted by the :ureau of 'ustoms and to enjoin or otherwise interfere with these proceedings. The 'ollector of 'ustoms sitting in seiKure and forfeiture proceedings has exclusive jurisdiction to hear and determine all ,uestions touching on the seiKure and forfeiture of dutiable goods. The (egional Trial 'ourts are precluded from assuming cogniKance over such matters even through petitions of certiorari, prohibition or mandamus. [R.%. &ARZAN FREIGHT# INC. vs. COURT OF APPEALS 9 SHIELA:S &ANUFACTURING INC. G.R. No. 1!/0*4. &-,3; 4# !004.$
CASE DIGEST
GENERAL PRINCIPLES
Tax Exemption of Charitab e In!tit"tion! LUNG CENTER OF T1E P1ILIPPINES ,!2 3UE(ON CITY an$ CONSTANTINO P2 ROSAS 4G2R2 No2 5665762 /"ne 89: 87762; CALLEJO# SR.# J< FACTS< The petitioner /ung 'enter of the 9hilippines is a non-stock and non-profit entity by virtue of 9residential 1ecree )o. "&<%. 2t is the registered owner of a parcel of land with a hospital in the middle, located at LueKon 'ity. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics. A big portion of the land is being leased for commercial purposes to a private enterprise. The petitioner accepts paying and non-paying patients. 2t also renders medical services to out-patients, both paying and non-paying. 2t also receives annual subsidies from the government. An Cune $, "##%, both the land and the hospital building of the petitioner were assessed for real property taxes. The petitioner filed a 'laim for 3xemption from real property taxes with the 'ity Assessor, predicated on its claim that it is a charitable institution. The petitioner@s re,uest was denied, and a petition was, thereafter, filed before the /ocal :oard of Assessment Appeals of LueKon 'ity -L'-/:AA.. The petitioner alleged that under 5ection <&, paragraph % of the "#&$ 'onstitution, the property is exempt from real property taxes. The L'-/:AA dismissed the petition and held the petitioner liable for real property taxes. The 'entral :oard of Assessment Appeals of LueKon 'ity and the 'ourt of Appeals -':AA. affirmed L'-/:AAGs decision. ISSUES< ". ?hether petitioner is a charitable institution within the context of 9residential 1ecree )o. "&<% and the "#$% and "#&$ 'onstitutions and 5ection <%B-b. of (epublic Act )o. $"*+. <. ?hether the real properties of the petitioner are exempt from real property taxes. 1ELD< ". YES2 To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. 'harity may be applied to almost anything that tend to promote the well-doing and wellbeing of social man. 2t embraces the improvement and promotion of the happiness of man. The word 7charitable7 is not restricted to relief of the poor or sick. The test of a charity and a charitable organiKation are in law the same. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganiKed in law as charitable or whether it is maintained for gain, profit, or private advantage. !nder 9.1. )o. "&<%, the petitioner is a non-profit and non-stock corporation which was organiKed for the welfare and benefit of the >ilipino people principally to help combat the high incidence of lung and pulmonary diseases in the 9hilippines. The medical services of the petitioner

are to be rendered to the public in general in any and all walks of life including those who are poor and the needy without discrimination. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve and no money inures to the private benefit of the persons managing or operating the institution. The fundamental ground upon which all exemptions in favor of charitable institutions are based is the benefit conferred upon the public by them, and a conse,uent relief, to some extent, of the burden upon the state to care for and advance the interests of its citiKens. <. NO2 3ven though the petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is e,uivalent to an appropriation. Dence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. The tax exemption under 5ection <&-%., Article 62 of the "#&$ 9hilippine 'onstitution covers property taxes only. ?hat is exempted is not the institution itself those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. !nder the "#$% and "#&$ 'onstitutions and (ep. Act )o. $"*+ in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and une,uivocal proof, that -a. it is a charitable institution and -b. its real properties are A'T!A//0, 12(3'T/0 and 34'/!5263/0 used for charitable purposes. 2f real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words 7dominant use7 or 7principal use7 cannot be substituted for the words 7used exclusively7 without doing violence to the 'onstitution and the law. ?hat is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organiKed. 2t is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.
INCOME TA-ATION
Tax=Exemption# Tr"!t F"n$! DE*ELOPMENT .AN> OF T1E P1ILIPPINES ,!2 COMMISSION ON AUDIT 4G2R2 No2 566?5@2 Febr"ar+ 55: 8776; CARPIO# J< FACTS< An >ebruary <+, "#&+, the 1evelopment :ank of the 9hilippines -1:9. :oard of 8overnors adopted (esolution )o. $#B creating the 1:9 8ratuity 9lan and authoriKing the setting up of a retirement fund to cover the benefits due to 1:9 retiring officials and employees under 'ommonwealth Act )o. "&*, as amended. 2n "#&%, the :ank established a 5pecial /oan 9rogram availed thru the facilities of the 1:9 9rovident >und and funded by placements from the 8ratuity 9lan >und. !nder the 5pecial /oan 9rogram, a prospective retiree is allowed the option to utiliKe in the form of a loan a portion of his Houtstanding e,uityI in the gratuity fund and to invest it in a profitable investment or undertaking. The earnings of the investment shall then be applied to pay for the interest due on the gratuity loan which was initially set at #= per annum subject to the minimum investment rate resulting from the updated actuarial study. The excess or balance of the interest earnings shall then be distributed to the investor-members. 9ursuant to the investment scheme, 1:9-T51 paid to the investor-members a total of 9"",*<*,B"B.<; representing the net earnings of the investments for the years "##" and "##<. The
S$B&ECT C'AI"!E"SONS 2005 CENT"ALI#ED BA" O!E"ATIONS EXEC$TI%E COMMITTEE AND
payments were disallowed by the Auditor under Audit Abservation Memorandum )o. #%-< dated March ", "##%, on the ground that the distribution of income of the 8ratuity 9lan >und -89>. to future retirees of 1:9 is irregular and constituted the use of public funds for private purposes which is specifically proscribed under 5ection B of 9.1. "BB;. The Auditor reasoned that Hthe >und is still owned by the :ank, the :oard of Trustees is a mere administrator of the >und in the same way that the Trust 5ervices 1epartment where the fund was invested was a mere investor and neither can the employees, who have still an inchoate interest in the >und be considered as rightful owner of the >und.I ISSUE< ?hether or not the distribution of income of the 8ratuity 9lan >und -89>. to future retirees of 1:9 make it lose its tax-exempt status 1ELD< YES2 The 8ratuity 9lan will lose its tax-exempt status if the retirement benefits are released prior to the retirement of the employees. The trust funds of employees other than those of private employers are ,ualified for certain tax exemptions pursuant to 5ection *+-:., formerly 5ection ;%-b., of the )ational 2nternal (evenue 'ode. The 8ratuity 9lan provides that the gratuity benefits of a ,ualified 1:9 employee shall be released only Hupon retirement under the 9lan.I 2f the earnings and principal of the >und are distributed to 1:9 employees prior to their retirement, the 8ratuity 9lan will no longer ,ualify for exemption under 5ection *+-:.. To recall, 1:9 (esolution )o. $#B creating the 8ratuity 9lan expressly provides that Hsince the gratuity plan will be tax ,ualified under the )ational 2nternal (evenue 'ode xxx, the :ankGs periodic contributions thereto shall be deductible for tax purposes and the earnings therefrom tax free.I 2f 1:9 insists that its employees may receive the 9"",*<*,B"B.<; dividends, the necessary conse,uence will be the non-,ualification of the 8ratuity 9lan as a tax-exempt plan.
Fina &ithho $in' Tax# Gro!! Re%eipt! Tax# Do"b e Taxation COMMISSIONER OF INTERNAL RE*ENUE ,!2 SOLID.AN> CORP2 4G2R2 No2 56A5952 No,ember 8?: 877B2; PANGANI'AN# J< FACTS< >or the calendar year "##;, respondent filed its Luarterly 9ercentage Tax (eturns reflecting gross receipts -pertaining to ;= N8ross (eceipts TaxO rate. in the total amount of 9",B$B,*#",*#%.BB with corresponding gross receipts tax payments in the sum of 9$%,$%B,;&B.*+. (espondent alleges that the total gross receipts in the amount of 9",B$B,*#",*#%.BB included the sum of 9%;+,&+$,&$;."; representing gross receipts from passive income which was already subjected to <+= final withholding tax. The 'ourt of Tax Appeals rendered a decision in 'TA 'ase )o. B$<+ entitled sian !an" Cor#oration $s. Commissioner of Interna% Re$enue , wherein it was held that the <+= final withholding tax on a bank@s interest income should not form part of its taxable gross receipts for purposes of computing the gross receipts tax. An the strength of the aforementioned decision, respondent filed with the :ureau of 2nternal (evenue N:2(O a letter-re,uest for the refund or issuance of a tax credit certificate in the aggregate amount of 9%,;+&,+$&.$;, representing, allegedly overpaid gross receipts tax for the year "##;. (espondent on the same day filed a petition for review with the 'TA in order to toll the running of the two-year prescriptive period to judicially claim for the refund of any overpaid internal revenue tax, pursuant to 5ection <%+ Nnow <<#O of the Tax 'ode. After trial on the merits, the 'TA rendered its decision ordering petitioner to refund in favor of respondent the reduced amount of 9",;;;,$B#.*; as overpaid gross receipts tax for the year "##;. ISSUES< ". 1oes the <+= final withholding tax on a bank@s interest income form part of the taxable gross receipts in computing the ;= gross receipts taxP <. 2s there double taxationP

1ELD< ". YES2 Although, the <+= >?T on respondent@s interest income was not actually received by respondent because it was remitted directly to the government, the fact that the amount redounded to the bank@s benefit makes it part of the taxable gross receipts in computing the ;= 8(T. The ;= 8(T (Sec. 119 of the Tax Code) is included under 7Title 6. Ather 9ercentage Taxes7 and is not subject to withholding. The banks and non-bank financial intermediaries liable therefor shall, under 5ection "<;-a.-"., file ,uarterly returns on the amount of gross receipts and pay the taxes due thereon within twenty -<+. days after the end of each taxable ,uarter. The <+= >?T, on the other hand, falls under 5ection <B-e.-". of 7Title 22. Tax on 2ncome.7 2t is a tax on passive income, deducted and withheld at source by the payor-corporation and/or person as withholding agent pursuant to 5ection ;+, and paid in the same manner and subject to the same conditions as provided for in 5ection ;". Two types of taxes are involved in the present controversyF -". the 8(T, which is a percentage tax and -<. the >?T, which is an income tax. As a bank, petitioner is covered by both taxes. A percentage tax is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods sold, bartered or imported or of the gross receipts or earnings derived by any person engaged in the sale of services. 2t is not subject to withholding. An income tax, on the other hand, is a national tax imposed on the net or the gross income realiKed in a taxable year. 2t is subject to withholding. 2n a withholding tax system, the payee is the taxpayer, the person on whom the tax is imposed the payor, a separate entity, acts as no more than an agent of the government for the collection of the tax in order to ensure its payment. Abviously, this amount that is used to settle the tax liability is deemed sourced from the proceeds constitutive of the tax base. These proceeds are either actual or constructive. 2n our withholding tax system, possession is ac,uired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. There being constructive receipt of such income J part of which is withheld J (( "$-&B applies, and that income is included as part of the tax base upon which the 8(T is imposed. <2 There is NO double taxation. 1ouble taxation means taxing the same property twice when it should be taxed only once that is, 7. . . taxing the same person twice by the same jurisdiction for the same thing.7 2t is obnoxious when the taxpayer is taxed twice, when it should be but once. Atherwise described as 7direct duplicate taxation,7 the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period and they must be of the same kind or character. &irst, the taxes herein are imposed on two different subject matters. The subject matter of the >?T is the passive income generated in the form of interest on deposits and yield on deposit substitutes, while the subject matter of the 8(T is the privilege of engaging in the business of banking. A tax based on receipts is a tax on business rather than on the property hence, it is an excise rather than a property tax. 2t is not an income tax, unlike the >?T. Second, although both taxes are national in scope because they are imposed by the same taxing authority J the national government under the Tax 'ode J and operate within the same 9hilippine jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The >?T is deducted and withheld as soon as the income is earned, and is paid after every calendar ,uarter in which it is earned. An the other hand, the 8(T is neither deducted nor withheld, but is paid only after every taxable ,uarter in which it is earned. Third, these two taxes are of different kinds or characters. The >?T is an income tax subject to withholding, while the 8(T is a percentage tax not subject to withholding. Tax Exemption of Spe%ia E%onomi% (one! /O1N 1AY PEOPLES ALTERNATI*E COALITION ,!2 *ICTOR LIM 4G2R2 No2 559CC?2 O%tober 86: 877B2; CARPIO &ORALES# J'
FACTS< Assailed in this case is 9roclamation )o. B<+ issued by then 9res. (amos in pursuance to (epublic Act )o. $<<$ which seeks to convert military bases such as 5ubic, 'lark Q 'amp Cohn Day into other productive uses. (.A. )o. $<<$ created the 5ubic 5pecial 3conomic Nand >ree 9ortO Eone -5ubic 53E. which under 5ec. "< thereof, granted the 5ubic 53E incentives ranging from tax and duty-free importations, exemption of businesses therein from local and national taxes, to other hallmarks of a liberaliKed financial and business climate. (.A. )o. $<<$ expressly gave authority to the 9resident to create through executive proclamation, subject to the concurrence of the local government units directly affected, other 5pecial 3conomic Eones -53E. including 'amp Cohn Day. 5ubse,uently, the 5anggunian of :agiuo passed (esolution )o. <;;, seeking and supporting, subject to its concurrence, the issuance by then 9resident (amos of a presidential proclamation declaring an area of <&&." hectares of the camp as a 53E in accordance with the provisions of (.A. )o. $<<$. Then 9resident (amos issued 9roclamation )o. B<+, which established a 53E on a portion of 'amp Cohn Day providing for, among others, the same incentives granted to 5ubic. 9etitioners challenged the constitutionality and validity of 9residential 9roclamation B<+ in so far as it grants tax exemptions. They contend that nowhere in (A $<<$ can it be found an express provision granting such tax exemption to 'amp Cohn Day as a 53E. ISSUE< ?hether 9roclamation )o. B<+ is constitutional by providing for national and local tax exemption within and granting other economic incentives to the Cohn Day 5pecial 3conomic Eone. 1ELD< NO2 9roclamation )o. B<+ is unconstitutional. )owhere in (.A. )o. $<<$ is there a grant of tax exemption to 53Es yet to be established in base areas, unlike the grant under 5ection "< thereof of tax exemption and investment incentives to the therein established 5ubic 53E. The grant of tax exemption to the Cohn Day 53E thus contravenes Article 62, 5ection <&-B. of the 'onstitution, which provides that 7)o law granting any tax exemption shall be passed without the concurrence of a majority of all the members of 'ongress. 2t is clear that under 5ection "< of (.A. )o. $<<$ it is only the 5ubic 53E that was granted by 'ongress with tax exemption, investment incentives and the like. There is no express extension of the aforesaid benefits to other 53Es still to be created at the time via presidential proclamation. More importantly, the nature of most of the assailed privileges is one of tax exemption. 2t is the legislature, unless limited by a provision of the state constitution, that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. Ather than 'ongress, the 'onstitution may itself provide for specific tax exemptions, or local governments may pass ordinances on exemption only from local taxes. The claimed statutory exemption of the Cohn Day 53E from taxation should be manifest and unmistakable from the language of the law on which it is based it must be expressly granted in a statute stated in a language too clear to be mistaken. Tax exemption cannot be implied as it must be categorically and unmistakably expressed. 2f it were the intent of the legislature to grant to the Cohn Day 53E the same tax exemption and incentives given to the 5ubic 53E, it would have so expressly provided in the (.A. )o. $<<$. Per%enta'e tax on pa)n!hop!# *a i$it+ of Re,en"e Memoran$"m Or$er! an$ Cir%" ar! COMMISSIONER OF INTERNAL RE*ENUE ,!2 MIC1EL /2 L1UILLIER PA&NS1OP: INC2 4G2R2 No2 5?796C2 /" + 5?: 877B2; DA%IDE# JR.# C.J< FACTS< An "" March "##", '2( Cose !. Ang issued (evenue Memorandum Arder -(MA. )o. ";-#" imposing a ;= lending investor@s tax on pawnshops because the principal activity of pawnshops is lending money at interest and incidentally accepting a 7pawn7 of personal property delivered by the pawner to the pawnee as security for the loan. This (MA was clarified by (evenue Memorandum 'ircular -(M'. )o. B%-#" on <$ May "##", providing for a uniform cut-off date, that is Canuary ", "##" and also subjecting pawnshops to documentary stamp taxes.
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9ursuant to these issuances, the :2( issued an assessment notice against /huillier demanding payment of deficiency percentage tax for "##B inclusive of interest and surcharges. /huillier filed an administrative protest with the Affice of the (evenue (egional 1irector contending that -". neither the Tax 'ode nor the 6AT /aw expressly imposes ;= percentage tax on the gross income of pawnshops -<. pawnshops are different from lending investors -%. (MA )o. ";#" impliedly amends the Tax 'ode and is therefore taxation by implication, which is proscribed by law and -;. (MA )o. ";-#" is a 7class legislation7 because it singles out pawnshops among other lending and financial operations.
ISSUES<
". Are pawnshops included in the term lending investors for the purpose of imposing the ;= percentage tax under then 5ection ""* of the )ational 2nternal (evenue 'ode -)2('. of "#$$, as amended by 3xecutive Arder )o. <$%P <. Are (MA )o. ";-#" and (M' )o. B%-#" validP
1ELD< ". NO2 9awnshops are not subject to the ;= lending investorGs tax. !nder 5ection ";$-u. of the )2(' of "#&*, as amended, the term lending investor includes 7all persons who make a practice of lending money for themselves or others at interest.7 A pawnshop, on the other hand, is defined under 5ection % of 9.1. )o. ""B as 7a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.7 ?hile it is true that pawnshops are engaged in the business of lending money, they are not considered 7lending investors7 for the purpose of imposing the ;= percentage taxes for the following reasonsF &irst. !nder 5ection "#<, paragraph %, sub-paragraphs -dd. and -ff., of the )2(' of "#$$, prior to its amendment by 3.A. )o. <$%, as well as 5ection "*", paragraph <, sub-paragraphs -dd. and -ff., of the )2(' of "#&*, pawnshops and lending investors were subjected to different tax treatments Second. 'ongress never intended pawnshops to be treated in the same way as lending investors. ?e note that the definition of lending investors found in 5ection ";$ -u. of the )2(' of "#&* is not found in the )2(' of "#$$, as amended by 3.A. )o. <$%, where 5ection ""* invoked by the '2( is found. Third. 5ection ""* of the )2(' of "#$$, as amended by 3.A. )o. <$%, subjects to percentage tax dealers in securities and lending investors only. There is no mention of pawnshops. !nder the maxim ex#ressio unius est exc%usio a%terius , the mention of one thing implies the exclusion of another thing not mentioned. &ourth. The :2( had ruled several times prior to the issuance of (MA )o. ";-#" and (M' B%#" that pawnshops were not subject to the ;= percentage tax imposed by 5ection ""* of the )2(' of "#$$, as amended by 3.A. )o. <$%. <. NO. (MA )o. ";-#" and (M' )o. B%-#" are invalid. 5ince 5ection ""* of the )2(' of "#$$, which breathed life on the ,uestioned administrative issuances, had already been repealed, (MA ";-#" and (M' B%-#", which depended upon it, are deemed automatically repealed. Dence, even granting that pawnshops are included within the term lending investors, the assessment from <$ May "##B onward would have no leg to stand on. Adding to the invalidity of the (M' )o. B%-#" and (MA )o. ";-#" is the absence of publication. ?hile the rule-making authority of the '2( is not doubted, like any other government agency, the '2( may not disregard legal re,uirements or applicable principles in the exercise of ,uasi-legislative powers. A legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. ?hen an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance, for it gives no real conse,uence more than what the law itself has already prescribed. ?hen, on the other hand, the administrative rule goes beyond merely
11
providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. ?ithout these disputed '2( issuances, pawnshops would not be liable to pay the ;= percentage tax, considering that they were not specifically included in 5ection ""* of the )2(' of "#$$, as amended. 2n so doing, the '2( did not simply interpret the law. The due observance of the re,uirements of notice, hearing, and publication should not have been ignored.
Carr+in' for)ar$ of ex%e!! or o,erpai$ in%ome tax A. LEASING AND FINANCE CORPORATION ,!2 COMMISSIONER OF INTERNAL RE*ENUE 4G2R2 No2 5BAB682 /" + A: 877B; CARPIO=&ORALES# J< FACTS< >or taxable year "##%, petitioner A: /easing and >inance 'orporation had a net income of 9",$$;,&%<.++ for which it was liable to pay income tax in the amount of 9*<",;B".++. 2t appeared, however, that for the year "##%, petitioner had made payments in the total amount of 9",;#B,$;*.++ inclusive of unused prior year@s tax credits. 9etitioner thus opted to apply its excess payment of 9#$%,<";.++ -9",;#B,$;*.++ less 9*<",;B".++. as tax credits for the following year, "##B. 2n the third ,uarter of taxable year "##B, petitioner had a net income of 9%,*<B,<&+.&# for which it paid income tax in the amount of 9<#;,<&%.%<. At the end of "##B, however, petitioner incurred a net loss of 9%,B;+,#"*.++ to thereby exempt it from payment of income tax for taxable year "##B. 2t was thus unable to apply the 9#$%,<";.++ tax credits incurred in "##%. 9etitioner thereupon indicated in its amended annual income tax return for calendar year ending 1ecember %", "##B that it made excess tax payments totaling 9",<*&,B#&.++ -9#$%,<";.++ in "##% plus 9<#;,<&%.%< in "##B.. An April "<, "##*, petitioner filed with respondent, 'ommissioner of 2nternal (evenue, a letter-claim for refund of overpaid income taxes for taxable year "##% in the amount of 9#$%,<";.++. As respondent had not acted on the claim, petitioner filed on April ";, "##* a petition for review with the 'TA, docketed as '.T.A. 'ase )o. ;%$<, praying for the refund of the overpaid income taxes remitted in "##%, offering as part of its evidence its income tax returns for "##% and "##B. An April ";, "##$, petitioner filed another case with the 'TA, docketed as '.T.A. 'ase )o. ;;"%, seeking a refund of overpaid income taxes for taxable year "##B. 2n said case, it offered as part of its evidence its income tax returns for "##B, "##;, and "##*. :y 1ecision of Culy <, "##$, the 'TA dismissed '.T.A. 'ase )o. ;%$< for insufficiency of evidence, drawing petitioner to file a motion for new trial and reconsideration which was denied by the 'TA. ISSUE< 2s the carrying forward of any excess or overpaid income tax for a given taxable year limited to the succeeding taxable year onlyP 1ELD< YES: the carrying forward of any excess or overpaid income tax for a given taxable year then is limited to the succeeding taxable year only . 5ection *# of the old )2(' provides that in case the corporation is entitled to a refund of the excess estimated ,uarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated ,uarterly income tax liabilities for the taxable ,uarters of the succeeding year. 5ince the case at bar involves a claim for refund of overpaid taxes for "##%, petitioner could only have applied the "##% excess tax credits to its "##B income tax liabilities. To further carry-over to "##; the "##% excess tax credits is violative of above-,uoted 5ection *# of the old )2('. That petitioner had signified its intention to apply the entire amount of 9",<*&,B#& representing excess tax payments of 9#$%,<";.++ for "##% and 9<#;,<&%.++ for "##B to the year "##; is immaterial. Anly the amount of 9<#;,<&%.++ representing the "##B income tax overpayments may only be applied to the succeeding taxable year, "##;.
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:ut even assuming that there was a need for petitioner to present in evidence the "##; income tax return or the breakdown of its excess taxes paid for the taxable year ending "##B, the 'TA could have taken judicial notice of the records of '.T.A. 'ase )o. ;;"%, petitioner@s claim for refund of 9<#;,<&%.++ overpaid income taxes for taxable year "##B, which was already pending before it.
TA- ENFORCEMENT AND ADMINISTRATION

