Chamber of Real Estate and Builders Associations, Inc., v. The Hon.

Executive Secretary Alberto

Romulo, et al
G.R. No. 160756. March 9, 2010
Facts: Petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA), an association
of real estate developers and builders in the Philippines, questioned the validity of Section 27(E)
of the Tax Code which imposes the minimum corporate income tax (MCIT) on corporations.
Under the Tax Code, a corporation can become subject to the MCIT at the rate of 2% of gross
income, beginning on the 4th taxable year immediately following the year in which it
commenced its business operations, when such MCIT is greater than the normal corporate
income tax. If the regular income tax is higher than the MCIT, the corporation does not pay the
MCIT.
CREBA argued, among others, that the use of gross income as MCIT base amounts to a
confiscation of capital because gross income, unlike net income, is not realized gain.
CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, otherwise known as
the Consolidated Withholding Tax Regulations, which prescribe the rules and procedures for the
collection of CWT on sales of real properties classified as ordinary assets, on the grounds that
these regulations:
Use gross selling price (GSP) or fair market value (FMV) as basis for determining
the income tax on the sale of real estate classified as ordinary assets, instead of the entitys net
taxable income as provided for under the Tax Code;
Mandate the collection of income tax on a per transaction basis, contrary to the Tax Code
provision which imposes income tax on net income at the end of the taxable period;
Go against the due process clause because the government collects income tax even when
the net income has not yet been determined; gain is never assured by mere receipt of the selling
price; and
Contravene the equal protection clause because the CWT is being charged upon real estate
enterprises, but not on other business enterprises, more particularly, those in the manufacturing
sector, which do business similar to that of a real estate enterprise.
Issues: (1) Is the imposition of MCIT constitutional? (2) Is the imposition of CWT on income from
sales of real properties classified as ordinary assets constitutional?
Held: (1) Yes. The imposition of the MCIT is constitutional. An income tax is arbitrary and
confiscatory if it taxes capital, because it is income, and not capital, which is subject to income
tax. However, MCIT is imposed on gross income which is computed by deducting from gross
sales the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other
direct expenses from gross sales. Clearly, the capital is not being taxed.
Various safeguards were incorporated into the law imposing MCIT.
Firstly, recognizing the birth pangs of businesses and the reality of the need to recoup initial
major capital expenditures, the MCIT is imposed only on the 4th taxable year immediately
following the year in which the corporation commenced its operations.
Secondly, the law allows the carry-forward of any excess of the MCIT paid over the normal
income tax which shall be credited against the normal income tax for the three immediately
succeeding years.
Thirdly, since certain businesses may be incurring genuine repeated losses, the law authorizes
the Secretary of Finance to suspend the imposition of MCIT if a corporation suffers losses due to
prolonged labor dispute, force majeure and legitimate business reverses.
(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base for sales of real
property classified as ordinary assets remains as the entitys net taxable income as provided in
the Tax Code, i.e., gross income less allowable costs and deductions. The seller shall file its
income tax return and credit the taxes withheld by the withholding agent-buyer against its tax
due. If the tax due is greater than the tax withheld, then the taxpayer shall pay the difference. If,
on the other hand, the tax due is less than the tax withheld, the taxpayer will be entitled to a
refund or tax credit.

The use of the GSP or FMV as basis to determine the CWT is for purposes of practicality and
convenience. The knowledge of the withholding agent-buyer is limited to the particular
transaction in which he is a party. Hence, his basis can only be the GSP or FMV which figures are
reasonably known to him.
Also, the collection of income tax via the CWT on a per transaction basis, i.e., upon
consummation of the sale, is not contrary to the Tax Code which calls for the payment of the net
income at the end of the taxable period. The taxes withheld are in the nature of advance tax
payments by a taxpayer in order to cancel its possible future tax obligation. They are
installments on the annual tax which may be due at the end of the taxable year. The withholding
agent-buyers act of collecting the tax at the time of the transaction, by withholding the tax due
from the income payable, is the very essence of the withholding tax method of tax collection.
On the alleged violation of the equal protection clause, the taxing power has the authority to
make reasonable classifications for purposes of taxation. Inequalities which result from singling
out a particular class for taxation, or exemption, infringe no constitutional limitation. The real
estate industry is, by itself, a class and can be validly treated differently from other business
enterprises.
What distinguishes the real estate business from other manufacturing enterprises, for purposes
of the imposition of the CWT, is not their production processes but the prices of their goods sold
and the number of transactions involved. The income from the sale of a real property is bigger
and its frequency of transaction limited, making it less cumbersome for the parties to comply
with the withholding tax scheme. On the other hand, each manufacturing enterprise may have
tens of thousands of transactions with several thousand customers every month involving both
minimal and substantial amounts.
Creditable withholding tax (CWT); constitutionality; due process. Imposition of CWT does not
constitute a deprivation of property without due process because seller may claim tax refund if
net income is less than the taxes withheld. Practical problems in claiming tax refund do not
affect the constitutionality and validity of CWT as a method of collecting tax. Chamber of Real
Estate and Builders Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al.,
G.R. No. 160756, March 9, 2010.
CWT; constitutionality; equal protection. The taxing power has authority to make reasonable
classifications for purposes of taxation. Inequalities resulting from a singling out of one particular
class for taxation or exemption do not infringe any constitutional limitation. The real estate
industry is, by itself, a class and can be validly treated differently from other business
enterprises. Chamber of Real Estate and Builders Associations, Inc. vs. The Hon. Executive
Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.
CWT; constitutionality; legality. The assailed provisions of Revenue Regulations No. 2-98, as
amended, imposing CWT on sales of real property held as ordinary assets merely implements
Section 57(B) of the Tax Code by specifying what income is subject to CWT. Where a statute does
not require any particular procedure to be followed by an administrative agency, the agency may
adopt any reasonable method to carry out its functions. Considering that the law uses the
general term income, the Secretary of Finance and the Commissioner of Internal Revenue may
apply the kinds of income the rules will apply to based on what is feasible. Chamber of Real
Estate and Builders Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al.,
G.R. No. 160756, March 9, 2010.
Minimum corporate income tax; constitutionality. The imposition of MCIT is not violative of due
process. MCIT is imposed on gross income and not capital. Thus, it is not arbitrary or
confiscatory. Moreover, it is not an additional tax imposition but is imposed in lieu of normal net
income tax and only if said tax is suspiciously law. Finally, there is no legal objection to a broader
tax base or taxable income resulting from the elimination of all deductible items and, at the
same time, reduction of the applicable tax rate. Inasmuch as deductions are a matter of
legislative grace, Congress has the power to condition, limit or deny deductions from gross
income in order to arrive at the net that it chooses to tax. Chamber of Real Estate and Builders
Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756,
March 9, 2010.