Tax A!!e!!ment! MANILA ELECTRIC COMPANY ,!2 NELIA A2 .ARLIS 4G2R2 No2 5568B52 /"ne 89: 87762; CALLEJO# SR.# J< FACTS< >rom "#*& to "#$<, petitioner M3(A/'A : erected four -B. power generating plants in 5ucat, Muntinlupa. To e,uip the power plants, various machineries and e,uipment were purchased both locally and abroad. ?hen the (eal 9roperty Tax 'ode took effect on Cune ", "#$B, M3(A/'A filed its tax declarations covering the 5ucat power plants, including the buildings thereon as well as the machineries and e,uipment. >rom "#$; to "#$&, M3(A/'A paid the real property taxes on the said properties on the basis of their assessed value as stated in its tax declarations. An 1ecember <#, "#$&, M3(A/'A sold all the power-generating plants including the landsite to the )ational 9ower 'orporation -)A9A'A(.. 2n "#&;, the Municipal Assessor of Muntinlupa discovered that M3(A/'A, for the years "#$*"#$&, misdeclared and/or failed to declare for taxation purposes a number of real properties consisting of several e,uipment and machineries found in the said power plants. A review of the 1eed of 5ale which M3(A/'A executed in favor of )A9A'A( allegedly shows that the true value of the machineries and e,uipment was misdeclared/undeclared. Thereafter, the Municipal Treasurer of Muntinlupa issued three notices to M3(A/'A, re,uesting it to pay the full amount of the claimed deficiency with a warning that its properties could be sold at public auction unless the tax due was paid. 5till, M3(A/'A did not pay, nor take steps to ,uestion the tax assessed. Accordingly, the Municipal Treasurer issued, on Actober B, "##+, ?arrants of 8arnishment ordering the attachment of M3(A/'A@s bank deposits with its depository banks to the extent of its unpaid real property taxes. An Actober "+, "##+, M3(A/'A filed before the (T' of Makati a 9etition for 9rohibition with 9rayer for ?rit of 9reliminary Mandatory 2njunction and/or Temporary (estraining Arder -T(A. praying, among others, that a T(A be issued to enjoin the Municipal Treasurer of Muntinlupa from enforcing the warrants of garnishment. The petitioner averred that real estate tax is a tax on real property as such, any tax delin,uency on property should follow the present owner, in this case, the )A9A'A(. The Municipal Treasurer filed a Motion to 1ismiss on the following groundsF -a. lack of jurisdiction, since under 5ec. *B of the (eal 9roperty Tax 'ode, courts are prohibited from entertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall have paid, under protest, the tax assessed against him and -b. lack of cause of action, by reason of M3(A/'A@s failure to ,uestion the notice of assessment issued to it by the Municipality of Muntinlupa before the /ocal :oard of Assessment Appeals. 2n its Cune "$, "##" Arder, the trial court denied the said motion, ratiocinating that since M3(A/'A was not the present owner or possessor of the properties in ,uestion, it was not the 7taxpayer7 contemplated under 5ection *B of the Tax 'ode.
14
An a 9etition for 'ertiorari filed before the 5upreme 'ourt, later endorsed to the 'ourt of Appeals, the Municipal Treasurer of Muntinlupa assailed the Cune "$, "##" Arder of the (T' alleging that M3(A/'A was the taxpayer liable for the tax due and the penalties thereon that despite receipt by it of the "#&; notice of assessment from the Municipal Assessor, it failed to appeal therefrom and, as such, the assessment had become final and enforceable and, that M3(A/'A was proscribed from filing its petition assailing the assessment. The 'ourt of Appeals granted the petition and declared the assailed Cune "$, "##" order Hvoid and without life in law,I having been issued without jurisdiction. The 5upreme 'ourt resolves to grant this Motion for (econsideration since its decisions on this case on >ebruary ", <++< and May "&, <++" are inconsistent with each other. ISSUES< ". ?hether or not the petitioner was the taxpayer for the purpose of an assessment under the (eal 9roperty Tax 'ode from whom collection can be made <. ?hether or not the (T' did commit any grave abuse of discretion when it denied the respondent@s motion to dismiss on the claim that for the petitioner@s failure to appeal from the "#&* notice of assessment of the Municipal Assessor, the assessment had become final and enforceable under 5ection *B of 9.1. )o. B*B . %. ?hether or not the letters sent to the petitioner by the respondent municipal treasurer can be considered as notices of assessment. B. ?hether or not the courts are prohibited from entertaining any suit assailing the validity of a tax assessed under the (eal 9roperty Tax 'ode until the taxpayer shall have paid, under protest. 1ELD< ". YES: M3(A/'A is the taxpayer for purposes of assessment and collection. The fact that )A9A'A( is the present owner of the 5ucat power plant machineries and e,uipment does not constitute a legal barrier to the collection of delin,uent taxes from the previous owner, M3(A/'A, who has defaulted in its payment. 2n Testate (state of Concordia T. )im $s. Cit* of +ani%a , the 'ourt held that the unpaid tax attaches to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. To impose the real property tax on the subse,uent owner that was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. <. NO2 The (T' did not commit any grave abuse of discretion when it denied the respondent@s motion to dismiss on the claim that for the petitioner@s failure to appeal from the "#&* notice of assessment of the Municipal Assessor, the assessment had become final and enforceable under 5ection *B of 9.1. )o. B*B. 5ection << of 9.1. )o. B*B states that, upon discovery of real property, the provincial, city or municipal assessor shall make an appraisal and assessment of such real property in accordance with 5ection ; of the law, irrespective of any previous assessment or taxpayer@s valuation thereon. An assessment fixes and determines the tax liability of a taxpayer. 2t is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. The assessor is mandated under 5ection <$ of the law to give written notice within thirty days of such assessment, to the person in whose name the property is declared. >or purposes of giving effect to such assessment, it is deemed made when the notice is released, mailed or sent to the taxpayer. As soon as the notice is duly served, an obligation arises on the part of the taxpayer to pay the amount assessed and demanded. 2f the taxpayer is not satisfied with the action of the local assessor in the assessment of his property, he has the right, under 5ection %+ of 9.1. )o. B*B, to appeal to the /ocal :oard of Assessment Appeals by filing a verified petition within sixty -*+. days from service of said notice of assessment. 2f the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due becomes absolute upon the expiration of such period, with respect to the taxpayer@s property.
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'onformably to 5ection ;$ of 9.1. )o. B*B, it is the local treasurer who is tasked with collecting taxes due from the taxpayer. The duty of the local treasurer to collect the taxes commences from the time the taxpayer fails or refuses to pay the taxes due, following the latter@s failure to ,uestion the assessment in the /ocal :oard of Assessment Appeals and/or to the 'entral :oard of Assessment Appeals. This, in turn, renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from disputing the correctness of the assessment or from invoking any defense that would reopen the ,uestion of its liability on the merits. The records, however, are bereft of any evidence showing actual receipt by petitioner of the real property tax declaration sent by the Municipal Assessor. %. NO2 The letters cannot ,ualify as notices of tax assessment. A notice of assessment as provided for in the (eal 9roperty Tax 'ode should effectively inform the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties. The notices do not contain the essential information that a notice of assessment must specify, namely, the value of a specific property or proportion thereof which is being taxed, nor does it state the discovery, listing, classification and appraisal of the property subject to taxation. 2n fact, the tenor of the notices bespeaks an intention to collect unpaid taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall authoriKe the government to auction off the properties subject to taxes. The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made, the notices may be disregarded is an indication that it is in fact a notice of collection. 2ndeed, respondent did not issue any notice of assessment because statutorily, he is not the proper officer obliged to do so. !nder 'hapter 6222, 5ections #+ and #+-A of the (eal 9roperty Tax 'ode, the functions related to the appraisal and assessment for tax purposes of real properties situated within a municipality pertains to the Municipal 1eputy Assessor and for the municipalities within Metropolitan Manila, the same is lodged, pursuant to 9.1. )o. #<", on the Municipal Assessor. B. YES2 The trial court is without authority to address the alleged irregularity in the issuance of the notices of assessment without prior tax payment, under protest, by petitioner. 5ection *B of the (9T', prohibits courts from declaring any tax invalid by reason of irregularities or informalities in the proceedings of the officers charged with the assessment or collection of taxes except upon the condition that the taxpayer pays the just amount of the tax, as determined by the court in the pending proceeding. As petitioner failed to make a protest payment of the tax assessed, any argument regarding the procedure observed in the preparation of the notice of assessment and collection is futile as the trial court in such a scenario cannot assume jurisdiction over the matter. Tax A!!e!!ment# Proper Ser,i%e ESTATE OF T1E LATE /ULIANA DIE( ,!2 COMMISSIONER OF INTERNAL RE*ENUE 4G2R2 No2 5???652 /an"ar+ 8C: 8776; YNARES=SANTIAGO# J< FACTS< 1uring the lifetime of the decedent, Culiana $da. 1e 8abriel, her business affairs where managed by the 9hilippine Trust 'ompanies -9hiltrust.. The decedent died on April %, "#$#. Two days after her death, 9hiltrust filed her income tax return for "#$& without indicating that the decedent died. 9hiltrust also filed a petition for appointment as a special administrator with the (T', but the court appointed one of the heirs. An )ovember "&, "#&<, :2( sent by registered mail a demand letter and assessment notice addressed to the decedent Hc/o 9hilippine Trust 'ompanies, 5ta. 'ruK ManilaI, which was the address stated in her "#$& income tax return. 9hiltrust made no response. An Cune "&, "#&B, respondent issued warrants of distraint and levy to enforce collection of the decedentGs deficiency income tax liability, which were served upon her heir, >rancisco 8abriel.
15
An )ovember <<, "#&B, respondent filed a HMotion for Allowance of 'laim and for an Arder of 9ayment of TaxesI with the court a ,uo. A letter of protest was filed with the /itigation 1ivision of the :2(, which was not acted upon because the assessment notice had allegedly become final, executory and incontestable. The trial court issued an order denying respondent claim against the estate after finding that there was no notice of its tax assessment on the proper party. The Appellate 'ourt reversed the decision claiming that 9hiltrust in filing the decedents "#$& income tax return had constituted itself as the administrator of the estate of the deceased at least in so far as the said return is concerned. ISSUESF ". ?hether or not there was a proper service of deficiency tax assessment through 9hiltrust <. ?hether or not the assessment became final and executory and incontestable. 1ELD< "2 NO2 There was no proper service. The relationship between the decedent and 9hiltrust was one of agency, which is a personal relationship between agent and principal. !nder the 'ivil 'ode, death of the agent or principal automatically terminates the agency. 5ince the relationship between 9hiltrust and the decedent was automatically severed at the moment of the TaxpayerGs death, none of 9hiltrustGs acts or omissions could bind the estate of the Taxpayer. 5ervice on 9hiltrust of the demand letter and Assessment )otice was improperly done. There was absolutely no legal obligation on the part of 9hiltrust to either ". respond to the demand letter and assessment notice <. inform respondent of the decedentGs death or %. inform the petitioner that it had received said demand letter and assessment notice. The legal obligation on 9hiltrust to inform respondent of the decedentGs death under 5ection "+B of the "#$$ )2(' pertains only to Hall cases of transfer subject to taxI or where the Hgross value of the estate exceeds 9%,+++I. 2t has absolutely no applicability to a case for deficiency of income tax, such as the case at bar. ?hen an estate is under administration, notice must be sent to the administrator of the estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all orders of the court. <. NO2 5ince there was never any valid notice of this assessment, it could not have become final, executory and incontestable, and, for failure to make the assessment within the five-year period provided in 5ection %"& of the )ational 2nternal (evenue 'ode of "#$$, respondentGs claim against the petitioner 3state is barred. Tax A!!e!!ment# Proper Ser,i%e COMMISSIONER OF INTERNAL RE*ENUE ,!2 .AN> OF T1E P1ILIPPINE ISLANDS: a! iD"i$ator of PARAMOUNT ACCEPTANCE CORPORATION 4G2R2 No2 5B?66@2 September 8B: 877B2; CORONA# J< FACTS< (espondent :ank of the 9hilippine 2slands -:92. is the li,uidator of 9aramount Acceptance 'orporation -9A'., a financing corporation which was dissolved on Culy "$, "#&#. After the dissolution of the 9A', respondent :92 learned that petitioner '2( filed certain criminal cases against Doracio 6. 9oblador and (amon A. Albert, former president and treasurer of 9A', respectively, for willful failure to pay the corporation@s final deficiency tax assessments for the years "#&" and "#&<. (espondent informed petitioner that it was willing to compromise and pay the deficiency tax. At the same time, respondent asked for the withdrawal of the criminal cases against 9oblador and Albert. The parties agreed to settle. (espondent paid to the petitioner a total amount of 9""#,&";."%.
16

Dowever, in spite of the payment, petitioner continued to prosecute the criminal cases against 9oblador and AlbertF 'riminal 'ases )os. #"-;&++, #"-;&+" and #"-;&+<, involving the "#&" assessments, before the (egional Trial 'ourt of Makati, :ranch ";+ and, 'riminal 'ase )o. #"-B++$ involving the "#&< percentage tax deficiency, pending in the (egional Trial 'ourt of Makati, :ranch "B%. (espondent, in a letter to petitioner, pointed out that the assessments were not sent to the proper address and asked for the refund of the 9""#,&";."% it paid under the compromise agreement since the criminal cases against 9oblador and Albert were not dropped as agreed upon. ISSUE< 2s 9A' liable to pay the tax assessmentsP 1ELDF NO2 9A' is not liable. The (T' of Makati 'ity, :ranch "B%, rendered a decision in 'riminal 'ase )o. #"-B++$ ac,uitting 9oblador and Albert of willful failure to pay the corporate percentage tax deficiency for "#&<. >urthermore, a copy of the said decision was served on petitioner by registered mail, prior to the submission of its memorandum in this case. 2n its decision in 'riminal 'ase )o. #"-B++$, the trial court ruled that the prosecution failed to establish that 9A' was in fact liable for deficiency taxes prior to its li,uidation. Assuming arguendo that there was a deficiency tax for which 9A' was liable, petitioners failed to make a valid assessment on it since the notice of assessment was sent to the 9A'@s old -and therefore improper. office address. 9A' already indicated its new address in its "#&* tax return filed with the :2(@s Makati office. This notwithstanding, petitioner '2( sent the notice of assessment to 9A'@s old business address instead of its new address, which was also :92@s -9A'@s li,uidator. office address. 5ince there was a failure to effect a timely valid assessment, the period for filing a criminal case for 9A'@s tax liabilities had prescribed by the time petitioner instituted the criminal cases against 9A'Gs former officers.
Re,en"e Re'" ation!# Nat"re# App i%ation .PI LEASING CORP2 ,!2 COURT OF APPEALS 4G2R2 No2 58C@862 No,ember 5A: 877B2; AZCUNA# J< FACTS< :/' is a corporation engaged in the business of leasing properties. >or the calendar year "#&*, :/' paid the 'ommissioner of 2nternal (evenue -'2(. a total of 9","%#,+B".B# representing B= 7contractor@s percentage tax7 then imposed by 5ection <+; of the )ational 2nternal (evenue 'ode -)2('.. An )ovember "+, "#&*, the '2( issued (evenue (egulation "#-&*. 5ection *.< thereof provided that finance and leasing companies registered under (epublic Act ;#&+ shall be subject to gross receipt tax of ;=-%=-"= on actual income earned. This means that companies registered under (epublic Act ;#&+, such as :/', are not liable for 7contractor@s percentage tax7 under 5ection <+; but are, instead, subject to 7gross receipts tax7 under 5ection <*+ -now 5ection "<<. of the )2('. 5ince :/' had earlier paid the aforementioned 7contractor@s percentage tax,7 it re-computed its tax liabilities under the 7gross receipts tax7 and arrived at the amount of 9%*",#<B.BB. An April "", "#&&, :/' filed a claim for a refund with the '2( for the amount of 9$$$,""$.+;, representing the difference between the 9","%#,+B".B# it had paid as 7contractor@s percentage tax7 and 9%*",#<B.BB it should have paid for 7gross receipts tax.7 9etitioner filed a petition for review with the 'TA which dismissed the petition and denied :/'@s claim of refund. The 'TA held that (evenue (egulation "#-&*, as amended, may only be applied prospectively such that it only covers all leases written on or after Canuary ", "#&$, as stated under 5ection $ of said revenue regulation. The 'TA ruled that, since :/'@s rental income was all received prior to "#&*, it follows that this was derived from lease transactions prior to Canuary ", "#&$, and hence, not covered by the revenue regulation. ISSUE< ". ?hether (("#-&*, as amended, is legislative or interpretative in nature.
17
<. ?hether (("#-&*, as amended, is prospective or retroactive in application. 1ELD< ". (("#-&* is legislative in nature. Administrative issuances may be distinguished according to their nature and substanceF legislative and interpretative. A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. 5ection " of (evenue (egulation "#-&* plainly states that it was promulgated pursuant to 5ection <$$ of the )2('. 5ection <$$ -now 5ection <BB. is an express grant of authority to the 5ecretary of >inance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the )2('. 2n ,a#er Industries Cor#oration of the ,hi%i##ines $. Court of ##ea%s, the 'ourt recogniKed that the application of 5ection <$$ calls for none other than the exercise of ,uasi-legislative or rule-making authority. 6erily, it cannot be disputed that (evenue (egulation "#-&* was issued pursuant to the rule-making power of the 5ecretary of >inance, thus making it legislative, and not interpretative as alleged by :/'. <2 (( "#-&* is prospective in application. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. 2n the present case, there is no indication that the revenue regulation may operate retroactively. >urthermore, there is an express provision stating that it 7shall take effect on Canuary ", "#&$,7 and that it 7shall be applicable to all leases written on or after the said date.7 :eing clear on its prospective application, it must be given its literal meaning and applied without further interpretation. Thus, :/' is not in a position to invoke the provisions of (evenue (egulation "#-&* for lease rentals it received prior to Canuary ", "#&$. 2t is also apt to add that tax refunds are in the nature of tax exemptions. As such, these are regarded as in derogation of sovereign authority and are to be strictly construed against the person or entity claiming the exemption. The burden of proof is upon him who claims the exemption and he must be able to justify his claim by the clearest grant under 'onstitutional or statutory law, and he cannot be permitted to rely upon vague implications.
LOCAL TA-ATION
Lo%a Taxation# *a i$it+ of a M"ni%ipa Or$inan%e PALMA DE*ELOPMENT CORPORATION ,!2 MUNICIPALITY OF MALANGAS 4G2R2 No2 5?86982 O%tober 5@: 877B2; PANGANI'AN# J< FACTS< 9etitioner 9alma 1evelopment 'orporation is engaged in milling and selling rice and corn to wholesalers in Eamboanga 'ity. 2t uses the municipal port of Malangas, Eamboanga del 5ur as transshipment point for its goods. Municipal (evenue 'ode )o. +#, 5eries of "##%, was passed and approved on August B, "##B. 5ection ;8.+" of the ordinance readsF
H5ection ;8.+". 2mposition of fees. J There shall be collected service fee for its use of the municipal roadNsO or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all e,uipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipalityRI
The service fees imposed by 5ection ;8.+" of the ordinance was paid by petitioner under protest. 2t contended that under (epublic Act )o. $"*+, otherwise known as the /ocal 8overnment 'ode of "##", municipal governments did not have the authority to tax goods and vehicles that passed through their jurisdictions. The trial court declared the entire Municipal (evenue 'ode )o. +# as u%tra $ires and, hence, null and void. The 'A held that local government units already had revenue-raising powers as provided for under 5ections ";% and ";; of (A )o. $"*+. 2t ruled as well that within the purview
18

of these provisions J and therefore valid J is 5ection ;8.+", which provides for a 7service fee for the use of the municipal road or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality7 and 7for police surveillance on all goods and all e,uipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality.7 ISSUE< 2s 5ection ;8.+" of Municipal (evenue 'ode )o. +# validP 1ELD< NO2 The imposition of a service fee for police surveillance on all goods harbored or sheltered in the premises of the municipal port of Malangas under 5ec. ;8.+" of the Malangas Municipal (evenue 'ode )o. +#, series of "##%, is )!// A)1 6A21 for being violative of (epublic Act )o. $"*+. :y express language of 5ections ";% and ";; of (A )o. $"*+, local government units, through their 5anggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. Dowever, 5ection "%%-e. of (A )o. $"*+ prohibits the imposition, in the guise of wharfage, of fees J as well as all other taxes or charges in any form whatsoever J on goods or merchandise. 2t is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by 5ection "%%-e.. !nder 5ection "%"-y. of (A )o. $"*+, wharfage is defined as 7a fee assessed against the cargo of a vessel engaged in foreign or domestic trade based on ,uantity, weight, or measure received and/or discharged by vessel.7 2t is apparent that a wharfage does not lose its basic character by being labeled as a service fee 7for police surveillance on all goods.7
Lo%a Taxation# Po)er! of Cit+ A!!e!!or! SYSTEMS PLUS COMPUTER COLLEGE OF CALOOCAN CITY ,!2 LOCAL GO*ERNMENT OF CALOOCAN CITY 4G2R2 No2 56@BA82 A"'"!t C: 877B2; CORONA# J< FACTS< 9etitioner 5ystems 9lus 'omputer 'ollege is a non-stock and non-profit educational institution. As such, it enjoys property tax exemption from the local government on its buildings but not on the parcels of land which petitioner is renting for 9;,+++ monthly from its sister companies, 'onsolidated Assembly and 9air Management -'A9M.. 5ometime, petitioner re,uested respondent to extend tax exemption to the parcels of land claiming that the same were being used actually, directly and exclusively for educational purposes. (espondent city government, denied the re,uest on the ground that the subject parcels of land were owned by 'A9M which derived income therefrom in the form of rentals and other local taxes assumed by the petitioner. Dence, from the land owners@ standpoint, the same were not actually, directly and exclusively used for educational purposes. 5ubse,uently, petitioner and the 'A9M entered into separate agreements which in effect novated their existing contracts of lease and converted them to donations of the beneficial use thereof. :ecause of this, petitioner sought a reconsideration of respondent@s earlier denial of the application for tax exemption. (espondent city government again denied the application for tax exemption, reasoning out thatF a. said agreement was made in order to evade payment of (eal 9roperty Taxes b. the grant of exemption from taxation rests upon the theory that an exemption will benefit the body of people, and not upon any idea of lessening the burden of individual or corporate owners c. while the beneficial use of the properties being sought to be exempt from (eal 9roperty Taxes were donated to 505T3M5 9/!5 'AM9!T3( 'A//383, there is no showing that the same are 7actually, directly and exclusively7 used either for religious, charitable, or educational purposes. Twice debunked, petitioner filed a petition for mandamus with the respondent (egional Trial 'ourt of 'aloocan 'ity, :ranch "<", which, however, dismissed it for being premature.
19
ISSUE< 1oes the determination made by respondent 'ity Assessor fall within its power to assess propertiesP 1ELD< YES2 !nder 5ection <<* of (A $"*+, the remedy of appeal to the /ocal :oard of Assessment Appeals is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of property. !nder 5ection "##-f., Title 22, :ook 22, of the /ocal 8overnment 'ode of "##", 7assessment7 is defined as the act or process of determining the value of a property, or proportion thereof subject to tax, including the discovery, listing, classification and appraisal of properties. 6iewed from this broader perspective, the determination made by the respondent 'ity Assessor with regard to the taxability of the subject real properties s,uarely falls within its power to assess properties for taxation purposes subject to appeal before the /ocal :oard of Assessment Appeals. 2t must be stressed that the authority to receive evidence, as basis for classification of properties for taxation, is legally vested on the respondent 'ity Assessor whose action is appealable to the /ocal :oard of Assessment Appeals and the 'entral :oard of Assessment Appeals, if necessary.

Tax Exemption# Rea Propert+ Tax an$ ."!ine!! Tax P1ILIPPINE PORTS AUT1ORITY ,!2 CITY OF ILOILO 4G2R2 No2 579C952 /" + 56: 877B2; AZCUNA# J< FACTS< The 'ity of 2loilo filed an action for the recovery of sum of money against the 9hil. 9orts Authority -99A., a government corporation. (espondent seeks to collect real property taxes on its warehouse as well as business taxes computed from the last ,uarter of "#&B up to B th ,uarter of "#&&. 99A is engaged in the business of arrastre and stevedoring services and the leasing of real estate. 9etitioner claimed that being a government owned corporation engaged in performing governmental functions, it is exempted from paying taxes under its charter, the (eal 9roperty Tax 'ode and 3.A. )o. #%. The court a ,uo rendered its decision holding petitioner liable for real property taxes and for business taxes with respect to petitioner@s lease of real property. 2t, however, held that respondent may not collect business taxes on petitioner@s arrastre and stevedoring services, as these form part of petitioner@s governmental functions. ISSUE< 2s the 9hilippine 9orts Authority exempt from the payment of real property tax and business taxP 1ELD< NO2 9etitioner is liable for both taxes. 79orts constructed by the 5tate7 are properties of the public dominion, as Article B<+ of the 'ivil 'ode enumerates these as properties 7intended for public use.7 The warehouse in the case at bar may not be held as part of the port, considering its separable nature as an improvement upon the port, and the fact that it is not open for use by everyone and freely accessible to the public. 2n the same way that we ruled in one case that the exemption of public property from taxation does not extend to improvements made thereon by homesteaders or occupants at their own expense, we likewise uphold the taxability of the warehouse in the instant case, it being a mere improvement built on an alleged property of public dominion, assuming petitioner@s port to be so. Moreover, petitioner may not invoke the definition of 7port7 in its charter to expand the meaning of 7ports constructed by the 5tate7 in the 'ivil 'ode to include improvements built thereon. Ariginally, petitioner was exempt from real property taxes on the basis of 5ec. B+ of the (eal 9roperty Tax 'ode. 9etitioner@s charter, 9.1. &;$, further specifically exempted it from real
20

property taxes. An Cune "", "#&B, however, 9.1. "#%" effectively withdrew all tax exemption privileges granted to government-owned or controlled corporations as stated in 5ection " thereof. !nder the same law, the exemption can be restored in special cases through an application for restoration with the 5ecretary of >inance, which, notably, petitioner did not avail. 5ubse,uently, 3xecutive Arder -3.A.. )o. #% was enacted on 1ecember "$, "#&* restoring tax exemptions provided under certain laws, one of which is the (eal 9roperty Tax 'ode. Dence, petitioner is liable for real property taxes on its warehouse, computed from the last ,uarter of "#&B up to 1ecember "#&*. As admitted by petitioner, it leases out its premises to private persons for 7convenience7 and not necessarily as part of its governmental function of administering port operations. Any income or profit generated by an entity, even of a corporation organiKed without any intention of realiKing profit in the conduct of its activities, is subject to tax. ?hat matters is the established fact that it leased out its building to ten private entities from which it regularly earned substantial income. Thus, in the absence of any proof of exemption therefrom, petitioner is liable for the assessed business taxes.

/"ri!$i%tion of the Co e%tor of C"!tom! 0 Commi!!ioner of C"!tom! R2*2 MAR(AN FREIG1T: INC2 ,! COURT OF APPEALS 0 S1IELAES MANUFACTURING INC2 4G2R2 No2 58A7@62 Mar%h 6: 8776; CALLEJO# SR.# J< FACTS< (6 MarKan >reight 2nc., was the owner and operator of a customs-bonded warehouse while 5hielaGs Manufacturing, 2nc., was engaged in the garment business. An April "<, "#&#, the raw materials consigned to the private respondent arrived in the 9hilippines. The :ureau of 'ustoms treated the raw materials as subject to ordinary import taxes and were not immediately released to the private respondent. Moreover, the consignee failed to file the re,uisite import entry and failed to claim the cargo. The 1istrict 'ollector of 'ustoms initiated an abandonment proceedings over the cargo of the private respondent and issued a notice to the consignee of various overstaying cargo, including that of the private respondent, giving them fifteen -";. days from notice thereof to file entry of the cargoes without prejudice to the right of the consignees to redeem articles pursuant to 5ection "&+" of the Tariff and 'ustoms 'ode within the prescribed period therein otherwise, the cargoes would be deemed abandoned and sold at public auction. The declaration of abandonment in the aforestated proceedings became final and executory. After more than two years from the arrival of the cargo in the 9hilippines, the private respondent filed a complaint for damages before the (T' against the petitioner. The trial court held petitioner solely liable for the loss. The appellate court affirmed the lower courtGs decision. ISSUE< ?hether or not the (T' is vested with jurisdiction to review and nullify a declaration made by the 1istrict 'ollector of 'ustoms that the shipment was abandoned cargo and, thus, ipso facto belonged to the government. 1ELD< NO2 The trial court has no jurisdiction. The declaration by the 1istrict 'ollector of 'ustoms is found by the 'ourt to be ineffective. !nder the law, notice of the proceedings of abandonment was not given to the consignee or the plaintiff herein or his agent. The consignee in this case being known, should have been notified of the abandonment of his property and that he should have been given a chance at a public hearing to present evidence and to be heard with respect to the cargo subject of abandonment. This is part of due process.
21
3vidently, the resolution of the foregoing issues is within the exclusive competence of the 1istrict 'ollector of 'ustoms, the 'ommissioner of 'ustoms and within the appellate jurisdiction of the 'ourt of Tax Appeals. 2n -ao $. Court of ##ea%s, we held that the (T' is devoid of any competence to pass upon the validity or regularity of seiKure and forfeiture proceedings conducted by the :ureau of 'ustoms, and to enjoin or otherwise interfere with the said proceedings even if the seiKure was illegal. 5uch act does not deprive the :ureau of 'ustoms of jurisdiction thereon. Thus, we heldF HThere is no ,uestion that (egional Trial 'ourts are devoid of any competence to pass upon the validity or regularity of seiKure and forfeiture proceedings conducted by the :ureau of 'ustoms and to enjoin or otherwise interfere with these proceedings. The 'ollector of 'ustoms sitting in seiKure and forfeiture proceedings has exclusive jurisdiction to hear and determine all ,uestions touching on the seiKure and forfeiture of dutiable goods. The (egional Trial 'ourts are precluded from assuming cogniKance over such matters even through petitions of certiorari, prohibition or mandamus.I
SUMMARY OF DOCTRINES OF LEADING CASES

FUNDAMENTALS IN TA-ATION
'ASIC CONSIDERATIONS
Taxation is a high prerogative of sovereignty the relin,uishment of which is never presumed, and any reduction or diminution thereof with respect to its mode or rate must be strictly construed and the same must be couched in clear terms. The general rule is that any claim for exemption from tax statutes should be construed strictly against the taxpayer. [Lu>on S4 v ?o,@n8 Co,7. vs. Cou,4 oA T-B A77 -6s. GR No. LC10!1!. Ju6. !"# 1"//$ Taxation is a 7symbiotic7 relationship whereby in exchange for the protection that the citiKens get from the 8overnment, taxes are paid. ?ithout taxes, the government would be paralyKed for lack of motive power to activate and operate it. Dence, despite the natural reluctance to surrender part of one@s hard-earned income to the taxing authorities, every person who is able must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. [CIR vs. A68u . GR No. LC!//"*. F +,u-,. 12# 1"//$
PURPOSE AND O'JECTI%ES OF TADATION

?hile the funds collected under the A95> may be referred to as taxes, they are exacted in the exercise of the police power of the 5tate. >rom such fund, amounts are drawn to reimburse oil companies when appropriate situations arise for increases in, as well as under-recovery of, the cost of crude oil importation. [Os0 E- vs. O,+os. GR No. ""//*. &-,3; 11# 1""1$ Taxation may be used as an implement of the police power in order to promote the general welfare of the people. Thus the 5ugar Adjustment Act, which imposed a tax on milled sugar, is valid since the purpose of the law was to strengthen an industry that is so undeniably vital to the economy - the sugar industry. [Lu4> vs. A,-n 4-. GR No. LC2/)". D 3 0+ , !!# 1"))$
22

PO5ER OF JUDICIAL RE%IE5

'ourts cannot in,uire into the wisdom of a taxing act. [CIR vs. L@n8-. n Gu6A E6 34,@3 PoF , Co. GR No. LC!1221. Au8us4 4# 1"*/$
TADATION DISTINGUISHED FRO& OTHER I&POSITIONS

P n-64. 2f a withholding agent like )1' fails to withhold the re,uisite withholding tax on the income received from 9hilippine sources by a Capanese non-resident foreign corporation, such withholding agent -)1'. is liable to pay the tax that it did not withhold as 7penalty7 for its failure to withhold the tax of the foreign corporation. [N-4@on-6 D v 6o70 n4 Co. vs. CIR. GR No. LC )1"*1. Jun 10# 1"/2$ L@3 ns F s To be considered a license fee, the imposition ,uestioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to re,uire regulation for the protection and promotion of such public interest the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the cost of direct regulation but also its incidental conse,uences as well. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. [P,o8, ss@v D v 6o70 n4 Co. vs Qu >on C@4.. GR No. 1*0/1. A7,@6 !4# 1"/"$ 2f the purpose is primarily revenue or if revenue is at least one of the real and substantial purposes, then the exaction is a tax. Dence, motor vehicle registration fees are taxes because the legislative intent is mainly to raise funds for the construction and maintenance of highways and, to a much lesser degree, to pay for the expenses of the /and transportation Affice, a regulatory agency of the 8overnment. [P;@6@77@n A@,6@n s In3. vs. E?u. GR No. LC411/1# Au8us4 1)# 1"//$ ?hile it is true that the first part which re,uires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character, the second part which re,uires the payment of 9;+.++ as employeeGs fee is not regulatory but a revenue measure. There is no logic or justification in exacting 9;+.++ from aliens who have been cleared for employment. 2t is obvious that the purpose of the ordinance is to raise money under the guise of regulation. [%@66 8-s vs. H@u C;@on8 Ts-@ P-o Ho. GR No. L=!"*4*. Nov 0+ , 10# 1"2/$ Cudging from the amount of the fees fixed in the ordinances in ,uestion, the so-called fees were in reality taxes for city revenue. The fees cannot possibly be considered as mere expense incurred for, or the cost of the inspection of each animal and the issuance of the corresponding permit. There would be no doubt that the fees collected would amount to a siKable sum and augment greatly the revenues of the municipal corporation. [S-6?-n- vs. C@4. oA I6o@6o GR No. LC 10420. Jun !*# 1")/$ 2ncidentally, exemption from tax does not include building permit fee and special assessments as these are not taxes but regulatory fees in the case of the license fee, and levy on account of benefits to land for the special assessments. [A7os4o6@3 P, A 34 oA 4; &oun4-@n P,ov@n3 vs. C@4. T, -su, , oA '-8u@o. GR No. 42!)!. A7,@6 1/# 1"41$ The amount of exaction or charge, if it is to be a license fee, must only be of a sufficient amount to include expenses of -". issuing the license and -<. cost of necessary inspection or police surveillance. [CuunG@ n8 vs. P-4s4on . GR No. 1*!)4. F +,u-,. !1# 1"!!$ D +4sH S 4=oAA o, Co07 ns-4@on
24
A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the 8overnment or that the collection of the tax is contingent on the result of the lawsuit it filed against the 8overnment. [P;@6 B &@n@n8 Co,7. vs CIR. GR No. 1!)204. Au8us4 !/# 1""/$ Ance a taxpayer opts for either a refund or the automatic tax credit scheme and signified his option in accordance with the regulation, this does not ipso facto confer on him the right to avail of the same immediately. 9rior approval by the 'ommissioner of 2nternal (evenue of the tax credit under 5ection &* would appear to be more reasonable interpretation to be given to said section. An opportunity must be given the internal revenue branch of the government to investigate and confirm the veracity of the claims of the taxpayer. 2nsofar as the option of tax credit is concerned, this right should not be construed as an absolute right which is available to the taxpayer at his sole option. Automatic credit is not available, but this does not mean that the petitioner cannot get a refund or credit of the excess ,uarterly payment. [S-n C-,6os &@66@n8 Co.# In3. vs. CIR. GR No. 10112". Nov 0+ , !1# 1""1$ A corporation@s outstanding claims for reimbursement against the Ail 9rice 5tabiliKation >und -A95>. cannot be offset against its contributions to said fund. 91 "#;*, as amended, explicitly provides that the source of the A95> is taxation. A taxpayer may not offset taxes due from claims that he may have against the 8overnment. Taxes and debts cannot be the subject of compensation because the 8overnment and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not a debt, demand, contract or judgment as is allowable to be set off. [C-64 B P;@6s. vs. Co00@ss@on on Au?@4. GR No. "!)/). &-. /# 1""!$ )o compensation is legally authoriKed where it appears that the parties involved are not creditors and debtors of each other -Art. "<$#, 'ivil 'ode.. 2n the case at bar, what was sought to be set off against the taxpayer@s real estate tax liability to the 'ity of 9asay was the amount of money that the taxpayer was supposed to receive as payment for his property that was expropriated by the )ational 8overnment. Taxes are not subject to compensation. [F,-n3@- vs. In4 ,0 ?@-4 A77 66-4 Cou,4. GR No. LC*2*4". Jun !/# 1"//$ 2n this case, what appeared to be a due and demandable debt of the 8overnment to the estate of the late ?alter 5cott 9rice, as payment for the latter@s services, was allowed as a set-off against the transfer taxes due from the decedent@s estate. The 'ourt opined, citing Arts. "<$# and "<#+ of the 'ivil 'ode, that when two obligations are both due and demandable and all the re,uisites for a valid compensation are present, compensation of the two obligations takes effect by operation of law. [Do0@n8o vs. C-,6@4os. GR No. LC1/""4. Jun !"# 1"*1$ :oth a license fee and tax may be imposed on the same business or occupation for selling the same article and this is not in violation of the rules against double taxation. [Co07-n@- vs. G n ,-6 ? To+-3os ? F@6@7@n-s. GR No. LC1**1". Jun !"# 1"*1$
CLASSIFICATION OF TADES < IINDIRECT TADESJ

?here the exemption from indirect tax is given to the contractee, but the evident intention is to exempt the contractor so that such contractor may no longer shift or pass on any tax to the contractee, the contractor may claim tax exemption on the transaction. [CIR vs. Jo;n Go4-03o -n? Sons In3. GR No. LC110"!. F +,u-,. !2# 1"/2$ ?here the transaction in itself is tax-exempt and the buyer pays the tax as part of the purchase price, it is the seller@s obligation, in case he has obtained a refund of the disputed tax, to hold such refunded tax in trust for the buyer. [CIR vs. A0 ,@3-n Ru++ , Co. GR No. LC1"/01=01. Nov 0+ , !"# 1"**$ The sales tax that is passed on to the purchaser as part of the purchase price of the commodity is a tax on the seller, and not the buyer. Dence, if the buyer happens to be tax-exempt,
25

the seller is nonetheless liable for the payment of the tax as the same is a tax not on the buyer himself but is actually a tax on the seller. ?hen the consumer or end-user of a manufactured product is tax-exempt, such exemption covers only those taxes for which such consumer or end-user is directly liable. 2ndirect taxes are not included. Dence, the manufacturer cannot claim exemption from the payment of sales tax neither can the consumer or buyer of the product demand the refund of the tax that the manufacturer might have passed on to them. [P;@6@77@n A3 4.6 n Co.# In3. vs. CIR. GR No. LC 1"202. Au8us4 12# 1"*2$
TADPAYER:S SUIT
A duly elected 5enator of the 9hilippines and a taxpayer thereof has the legal capacity to file an action for certiorari, prohibition and mandamus to ,uestion the legality of a claimed refund of indirect taxes like the tax on oil products, since the refund itself, if found to be without legal basis, constitutes an illegal expenditure of public funds. [&-3 ?- vs. &-3-,-@8. GR No. //!"1. Jun /# 1""1$ The right of a taxpayer to file an action ,uestioning the validity or constitutionality of a statute or law has been recogniKed, on the theory that the expenditure of public funds by an officer of the 8overnment for the purpose of administering or implementing an unconstitutional or invalid law, constitutes a misapplication of such funds. The present case, however, is not an action to ,uestion the constitutionality or validity or a statute or law. 2t is an action to annul and set aside the 7Agreement to Arbitrate7. Dence, petitioners have no legal standing to file the petition. [G-s3on vs. A,,o.o. GR No. 2/1/". O34o+ , 1*# 1"/"$
LIMITATIONS ON T1E TA-ING PO&ER

INHERENT LI&ITATIONS
Pu+6@3 Pu,7os 8enerally, under the express and implied provisions of the constitution, public funds may be used only for a public purpose. The right of the legislature to appropriate public funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public purpose. [P-s3u-6 vs. S 3. oA Pu+6@3 5o,Ks. GR No. LC1040). D 3 0+ , !"# 1"*0$ The promotion of general welfare is the 5tate@s paramount concern. Thus, a law imposing a tax on sugar produced by sugar centrals for the purpose of using the proceeds thereof in the rehabilitation and upliftment of the sugar industry is a tax levied for a public purpose. [Lu4> vs. A,-n 4-. GR No. LC2/)". D 3 0+ , !!# 1"))$ 2n the imposition of taxes, public purpose is presumed. Dence, where an ordinance did not specifically state the purpose for which the tax was to be used, it is presumed that said tax is created for a public purpose. [& n?o>- S-n4os -n? Co. vs. &un@3@7-6@4. oA & .3-u-.-n. GR No. LC*0*". A7,@6 10# 1")4$ Non=? 6 8-+@6@4. oA 4; T-B@n8 PoF , The power granted to 'ongress under this constitutional provision to authoriKe the 9resident to fix within specified limits and subjects to such limitations and restrictions as it may impose, and subject to such limitations and restrictions as it may impose, tariff rates even for revenue purposes only. 'ustoms duties which are assessed at the prescribed tariff rates are very much like taxes which are fre,uently imposed both for revenue-raising and for regulatory purposes. [G-,3@- vs. EB 3u4@v S 3, 4-,.. GR No. 101!21. Ju6. 1# 1""!$
25
The power of taxation may be delegated to local governments in respect of matters of local concern. :y 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 government agencies the power to tax. 2n delegating the authority, the 5tate is not limited to the exact measure of that which is exercised by itself. ?hen it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy the 5tate has not deemed wise to tax for more general purposes. [P 7s@=Co6- 'o446@n8 Co. oA 4; P;@6s.# In3. vs. &un@3@7-6@4. oA T-n-u-n# L .4 . GR No. L=111)*. F +,u-,. !2# 1"2*$ T ,,@4o,@-6@4. o, S@4us oA T-B-4@on >or income tax purposes, :ritish Averseas Airways 'orp., whose airplanes do not carry passengers to and from the 9hilippines as it has no landing rights, is taxable on the income realiKed from the sales of its tickets in the 9hilippines through sales office. At the same time, the airline would not be subject to any business tax inasmuch as the absence of any landing rights would mean that it is not engaged in the exercise of any privilege which could be subject to the business or privilege tax. (See a%so Commissioner $s. ir India. .R No. 7/440. -anuar* /91 1923) [CIR vs. ',@4@s; Ov ,s -s A@,F-.s Co,7. GR No. *)221=24# A7,@6 10# 1"/2$ ?here the tax that is being imposed is a tax upon the performance of an act, enjoyment of a privilege, or engaging in an occupation, or what is sometimes known as an excise or privilege, the situs of taxation is the place in which the act is performed or where the occupation is engaged in. 5o, in case of sales tax imposed by a city government, the place where the sale is perfected and consummated determines the situs of taxation. [A66@ ? T;, -? Co.# In3. vs. C@4. oA &-n@6-. GR No. LC40!"*. Nov 0+ , !1# 1"/4$ The city can tax the sale of matches where shipments or deliveries are made directly to customer outside the city provided the sales are booked and paid for in the city to a carrier for shipment to the buyer. 8enerally, delivery to the carrier is delivery to the buyer. [P;@6@77@n &-43; Co.# L4?. vs. C@4. oA C +u. GR No. LC1024). J-nu-,. 1/# 1"2/$ 2n case of additional sales tax on the sale of fuels and oils, said tax may not be applied to deliveries outside the municipality since the consummation of the sale is determined by the delivery of the things which are the subject matter of the contract. The situs of the sale for tax purposes is not the place where the contract of sale is perfected but the place of its consummation. [T; S; 66 Co. oA 4; P;@6@77@n s# L4?. vs. &un@3@7-6@4. oA S@7o3o4. GR No. LC 1!*/0. &-,3; !0# 1")"$ The shares of stock left behind by a non-resident alien decedent in an anonymous partnership in the 9hilippines are subject to 9hilippine inheritance tax notwithstanding the mobilia rule. The mobilia rule should yield to reason. The shares of stock are also taxable in the situs of their actual location, i.e., the 9hilippines. [5 66s F-,8o '-nK 9 Un@on T,us4 Co. vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. 4*2!0. Jun !/# 1"40$ 2n case of fire insurance covering property situated in the 9hilippines, even though the insurance contract was executed outside the 9hilippines, said premiums are taxable against the insurer in the 9hilippines because the 9hilippine 8overnment must get something in return for the protection it gives to the insured property in the 9hilippines, and by reason of such protection, the insurer is benefited thereby. [&-n@6- E6 34,@3 Co. vs. Y-43o. GR No. 4)*"2. Nov 0+ , 1# 1"1"$ EB 074@on oA 4; Gov ,n0 n4 A,o0 T-B s

26

?hat is decisive is that the properties possessed by 555, albeit devoted to private or proprietary, are in fact owned by the government of the 9hilippines. As such they are exempt from realty taxes. 2t is axiomatic that when public property is involved, exemption is the rule and taxation, the exception. [So3@-6 S 3u,@4. s.s4 0 vs. C@4. oA '-3o6o?.GR No. LC1)2!*. Ju6. !1# 1"/!$ )otwithstanding the immunity of the 8overnment from taxes, the principle is also well recogniKed that the 8overnment may tax itself. There is no constitutional limitation on the power of the 'ongress to tax the Armed >orces of the 9hilippines if it wishes to do so. ['@s-.- L-n? T,-ns7o,4-4@on vs. Co66 34o, oA In4 ,n-6 R v nu . GR Nos. LC1!100 9 LC11/1!. &-. !"# 1")"$
CONSTITUTIONAL LI&ITATIONS
Du P,o3 ss C6-us Cudicial intervention is unnecessary in the absence of a factual setting or an actual controversy which is engendered by the issuance of an assessment against a taxpayer. There is, however, no justification for passing upon the claims that the law 36AT -(.A. $$"*. denies petitioner@s right to due process. 2ndeed, the absence of threat of immediate harm makes the need for judicial intervention less evident and underscores the essential nature of petitioner@s attack on the law on the ground of denial of due process as a mere academic discussion of the merits of the law. >or the fact is that there have been no notices of assessments issued to petitioners and no determinations at the administrative levels of their claims so as to illuminate the actual operation of the law and enable us to reach sound judgment regarding so fundamental ,uestions as those raised in these suits. [To6 n4@no vs. S 3, 4-,. oA F@n-n3 . GR No. 11)4)). Au8us4 !)# 1""4$ 1ue process is not violated if a governmental body like the >iscal 2ncentive (eview :oard ->2(:., which was tasked with the duty of recommending the restoration of tax exemptions previously abolished under presidential decrees, is headed by the Minister of >inance, who at the same time is the very same person who approves or disapproves the >2(:@s recommendation provided no two opposing or conflicting interests are involved, like the case of the restored tax exemption of a particular taxpayer where it appears that there is no interest that is existing which is in conflict with the interests of such taxpayer. [&-3 ?- vs. &-3-,-@8. GR No. //!"1. &-. 11# 1""1$ ?hen tax turns out to be of a confiscatory nature, such an imposition could very well be considered as being violative of the due process principle. 1ue process clause in the 'onstitution may be invoked where a tax statute is so arbitrary that it finds no support in the 'onstitution. The taxing power has the authority to make reasonable and natural classification for purposes of taxation but the 8overnment@s act must not be prompted by a spirit of hostility or, at the very least, discrimination that finds no support in reason. 2t suffices then that the laws operate e,ually 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 privileges conferred and the liabilities imposed. [R . s vs. A60-n>o,. GR Nos. 4"/1"=4*. A7,@6 !*# 1""1$ 1ue process was not violated when the 6AT law -3.A. <$%. was promulgated because there was no grave abuse of discretion incident to its promulgation. 9etitioners failed to show that 3.A <$% was issued capriciously and whimsically or in an arbitrary or despotic manner by passion or personal hostility since it appears that a comprehensive study of the 6AT was made before 3.A. <$% was issued. [(-7-4@,-n n8 08- N-86@6@n8Ko? s- P-0-;-6--n n8 P@6@7@n-s# In3. vs. T-n. GR No. /1111. Jun 10# 1"//$ The Modified 5chedular 2ncome Tax whereby individual income was classified into three different classes under different tax rates is not a denial of due process because there is no proof of arbitrariness in the imposition of tax rates. [S@son# J,. vs. An3; 4-. GR No. )"411. Ju6. !)# 1"/4$
27
1ue process was not observed when the trial court, an action for declaratory relief, declared that certain property owned by the (oman 'atholic 'hurch in :angued, Abra was taxexempt under the "#$% 'onstitution, it appearing that no court hearing was conducted thereon. [P,ov@n3 oA A+,- vs. H ,n-n?o. GR No. LC4"11*. Au8us4 11# 1"/1$ There is a denial of due process on account of the passage of an ordinance in the 'ity of Manila which imposes a permit fee of 9;+.++ on aliens as a condition to employment or engaging in any business or occupation, where it appears that under said ordinance, the 'ity Mayor of Manila could withhold or refuse issuance of such permit at will. Aliens, once admitted in the 9hilippines, cannot be deprived of life without due process of law and this guarantee includes the means of livelihood. [%@66 8-s vs. H@u C;@on8 Ts-@ P-o Ho. GR No. L=!"*4*. Nov 0+ , 10# 1"2/$ ELu-6 P,o4 34@on C6-us
A law -(.A. %&B%. which imposes a preferential franchise tax rate of <= on a particular franchise grantee while other franchise grantees are subject to ;= is not violative of the e,ual protection or e,uality of taxation rule in the 'onstitution. The legislature has the inherent power not only to select the subjects of taxation but also to grant tax exemptions. [CIR vs. L@n8-. n Gu6A. GR No. LC!1221. Au8us4 4# 1"//$ The 6AT law does not discriminate unduly against customs brokers who are subject to said tax. The exclusion of said brokers from the exemption granted to professionals under 5ec. "+% -r. of the Tax 'ode is justified by the fact that customs brokers differ from tax-exempt professionals considering that the activities of customs brokers partake of the nature of a business rather than a profession. [(-7-4@,-n n8 08- N-86@6@n8Ko? s- P-0-;-6--n n8 P@6@7@n-s# In3. vs. T-n. GR No. /1111. Jun 10# 1"//$ The schedular income tax which imposes graduated rates from += to %;= without deductions on compensation of individuals, and a rate scheme of from ;= to *+= on business and other income with deductions does not violate rule on e,ual protection clause since there is no infirmity if classifications are made to rest on substantial distinctions. 4Si!on: /r2 ,!2 An%heta2 GR No2 ?96B52 /" + 8?: 59A6; ?here it appears that 5ec. "+# of the Tax 'ode -before its implied repeal. which re,uired skimmed milk manufacturers to place a warning sign on their products stating that skimmed milk is 7not suitable for feeding infants less than one year7 is enforced only against manufacturers of evaporated filled milk and not against makers of condensed skimmed milk like 52M2/A', 5MA or :(3M2/, such action is discriminatory and is a denial of e,ual protection of the law. [% ,- vs. Cu v-s. GR No. LC11*"1="4. &-. 11# 1"2"$ Although the e,ual protection clause of the 'onstitution 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 delegation. The amount of 9;+.++ collected from every employed alien, whether he is casual or permanent, part time or full time or whether he is lowly employee or a highly paid executive, is unreasonable because it fails to consider valid substantial differences in situation among individual aliens. [%@66 8-s vs. H@u C;@on8 Ts-@ P-o Ho. GR No. L=!"*4*. Nov 0+ , 10# 1"2/$ The fact that the taxpayer is the only sugar central or refiner in the municipality where the tax ordinance is enacted does not make said ordinance discriminatory. The reason for this is that since other refineries to be established in the future would also be taxable, no singling out of the taxpayer to its disadvantage has ever taken place. [%@34o,@-s &@66@n8 vs. &un@3@7-6@4. oA %@34o,@-s. GR No. LC!11/1. S 74 0+ , !2# 1"*/$ A tax ordinance levied on centrifugal sugar milled by Armoc 5ugar 'o., mentioning only this company by name is discriminatory. The ordinance does not satisfy the re,uisites of reasonable
28

classification. Although Armoc 5ugar was the only sugar central existing at that time, the ordinance is defective because even if similar company is later set up, it cannot be subject to the tax since the ordinance specifically points to Armoc as the one to be taxed. [O,0o3 Su8-, Co. In3. vs. T, -su, , oA O,0o3. GR No. LC!12"4. F +,u-,. 12# 1"*/$ 9laintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination within a class in that while professionals with offices in manila have to pay the tax, outsiders who have no offices in the city but practice their profession therein are not subject to the tax. 9laintiffs make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every person HexercisingI or HpursuingI S in the 'ity of Manila naturally S any one of the occupations named, but does not say that such person must have his office in manila. ?hat constitutes exercise or pursuit of a profession in the city is a matter of judicial determination. [Puns-6-n vs. &un@3@7-6 'o-,? oA 4; C@4. oA &-n@6-. GR No. LC4/12. &-. !*# 1")4$ A tax on 7installation manager7 is not discriminatory just because at the time said tax was imposed, there was no other person in the locality who exercised such occupation. The tax is and will be applicable to any person or firm who exercises such calling or occupation designated as installation manager. [S; 66 Co. oA 4; P;@6@77@n s vs. %-no. GR No. LC*0"1. F +,u-,. !4# 1")4$ A local ordinance which levies an ad valorem tax on motor vehicles registered in Manila without also taxing those which are registered outside the city but which enter the city and use its streets occasionally violates the rule on the e,uality of taxation . [Asso3@-4@on oA Cus4o0s ',oK ,s vs. &un@3@7-6@4. 'o-,?. GR No. LC412*. &-. !!# 1")1$ The remission or condonation of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. 3ach set of taxes is a class by itself and the law would be open to attack as a class legislation only if all taxpayers belonging to one class were not treated alike. [Ju-n Lun- Su+?@v@s@on# In3. vs. S-,0@ n4o. GR No. LC1)1/. &-. !/# 1")!$ Non=@nA,@n8 0 n4 oA R 6@8@ous F, ?o0 The application of a license tax to religious groups, such as the CehovahGs ?itnesses, in connection with the latterGs sale of religious books and pamphlets, is unconstitutional. According to the 'ourtF HAs the !5 5upreme 'ourt put it, it is one thing to impose a tax on income or property of a preacher. 2t is ,uite another thing to exact a tax on him for delivering a sermon.I [P;@6@77@n A@,6@n s# In3. vs. S 3, 4-,. oA F@n-n3 . GR No.11)/)!. O34.10# 1"")$ A municipal license tax on the sale of bibles and religious articles by a non-stock, non-profit missionary organiKation at a little profit constitutes a curtailment of religious freedom and worship which is guaranteed by the 'onstitution. [A0 ,@3-n '@+6 So3@ 4. vs. C@4. oA &-n@6-. GR No. LC "*12. A7,@6 10# 1")2$ Non=@07-@,0 n4 oA Con4,-34s The constitutional prohibition of the impairment of the obligation of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. [P;@6@77@n Ru,-6 E6 34,@3 Coo7 ,-4@v s Asso3. In3. vs. S 3, 4-,. oA DILG. GR No. 14102*. Jun 10# !001$ )on-impairment may not be invoked in the case of a public utility franchise grantee. This is so because under 5ec. &, Art. 426 of the "#%; 'onstitution and 5ec. ;, Art. 426 of the "#$% 'onstitution -now, 5ec. "", Art. 422, "#&$ 'onstitution., the legislature can impair a grantee@s franchise since a franchise is subject to amendment, alteration or repeal by the 'ongress when the public interest so re,uires. [C-8-.-n E6 34,@3 PoF , -n? L@8;4 Co. vs. CIR. GR No. *0!1*. S 74 0+ , !)# 1"/)$
29
?here a mining concession was granted under a (oyal 1ecree and where it appears that under said decree no other taxes except those mentioned therein shall be imposed on mining and metallurgical industries, the levy of a tax on said mining claim plus an ad valorem tax on mineral output under a subse,uent law -Act ""&#. constitute an impairment of contract because a mining concession is a contract. [C-s-nov-s vs. Ho,?. GR No. LC1421. &-,3; !!# 1"02$ Un@Ao,0@4.# ELu@4-+@6@4. -n? P,o8, ss@v@4. oA T-B-4@on !niformity of taxation, like the kindred concept of e,ual protection, merely re,uires that all subjects or objects of taxation, similarly situated are to be treated alike both in privileges and liabilities. [T-n vs. D 6 Ros-,@o. GR No.10"!/". O34o+ , 1# 1""4$ Taxation is said to be e,uitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected. The H2ncome ApproachI should have been used instead of the H'omparable 5ales ApproachI as the basis in fixing the assessed value of the properties. :y no stretch of the imagination can the market value of the properties covered by 91 )o. <+ be e,uated with the market value of properties not so covered. The former has naturally a much lesser market value because of the rental restrictions. [R . s vs. A60-n>o,. GR Nos. 4"/1"=4*. A7,@6 !*# 1""1$ The fact, therefore, that the owners of other classes of buildings in the 'ity of 2loilo do not pay the taxes imposed by the ordinance in ,uestion is no argument at all against uniformity and e,uality of the tax imposition. )either is the rule of e,uality and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same rule does not re,uire that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. 5o long as the burden of the tax falls e,ually and impartially on all owners or operators of tenement houses similarly classified or situated, e,uality and uniformity of taxation is accomplished. [%@66-nu v- vs. C@4. oA I6o@6o. GR No. LC!*)!1. D 3 0+ , !/# 1"*/$ !niformity in taxation means that all taxable articles or kinds of property of the same classes shall be taxed at the same rate. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. [C;u,3;@66 vs. Con3 73@on. GR No. 11)2!. S 74 0+ , !!# 1"1*$ T-B EB 074@on oA P,o7 ,4@ s A34u-66.# D@, 346. -n? EB36us@v 6. Us ? Ao, R 6@8@ous# C;-,@4-+6 -n? E?u3-4@on-6 Pu,7os s The test of exemption from taxation is the use of the property for the purposes mentioned in the 'onstitution. >or purposes of tax exemption, 7use7 overrides 7ownership7 such that if property, although actually owned by a religious, charitable or educational institution, is actually used for non-exempt purpose, the exemption from tax of said property vanishes. >or tax exemption purposes, the term Hexclusively usedI is not limited to total or absolute use for religious, charitable or educational purposes. 2f the property is incidentally used for the aforementioned purposes, it is clear from decided cases that tax exemptions may still subsist. ?here the main building of an educational institution is used both as classrooms for its high school and college students as well as residence of the 5chool 1irector and his family, the tax exempt character of such property remains despite the fact that it is used as such, as the same may be justified as being only incidental or complementary to its main or primary purpose of providing education to its students. [A+,- %-66 . Co66 8 In3. vs. ALu@no. GR No. LC1"0/*. Jun 1)# 1"//$ The present 'onstitution added Hcharitable institutions, mos,ues and non-profit cemeteriesI and re,uired that for the exemption of Hlands, buildings and improvements,I they should not only be HexclusivelyI but also HactuallyI and HdirectlyI used for religious or charitable purposes. The 'onstitution is worded differently. The change should not be ignored. 2t must duly taken into consideration. (eliance on past decisions would have sufficed were the words HactuallyI as well as HdirectlyI not added. There must be proof therefore of the actual and direct use of the lands, buildings and improvements for religious or charitable purposes to be exempt from taxation. [P,ov@n3 oA A+,- vs. H ,n-n?o. GR No. LC4"11*. Au8us4 11# 1"/1$
40

The constitutional provision, 5ec. <&-%., Art. 62, "#%; 'onstitution, which grants tax exemption applies only to property or realty taxes assessed on such properties used directly, actually and exclusively for religious, charitable and educational purposes. 2t does not apply to donor@s and donee@s gift on the cash donation for the church building. [L6-?o3 vs. Co00@ss@on , oA In4 ,n-6. GR No. LC1"!01. Jun 1*# 1"*)$ 3xclusive use for educational purposes includes, as in the case of a hospital, a school for training nurses, home and housing facilities for interns, resident doctors, superintendents and other members of the hospital staff, recreational facilities, etc. The admission of pay patients does not detract from the charitable character of the hospital if all the funds are devoted exclusively to the maintenance of the charitable institution as a public charity. The fact that the hospital which is a charitable institution admits pay patients does not bar it from claiming that it is devoted exclusively to benevolent purposes if it appears that the income derived from pay patients is devoted to the improvement of the charity wards which represents almost two-thirds of the total bed capacity aside from 7out charity7 patients who come only for consultation. (See a%so Commissioner $s. !isho# of the +issionar* 4istrict. .R No. )519443. u6ust 011 1973) [H ,, ,- vs. Qu >on C@4. 'o-,? oA Ass ss0 n4 A77 -6s. GR No. LC1)2!0. S 74 0+ , 10# 1"*1$ T-B EB 074@on oA R v nu s -n? Ass 4s# In36u?@n8 G,-n4s# En?oF0 n4s# Don-4@ons o, Con4,@+u4@ons 4o E?u3-4@on-6 Ins4@4u4@ons A reading of the last paragraph of 5ec. %+ ineludibly shows that the income from any property exempt organiKations as well as that arising from any activity it conducts for profit, is taxable. The phrase Iany of their activities conducted for profitI does not ,ualify the word HpropertiesI. This makes income from the property of the organiKation taxable, regardless of how that income is used S whether for profit or for lofty non-profit purposes. The exemption from payment of income tax under 5ec.B-%., Art. 426 of the 'onstitution may be granted to an educational institution provided that it proves with substantial evidence that -". it falls under the classification as a non-stock, non-profit educational institution and -<. the income it seeks to be exempted from taxation is used actually, directly and exclusively for educational purposes. 2t is settled that the term Heducational institution,I when used in laws granting tax exemptions, refers to a school, seminary, college or educational establishment. 0M'A does not fall under such term. [CIR vs. Cou,4 oA A77 -6s. GR No. 1!4041. O34. 14# 1""/$
DOU.LE TA-ATION: TA- E-EMPTION: ESCAPE FROM TA-ATION

DOU'LE TADATION
The purpose of these international agreements is to reconcile the national fiscal legislation of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. The tax conventions are drafted with the view towards the elimination of internationa% juridica% dou8%e taxation, which is defined as the imposition of comparable taxes in two or more states on the taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology and persons between countries. 2n negotiating tax treaties, the rationale for reducing the tax rate is that the 9hilippines will give up part of the tax in the expectation that, the tax given up for this particular investment is not taxed by the other country. [CIR vs. SC Jo;nson -n? Son# In3. GR No. 1!210). Jun !)# 1"""$ The pool of machinery insurers was held to be a taxable entity distinct from the individual corporate entities of the ceding companies. The tax on its income is different from the tax on the dividends received by said companies, and clearly no double taxation is involved. [AA@s3o Insu,-n3 Co,7. vs. Cou,4 oA A77 -6s. GR No. 11!*2). J-nu-,. !)# 1"""$
41
>or double taxation to exist, the same property must be taxed twice, when it should be taxed but once. 1ouble taxation has also been defined as taxing the same person twice by the same jurisdiction for the same thing. 5urely, a tax on plaintiff@s products is different from a tax on the privilege of storing copra in a bodega situated within the territorial boundary of defendant municipality. [P,o34 , 9 G-0+6 Co,7. vs. &un@3@7-6@4. oA J-8n-. GR No. L=!4!*). D 3 0+ , !/# 1"2"$ 1ouble taxation is not prohibited by the 'onstitution and there is double taxation when the same person is taxed by the same jurisdiction for the same purpose. This is not the case in the case at bar for the ordinance in ,uestion imposes a tax on the sale or disposal of every Hbottle or containerI of li,uor or intoxicating beverages, and, as such, is a typical tax or revenue measure, whereas the fee it pays annually is for a 7second-class wholesale li,uor license,7 which is a license to engage in the business of wholesale li,uor in 'ebu 'ity, and, accordingly, constitutes a regulatory measure, in the exercise of the police power. [S-n &@8u 6 ', F ,.# In3. vs. C@4. oA C +u. GR No. L=!011!. F +,u-,. !*# 1"2!$ A city ordinance imposing a tax on the sale of lumber cannot be declared null and void on the ground that the ordinance in ,uestion imposes in effect double taxation because the business of lumber yard is already regulated under the 'harter and the sale of lumber is a Tmere incident of the business of lumber yard.G 5uffice it to say that regulation and taxation are two different things the first being an exercise of police power, whereas the latter is not, apart from the fact that double taxation is not prohibited in the 9hilippines. [S ,-A@3- vs. T, -su, , oA O,0o3 C@4.. GR No. L=!4/11. A7,@6 !/# 1"*"$ 1ouble taxation has been otherwise described as 7direct duplicate taxation7. >or double taxation to exist, 7the same property must be taxed twice, when it should be taxed but once7. 2t has also been 7defined as taxing the same person twice by the same jurisdiction for the same thing7. ?ith the foregoing precepts in mind, there is no double taxation in the case at bar. >irst, the two taxes cover two different objects. 5ection " of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of centrifugal sugar. ?hile under 5ection <, those taxed are the operators of sugar refinery mills. Ane occupation or business is different from the other. 5econd, the disputed taxes are imposed on occupation or business. :oth taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills concerned, regardless of the actual sugar milled. The petitionerGs argument perhaps could make out a point if the object of taxation here were the sugar it produces not the business of producing it. [%@34o,@-s &@66@n8 Co. vs. &un@3@7-6@4. oA %@34o,@-s. GR No. L=!11/1. S 74 0+ , !2# 1"*/$ 1ouble taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity. 2n the present case, although the taxpayer would have to pay two taxes on the same income but the 9hilippine government only receives the proceeds of one tax, there is no obnoxious double taxation. [CIR vs. %.E. L ?n@3K.. GR No. L=1/1*". Ju6. 11# 1"*4$
TAD EDE&PTIONS
The )9' is not excluded from the coverage of the franchise tax notwithstanding that its tax are wholly owned by the national government and its charter characteriKe it non-profit organiKation. To stress, a franchise tax is imposed based not on ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation, not the individual stockholders. :y virtue of its charter )9' was created as a separate and distinct entity from the national government thus the ownership by the national government of its entire capital stock does not necessarily imply that )9' is not engaged in business. [N-4@on-6 PoF , Co,7o,-4@on vs. C@4. oA C-+-n-4u-n. GR No. 14"110. A7,@6 "# !001$ Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. 2t also gives the government a chance to collect uncollected tax from tax evaders without having to go
42

through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delin,uencies, the taxpayer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income. A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. ['-E-s vs. Cou,4 oA A77 -6s. GR No. 10!"*2. F +,u-,. 10# !000$ The )ational 9ower 'orporation -)9'., a government controlled corporation, could justifiably claim for the refund of the tax on pertroleum products that it had purchased from several oil companies, where it appears that under a number of tax exemption laws and presidential decrees enacted for said entity, its exemption from the payment of said taxes was clearly shown. 2t should be noted in this connection that this rule on strict interpretation also does not apply in case of exemptions granted in favor of a government political subdivision or instrumentality like public corporations. [&-3 ?- vs. &-3-,-@8. GR No. //!"1. Jun /# 1""1$ The salaries of the 'hief Custice and Associate Custices of the 5upreme 'ourt as well as those judges of inferior courts are taxable. The clear intent of the 'onstitutional 'ommission was to delete the proposed express grant of exemption from payment of income tax to members of the judiciary, so as to give substance to e,uality among the three branches of 8overnment. 2n the course of the deliberations in the 'onstitutional 'ommission, it was expressly made clear that the salaries of the members of the judiciary would be subject to general income tax applied to all taxpayers. [N@4-A-n vs. CIR. GR No. L=2/2/0. Ju6. !1# 1"/2$ The 'ongress could impair petitionerGs legislative franchise by making it liable for income tax which heretofore it was exempted by virtue of the exemption provided for in 5ection % of its franchise. The 'onstitution provides that a franchise is subject to amendment, alteration, or repeal by the 'ongress. [C-8-.-n E6 34,@3 Co. vs. Co00@ss@on ,. GR No. LC*010!*. S 74 0+ , !)# 1"/)$ !nder 5ection <# of the 'harter of the 'ity of :acolod, the properties in ,uestion, which are concededly owned by the government, are exempt from realty taxes. 2t bears emphasis that the said section does not contain any ,ualification whatsoever in providing for the exemption from real estate taxes of 7lands and buildings owned by the 'ommonwealth or (epublic of the 9hilippines.7 Dence, when the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose. >urthermore, 91 )o. <B, which amended the 5ocial 5ecurity Act of "#;B, has already removed all doubts as to the exemption of the 555 from taxation. [So3@-6 S 3u,@4. S.s4 0 vs. C@4. oA '-3o6o?. GR No. L=1)2!*. Ju6. !1# 1"/!$ Tax exemptions are strictly construed against the taxpayer, they being highly disfavored. De who claims an exemption must be able to point to some positive provision of law creating the right it cannot be allowed to exist upon a mere vague implication or inference. Ane who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. The right of taxation will not be held to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken. [&-n@6- E6 34,@3 Co07-n. vs. % ,-. GR No. L=!""/2. O34o+ , !!# 1"2)$ 2f two meanings of a stipulation are admissible, that which is least to the advantage of the party for whose benefit the stipulation was inserted in the treaty should be preferred. Thus, an ambiguity in the tax exemption provision in the Military :ases Agreement cannot be interpreted in favor of the American 8overnment or the party claiming under it, like a taxpayer. 2t is well-settled that the exception contained in tax statutes must be strictly construed against the one claiming exemption and that he who would seek to be thus privileged must justify it by words too plain to be
44
mistaken and too categorical to be misinterpreted. [CIR vs. P.J. (@ n , Co07-n.# L4?. GR No. L= !42)4. Ju6. 1/# 1"2)$ 2n the case of two electric power plants, which are operating in the same locality, it cannot be presumed that the exemption of one should also be enjoyed by the other. The legal principle on the matter is firmly established and well-observedF for exemption to be recogniKed, the grant must be clear and expressed, it cannot be made to rest on vague implications. [D-v-o L@8;4 9 PoF , Co. vs. Co00@ss@on , oA Cus4o0s. GR No. L=!/21". &-,3; !"# 1"2!$ The exemption from income tax on :ase-connected income of non-resident American :ase personnel under the !.5. :ases Treaty does not extend to the income realiKed from the sale by an American civilian :ase employee of his car inside the :ase to another American national. (See a%so CIR $s. Ro8ertson. .R Nos. )970117919. u6ust 1/1 1927.) [R -8-n vs. CIR. GR No. L=!*12". D 3 0+ , !2# 1"*"$ 3xemption from taxation is not favored and is never presumed in fact, if it is granted, the grant must be strictly construed against the taxpayer. Affirmatively put, the law re,uires courts to frown on alleged exemptions from taxation, hence, an exempting provision in a legislative enactment should be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Taxation is the rule and tax exemption is the exception. (See a%so )ea%da (%ectric Co.1 Inc. $s. CIR. .R No. )9174/2. #ri% 001 1970: ;onder +echanica% (n6ineerin6 Cor#. $s. CT . .R Nos. )9//203 < )9/7232. -une 001 1973: and CIR $s. +itsu8ishi +eta% Cor#.. .R No. 34902. -anuar* //1 1990.) [Ro?,@8u ># In3. vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. L=!1041. 11 Ju6. 1"*"$ The condonation of a tax liability is e,uivalent and is in the nature of a tax exemption. :eing so, it should be sustained only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. [Su,@8-o Conso6@?-4 ? &@n@n8 Co.# In3. vs. Co66 34o,. GR No. L=14/2/. D 3 0+ , !*# 1"*1$ The exemption clause provided for in 5ection % of (A )o. $# merely intends to exempt the racing club in whose premises or tracks the races are held by the 9hilippine 'harity 5weepstakes Affice from the payment of re,uired municipal or national taxes in connection with said races. 2t cannot refer to any income tax that may be imposed on the rentals that may be paid for the use of those tracks and other paraphernalia. That is an income that the racing club has to account for income tax purposes. 2t is an income that, strictly speaking, did not come from the horse races held by said club but it came to it as rentals paid for the use of its property. The tax paid for such income cannot therefore be considered as one connected with those races within the purview of the exemption clause. [&-n@6- Jo3K . C6u+# In3. vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. L= /2)). &-,3; !1# 1")*$
TAD A%OIDANCEH TAD E%ASIONH TAD FRAUD

The fraud contemplated by law is actual and not constructive. 2t must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. )egligence, whether slight or gross, is not e,uivalent to the fraud with intent to evade the tax contemplated by law. 2t must amount to intentional wrongdoing with the sole object of avoiding the tax. 2t necessarily follows that a mere mistake cannot be considered as fraudulent intent. >raud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion. [CIR vs. J-v@ ,. GR No. 2/")1. Ju6. 11# 1""1$ A tax return which does not correctly reflect income may only be false but not necessarily fraudulent where it appears that the return was not prepared by the taxpayer himself but by his accountant and that after the original deficiency tax assessment was made, the same was subse,uently reduced by the :2( by a substantial amount. Dence, the ;+= surcharge for fraud may
45

be dispensed with but the tax may still be assessed within the prescriptive period of ten years from discover thereof. [A>n-, vs. CTA. GR No. L=!0)*". Au8us4 !1# 1"24$ Tax avoidance is not forbidden in our jurisdiction. An attempt to minimiKe one@s tax does not necessarily constitute fraud. 2t is a settled principle that a taxpayer may diminish his liability by any means which the law permits. The intention to minimiKe taxes must be proved to exist by clear and convincing evidence amounting to more than mere preponderance and cannot be justified by mere speculation. This is because fraud is never lightly presumed. (See a%so CIR $s. Court of ##ea%s. .R No. 11792/. &e8ruar* 71 1997) [H n8 Ton8 T B4@6 s Co.# In3. vs. CIR. GR No. L= 1"212. Au8us4 !*# 1"*/$ To subject a taxpayer to the payment of ;+= surcharge as provided for in 5ec. $< of the Ald Tax 'ode, the 5tate must show either that there was a willful neglect to file a return or that a case of false or fraudulent return willfully made exists. 5o, where a man honestly believes that the method employed by him in computing his tax liability is correct, he does not incur any fraud and the penalty under 5ection $< does not apply. [CIR vs. %@s-.-n E6 34,@3 Co07-n.. GR No. L= !!*11. &-. !2# 1"*/$ >raud is a ,uestion of fact which must be alleged and proved. 2t is a serious charge and, to be sustained it must be supported by clear and convincing proof. 2n the instant case, the filing by the taxpayer of a false return was neither alleged in the complaint nor proved in court. Dence, the lower court correctly resolve the issue of prescription without touching upon fraudulence of the return. [R 7u+6@3 vs. ( , 9 Co07-n.# L4?. GR No. L=!1*0". S 74 0+ , !"# 1"**$ ?here it appears that the taxpayer, although on accrual basis, had willfully under declared its "#;" income by treating copra outturn as stock still outstanding at the end of "#;", when in fact such copra had already been shipped to a foreign buyer and the taxpayer had already received part of the sales proceeds, fraud is said to be present. >urthermore, such fraud is aggravated if the taxpayer included such copra outturn in its beginning inventory for "#;< thus eventually deducting its value as cost of goods sold for "#;< and diminishing its net income for that year. [R 7u+6@3 vs. L@0 T@-n T n8 Sons 9Co.# In3. GR No. L=!1211. &-,3; 11# 1"**$ The 8overnment claimed that there were seven lots deliberately omitted from the tax returns filed by the representative of the heirs, thereby evincing an intention to evade the payment of the correct amount of tax to the government. 2t appears however, that three of the seven lots alleged to have been excluded were actually included in the return that one lot was not included because it belonged to one of the heirs and that the three remaining lots were already declared in the return submitted by the husband as part of the conjugal property for purposes of income tax. The omission, therefore, was not deliberate and did not amount to fraud indicative of an intention to evade payment of the proper tax due the government. [R 7u+6@3 vs. H @,s oA J-6-n?on@. GR No. L=1/1/4. S 74 0+ , !0# 1"*)$ 5ince fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of the appellant to declare for taxation purposes his true and actual income derived from his furniture business for two consecutive years is an indication of his fraudulent intent to cheat the 8overnment of its taxes. [R 7u+6@3 vs. Gon>-6 s. GR No. L=12"*!. A7,@6 10# 1"*)$ The acts of the petitioner in declaring as incomes in his income tax returns for three years amounts representing only small fractions of his actual incomes, justify the finding of the lower court that there has been fraud subject to be penaliKed by law. ?here the petitioner has been guilty of fraud, the period within which he may be subject to liability begins from the moment the fraud is discovered and not when the income tax return was filed. [Av 6@no vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. L=1221). Ju6. 11# 1"*1$
TA- LA&S AND REGULATIONS

45
NATURE OF TAD LA5S

2nternal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payments were affected and considered valid and legal. 5uch tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. [H@6-?o vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. L="40/. O34o+ , 11# 1")*$ The prohibition against ex post facto laws applies only to criminal or penal matters, and not to laws which concern civil matters or proceedings generally, or which affect or regulate civil or private rights. Dence, tax laws not being penal in character, the rule against passage of ex post facto laws cannot be invoked. [R 7u+6@3 vs. %?-. D F ,n-n? >. GR No. L="141. S 74 0+ , !)# 1")*$ 2t is well settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent. Af course, a tax statute may be made retroactive in its operation. /iability for taxes under retroactive legislation has been 7one of the incidents of social life.7 :ut legislative intent that a tax statute should operate retroactively should be perfectly clear. (evenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. Thus, Article << of the (evised 9enal 'ode is not applicable to the case of bar, and in the absence of clear legislative intent, we cannot give Act )o. %*+* a retroactive effect. [Lo, n>o vs. Pos-?-s# J,. GR No. 410/!. Jun 1/# 1"12$
INTERPRETATION OF TAD LA5S

As a matter of practice and principle, the 5upreme 'ourt will not set aside the conclusion reached by the 'ourt of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise in the subject, unless there has been an abused and improvident exercise of authority on its part. [CIR vs. CTA. GR No. 1041)1. &-,3; 10# 1"")$ 2t is a general rule in the interpretation of statutes levying taxes or duties, that in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citiKens, because burdens are not to be imposed, nor presumed to be imposed beyond what statutes expressly and clearly import. [CIR vs. F@, 0-n:s Fun? Insu,-n3 Co. GR No. L= 10*44. &-,3; "# 1"/2$ Although, tax burdens are not presumed, it is important to consider, however, that tax laws are not promulgated in order to encourage tax evasion or tax avoidance. [CIR vs. P;o n@B Assu,-n3 Co.# L4?. GR No. L=1"2!2. &-. !0# 1"*)$ 2t is a well-established rule that a statute will not be construed as imposing a tax unless it does so clearly, expressly and unambiguously. A tax cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of re,uiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. [&-,@n?uLu I,on &@n s vs. &un@3@7-6@4. oA H@n-+-n8-n. GR No. L=1/"!4. Jun 10# 1"*4$ 2n every case of doubt, tax statutes are construed most strongly against the 8overnment and in favor of the citiKens, because burdens are not to be imposed beyond what the statutes expressly and clearly import. [Co66 34o, oA In4 ,n-6 R v nu vs. L- Ton? E-. GR No. L=10411. Ju6. 11# 1"*!$
PU'LICATION REQUIRE&ENT
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3xecutive and administrative orders and proclamations shall be published in the Afficial 8aKette, except such as have no general applicability. 'MA )o. <+-&$ re,uiring collectors of customs to comply strictly with 5ection "< of the 9lan, is an issuance which is addressed only to particular persons or a class of persons -the customs collectors.. 2t need not be published, on the assumption that it has been circulariKed to all concerned. [Y-oK-s@n vs. Co00@ss@on , oA Cus4o0s. GR No. /4111. D 3 0+ , !!# 1"/"$ The following re,uire publication as a condition for their effectivityF statutes, including those of local application and private laws, presidential decrees and executive orders promulgated by the 9resident in the exercise of legislative powers, and administrative rules and regulations if their purpose is to enforce or implement existing law pursuant to a valid delegation. Dowever, interpretative regulations and those merely internal in nature, that is, regulating only the personnel of the administrative agency and not the public, need not be published. )either is publication re,uired of the so-called letters of instructions issued by administrative superiors concerning the rules or guidelines to be followed by their subordinates in the performance of their duties. [T-E-?- vs. Tuv ,-. GR No. *1"1). D 3 0+ , !"#1"/*$ ?hen an administrative agency renders an opinion by means of a circular or memorandum it merely interprets a pre-existing law and no publication is re,uired for its validity. [Ro0u-6? > vs. A,3-. GR No. L=!)"!4. A7,@6 1/# 1"*"$
TAD LA5S AS SPECIAL LA5S

There is no ,uestion that the (evised 'harter of the 'ity of Manila is a special act since it relates only to the said 'ity, whereas the /ocal Tax 'ode is a general law because it applies universally to all local governments. The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception of the general. Dowever, the rule readily yields to a situation where the special statute refers to a subject in general, which the general statute treats in particular. That is exactly the circumstance obtaining in the case at bar. 5ection "$ of the (evised 'ity 'harter speaks of 7ordinance7 in general, irrespective of the nature and scope thereof, whereas, 5ection B% of the /ocal Tax 'ode relates to 7ordinances levying or imposing taxes, fees or other charges7 in particular. Therefore, in regard to ordinances in general, the (evised 'ity 'harter is doubtless dominant, but that dominant force loses its continuity when it approaches the realm of 7ordinances levying or imposing taxes, fees or other charges7 in particular. There, the /ocal Tax 'ode controls. ['-8-4s@n8 vs. R-0@, >. GR No. L=41*11. D 3 0+ , 12# 1"2*$ 5ince an action to recover an erroneously refunded tax is in effect an assessment of such tax, and considering that a special law like the Tax 'ode prevails over the 'ivil 'ode, a general law, then it is the three-year period under the Tax 'ode that should apply. [Gu-8u- E6 34,@3 L@8;4 Co.# In3. vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. L=!1*11. A7,@6 !4# 1"*2$ The extra-judicial demands made, if any, did not serve to suspend or toll the period of prescription, the provisions of the 'ivil 'ode notwithstanding. 2t should be noted, in this connection, that the 2nternal (evenue 'ode, being a special law, prevails over a general law. [R 7u+6@3 vs. G-n3-.3o. GR No. L=1/102. Jun 10# 1"*4$
TAD REGULATIONS
A (evenue Memorandum 'ircular issued by the 'ommissioner of 2nternal (evenue changing the prescriptive period of two years to ten years on claims of excess ,uarterly income tax payments creates a clear inconsistency with the provision of 5ection <%+ of the "#$$ )2('. 2n so doing, the :2( did not simply interpret the law rather it legislated guidelines contrary to the statute passed by 'ongress. (evenue memorandum circulars are considered administrative rulings -in the sense of more specific and less general interpretations of tax laws. which are issued from time to time by the '2(. 2t is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to greater respect by the courts. )evertheless, such interpretation
47
is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. [P;@6@77@n '-nK oA Co00un@3-4@ons vs. CIR. GR No. 11!0!4. J-nu-,. !/# 1"""$ ?ithout (M' %$-#%, the enactment of (A $*;B would have had no new tax rate conse,uence on private respondentGs products. 3vidently, in order to place HDope /uxury,I H9remium MoreGI and H'hampionI cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the disputed (M' %$-#% had to be issued. 2n so doing, the :2( not simply interpreted the law verily, it legislated under its ,uasi-legislative authority. The due observance of the re,uirements of notice, hearing and publication should not have then ignored. [CIR vs. Cou,4 oA A77 -6s. GR No. 11"2*1. Au8. !"# 1"*1$
NON=RETROACTI%ITY OF RULINGS
(ulings, rules and regulations promulgated by the 'ommissioner of 2nternal (evenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. :ad faith, as an exception to the rule of non-retroactivity under 5ection <B* of the Tax 'ode, imports a dishonest purpose or some moral obli,uity and conscious doing of wrong. 2t partakes of the nature of fraud a breach of a known duty through some motive of interest or ill will. The failure of a taxpayer to consult the :ureau of 2nternal (evenue before using a computation mandated by a :2( (uling which was clear and categorical, thus leaving no room for interpretation, does not imply bad faith on the part of the former. ?hile the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents, this admits of exceptions in the interest of justice and fair play as where injustice will result to the taxpayer. [CIR vs. Cou,4 oA A77 -6s -n? A6;-0+,- In?us4,@ s. GR No. 112"/!. F +,u-,. *# 1""2$ To make the respondent 'orporation liable for specific tax after it had made the importation, would surely prejudice petitioner as it would be subject to a tax liability of which the :2( has not made it fully aware. As a result, the ruling of May &, "#$& and >ebruary ";, "#&+ having been issued long after the importation of Cune <" and August "$, "#$$ cannot be applied with legal effect in this case because to do so will violate the prohibition against retroactive application of the rulings of executive bodies. [CIR vs. & 8- G n ,-6 & ,3;-n?@s@n8 Co. GR No. *"11*. S 74 0+ , 10# 1"//$ The Memorandum 'ircular cannot be given retroactive effect in the light of 5ection %<$ of the )2(' on the non-retroactivity of ruling. HAny revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the 'ommissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following casesF -a. where the taxpayer deliberately mistakes or omits material facts from his return or in any document re,uired of him by the :2( -b. where the facts subse,uently gathered by the :2( are materially different from the facts on which the ruling is based or -c. where the taxpayer acted in bad faith.7 [CIR vs. 'u,,ou8;s L@0@4 ?. GR No. L=***)1. Jun 1"# 1"/*$ The Tax 'ode is explicit in saying that rulings or circulars promulgated by the '2( have no retroactive effect where the same is prejudicial to the taxpayer. The circular was issued only in "#$" or three years after "#*&. 9etitioner was no longer in a position to withhold taxes from the foreign film distributors because it had already remitted said withheld taxes and has no more control over them when the new circular was issued. [A'S=C'N ',o-?3-s4@n8 Co,7. vs. CTA. GR No. L=)!10*. O34o+ , 1!# 1"/1$ /ike other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, the purpose of the legislature to give retrospective effect is expressly declared or may
48

clearly be implied from the language used. [C +u Po,46-n? C 0 n4 Co. vs. Co66 34o,. GR No. L= !0)*1. O34o+ , !"# 1"*/$
INCOME TA-ATION
INCO&E %S. CAPITAL
2ncome may be defined as an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest or profit from investment. !nless otherwise specified, it means cash or its e,uivalent. 2ncome can also be thought of as a flow of the fruits of oneGs labor. [ConF@ vs. Cou,4 oA T-B A77 -6s. GR No. 4/)1!. Au8us4 !1# 1""!$ 2ncome as contrasted with capital or property is to be the test. The essential difference between capital and income is that capital is a fund income is a flow. 'apital is wealth, while income is the service of wealth. 2ncome means profits or gains. [&-?,@8-6 vs. R-AA ,4.. GR No. 1!!/2. Au8us4 2# 1"1/$
GROSS RECEIPTS
8ross receipts subject to tax do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayerGs benefit and it is not necessary that there must be a law or regulation which would exempt such monies or receipts within the meaning of gross receipts under the Tax 'ode. 9arenthetically, the room charges entrusted by the foreign travel agencies to the private respondent do not form part of its gross receipts within the definition of the Tax 'ode. [CIR vs. Tou,s S7 3@-6@s4s# In3. GR No. **41*. &-,3; !1# 1""0$
PARTNERSHIP %S. CO=O5NERSHIP

The 9ool Agreement entered into by the ceding companies to handle the insurance businesses indicates the formation of a partnership under 5ection <B of the )2('. -". The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool. -<. The pool functions through an executive board, which resembles the board of directors of a corporation, composed of one representative for each of the ceding companies. -%. True, the pool itself is not a reinsurer and does not issue any insurance policy however, its work is indispensable, beneficial and economically useful to the business of the ceding companies because without it they would not received their premiums. 9rofit motive or business is, therefore, the primordial reason for the poolGs formation. [AA@s3o Insu,-n3 Co,7. vs. Cou,4 oA A77 -6s. GR No. 11!*2). J-nu-,. !)# 1"""$ The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as coowners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. !nder the circumstance, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax. (See a%so ($an6e%ista $s. Co%%ector. .R No. 9997. =cto8er 131 1937) [P-s3u-6 vs. CIR. GR No. L=2/111. O34o+ , 1/# 1"//$ The original purpose was to divide the lots for residential purposes. 2f later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. 2t had to be terminated sooner or later. [O+@66os vs. CIR. GR No. L=*/11/. O34o+ , !"# 1"/)$ >or tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with the intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly
49
executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. [OE- vs. CIR. GR No. L=1"14!. &-. !)# 1"2!$ 9laintiffs organiKed a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing e,ually the priKe which they may win, as they did in fact. Daving organiKed and constituted a partnership of a civil nature, the said entity is one bound to pay the income tax. 2t should not be prorated among them and paid individually. [G-43;-6@-n vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. 4)4!). A7,@6 !"# 1"1"$
DEALINGS 5ITH NON=RESIDENT FOREIGN CORPORATIONS

H(oyalties paid under similar circumstancesI in the most favored nation clause of the !5-(9 Tax Treaty necessarily contemplated Hcircumstances that are tax related.I This would mean that it must be proven that the (9-!5 Tax Treaty grants similar tax relief to residents of the !5 in respect of the taxes imposable upon royalties earned from sources within the 9hilippines as those allowed to their 8erman counterparts under the (9-8ermany Tax Treaty. [CIR vs. S.C. Jo;nson -n? Son# In3. GR No. 1!210). Jun !)# 1"""$ The re,uirement of Hsimilar circumstancesI is in relation to the payment of royalty, not payment of the tax. Thus, for instance, the royalty in ,uestion paid to a !5 resident by a non-:A2 registered enterprise or engaged in a non-preferred pioneer activity is not paid under similar circumstances as a royalty paid to an Australian resident by a 9hilippine company that is :A2 registered and engaged in a preferred pioneer activity. [CIR vs. P;@6@77@n T@, 9 Ru++ , Co,7. CA=GR SP No. 4!100. A7,@6 11# 1""2$ The alleged overpaid taxes were incurred for the remittance of dividend income to the head office in Capan which is a separate and distinct income taxpayer from the branch in the 9hilippines. There can be other logical conclusion considering the undisputed fact that the investment was made for purposes peculiarly germane to the conduct of the corporate affairs of Marubeni, Capan, but certainly not of the branch in the 9hilippines . [&-,u+ n@ Co,7. vs. CIR. GR No. 2*)21. S 74 0+ , 14# 1"/"$
TAD SPARING RULE UNDER SECTION !/I'JI)JI'J# NIRC

The fact that 5witKerland did not impose any tax or the dividends received by 8laro from the 9hilippines should be considered as a full satisfaction of the given condition. >or to deny the private respondent the privilege to withhold only ";= tax provided for under 9residential 1ecree )o. %*#, amending 5ection <B-b.-". of the Tax 'ode, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporationGs interest here and discourage them from investing capital in our country. [CIR vs. 5-n? , P;@6@77@n s. GR No. L=*/12). A7,@6 1)# 1""/$ 5ection <B-b.-"., )2(', does not in fact re,uire that the Hdeemed paidI tax credit shall have actually been granted before the applicable dividend tax rate goes down from %;= to ";=. 2t merely re,uires that the !5A Ishall allow a credit against the tax due from 9Q8-!5A for taxes deemed to have been paid in the 9hilippines. There is neither statutory provision nor revenue regulation issued by the 5ecretary of >inance re,uiring the actual grant of the Hdeemed paidI tax credit by the !5 2nternal (evenue 5ervice to 9Q8-!5A before the preferential ";= dividend rate becomes applicable. [CIR vs. P,o34 , 9 G-0+6 P;@6. &-nuA-34u,@n8 Co,7. GR No. **/1/. D 3 0+ , !# 1""1$
I&PROPERLY ACCU&ULATED EARNINGS TAD ISECTION !"# NIRCJ

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2n order to determine whether profits are accumulated for the reasonable needs of the business to avoid the surtax upon shareholders, it must be shown that the controlling intention of the taxpayer is manifested at the time of accumulation, not intentions declared subse,uently, which are mere afterthoughts. >urthermore, the accumulated profits must be used within a reasonable time after the close of the taxable year. [C.-n-0@? P;@6@77@n s# In3. vs. Cou,4 oA A77 -6s. GR No. 10/0*2. J-nu-,. !0# !000$ Antonio Tuason, 2nc. was a mere holding or investment company because it did not involve itself in the development of subdivisions but merely subdivided its own lots and sold them for bigger profits. >urthermore, ##.##= of the outstanding stock is owned by Tuason himself. Thus, when the corporation accumulated surplus from its earnings, the purpose was to avoid the imposition of the progressive income tax on its shareholders. The touchstone liability is the purpose behind the accumulation of the income and not the conse,uences of the accumulation. [CIR vs. Tu-son# In3. GR No. /)24"# &-. 1)# 1"/"$ To determine the Hreasonable needsI of the business in order to justify an accumulation of earnings, the H2mmediacy TestI was invented. 2t construed the words Hreasonable needs of the businessI to mean the immediate needs of the business, and it was generally held that if the corporation did not prove an immediate need for the accumulation the earnings and profits, the accumulation was not for the reasonable needs of the business, and the penalty tax would apply. To determine if profits are reasonably accumulated for business needs, the controlling intention is that manifested at the time of accumulation and not subse,uently declared intentions. [&-n@6- 5@n & ,3;-n4s# In3. vs. CIR. GR No. L= !*14). F +,u-,. !0# 1"/4$
TAD EDE&PT CORPORATIONS UNDER SECTION 10# NIRC

3xemption claimed by the 0M'A is expressly disallowed by the very wording of the last paragraph of then 5ection <$ -now 5ection %+. of the )2(' which mandated that the income of exempt organiKations -such as the 0M'A. from any of their properties, real or personal, be subject to the tax imposed by the same 'ode. The last paragraph of said section une,uivocally subjects to tax the rent income of the 0M'A from its real property. The term Heducational institutionI or Hinstitution of learningI has ac,uired a well-known technical meaning, of which the members of the 'onstitutional 'ommission, are deemed cogniKant. !nder the 3ducation Act of "#&<, such term refers to schools. The school system is synonymous with formal education, which refers to the hierarchically structured and chronologically graded learnings organiKed and provided by the formal school system and for which certification is re,uired in order for the learner to progress through the grades or move to higher levels. The 'ourt has examined the HAmended Articles if 2ncorporationI and I:y-/awsI of the 0M'A, but found nothing in them that even hints that it is a school or an educational institution. Thus, not falling under the exemption for Hnon-profit, non-stock educational institution.I [CIR vs. Cou,4 oA A77 -6s -n? Youn8 & n:s Asso3@-4@on oA 4; P;@6@77@n s. GR No. 1!4041. O34o+ , 14# 1""/$
EDCLUSIONS FRO& GROSS INCO&E

2t is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Atherwise, taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intendment of the law. [CIR vs. Cou,4 oA A77 -6s# GCL R 4@, 0 n4 P6-n. GR No. ")0!!. &-,3; !1# 1""!$ Terminal leave pay received by a government official or employee is not subject to withholding income tax. As held in !orromeo $s. Ci$i% Ser$ice Commission , the rationale behind the employeeGs entitlement to an exemption from withholding income tax on his terminal leave pay is that Hcommutation of leave credits is applied by an officer or employee who retires, resigns or is separated from the service through no fault of his own.I [CIR vs. Cou,4 oA A77 -6s -n? C-s4-E ?-. GR No. "*01*. O34o+ , 12# 1""1$
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A donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services is subject to the doneesG gift tax. A donation made out of gratitude from past services is not subject to deduction for the value of said services which do not constitute a recoverable debt. [P@,ov-no vs. CIR. GR No. L= 1"/*). Ju6. 11# 1"*)$ The proceeds of insurance taken by a corporation on the life of an important official to indemnify it against loss in case of his death, are not taxable as income but was in the nature of an indemnity for the loss which it actually suffered because of the death of its manager. [E6 O,@ n4 # F-+,@3- ? T-+-3os# In3. vs. Pos-?-s# GR No. 14224. S 74 0+ , !1# 1"11$
DEDUCTIONS FRO& GROSS INCO&E

Advertising expense, to be deductible from gross income, should not only be necessary but also ordinary. To be considered ordinary two conditions must be met namelyF a. the reasonableness of the amount incurred and b. the amount must not be a capital outlay to create HgoodwillI for the product and/or the business. Although the subject expense for the advertisement of a single product is necessary it cannot be considered as an ordinary expense because said expense is inordinately large. >urthermore, the protection of brand franchise is analogous to the maintenance of goodwill or title to oneGs property. This is a capital expenditure. [CIR vs. G n ,-6 Foo?s P;@6s.# In3. G.R. No. 141*2!. A7,@6 !4# !001$ 2ncome tax should not be included in the computation of operating expenses of a public utility. 2ncome tax should be borne by the taxpayer alone as they are payments made in exchange for benefits received by the taxpayer from the 5tate. )o benefit is derived by the customers of a public utility from such taxes paid by the entity. The principle behind the inclusion of operating expenses in the determination of a just and reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it has incurred in connection with the services it provides. 2t does not give the public utility the license to indiscriminately charge any and all types of expenses incurred without regard to the nature thereof, i.e., whether or not the expense is attributable to the production of services by the public utility. [R 7u+6@3 vs. &-n@6- E6 34,@3 Co07-n.. G.R. No. 1411*" 9 141114. Nov. 1)# !00!$ An e,uity investment is a capital, not ordinary, asset of the investor, the sale or exchange of which results in either a capital gain or a capital loss. The loss sustained by the holder of the securities, which are capital assets, is to be treated as a capital loss as if incurred from a sale or exchange transaction. ?hen securities become worthless there is strictly no sale or exchange transaction, but the law deems the loss anyway to be Ha loss from the sale or exchange of capital assets.I [C;@n'-nK@n8 Co,7o,-4@on vs. Cou,4 oA A77 -6s. Ju6. 1"# !000$ 2nterests and dividends received by the petitioner Hwere merely incidental income to petitionerGs activity, which is the operation of its hospital and nursing schools, hence, the conclusion is inevitable that petitionerGs activities never went beyond that of a passive investor, which under existing jurisprudence do not come within the purview of carrying on any trade or businessI. As the principle of allocating expenses is grounded on the premise that the taxable income was derived from carrying on a trade or business, as distinguished from mere receipt of interests and dividends from oneGs investments, the 'ourt of Tax Appeals correctly ruled that said income should not share in the allocation of administrative expense. [Hos7@4-6 ? S-n Ju-n ? D@os# In3. vs. CIR. GR No. 1110). &-. 10# 1""0$ Margin fees are not expenses in connection with the business of the petitioners. 5ince the margin fees were incurred for the remittance of funds to petitionerGs Dead Affice in )ew 0ork, which is a separate and distinct income taxpayer from the branch in the 9hilippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the
52

development of petitionerGs business in the 9hilippines exclusively or for the purpose of realiKing a profit or of minimiKing a loss in the 9hilippines exclusively. [Esso S4-n?-,? E-s4 ,n# In3. vs. CIR. GR Nos. !/)0/=". Ju6. 2# 1"/"$ There is absolutely no evidence of any service actually rendered by petitionerGs -officerGs. services which could be the basis of a grant to them of a bonus out of the profit derived from the sale. This being so, the payment of a bonus to them -officers. out of the gain realiKed from the sale cannot be considered as a selling expense nor can it be deemed reasonable and necessary so as to make it deductible for tax purposes. [A8u@n-6?o In?us4,@ s Co,7. vs. CIR. GR No. LC!"2"0. F +,u-,. !)# 1"/!$ To be deductible as a business expense, three conditions are imposed, namelyF -". the expense must be ordinary and necessary, -<. it must be paid or incurred within the taxable year, and -%. it must be paid or incurred in carrying in a trade or business. 2n addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. Ardinarily, an expense will be considered 7necessary7 where the expenditure is appropriate and helpful in the development of the taxpayer@s business. 2t is 7ordinary7 when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. The term 7ordinary7 does not re,uire that the payments be habitual or normal in the sense that the same taxpayer will have to make them often the payment may be uni,ue or nonrecurring to the particular taxpayer affected. That the expense in ,uestion was incurred to create a favorable image of the corporation in order to gain or maintain the publicGs and stockholdersG patronage, does not make it deductible as business expense. [A46-s Conso6@?-4 ? &@n@n8 9 D v 6o70 n4 Co,7. vs. CIR. GR No. LC!*"11. J-nu-,. !1# 1"/1$ The conditions precedent to the deduction of bonuses to employees areF -". the payment of the bonuses is in fact compensation -<. it must be for personal services actually rendered -%. the bonuses, when added to the salaries, are reasonable when measured by the amount and ,uality of the services performed with relation to the business of the particular taxpayer. There is no fixed test for determining the reasonableness of a given bonus as compensation. This depends upon many factors, one of them being the amount and ,uality of the services performed with relation to the business. [C. &. HosK@ns 9 Co.# In3. vs. CIR. GR No. LC!40)". Nov 0+ , !/# 1"*"$ 'ontributions to a government entity are deductible when used exclusively for public purpose. 'ontribution to the chapel at a private university ground owned by an educational institution that gives dividends to its stockholders is not deductible from the gross income of the taxpayer for the reason that the net income of said university inures to the benefit of the stockholders. [RoB-s vs. Cou,4 oA T-B A77 -6s. GR No. LC!)041. A7,@6 !*# 1"*/$ The income tax law does not authoriKe the depreciation of an asset beyond its ac,uisition cost. Dence, a deduction over an above cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. Moreover, the recovery, free of income tax, of an amount more than the invested capital in an asset will transgress the underlying purpose of a depreciation allowance. (ecover in due time through depreciation of investment made is the philosophy behind depreciation allowance the idea of profit on the investment made has never been the underlying reason for the allowance of a deduction for depreciation. ['-s@6-n Es4-4 s# In3. vs. CIR. GR No. LC!!4"!. S 74 0+ , )# 1"*2$
54
Although taxes already due have not, strictly speaking, the same concept as debts, they are, however obligations that may be considered as such. 2n Commissioner $s. ,rieto, it was held that while the distinction between taxes and debts was recogniKed in this jurisdiction, the variance in their legal conception does not extend to the interests paid on them. Thus, it follows that the interest paid on the estate and inheritance tax is deductible from gross income. [CIR vs. P-6-n3-. GR No. LC1**!*. O34o+ , !"# 1"**$ The exigencies of the husband-taxpayerGs high executive position, not to mention social standing, demanded and compelled them to live in a more spacious and pretentious ,uarters like the ones they occupied. That is why his employer-corporation had to grant him allowances for rental and utilities in addition to his annual basic salary to take care of those extra expenses for rental and utilities in excess of their personal needs. Dence, the fact that the taxpayers had to live or did not have to live in the apartments chosen by the husbandtaxpayerGs employer-corporation is of no moment, for no part of the allowances in ,uestion redounded to their personal benefit or was retained by them. [Co66 34o, oA In4 ,n-6 R v nu vs. H n? ,son. GR No. LC1!")4. F +,u-,. !/# 1"*1$
SITUS OF INCO&E TAD UNDER SECTION 4!# NIRC

The absence of flight operations to and from the 9hilippines is not determinative of the source of income or the situs of income taxation. The test of taxability is the HsourceI and the source of an income is that activity which produced the income. 2ncome from the sale of tickets was derived from the 9hilippines. The word HsourceI conveys one essential idea that of origin, and the origin of the income herein is the 9hilippines. [CIR vs. ',@4@s; Ov ,s -s A@,F-.s Co,7. GR No. L=*)221=24. A7,@6 10# 1"/2$
DI%IDENDS
As a ,ualified by the phrase Hsuch time and in such mannerI, the exception was not intended to characteriKe as taxable dividend every distribution of earnings arising from a redemption of stock dividends. 5o that, whether the amount distributed in the redemption should be treated as the e,uivalent of a Htaxable dividendI is a ,uestion of fact, which is determinable on Hthe basis of the particular facts of the transaction in ,uestion.I The test for taxability therefore, as would make the redemption Hessentially e,uivalent to the distribution of a taxable dividend,I is whether the redemption resulted into a flow of wealth. 2f no flow of wealth is realiKed from the redemption, there may not be a dividend e,uivalence treatment. :efore realiKation, stock dividends are nothing but a representation of an interest in the corporate properties. As capital, it is not yet subject to income tax. [CIR vs. Cou,4 oA A77 -6s# A. So,@-no Co,7. GR No. 10/)2*. J-nu-,. !0# 1"""$ ?here corporate earnings are used to purchase outstanding stock treated as treasury stock as a technical, but prohibited device, to avoid income taxation, distribution of said corporate earnings in the form of stock dividends will subject stockholders receiving them to income tax. [CIR vs. &-nn@n8. GR No. LC!/1"/. Au8us4 *# 1"2)$ !nder 5ection "* of our 'orporation /aw, no corporation may make or declare any dividend except from the surplus profits arising from its business. Any dividend, therefore, whether cash or stock, represents surplus profits. Article B$" of the 'ivil 'ode provides that the usufructuary shall be entitled to receive all the natural, industrial and civil fruits of the property in usufruct. The stock in dividend in ,uestion in this case is a civil fruit of the original investment. ['-3;,-3; vs. S @A ,4 -n? E6@-noAA. GR No. LC!*)". O34o+ , 1!# 1")0$

55

ESTATE TA- AND DONORES TAAttorney@s fees in order to be deductible from the gross estate must be essential to the collection of assets, payment of debts or the distribution of the property to the persons entitled to it. The services for which the fees are charged must relate to the proper settlement of the estate. 2n this case, the guardianship proceeding was necessary for the distribution of the property of the late 9edro 9ajonar to his rightful heirs. [CIR vs. Cou,4 oA A77 -6s. GR No. 1!1!0*. &-,3; !!# !000$ The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory re,uirement in the collection of estate taxes. There is nothing in the Tax 'ode, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement courtGs approval of the stateGs claim for estate taxes, before the same can be enforced and collected. [&-,3os II vs. Cou,4 oA A77 -6s. GR No. 1!0//0. Jun )# 1""2$ The statute of non-claims, 5ection ;, (ule &* of the (ules of 'ourt, does not bar claims of the government for unpaid taxes, still within the period of limitation prescribed in the )2('. A perusal thereof shows that it makes no mention of claims for monetary obligations of the decedent created by law, such as taxes, which is entirely of different character from the claims enumerated therein. 3xpression unius est exc%usion a%terius, the mention of one thing implies the exclusion of another thing not mentioned. >urthermore, under the Tax 'ode, the payment of income tax shall be a lien in favor of the 8overnment from the time of the assessment until paid. :y virtue of such lien, the property of the estate already in the hands of an heir or transferee may be subject to the payment of the tax due the estate. A fortiori, before the inheritance has passed to the heirs, the unpaid taxes due the decedent may be collected, even without its having been presented under 5ection < of (ule &* of the (ules of 'ourt. !ntil the property of the estate of the decedent has vested in the heirs, the decedent, represented by his estate, continues as if he were still alive, subject to the payment of such taxes as would be collectible from the estate even after his death. [% ,- vs. F ,n-n? >. GR No. LC111*4. &-,3; 10# 1"2"$ An heir is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As an heir, he is individually answerable for the part of the tax proportionate to the share he received from the inheritance. Dis liability, however, cannot exceed the amount of his share. As a holder of the property belonging to the estate, he is liable for the tax up to the amount of property in his possession. The reason is that the 8overnment has a lien on such property. :ut after payment of such amount, he will have a right to contribution from his coheirs. The 8overnment has two ways of collecting taxes due from the estate. Ane, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by 5ection %"; -now 5ection <"#. of the Tax 'ode upon all property and rights to property belonging to the taxpayer for unpaid income tax, 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 the estate. [CIR vs. P@n ?-. GR No. LC!!214. S 74 0+ , 1)# 1"*2$ An estate or inheritance tax, whether assessed before or after the death of the deceased, can be collected from the heirs even after the distribution of the properties of the decedent. [P-6-n3- vs. CIR. GR No. 1***1. J-nu-,. 11# 1"*!$ A donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services is subject to the doneesG gift tax. 9ast services, rendered without relying on a coetaneous promise, express or implied, that such services would be paid for in the future, do not constitute cause or consideration that would make a conveyance of property anything else but a gift or donation. [P@,ov-no vs. CIR. 14 SCRA /1!. D 3 0+ , !"# 1")4$
55
TA- ADMINISTRATION AND ENFORCEMENT

As the complaint was signed by the :2(Gs 'hief of /egal 1ivision for (egion B and verified by the (egional 1irector, there was compliance with the law. >urthermore, the exemptions provided by 5ection $ of (A &B<B do not relate to the '2(Gs power to approve the filing of tax cases. [R 7u+6@3 vs. H@>on. GR No. 110410. D 3 0+ , 11# 1"""$ (ulings, rules and regulations promulgated by the 'ommissioner of 2nternal (evenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. :ad faith, as an exception to the rule of non-retroactivity under 5ection <B* of the Tax 'ode, imports a dishonest purpose or some moral obli,uity and conscious doing of wrong. 2t partakes of the nature of fraud a breach of a known duty through some motive of interest or ill will. The failure of a taxpayer to consult the :ureau of 2nternal (evenue before using a computation mandated by a :2( (uling which was clear and categorical, thus leaving no room for interpretation, does not imply bad faith on the part of the former. ?hile the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents, this admits of exceptions in the interest of justice and fair play as where injustice will result to the taxpayer. [CIR vs. Cou,4 oA A77 -6s -n? A6;-0+,- In?us4,@ s. GR No. 112"/!. F +,u-,. *# 1""2$ 2t is axiomatic that the 8overnment 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 5tate effects its functions for the welfare of its constituents. The errors of certain administrative officers should never be allowed to jeopardiKe the 8overnment@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. [Co00@s@on , oA In4 ,n-6 R v nu vs. Cou,4 oA A77 -6s. GR No. 10**11. Ju6. !1# 1""4$ The factual findings of the 'ourt of Tax Appeals are binding upon the 5upreme 'ourt and can only be disturbed on appeal if not supported by substantial evidence. The rule on the Hbest evidence obtainableI applies when a tax report re,uired by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent. Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. 2n the absence of proof of any irregularities in the performance of duties, an assessment duly made by a :ureau of 2nternal (evenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. [S. Po vs. Cou,4 oA T-B A77 -6s. GR No. LC/144*. Au8us4 1/# 1"//$ An assessment fixes and determines the liability of a taxpayer. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Dence, assessment should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. The assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption. [CIR vs. Is6-n? G-,0 n4 &-nuA-34u,@n8 Co,7. GR No. L=4**44. S 74 0+ , 11# 1"/2$ Assessment is discretionary on the part of the 'ommissioner. Mandamus will not lie to compel him to assess a tax after investigation he finds no ground to assess. :esides, mandamus to compel the commissioner to assess will result in judicial encroachment on executive functions. [&ERALCO S 3u,@4@ s vs. S-v 66-no. GR No. LC1*1/1. O34o+ , !1# 1"/!$

56

The re,uisite prior approval of the 'ommissioner of 2nternal (evenue of a civil action for the recovery of taxes is not a jurisdictional re,uirement. 2t relates to capacity to sue or it affects the cause of action only. [A,3; s vs. ' 66os@66o. GR No. LC!1)14. &-. 1*# 1"*2$ The 'ommissioner of 2nternal (evenue cannot delegate the power to make final assessments. Thus, despite the 'ommissionerGs order granting the (egional 1irectorGs authority to close tax cases, the latter may not do so. 2t is the 'ommissioner alone who is entrusted by law to make assessments S final assessments. [C@4. Lu0+ , vs. Do0@n8o. GR No. LC1/*11. J-nu-,. 10# 1"*4$ 5ection %+* -now 5ection <<#, )2('. of the Tax 'ode which provides that a taxpayer must first file a claim for refund for tax credit with the 'ollector of 2nternal (evenue before maintaining a suit or proceeding in any court for the recovery of any 2nternal (evenue Tax alleged to have been erroneously or illegally assessed or collected is mandatory and a condition precedent to the prosecution of a suit for the recovery of said taxes, noncompliance with which bars the action and subjects the claim to dismissal for lack of cause of action. [R 7u+6@3 vs. L@0-3o. GR No. LC110/1. Au8us4 11# 1"*!$ The rule is that an action for the recovery of the taxes assessed and collected, the taxpayer has the burden of proving that the assessment is illegal. All presumptions are in favor of the correctness of tax assessments. The good faith of the tax assessors and the validity of the actions are presumed. 2t is a logical outgrowth of the presumption in favor of the validity of the assessments, when such assessments are assailed, the burden of proof is upon the complaining party. 2t is incumbent upon him clearly to show that the assessments are erroneous. [In4 ,7,ov@n3@-6 Au4o+us Co. vs. Co66 34o,. GR No. LC*241. J-nu-,. 11# 1")*$
TA- REMEDIES UNDER T1E NIRC

RE&EDIES OF THE GO%ERN&ENT
An assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specified period. 2t is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. An assessment is not necessary before a criminal charge can be filed. 5ection <<< of the )2(' specifically states that in cases where a false or fraudulent return with intent to evade tax is submitted or in cases of failure to file a return, proceedings in court may be commenced without an assessment. >urthermore, 5ection <+; of the same 'ode clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. A criminal complaint is instituted not to demand payment, but to penaliKe the taxpayer for violation of the Tax 'ode. [CIR vs. P-s3o, R -64. -n? D v 6o70 n4 Co,7. GR No. 1!/11). Jun !"# 1"""$ 2t is worthwhile to note that much in the same way that tax remedies exist to enhance the 8overnmentGs tax collection efforts, they, too, come in as safeguards against arbitrary action. ?hile taxes are the lifeblood of the government and should be collected without unnecessary hindrance, such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason for the 8overnment itself. [&-,3os II vs. Cou,4 oA A77 -6s. GR No. 1!0//0. Jun )# 1""2$ :efore the tax liabilities of >ortune are first finally determined, it cannot be correctly asserted that private respondents have willfully attempted to evade or defeat the taxes sought to be collected form >ortune. 2n plain words, before one is prosecuted for willful attempt to evade or defeat any tax under 5ections <;% and <;; of the Tax 'ode, the fact that a tax is due must first be proved.
57
1istinguishing this case from >n6a8 $s. 'usi, the 'ourt held that for criminal prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to evade taxes. There was a willful attempt to evade tax in >n6a8 because of the taxpayerGs failure to declare in his income tax return Hhis income derived from banana saplingsI. >ortuneGs situation is ,uite apart factually since the registered wholesale price of the goods, approved by the :2(, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the :2( has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. [CIR vs. Cou,4 oA A77 -6s. GR No. 11"1!!. Jun 4# 1""*$ The claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable Article ""+ of the /abor 'ode which gives workers first preference as regards the wages due them for services rendered, does not purport to create a lien in favor of the workers or employees for unpaid wages upon all of the properties or upon any particular property owned by their employer. >urthermore, said provision applies only in case of bankruptcy or judicial li,uidation of the employer. [CIR vs. NLRC. GR No. 24"*). Nov 0+ , "# 1""4$ An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the governmentGs failure to discover the error and promptly to assess has no connections with the commission of the crime. [Un8-+ vs. Cus@# J,. GR Nos. LC41"1"=!4. &-. 10# 1"/0$ 2f the 8overnment did not raise the defense of prescription in its original answer but pleaded the same in its answer to the amended petition for review, the 8overnment has not waived the defense of prescription. The latter superseded the answers filed before it so that any defense or defenses raised in its latest answer would be considered as though contained in its original answer. >or the rule is that Han amended complaint and the answer thereto, when filed, take the place of the originals.I The latter are then regarded as abandoned and cease to perform any further functions as pleadings. [C +u Po,46-n? C 0 n4 Co. vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. LC!0)*1. O34o+ , !"# 1"*/$
PRESCRIPTI%E PERIODS
5ection <<# -now 5ection <<&. of the Tax 'ode mandates that a re,uest for reinvestigation must be made within %+ days from the taxpayerGs receipt of the tax deficiency assessment, otherwise the assessment becomes final and unappealable and, therefore, demandable. A re,uest for reconsideration does not suspend the running of the prescriptive period of three -now five. years for collection by distraint or levy provided under 5ection <<% -c. Nnow 5ection <<< -c.O of the same 'ode. 2t has been held in previous cases that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. 2t should be noted, however, that in those cases, the :2( did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. [R 7u+6@3 vs. H@>on. GR No. 110410. D 3 0+ , 11# 1"""$ >or the purpose of safeguarding our taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly be construed. [CIR vs. '.F. Goo?,@3; P;@6s. GR No. 104121. F +,u-,. !4# 1"""$
58

The five-year prescriptive period for violations of any provisions of the Tax 'ode provided for under 5ection %;B -now 5ection <&". thereof should be reckoned from the date the final notice and demand was served on the taxpayer. 2t is only from the service of the final notice and demand for payment of the deficiency taxes that the cause of action on the part of the :2( accrued. This is because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. >urthermore, under 5ection %;B, there must be a judicial proceeding for the investigation and punishment of the tax offense before the five-year limiting period begins to run. As section %;B stands in the statute book -and to this day it has remained unchanged. it would indeed seem that the tax cases are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five -;. years. [L@0# S,. vs. Cou,4 oA A77 -6s. GR Nos. 4/114=12. O34o+ , 1/# 1""0$ ?hile it is correct that a mailed letter -of assessment. is deemed received by the addressee -taxpayer. in the ordinary course of mail pursuant to the (ules of 'ourt, this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee, !nder 5ection $ of (.A. )o. ""<;, the assessment is appealable to the 'ourt of Tax Appeals within %+ days from the receipt of the letter of assessment. The taxpayerGs failure to appeal in due time makes the assessment final, executory and demandable. Thus, the taxpayer is barred from disputing the correctness of the assessment or from invoking any defense that would reopen the ,uestion of its liability of the merits. [R 7u+6@3 vs. Cou,4 oA A77 -6s. GR No. LC1/)40. A7,@6 10# 1"/2$ >raud is a ,uestion of fact and the circumstances constituting fraud must be alleged and proved in the lower court. The finding of the trial court as to its existence and non-existence is final and cannot be reviewed unless clearly shown to be erroneous. >raud is never lightly to be presumed because it is a serious charge. [CIR vs. A.-6- S 3u,@4@ s Co,7. GR No. LC!"4/). &-,3; 11# 1"2*$ The proper and reasonable interpretation of 5ection %%<-a. Nnow 5ection <<< -a.O of the )2(' should be that in the three different cases of -". false return, -<. fraudulent return with intent to evade tax, -%. failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the -". falsity, -<. fraud or -%. omission. The view that the law should mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return, is strengthened immeasurably by the last portion of the provision, which segregates the situations into three different classes, namely S HfalsityI, HfraudI and HomissionI. That there is a difference between Hfalse returnI and Hfraudulent returnI cannot be denied. ?hile the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due. [A>n-, vs. Cou,4 oA A77 -6s. GR No. LC!0)*". Au8us4 !1# 1"24$ A judicial action for the collection of tax is begun by the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the 'ourt of Tax Appeals, by filing an answer to the taxpayerGs petition for review wherein payment of the tax is prayed for. This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the 'TA, the said court is vested with the authority to pronounce judgment as to the taxpayerGs liability to the exclusion of any other court. [F ,n-n? > H ,0-nos# In3. vs. CIR. GR No. LC!1))1. S 74 0+ , 10# 1"*"$ An assessment is deemed made when the notice is released, mailed or sent by the 'ollector of 2nternal (evenue to the taxpayer and it is not re,uired that the notice be received by the
59
taxpayer within the prescriptive period therefor. ['-s@6-n Es4-4 s# In3. vs. CIR. GR No. LC!!4"!. S 74 0+ , )# 1"*2$ !nder the 9enal 'ode, the civil liability is incurred by reason of the offenderGs criminal act. The criminal liability gives birth to the civil obligation such that, generally, if one is not criminally liable under the 9enal 'ode, he cannot become civilly liable thereunder. The situation under the income tax law is opposite. 'ivil liability to pay taxes arises from fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. 5ince the taxpayerGs civil liability is not included in the criminal action, his ac,uittal in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. Dis legal duty to pay taxes cannot be affected by his attempt to evade payment. 5aid obligation is not a conse,uence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. [R 7u+6@3 vs. P-4-n-o. GR No. LC!!1)*. Ju6. !1# 1"*2$ 2n case of an amendment of the return, the prescriptive period for the assessment of internal revenue taxes shall commence from the filing of the original return, if the original return was a complete return from which the 'ommissioner of 2nternal (evenue may intelligently compute and determine the tax liability of the taxpayer. :ut if the amended return is substantially different from the original return, the period of prescription of the right to issue the same should be counted from the filing of the amended return. Atherwise, taxpayers will be able to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same beyond the prescriptive period when the 'ommissioner has lost his authority to assess the proper tax thereunder. The object of the Tax 'ode is to impose taxes for the needs of the 8overnment, not to enhance tax avoidance to its prejudice. [CIR vs. P;o n@B Assu,-n3 Co.# L4?. GR No. LC1"2!2. &-. !0# 1"*)$ ?hen there is fraudulent filing of tax returns, the ten-year prescriptive period applies in lieu of the three-year period prescriptive limit. The prescriptive period in this instance is counted from the filing of the fraudulent return. [Av 6@no vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. L= 1221). Ju6. 11# 1"*1$ The taxpayer cannot invoke prescription against collection of the tax due from him under the provisions of 5ection %%" -now 5ection <<<. of the Tax 'ode if, more than five years from the date of assessment, the 'ollector of 2nternal (evenue filed an action against him upon a bond executed and filed by him to guarantee payment in six monthly e,ual installments of his tax liability under the )2(' provided that such action was commenced within the prescriptive period of ten years from the execution of such bond. To sustain the taxpayerGs defense of prescription would in effect nullify their undertaking in the bond which was executed and filed by them to lighten their tax obligations or burden by being allowed to pay six e,ual installments. The bond cannot be nullified for alleged lack of approval by the 'ollector since the act of the 'ollector in receiving and keeping the bond, deferring the collection of the tax, and suing on the bond upon the failure of the taxpayer to pay the tax, the payment of which is guaranteed by the bond, meant or amounted to approval thereof. [R 7u+6@3 vs. A,-n 4-. GR No. LC1414!. &-. 10# 1"*1$ 2t is to the interest of the taxpayer to file said return if he wishes to avail himself of the benefits of the three-year prescriptive period. 2f this notwithstanding, he does not file a return at all, then an assessment may be made at any time within the ten year prescriptive period. ['@s-.L-n? T,-ns7o,4-4@on Co.# In3. vs. Co66 34o,. GR Nos. LC1!100 9 LC11/1!. &-. !"# 1")"$
RE&EDIES OF THE TADPAYER

50

5ec. $* of the "##$ )2(' provides that any excess of the total ,uarterly payments over the actual income tax computed in the adjustment or the final corporate income tax return, shall eitherF -a. be refunded to the corporation, or -b. may be credited against the estimated ,uarterly income tax liabilities for the ,uarters of the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative and the choice of one precludes the other. [P;@6@77@n '-nK oA Co00un@3-4@ons vs. CIR. GR No. 11!0!4. J-nu-,. !/# 1"""$ 2n the context of 5ection <%+ which provides for a two year period of prescription counted from the date of payment of the tax for actions for refund of corporate income tax, the two year period should be computed from the time of actual filing of the Adjustment or Annual 2ncome Tax (eturn. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover, under 5ection B#-a. of the )2(', payment is made at the time the return is filed. [CIR vs. Cou,4 oA A77 -6s# CTA -n? 'PI. GR No. 112!)4. J-nu-,. !1# 1"""$ A withholding agent which is a wholly owned subsidiary of its foreign parent company may claim reimbursement of the alleged overpaid taxes. The fact that it became a withholding agent of the government, which was not by choice but by compulsion under the Tax 'ode, cannot be considered as an abdication of its responsibility to its mother company. The obligation imposed under 5ection ;% -b. Nnow 5ection ;$ -b.O upon the withholding agent is compulsory. 2t is a device to insure the collection by the 9hilippine 8overnment of taxes on incomes, derived from sources in the 9hilippines, by aliens who are outside the taxing jurisdiction of the 'ourt. 2n fact, the withholding agent may be assessed for deficiency withholding tax at source, plus penalties consisting of surcharge and interest. Therefore, as the 9hilippine counterpart, such withholding agent is the proper party to claim for the refund or credit of overpaid withholding tax on dividends paid or remitted by its foreign parent company. [CIR vs. 5-n? , P;@6@77@n s# In3. GR No. L= */12). A7,@6 1)# 1""/$ 9rior approval by the 'ommissioner of 2nternal (evenue of the tax credit under 5ection &* -now section $*. of the Tax 'ode would appear to be the most reasonable interpretation to be given to said section. An opportunity must be given the internal revenue branch of the government to investigate and confirm the veracity of the claims of the taxpayer. 2f absolute freedom is given to taxpayers to automatically credit tax payments against their tax liabilities for a succeeding taxable year, it would easily give rise to confusion and abuse, depriving the government of the authority and control over the manner by which the taxpayers credit and offset their tax liabilities, not to mention the resultant loss of revenue to the government under such a scheme. [S-n C-,6os &@66@n8 Co.# In3. vs. CIR. GR No. 10112". Nov 0+ , !1# 1""1$ 5ection <#< -now 5ection <<#. provides a two-year prescriptive period to file a suit for a refund of a tax erroneously or illegally paid, counted from the time the tax was paid. :ut a literal application thereof in a case which involves ,uarterly income tax payments may lead to absurdity and inconvenience. The most reasonable and logical application of the law would be to compute such period at the time of the filing of the >inal Adjustment (eturn or the Annual 2ncome Tax (eturn, that is truly reflective of the results of the operations of a business enterprise, when it can finally be ascertained if the taxpayer has still to pay additional income tax or if he is entitled to a refund of overpaid income tax. Therefore, the filing of ,uarterly income tax returns re,uired in 5ection &; -now 5ection $;. and payment of ,uarterly income tax should be considered mere installments of the annual tax due. These ,uarterly tax payments should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by 5ection &$ -now 5ection $*. which provides for the filing of adjustment returns and final payment of income tax. [CIR vs. T&D S-6 s# In3. GR No. /121*. J-nu-,. 1)# 1""!$ There is a need to file a return first before a claim for refund can prosper inasmuch as the 'ommissioner of 2nternal (evenue by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the
51
:ureau of 2nternal (evenue. The two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final return. [ACCRA Inv s40 n4s Co,7. vs. Cou,4 oA A77 -6s. GR No. "*1!!. D 3 0+ , !0# 1""1$ The :ureau of 2nternal (evenue should not be allowed to defeat an otherwise valid claim for refund by raising the ,uestion of the alleged incapacity of the party claiming such refund for the first time on appeal. 2n the absence of explicit statutory provisions to the contrary, the 8overnment must follow the same rules of procedure, which bind private parties. A taxpayer is defined in our )2(' as referring to Hany person subject to tax imposed by the Title -on tax on 2ncome..I !nder 5ection ;% -c. -now 5ection ;$. thereof, the withholding agent who is Hre,uired to deduct and withhold any taxI is made Hpersonally liable for such taxI and indeed is indemnified against any claims and demands which the stockholder might wish to make in ,uestioning the amount of payments effected by the withholding agent in accordance with the provisions of the )2('. De is directly and independently liable for the correct amount of tax that should be withheld from the dividend remittances. De is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of tax withheld be finally found to be less than the amount that should have been withheld under law. A Hperson liable for taxI has been held to be a Hperson subject to taxI and properly considered a Htaxpayer.I The terms Hliable for taxI and Hsubject to taxI and Hsubject to taxI both connote legal obligation or duty to pay a tax. 2t is very difficult, indeed impossible, to consider a person who is statutorily mad Hliable for taxI as not Hsubject to tax.I 'onse,uently, a withholding agent is a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him. [CIR vs. P,o34 , 9 G-0+6 P;@6@77@n &-nuA-34u,@n8 Co,7. GR No. **/1/. D 3 0+ , !# 1""1$ )owhere in the Tax 'ode is the 'ollector of 2nternal (evenue re,uired to rule first on a taxpayerGs re,uest for reconsideration before he can go to the court for the purpose of collecting the tax assessed. An the contrary, the Tax 'ode withheld from all courts, except the 'ourt of Tax Appeals under (epublic Act )o. ""<;, the authority to restrain the collection of any national internal revenue tax, fee or charge, thereby indicating the legislative policy to allow the 'ollector of 2nternal (evenue much latitude in the speedy and prompt collection of taxes. The re,uirement for the 'ommissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. 2f the taxpayer did not actually contest the assessments by stating the basis thereof, the 'ommissioner need not rule on their re,uest. 2n case of a suit for the collection of internal revenue taxes where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. )o in,uiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. [D-.,@4 vs. C,u>. GR No. LC1""10. S 74 0+ , !*# 1"//$ A taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really deposit an amount to the 'ommissioner of 2nternal (evenue, but in truth, to perform and extinguish his tax obligation for the year concerned. 2n other words, he is paying his tax liabilities for that year. 'onse,uently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. 2t is from this latter date then, or when the tax liability falls due, that the two-year prescriptive period under 5ection %+* -now 5ection <<#. of the (evenue 'ode starts to run with respect to payments effected through the withholding tax system. 2t is of no conse,uence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since the delay of the 'ollector in rendering decision does not extend the peremptory period fixed by the statute. [G@++s vs. CIR. GR No. LC1240*. Nov 0+ , !"# 1"*)$ ?hen a tax is paid in installments, the prescriptive period of two years provided in 5ection %+* -now 5ection <<#. of the Tax 'ode should be counted from the date of the final payment. [Co66 34o, oA In4 ,n-6 R v nu vs. P,@ 4o. GR No. LC11"2*. Au8us4 !"# 1"*1$
52

9rescriptive period for filing claims for refund is suspended provided two conditions are presentF -". there is a pending litigation between two parties, i.e., the 8overnment and the taxpayer, as to the proper tax to be paid and of the proper interpretation of the taxpayerGs charter in relation to the disputed tax and -<. the 'ommissioner in that litigated case agreed to abide by the decision of the 5upreme 'ourt as to the collection of taxes relative thereto. An moral and e,uitable grounds, a taxpayer is entitled to refund from the date of the claim for refund. Moreover, under section %+# of the Tax 'ode, the 'ollector is authoriKed to credit or refund taxes erroneously or illegally received, for a period of two years from the date of the claim for refund. 2f the 'ollector not only offered to credit but took steps to credit the taxpayer with overpayment for a period of two years from the date of the claim for refund, he has waived the prescriptive period of two years from the date of the actual filing of the suit. [P-n-. E6 3. Co. vs. Co66 34o, oA In4 ,n-6 R v nu . GR No. LC10)24. &-. !/# 1")/$ 2n the absence of a statutory provision clearly or expressly directing or authoriKing such payment, and none has been cited by respondent, the )ational 8overnment cannot be re,uired to pay interest on tax refunds. The taxpayer need not wait for the action of the 'ollector of 2nternal (evenue on the re,uest for refund before taking the matter to the 'ourt of Tax Appeals. )owhere and in no wise does the law imply that the 'ollector must act upon the claim or that the taxpayer shall not go to the court before he is notified of the 'ollectorGs action. Daving filed his claim and the 'ollector having had ample time to study it, the claimant may, indeed should, within the statutory period of two years proceed with his suit without waiting for the 'ollectorGs decision. [Co66 34o, oA In4 ,n-6 R v nu vs. SF n .. GR No. LC1!12/. Au8us4 !1# 1")"$
ADDITIONS TO THE TAD

:ad faith is not essential for the imposition of the <;= surcharge for late payment of the ad valorem taxes. This <;= surcharge prescribed in 5ection <B; for late payment of royalties and ad valorem tax, when contrasted with the ;+= surcharge imposed Hwhere a false or fraudulent return is made,I strongly suggests that bad faith is not essential for the imposition of the <;= surcharge. The law re,uiring the payment of the <;= surcharge in case the tax is not seasonably paid is mandatory. 2t provides a plan which works out automatically. The '2( is not vested with any authority to waive or dispense with the collection thereof. [CIR vs. Cou,4 oA A77 -6s -n? A46-s Conso6@?-4 ? &@n@n8. GR No. 1041)1. &-,3; 10# 1"")$ The willful neglect to file the re,uired tax return or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal conse,uences, cannot be presumed. The fraud contemplated by law is actual and constructive. 2t must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. )egligence, whether slight or gross, is not e,uivalent to the fraud with intent to evade the tax contemplated by the law. 2t must amount to intentional wrongdoing with the sole object of evading the tax. [CIR vs. J-7-n A@, L@n s# In3. GR No. *0214. O34o+ , 4# 1""1$
COURT OF TA- APPEALS

The 'ourt of Tax Appeals is a highly specialiKed body specifically created for the purpose of reviewing tax cases. As a matter of principle, the 5upreme 'ourt will not set aside the conclusion reached by the 'TA, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been abuse or improvident exercise of authority. [CIR vs. Cou,4 oA A77 -6s# CTA -n? AD&U. GR No. 11)14". A7,@6 1/# 1""2$ The 'ourt of Tax Appeals is a highly specialiKed body specifically created for the purpose of reviewing tax cases. :ecause of its recogniKed expertise, the findings of the 'TA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. The findings of fact of the 'TA are
54
binding on the 5upreme 'ourt, and in the absence of strong reasons for the 5' to delve into facts, only ,uestions of law are open for determination. [P;@6@77@n R A@n@n8 Co07-n. vs. Cou,4 oA A77 -6s. GR No. 11/2"4. &-. /# 1""*$ )owhere in the Tax 'ode is the 'ollector of 2nternal (evenue re,uired to rule first on a taxpayerGs re,uest for reconsideration before he can go to the court for the purpose of collecting the tax assessed. An the contrary, the Tax 'ode withheld from all courts, except the 'ourt of Tax Appeals under (epublic Act )o. ""<;, the authority to restrain the collection of any national internal revenue tax, fee or charge, thereby indicating the legislative policy to allow the 'ollector of 2nternal (evenue much latitude in the speedy and prompt collection of taxes. The re,uirement for the 'ommissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. 2f the taxpayer did not actually contest the assessments by stating the basis thereof, the 'ommissioner need not rule on their re,uest. 2n case of a suit for the collection of internal revenue taxes where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. )o in,uiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. [D-.,@4 vs. C,u>. GR No. LC1""10. S 74 0+ , !*# 1"//$ The filing by the :ureau of 2nternal (evenue of an action for the collection of deficiency taxes allegedly due from the taxpayer can be considered as the final decision or assessment of the 'ommissioner of 2nternal (evenue. The 'ourt of >irst 2nstance can ac,uire jurisdiction over a claim for collection of deficiency taxes only after the assessment made by the 'ommissioner of 2nternal (evenue has become final and unappealable. 2f the contrary is established, the 'ourt of Tax Appeals has exclusive jurisdiction over the case. [Y-+ s vs. F6oGo. GR No. LC4*")4. Ju6. !0# 1"/!$ The language used by the 'ourt of Tax Appeals as to the existence of fraud must be given due weight and force. The finding of facts of the 'TA is entitled to the highest respect. [R-.0un?o vs. D Jo.-. GR No. LC!2211. D 3 0+ , 1# 1"/0$ ?here a taxpayer seeking a refund of estate and inheritance taxes whose re,uest is denied and whose appeal to the 'ourt of Tax Appeals was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. >or in the same way that the expedient of an appeal from a denial of a tax re,uest for cancellation of warrant of distraint and levy cannot be utiliKed to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is section %*+ of the Tax 'ode not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time. [CIR vs. Con3 73@on. GR No. LC!1"1!. &-,3; 1)# 1"*/$ The thirty-day period prescribed by 5ection "" of (epublic Act ""<;, as amended, within which a taxpayer adversely affected by a decision of the 'ommissioner of 2nternal (evenue should file his appeal with the tax court, is a jurisdictional re,uirement, and the failure of a taxpayer to lodge his appeal within the prescribed period bars his appeal and renders the ,uestioned decision final and executory. (See a%so Sea )and Ser$ice $s. Court of ##ea%s. .R No. 1//703. #ri% 001 /001) [Su,@8-o E6 34,@3 Co.# In3. vs. Cou,4 oA T-B A77 -6s. GR No. L=!)!/". Jun !/# 1"24$ 2n defining the cases that may be reviewed by the 'ourt of Tax Appeals, the law begins by enumerating them and then adds a general clause pertaining to other matters that may arise under the )ational 2nternal (evenue 'ode, the 'ustoms /aw and the Assessment /aw. This shows that the Hother mattersI that may come under the general clause should be of the same nature as those that have preceded them applying the rule of construction known as ejusdem 6eneris. Atherwise, it should be deemed foreign or extraneous and is not included. [O66-?- vs. Cou,4 oA T-B A77 -6s# 4 -6. GR No. LC//2/. Ju6. !4# 1")*$
55

LOCAL TA-ATION
Ane of the most significant provisions of the /8' is the removal of the blanket exclusion of instrumentalities and agencies from the coverage of local taxation. The legislative purpose to withdraw tax privileges under existing law or charter is clearly manifested by the language used on 5ecs. "%$ Q "#%. 5ince it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the /8' provided for an express, albeit general, withdrawal of such exemptions or privileges. [N-4@on-6 PoF , Co,7o,-4@on vs. C@4. oA C-+-n-4u-n. G.R. No. 14"110. A7,@6 "# !001.$ The fact is that after petitioner@s tax exemption by (.A. )o. $+&< had been withdrawn by the /8', no amendment to re-enact its previous tax exemption has been made by 'ongress. 'onsidering that the taxing power of local government units under (.A. )o. $"*+ is clear and is ordained by the 'onstitution, petitioner has the heavy burden of justifying its claim by a clear grant of exemption. The phrase Hin lieu of all taxesI found in special franchises should give way to the peremptory language of section "#% of the /8' specifically providing for the withdrawal of such exemption privileges. Thus, the rule that a special law must prevail over the provisions of a later general law does not apply as the legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is apparent from the express provisions of sections "%$ and "#% of the /8'. (Reiterated in Cit* .o$ernment of San ,a8%o1 )a6una $s. Re*es. .R No. 1/7702. +arch /31 1999) [P;@6. Lon8 D@s4-n3 T 6 7;on Co. vs. C@4. oA D-v-o. GR NO. 141/*2. &-,3; !)# !001$ 5ec. "&$ of the /8' re,uires that the dissatisfied taxpayer who ,uestions the validity or legality of a tax ordinance must file his appeal to the 5ecretary of Custice within %+ days from the effectivity thereof. 2n case the 5ecretary decides the appeal, a period also of %+ days is allowed for an aggrieved party to go to court. :ut if the 5ecretary does not act thereon, after the lapse of *+ days, a party could already proceed to seek relief in court. These three separate periods are given for compliance as a prere,uisite before seeking redress in a competent court. [J-,?@n D-v@ s Insu,-n3 ',oK ,s# In3. vs. A6@7os-. GR No. 11/"00. F +,u-,. !2# !001$ ?hile 5ection "% of the /ocal Tax 'ode mentions Hother places of amusement,I professional basketball games are definitely not within its scope. !nder the principle of ejusdem 6eneris, where general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as those specifically mentioned. Thus in determining the meaning of the phraseI other places of amusement,I one must refer to the prior enumeration of theaters, cinematographs, concert halls, and circuses with artistic expression as their common characteristic. 9rofessional basketball games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and gaming. [P;@6@77@n '-sK 4+-66 Asso3@-4@on vs. Cou,4 oA A77 -6s. GR No. 11"1!!. Au8us4 /# !000$ !nder the now prevailing 'onstitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although 'ongress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. )evertheless, the fundamental law did not intend the delegation to be absolute and unconditional the constitutional objective obviously is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that -a. the taxpayer will not be overburdened or saddled with multiple and unreasonable impositions -b. each local government will have its fair share of available resources -c. the resources of the national government will not be unduly disturbed and -d. local taxation will be fair, uniform and just. 2ndicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units, the /ocal 8overnment 'ode has effectively withdrawn, under 5ection "#% thereof, tax exemptions or incentives theretofore enjoyed by certain entities. (Reiterated in Nationa% ,o?er Cor#oration $s. Cit* of Ca8anatuan. .R No. 149110. #ri% 91 /000) [&-n@6- E6 34,@3 Co07-n. vs. P,ov@n3 oA L-8un-. GR No. 1111)". &-. )# 1"""$
55
5ection ;%B -f., the repealing clause of the /ocal 8overnment 'ode, provides that all general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations or parts thereof which are inconsistent with any of the provisions of the 'ode are hereby repealed or modified accordingly. This clause partakes of the nature of a general repealing clause. 2t is certainly not an express repealing clause because it fails to designate the specific act or acts identified by number or title, that are intended to be repealed. 5ection "#% of the /ocal 8overnment 'ode prescribes the general rule, viK., the tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the /8' except with respect to those entities expressly enumerated. [C@4. Gov ,n0 n4 oA S-n P-+6o# L-8un- vs. R . s. GR No. 1!220/. &-,3; !)# 1"""$ The definition of Hcommon carriersI in the 'ivil 'ode makes no distinction as to the means of transporting, as long as it is by land, water or air. 2t does not provide that the transportation of the passengers or goods should be by motor vehicle. 2n fact, in the !nited 5tates, oil pipes line operators are considered common carriers. 2t is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called Hcommon carrierGs taxI. 9etitioner is already paying %= common carrierGs tax on its gross sales/earnings under the )2('. To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the /8'. [F@,s4 P;@6@77@n In?us4,@-6 Co,7 vs. Cou,4 oA A77 -6s. GR No. 1!)"4/. D 3 0+ , !"# 1""/$ 2t is clearly apparent from 5ection ";" of the )2(' levies a tax on all ,uarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other ,uarry resources, as the same are already taxed under the )2('. The province can, however, impose a tax on stones, sand, gravel, earth and other ,uarry resources extracted from public land because it is expressly empowered to do so under the /ocal 8overnment 'ode. As to stones, sand, gravel, earth and other ,uarry resources extracted from private land, however, it may not do so, because of the limitation provided by 5ection "%% of the 'ode in relation to 5ection ";" of the )2('. A province may not invoke the Re6a%ian doctrine to extend the coverage of its ordinance to ,uarry resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government. [P,ov@n3 oA 'u6-3-n vs. Cou,4 oA A77 -6s [GR No. 1!*!1!. Nov 0+ , !2# 1""/$ ?here the 5ecretary of Custice reviews, pursuant to law, a tax measure enacted by a local government unit to determine if the officials performed their function in accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers under the /ocal 8overnment 'ode, the same is an act of mere supervision, not control. [D,@6on vs. L@0. GR No. 11!4"2. Au8us4 4# 1""2$ The 'ourt may refuse the preliminary injunction with or without notice to the adverse party where ground for objection is apparent from the complaint itself. 5ection $ of (ule ;& of the (ules of 'ourt merely specify the actions that the court may take on the application for the writ if there is a hearing on the merits it does not declare that such hearing is mandatory or a prere,uisite therefore. A court should issue a writ of preliminary injunction only when the petitioner assailing a statute has made out a case of unconstitutionality or invalidity strong enough to overcome, in the mind of the judge, the presumption of validity, aside from a showing of a clear legal right to the remedy sought. [%-66 . T,-?@n8 Co. In3 vs. CFI oA Is-+ 6-. GR No. 4")!". &-,3; 11# 1"/"$

56

>or tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. 2n certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products. 2n determining whether a manufacturer is engaged in the separate business of selling, the companyGs marketing system must be considered. 2n several cases the 'ourt had occasion to distinguish two marketing systemsF !nder the first system, a manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the companyGs warehouses, where in turn actual deliveries are made. )o warehouse sales are made nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. !nder the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Anyone who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. 3ntities operating under the first system are )AT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. 3ntities operating under the second system are considered engaged in the separate business of selling. [I6o@6o 'o446 ,s# In3 vs. C@4. oA I6o@6o. GR No. L=)!01". Au8us4 1"# 1"//$ A manufacturer with a factory in 9asig, (iKal but who employed a sales broker in Manila is subject to ManilaGs tax ordinance on manufacturers, as said tax is dependent on where taxable act is performed. The power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the acts is performed or occupation engaged in. [A66@ ? T;, -? Co. In3. vs. C@4. &-.o, oA &-n@6-. GR No. L=40!"*. Nov 0+ , !1# 1"/4$ A '>2 judge has authority to pass upon the validity of a city tax ordinance even after its validity had been contested before the 5ecretary of Custice and a decision rendered thereon by said official. Tersely and bluntly, petitioner would deny the jurisdiction of respondent Cudge to pass upon the validity of a challenged ordinance is an appropriate action. To say the least, there is unorthodoxy in such an approach. ?hat immediately calls the attention is its novelty. 2t is opposed to and is not in conformity with the accepted judicial norm that the validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and that whenever in the disposition of a pending case such a ,uestion becomes unavoidable, then it is not only the power but the duty of the 'ourt to resolve such a ,uestion. [S-n &@8u 6 Co,7o,-4@on vs. Av 6@no. GR No. L=1"*"". &-,3; 14# 1"2"$ The city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the companyGs branch office in the city. Those matches can be regarded as sold in the city, as contemplated in the ordinance, because the matches were delivered to the carrier in 'ebu 'ity. 8enerally, delivery to the carrier is delivery to the buyer. A different interpretation would defeat the tax ordinance in ,uestion or encourage tax evasion through the simple expedient of arranging for the delivery of the matches at the outskirts of the city although the purchases were effected and paid for in the companyGs branch office in the city. [P;@6@77@n &-43; Co. L4?. vs. C@4. oA C +u. GR No. L=1024). J-nu-,. 1/# 1"2/$ The imposition of Ha tax of one centavo -9+.+". on each gallon of volume capacityI on all soft drinks produced or manufactured under Ardinance )o. <$ 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 taxpayerGs production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is no set ratio between the volume of sales and the amount of the tax. )or can the tax levied be treated as a specific tax. 5pecific taxes are those imposed on specified articles, such as distilled spirits, wines, cigars and cigarettes, matches, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming
57
drugs. 5oft drinks is not one of those specified. [P 7s@=Co6- 'o446@n8 Co. oA 4; P;@6s.# In3. vs. &un@3@7-6@4. oA T-n-u-n# L .4 . GR No. L=111)*. F +,u-,. !2# 1"2*$ ?hen we consider that the tax shall be based and computed from the cargo manifest or bill of lading showing the number of cases S not sold S but received by the taxpayer, the intention to limit the application of the ordinance to softdrinks and carbonated drinks brought into the 'ity from outside thereof becomes apparent. 6iewed from this angle, the tax partakes of the nature of an import duty, which is beyond the defendantGs authority to impose by express provision of law. [P 7s@=Co6- 'o446@n8 Co oA 4; P;@6s.# In3. vs. C@4. oA 'u4u-n. GR No. L=!!/14. Au8us4 !/# 1"*/$

?here the real property tax being assessed and collected is for "##+, the applicable law is the (eal 9roperty Tax 'ode -91 B*B. and not the /ocal 8overnment 'ode of "##" -(A $"*+.. 9etitioner points out that the A9T erred in relying on 5ales Analysis or Market 1ata Approach to determine the floor bid price. The 5ales Analysis or Market 1ata Approach involves a comparison of the property appraised to similar properties sold in similar markets in order to derive a market value for the property to be appraised. 9etitioner submits that in the instant case, no comparison with any similar property was ever made. 2nstead, the comparison was made to a bid price. Moreover, in using as basis the valuation of the A9T, the /:AA failed to take into account other circumstances of value such as goodwill and future business potential. ?e agree that 5ection <& of the (eal 9roperty Tax 'ode provides for a formula for computing the current market value of machineries. Dowever it must be read in consonance with 5ection %-n., which defines Hmarket value.I !nder the latter provision, the /:AA and ':AA were not precluded from adopting various approaches to value determination including the A9T Hfloor bid priceI for petitionerGs properties. [C-8-.-n Ro+@n- Su8-, &@66@n8 Co. vs. Cou,4 oA A77 -6s. GR No. 1!!4)1. O34o+ , 1!# !000$ Though the creation of the /(TA was impelled by public service S to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila S its operation undeniably partakes of ordinary business. 9etitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. 2ndeed, it operates much like any private corporation engaged in the mass transport industry. 8iven that it is engaged in a service Soriented endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government owned or controlled corporation. !nder the (eal 9roperty Tax 'ode, real property is classified for assessment purposes on the basis of actual use. !nlike public roads, which are open for use by everyone, the /(T is accessible only to those who pay the re,uired fare. Although petitioner is a public utility, it is nonetheless profit earning. [L@8;4 R-@6 T,-ns@4 Au4;o,@4. vs. C n4,-6 'o-,? oA Ass ss0 n4 A77 -6s. GR No. 1!211*. O34o+ , 1!# !000$ :ased on the evidence presented by the parties, the steps to be followed for the mandatory conduct of 8eneral (evision of (eal 9roperty assessments, pursuant to the provisions of 5ection <"# of (A $"*+ are as followsF H". The preparation of 5chedule of >air Market 6alues <. The enactment of ArdinancesF a. levying an annual Had valoremI tax on real property and an additional tax accruing to the 53> b. fixing the assessment levels to be applied to the market values of real properties c. providing necessary appropriation to defray expenses incident to general revision of real property assessments and d. adopting the 5chedule of >air Market 6alues prepared by the assessors. 'oming down to specifics, we find it desirable to lay down the procedure in computing the real property tax. ?ith the introduction of assessment levels, tax rates could be maintained, although tax payments can be made either higher or lower depending on their percentage -assessment level. applied to the fair market value of property to derive its assessed $a%ue which is subject to tax. Moreover, classes and values of real properties can be given proper consideration, like assigning lower assessment levels to residential properties and higher levels to properties used in business. The procedural steps in computing the real property tax are as followsF H". Ascertain
58

the assessment %e$e% of the property <. Multiply the market value by the applicable assessment level of the property %. >ind the tax rate which corresponds to the class -use. of the property and multiply the assessed value by the applicable tax rates.I [Lo7 > vs. C@4. oA &-n@6-. GR No. 1!211". F +,u-,. 1"# 1"""$ 5ection %-n. of 91 B*B merely defines Imarket valueI. 2t does not in any way direct that the market value as defined therein should be used as basis in determining the value of a property for purposes of real property taxation. An the other hand, 5ection ; provides une,uivocally that Hall real property, whether taxable or exempt, shall be appraised at the current and fair mar"et $a%ue prevailing in the locality where the property is situated.I 5ection <B merely lays down the general rule that assessments under 91 B*B are to be given prospective application. 2t cannot be construed in such a manner as to eliminate the imposition of back taxes. 2f 5ection <B, instead of 5ection <;, were made to apply as suggested by the petitioner, he would in effect be excused from the payment of back taxes on the undeclared excess area of his property. The 'ourt cannot allow a taxpayer to evade his obligation to the 8overnment by letting him pay taxes on a property based on its gross undervaluation. [S s+, no vs. C n4,-6 'o-,? oA Ass ss0 n4 oA A77 -6s. GR No. 10*)//. &-,3; !4# 1""2$ 5ince the last paragraph of the /8' une,uivocally withdrew, upon effectivity of the /8', exemptions from payment of real property taxes granted to natural or juridical persons, including government owned or controlled corporations, except as provided in the said section, and Mactan 'ebu 2nternational Airport Authority is a government-owned corporation, it necessarily follows that its exemption from such tax granted it by 5ection "B of its 'harter (A *#;&, has been withdrawn. [&-34-n C +u In4 ,n-4@on-6 A@,7o,4 Au4;o,@4. vs. &-,3os. GR No. 1!00/!. S 74 0+ , 11# 1""*$ 2t is a basic rule of statutory construction that repeals by implication are not favored and this is based on the rationale that the will of the legislature cannot be overturned by the judicial function of construction and interpretation. 'ourts cannot take the place of 'ongress in repealing statutes. Their function is to try to harmoniKe, as much as possible, seeming conflicts in the law and resolve doubts in favor of their validity and co-existence. ?hile (A $"*+ covers almost all governmental functions delegated to local government units all over the country, 91 #<" embraces only the Metropolitan Manila area and is limited to the administration of financial services therein, especially the assessment and collection of real estate -and some other local. taxes. Although, as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve ,uestions of fact but only of law. Thus, there was no need to file an appeal with the /:AA since the petitioners are not ,uestioning merely the amounts of the increase of the tax but on the very validity of any increase. [T. vs. T,-07 . GR No. 112)22. D 3 0+ , 1# 1"")$ Tax declarations are not conclusive of the nature of the property for Koning purposes. 3ven if we are to examine the evidentiary value of a tax declaration under the (eal 9roperty Tax 'ode, a tax declaration only enables the assessor to identify the same for assessment levels. 2n fact, it does not bind a provincial/city assessor, for under 5ection << of the (eal 3state Tax 'ode, appraisal and assessment are based on the actual use irrespective of Hany previous assessment or taxpayerGs valuation thereon,I which is based on a taxpayerGs declaration. [P-4-6@n8;u8 vs. Cou,4 oA A77 -6s. GR No. 1042/*. J-nu-,. !2# 1""4$ 5ection # of 91 #<" is specific and mandatory. The undisputed fact that the 'ity Assessor of LueKon 'ity solely prepared the 5chedule of Market 6alues in ,uestion, without the participation of the other 'ity Assessors of Metropolitan Manila indicates that the said 5chedule of Market 6alues was prepared contrary to and unauthoriKed under 5ection # of 91#<". /aws are repealed only by subse,uent ones. An executive order like 3A %#< cannot repeal legislative act like 91#<". A legislative Act can only be repealed by a subse,uent legislative Act. [&-4;-.# J,. vs. &-3-6@n3-8. GR No. "2*1/. D 3 0+ , 1*# 1""1$
59
!nder 91 B*B, notices of the sale of the public auction may be sent to the delin,uent taxpayer either -i. at the address as shown in the tax rolls or property tax record cards of the municipality or city where the property is located or -ii. at his residence, if known to such treasurer or barrio captain. [P 3son vs. Cou,4 oA A77 -6s. GR No. 10)1*0. &-. !)# 1""1$ !nder the (eal 9roperty Tax 'ode -91 B*B, as amended., it is declared that the first >undamental 9rinciple to guide the appraisal and assessment of real property for taxation purposes is that the property must be Happraised at its current and fair market valueI. 2n this case, the 2ncome Approach should be used. The properties covered by 91 <+ definitely has a lower market value than those properties not covered in view of the restrictions imposed thereon. There were no willing buyers so that there can be no reasonable basis for the conclusion that these properties are comparable with other residential properties. [R . s vs. A60-n>o,. GR No. 4"/1"=4*. A7,@6 !*# 1""1$ 8asoline station e,uipment and machineries are permanent fixtures for purposes of realty taxation. 2mprovements on land are commonly taxed as realty even though for some purposes they might be considered personalty. 2t is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property.The said e,uipment and machinery, as appurtenances to the gas station building or shed owned by 'altex -as to which it is subject to realty tax. and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment /aw and the (eal 9roperty Tax 'ode. >or real property tax purposes such personal properties may be considered as real property if they are essential and principal elements of the business being conducted in said land or building. [C-64 B IP;@6.J In3. vs. C n4,-6 'o-,? oA Ass ss0 n4 A77 -6s. GR No. L=)04**. &-. 11# 1"/!$ Meralco 5ecurities insists that its pipeline is not subject to realty tax because it is not real property within the meaning of Article B"; )''. This contention is not sustainable under the provision of the Assessment /aw, the (eal 9roperty Tax 'ode and the 'ivil 'ode. 5ection < of the Assessment /aw provides that the realty tax is due Hon real property, including land, buildings, machineries and other improvementsI not specifically exempted in 5ection % thereof. 2t is incontestable that the pipeline of Meralco 5ecurities does not fall within any of the classes of exempt real property enumerated. (ealty tax has always been imposed by the law-making body and later by the 9resident of the 9hilippines in the exercise of his lawmaking powers. The realty tax is enforced throughout the 9hilippines and not merely in a particular municipality or city but the proceeds of the tax accrue to the province, city, municipality and barrio where the realty taxed is situated. 2n contrast, a local tax is imposed by municipal or city council by virtue of the /ocal Tax 'ode. [& ,-63o S 3u,@4@ s In?us4,@-6 Co,7o,-4@on vs. C n4,-6 'o-,? oA Ass ss0 n4 A77 -6s. GR No. L=4*!4). &-. 11# 1"/!$ An installment purchaser of land and building within the housing project of the 8525 is liable to pay real estate taxes from the time possession was transferred to him although pending full payment of the purchase price. The delivery of possession by the seller 8525 to the purchaser was clearly with the intention of passing to the latter the possession, use and control over said property, and all the other attributes of ownership short of the naked ownership, such that it included in said transfer the incidental obligation to pay the taxes thereon, for nothing more was left to the 8525 except its right to receive full payment of the purchase price. [C@4. oA '-8u@o vs. 'usu 8o. GR No. L=!"22!. S 74 0+ , 1/# 1"/0$ Movable e,uipments, to be immobiliKed in contemplation of Article B"; of the 'ivil 'ode, must be the essential and principal elements of the industry or works which are carried on in a building or on a piece of land. Thus, where the business is one of transportation, which is carried on without a repair or service shop, and its rolling e,uipment is repaired or serviced in a shop belonging to another, the tools and e,uipments in its repair shop which appear movable are merely
60

incidentals and may not be considered immovables, and, hence, not subject to assessment as real estate for purposes of real estate tax. [&@n?-n-o 'us Co. vs. C@4. Ass sso, -n? T, -su, ,. GR No. L=12/20. S 74 0+ , !"# 1"*!$

3ven if it be assumed that in the exercise of the 'ollector of 'ustoms of its exclusive jurisdiction over seiKure and forfeiture cases, a taint of illegality is correctly imputed, the most that can be said is that under these circumstances, grave abuse of discretion may oust it of its jurisdiction. This does not mean, however, that the trial court is vested with competence to ac,uire jurisdiction over these seiKure and forfeiture cases. The proceedings before the 'ollector of 'ustoms are not final. An appeal lies to the 'ommissioner of 'ustoms and thereafter to the 'ourt of Tax Appeals. 2t may even reach this 'ourt through an appropriate petition for review. The proper ventilation of the legal issues is thus indicated. 'ertainly, the (egional Trial 'ourt is not included therein. [ZuEo vs. C-+, ?o. A.&. No. RTJ=01=122". A7,@6 10# !001$ The use of generic term or a general description in a warrant is acceptable only when a more specific description of the things to be seiKed is unavailable. ?here, by the nature of the goods to be seiKed, their description must be rather general, it is not re,uired that a technical description be given, as this would mean that no warrant could issue. The legality of seiKure can be contested only by the party whose rights have been impaired thereby, and the objection to an unlawful search and seiKure cannot be availed of by third parties. [U. vs. 'u, -u oA In4 ,n-6 R v nu . GR No. 1!"*)1. O34o+ , !0# !000$ The forfeiture of the subject machineries is not dependent on whether or not the importation was terminated rather it is premised on the illegal withdrawal of goods from 'ustoms custody. (egardless of the termination of importation, 'ustoms authorities may validly seiKe goods, which for all intents and purposes, still belong to the government. This is so because forfeiture takes effect immediately upon commission of the offense. The forfeiture of the subject machineries therefore, retroacted to the date they were illegally withdrawn from 'ustoms custody. [C-,,-,- &-,+6 P;@6@77@n s# In3. vs. Co00@ss@on , oA Cus4o0s. GR No. 1!"*/0. S 74 0+ , 1# 1"""$ As a means of settlement, redemption of forfeited property is unavailing in three instances, namely, when there is fraud, when the importation is absolutely prohibited or where the release of the property would be contrary to law. The fraud contemplated by law must be actual and not constructive S it must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right. Misdeclarations in the manifest and ride cannot ascribe to the consignee where it was not the one that prepared them. [T,-ns86o+ In4 ,n-4@on-6# In3. vs. Cou,4 oA A77 -6s. GR No. 1!**14. J-nu-,. !)# 1"""$ !nder the Tariff and 'ustoms 'ode, declarations and statements contained in the 2mport 3ntry 9ermit are presumed to be true and correct under the penalties of falsification and perjury. Moreover, descriptions in entries and other documents are admissions against interest and presumptively correct. [C-64 B IP;@6@77@n sJ# In3. vs. Cou,4 oA A77 -6s. GR No. 1042/1. Ju6. 10# 1""/$ (T's are devoid of any competence to pass upon the validity or regularity of seiKure and forfeiture proceedings conducted by the :ureau of 'ustoms and to enjoin or otherwise interfere with these proceedings. The 'ollector of 'ustoms has exclusive jurisdiction to hear and determine all ,uestions touching on the seiKure and forfeiture of dutiable goods. The (T's are precluded from assuming cogniKance over such matters even through petitions of certiorari, prohibition or mandamus. Actions of the 'ollector of 'ustoms are appealable to the 'ommissioner of 'ustoms, whose decision in turn is subject to the exclusive appellate jurisdiction of the 'TA. [J-o vs. Cou,4 oA A77 -6s. GR No. 104*04. O34o+ , *# 1"")$
61
!nder 5ection %*+" of the Tariff and 'ustoms 'ode, smuggling is committed by any person whoF -". fraudulently imports or brings into the 9hilippines or assists in importing or bringing into the 9hilippines any article, contrary to law or -<. receives, conceals, buys, sells or in any manner facilitates the transportation, concealment or sale of such article after importation, knowing the same to have been imported contrary to law. 2mportation begins when the carrying vessel or aircraft enters the jurisdiction of the 9hilippines with intention to unload and is deemed terminated upon payment of the duties, taxes and other charges due upon the articles and the legal permit for withdrawal shall have been granted. 2f the articles are free of duties, taxes and other charges, importation is terminated until the articles have legally left the jurisdiction of the customs. 2f upon trial the defendant is found to have been in possession of smuggled articles, this shall be sufficient to authoriKe conviction unless the defendant explains his possession to the satisfaction of the court. [Ro?,@8u > vs. Cou,4 oA A77 -6s. GR No. 11)!1/. S 74 0+ , 1/# 1"")$ The enforcement of the import ban under 5ection %*, par -". of the (evised >orestry 'ode is within the exclusive realm of the :ureau of 'ustoms, and direct recourse of petitioner to the (T' to compel the 'ommissioner of 'ustoms to enforce the ban is devoid of merit. The claim of petitioner that no procedure is outlined for the enforcement of the import ban under the Tariff and 'ustoms 'ode, if true, does not at all diminish the jurisdiction of the :ureau of 'ustoms over the subject matter. The enforcement of statutory rights is not foreclosed by the absence of statutory procedure. The 'ommissioner has the power to Hpromulgate all rules and regulations necessary to enforce the provisions of this -Tariff and 'ustoms. 'ode subject to the approval of the 5ecretary of >inance.I [P,ov@? n4 T, F-,0s# In3. vs. '-4-,@o# J,. GR No. "!!/). &-,3; !/# 1""4$ The penalty of forfeiture is imposed on any vessel engaged in smuggling if the conditions enumerated in section <;%+ -a. are present. These conditions areF -". the vessel is Hused unlawfully in the importation or exportation of articles into or from the 9hilippines -<. the articles are imported or exported into or from Hany 9hilippine port or place, except a port of entry I or -%. if the vessel has a capacity of less than %+ tons and is Hused in the importation of articles into any 9hilippine port or place other than a port of the 5ulu 5ea, where importation in such vessel may be authoriKed by the 'ommissioner, with the approval of the department head.I A vessel engaged in smuggling Hin a port of entryI cannot be forfeited. This is the clear and plain meaning of the law. 2t is not within the province of the 'ourt to in,uire into the wisdom of the law, for indeed we are bound by the words of the statute. >orfeiture proceedings are proceedings in rem and are directed against the res. 2t is no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. The absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture. [Co00@ss@on , oA Cus4o0s vs. &-n@6- S4-, F ,,.# In3. GR Nos. 1122*=2/. O34o+ , !1# 1""1$ The port of Uiwalan not being included in the list of national ports appended to 'ustoms Memorandum 'ircular )o. %%-$%, nor in 3A $<, it follows that the 'ourt may not properly consider said port as a )ational 9ort. 2t is the considered opinion of the 'ourt that under 5ection <#+" of the tariff and 'ustoms 'ode as amended by 91 %B, only vessels berthing at )ational 9orts are liable for berthing fees. Thus, no berthing charges may be collected from vessels moored at municipal ports nor may berthing charges be imposed by municipal council. [Co00@ss@on , oA Cus4o0s vs. Cou,4 oA T-B A77 -6s -n? L@4onGu- S;@77@n8 Co07-n.. GR 4///*=//. Ju6. !1# 1""1$ !nder 5ection <;%+ -m. subparagraph -%. and -B. of the Tariff and 'ustoms 'ode, the re,uisites for forfeiture areF -". the wrongful making by the owner, importer, exporter, or consignee of any declaration or affidavit, or the wrongful making or delivery by the same persons of any invoice, letter or paper S all touching on the importation or exportation of merchandise and -<. that such declaration, affidavit, invoice, letter or paper is false. The fraud contemplated by law
62

must be actual and not constructive. 2t must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right. [F-,o6-n# J,. vs. Cou,4 oA T-B A77 -6s. GR 4!!04. J-nu-,. !1# 1""1$ 5ection <& -<. of Article 62 of the 'onstitution provides as followsF H-<. The 'ongress may, by law authoriKe the 9resident to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export ,uotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the 8overnment.I The 9resident may increase tariff rates as authoriKed by law even for revenue purposes only. The levying of customs duties on imported goods may have in some measure and effect of protecting local industries S where such local industries actually exist and are producing comparable goods. 5imultaneously, however, the very same customs duties inevitably have the effect of producing governmental revenues. 'ustoms duties like internal revenue taxes are rarely, if not ever, designed to achieve one policy objective only. [G-,3@- vs. EB 3u4@v S 3, 4-,.. GR No. 101!21. Ju6. 1# 1""!$ That search and seiKure must be supported by a valid warrant is not an absolute rule. There are at least three well-recogniKed exceptions. These are -". a search incidental to an arrest -<. a search of a moving vehicle and -%. seiKure of evidence in plain view. The circumstances of the case clearly show that the search in ,uestion was made as regards a moving vehicle. Therefore a valid warrant is not necessary to effect the search on appellant. The fact that there is actual conveyance of the prohibited drugs suffices to support a finding that the act of transporting was committed. 2t is immaterial whether or not the place of destination is reached. 4Peop e ,!2 Lo 1o &in'2 GR No2 AA75C2 /an"ar+ 85: 5995; A notice of hearing posted on the bulletin board of public respondent in a forfeiture proceeding where the owner of the alleged prohibited article is known does not constitute sufficient compliance with proper service of notice and procedural due process. Time and time again, the 'ourt has emphasiKed the imperative necessity for administrative agencies, like the :ureau of 'ustoms, to observe the elementary rules of due process. 2nasmuch as it would be contrary to law, i.e. :9 $% which prohibits the importation of gasoline powered cars with engine displacement of a certain kind in order to conserve energy, to allow the petitioner to redeem the Mercedes :enK in ,uestion, there is, therefore, no alternative, as correctly claimed by public respondents, but to forfeit the same. [P-4 ,oK vs. 'u, -u oA Cus4o0s. GR Nos. "0**0=*1. J-nu-,. !1# 1""1$ 2n fine, 'entral :ank 'ircular )os. <*; and ;%B re,uiring prior 'entral :ank authority for the taking out of the country of foreign currency should not be made to encompass foreign currency depositors whose rights are expressly defined and guaranteed in a special law, >oreign 'urrency 1eposit Act -(A *B<*, as amended.. As a foreign currency depositor, therefore, petitioner cannot be adjudged to have violated the aforesaid 'entral :ank 'irculars. 2t follows that neither is there room for the application of 5ection <;%+ -f. of the Tariff and 'ustoms 'ode, as amended, which provides for the forfeiture of any article and other objects, the exportation of which is effected or attempted contrary to law. [C-n3@o vs. Cou,4 oA T-B A77 -6s. GR No. L=21//!. O34o+ , !!# 1"/2$ 2t is hard to imagine that an incoming passenger who had all the intentions of declaring a large ,uantity of fancy jewelries and stones -%,+++ pieces. would undertake the trouble of painstakingly and meticulously sewing said articles one by one beneath the lining of her bag and the corners of a blanket only to tear open the linings and detach the articles one by one for inspection. Der tenuous explanation that she did it for security reasons is too flimsy a pretense to be admitted as true. [T-n vs. Cou,4 oA A77 -6s. GR No. L=)*/**. Jun !2# 1"/)$
64
2n our view, the complementary, if collateral use, of the 'essna plane for smuggling operation is sufficient for it to be deemed to have been used unlawfully in the importation or smuggling of blue seal cigarettes. !nder 5ection <;%+-a. of the Tariff and 'ustoms 'ode, in order to warrant forfeiture, it is not necessary that the vessel or aircraft must itself carry the contraband. There is nothing in the law that so re,uires. [L6-0-?o vs. Co00@ss@on , oA Cus4o0s. GR No. L= !//0". &-. 1*# 1"/1$ The law is clear and mandatory. The dutiable value of an imported article subject to an ad valorem rate of duty is based on its home consumption value or price as freely offered for sale in wholesale ,uantities in the ordinary course of trade in the principal markets of the country from were exported on the date of exportation to the 9hilippines. That home consumption value or price is the value or price declared in the consular, commercial, trade or sales invoice. ?here there is a reasonable doubt as to the value of the imported article, the correct dutiable value is to be ascertained from the reports of the (evenue AttachV or 'ommercial AttachV and from such other information that may be available to the :ureau of 'ustoms. [A34@n8 Co00@ss@on , oA Cus4o0s vs. 5@s -n? Co07-n.# In3. GR No. 42/"0. O34o+ , 1*# 1"/!$ The court a ,uo has no jurisdiction over the res subject of the warrant of seiKure and detention. :y express provision of law, amply supported by well-settled jurisprudence, the 'ollector of 'ustoms has exclusive jurisdiction over seiKure and forfeiture proceedings and regular courts cannot interfere with his exercise thereof or stifle or put it to naught. That in his complaint private respondent alleges ownership over several vehicles which are legally registered in his name, having paid all the taxes and corresponding licenses incident thereto, neither divests the 'ollector of 'ustoms of such jurisdiction nor confers upon the said trial court regular jurisdiction over the case. 3ven the illegality of the warrant of seiKure and detention cannot justify the trial courtGs interference with the 'ollectorGs jurisdiction. 2n the first place, there is a distinction between the existence of the 'ollectorGs power to issue it and the regularity of the proceeding taken under such power. 2n the second place, even if there be such an irregularity in the latter, the (T' does not have the competence to review, modify or reverse whatever conclusions may result from them. [&@son vs. N-4@v@?-?. GR No. /!)/*. S 74 0+ , 11# 1"/!$ The 'ode authoriKes persons having police authority under 5ection <<+% of the Tariff and 'ustoms 'ode to enter, pass through or search any land, inclosure, warehouse, store or building, not being a dwelling house, and also to inspect, search and examine any vessel or aircraft and any trunk, package, box or envelope or any person on board, or stop and search and examine any vehicle, beast or person suspected of holding or conveying any dutiable or prohibited article introduced into the 9hilippines contrary to law, without mentioning the need of a search warrant in said cases. :ut in the search of a dwelling house, the 'ode provides that said Tdwelling house may be entered and searched only upon warrant issued by a judge or justice of the peace G. 2t is our considered view, therefore, that except in the cause of the search of a dwelling house, persons exercising police authority under the customs law may effect search and seiKure without a search warrant in the enforcement of customs laws. [%@?u.- vs. ' ,?@-8o. GR No. L=!"!1/. O34o+ , !"# 1"2*$ Although the illegally imported subject tobacco may not be absolutely prohibited, but only ,ualifiedly prohibited under 5ection "+< -U. of the Tariff and 'ustoms 'ode, for it may be imported subject to certain conditions, it is nonetheless prohibited and is a contraband, and the legal effects of the importation of ,ualifiedly prohibited articles are the same as those of absolutely prohibited articles. The importer of the subject tobacco, the importation of which is prohibited by law, has no right that the tobacco be released to him even if he puts up a bond to be determined by the collector. [Au.on8 H@-n vs. Cou,4 oA T-B A77 -6s. GR No. L=!/2/!. S 74 0+ , 1!# 1"24$ The 'ollector of 'ustoms may order seiKure of untaxed goods without being liable for usurpation of judicial function. The 'ollector of 'ustoms has the re,uisite authority to issue a
65

warrant of seiKure and detention for an automobile whose duties and taxes have not been paid for. 2n exercising this authority, the collector has not committed a violation of the constitutional right against unreasonable search and seiKure and he may not be prosecuted for the criminal offense of usurpation of judicial function. [P-3@s vs. P-0-,-n. GR No. L=!1""*. &-,3; 1)# 1"24$ Merchandise, when used with reference to importations or exportations, includes goods, wares, and in general anything that may be made the subject of importation or exportation. !5 dollars, having ceased to be legal tender in the 9hilippines, fall within the meaning of the term Hmerchandise.I 2n addition, that part of the definition of HmerchandiseI which states, H in general anything that may be made the subject of importation or exportationI is sufficiently clear and comprehensive to include checks and money orders. ['-s4@?- vs. A34@n8 Co00@ss@on , oA Cus4o0s. GR No. L=!4011. O34o+ , !4# 1"20$ 2mportation is deemed terminated only upon the payment of the duties, taxes and other charges upon the articles, or secured to be paid, at the port of entry and the legal permit for withdrawal shall have been granted. The payment of the duties taxes, fees and other charges must be in full. Merchandise, the importation of which is effected contrary to law, is subject to forfeiture, and goods released contrary to law are subject to seiKure and forfeiture. 3ven if the goods in ,uestion have been brought out of the customs area and that the :ureau of 'ustoms had lost jurisdiction over the same, nevertheless, when said goods were intercepted at the Agrifina 'ircle by members of the Manila 9olice 1epartment acting under directions and orders of their chief who had been formally deputiKed by the 'ommissioner of customs, the :ureau of customs had regained jurisdiction and custody of the goods. 2t is the settled rule, therefore, that the :ureau of 'ustoms ac,uires exclusive jurisdiction over imported goods, for the purposes of enforcement of the customs laws, from the moment goods are actually in its possession or control even if no warrant or detention had previously been issued by the collector of 'ustoms in connection with seiKure and forfeiture proceedings. The Tariff and 'ustoms 'ode does not re,uire any search warrant issued by a competent court before police authorities can effect the seiKure. :ut the 'ode re,uires it in case of search of a dwelling house. Therefore, except if in the case of the search of a dwelling house, persons exercising police authority under the customs laws may effect search and seiKure without a search warrant in the enforcement of customs laws. [P-7- vs. &-8o. GR No. L=!21*0. F +,u-,. !/# 1"*/$

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Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

TAXATION LAW COMMITTEE AND DI EST !OOL

San Beda College of Law

Case T AXATION LAW Digests

TA- ENFORCEMENT AND ADMINISTRATION

2005 CENT"ALI#ED BA" O!E"ATIONS EXEC$TI%E COMMITTEE AND

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

TAXATION LAW COMMITTEE AND DI EST !OOL

San Beda College of Law

Case T AXATION LAW Digests

REAL PROPERTY TA-ATION

TARIFF AND CUSTOMS CODE

2005 CENT"ALI#ED BA" O!E"ATIONS EXEC$TI%E COMMITTEE AND

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

San Beda College of Law

Case T AXATION LAW Digests

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

San Beda College of Law

Case T AXATION LAW Digests

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

San Beda College of Law

Case T AXATION LAW Digests

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

San Beda College of Law

Case T AXATION LAW Digests

TA- ENFORCEMENT AND ADMINISTRATION

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

San Beda College of Law

Case T AXATION LAW Digests

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

San Beda College of Law

Case T AXATION LAW Digests

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

San Beda College of Law

Case T AXATION LAW Digests

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

REAL PROPERTY TA-ATION

San Beda College of Law

Case T AXATION LAW Digests

TARIFF AND CUSTOMS CODE

Case TAXATION LAW Digests

San Beda College of Law

2005 CENTRALIZED BAR OPERATIONS

SUMMARY OF DOCTRINES OF LEADING CASES