Chamber of Real Estate and Builders v. Executive Secretary, et al.

G.R.No.160756 : March 9, 2010

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., Petitioner, v. THE HON.
EXECUTIVE SECRETARY ALBERTO ROMULO, THE HON. ACTING SECRETARY OF FINANCE JUANITA
D. AMATONG, and THE HON. COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.,
Respondents.
CORONA, J.:
FACTS:
Petitioner is an association of real estate developers and builders in the Philippines.It impleaded
former Executive Secretary Alberto Romulo, then acting Secretary of Finance Juanita D. Amatong
and then Commissioner of Internal Revenue Guillermo Parayno, Jr. as respondents.
Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on
corporations and creditable withholding tax (CWT) on sales of real properties classified as
ordinary assets.
Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR
9-98.Petitioner argues that the MCIT violates the due process clause because it levies income tax
even if there is no realized gain.
Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 298, and Section 4(a)(ii) and (c)(ii) of RR 7-2003, all of which prescribe the rules and procedures
for the collection of CWT on the sale of real properties categorized as ordinary assets.Petitioner
contends that these revenue regulations are contrary to law for two reasons:first, they ignore the
different treatment by RA 8424 of ordinary assets and capital assets andsecond, respondent
Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross
selling price or fair market value of the real properties classified as ordinary assets.
Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate
the due process clause because, like the MCIT, the government collects income tax even when
the net income has not yet been determined. They contravene the equal protection clause as
well because the CWT is being levied upon real estate enterprises but not on other business
enterprises, more particularly those in the manufacturing sector.
ISSUES:
Whether or not the imposition of the MCIT on domestic corporations is unconstitutional?
Whether or not the imposition of CWT on income from sales of real properties classified as
ordinary assets under RRs 2-98, 6-2001 and 7-2003, is unconstitutional?
Whether or not this Court should take cognizance of the present case?
HELD:
The petition is dismissed.
POLITICAL LAW: constitutionality of MCIT
Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is
highly oppressive, arbitrary and confiscatory which amounts to deprivation of property without
due process of law.It explains that gross income as defined under said provision only considers
the cost of goods sold and other direct expenses; other major expenditures, such as
administrative and interest expenses which are equally necessary to produce gross income,
were not taken into account.[31]Thus, pegging the tax base of the MCIT to a corporations gross
income is tantamount to a confiscation of capital because gross income, unlike net income, is
not realized gain. The Court disagress.
Taxes are the lifeblood of the government.Without taxes, the government can neither exist nor
endure. The exercise of taxing power derives its source from the very existence of the State
whose social contract with its citizens obliges it to promote public interest and the common
good.

Taxation is an inherent attribute of sovereignty.It is a power that is purely legislative.Essentially,

this means that in the legislature primarily lies the discretion to determine the nature (kind),
object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation.It has the
authority to prescribe a certain tax at a specific rate for a particular public purpose on persons or
things within its jurisdiction.In other words, the legislature wields the power to define what tax
shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or
what) it shall be imposed and where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its
very nature no limits, so that the principal check against its abuse is to be found only in the
responsibility of the legislature (which imposes the tax) to its constituency who are to pay
it.Nevertheless, it is circumscribed by constitutional limitations.At the same time, like any other
statute, tax legislation carries a presumption of constitutionality.
The constitutional safeguard of due process is embodied in the fiat [no] person shall be deprived
of life, liberty or property without due process of law.
Income means all the wealth which flows into the taxpayer other than a mere return on
capital.Capital is a fund or property existing at one distinct point in time while income denotes a
flow of wealth during a definite period of time.Income is gain derived and severed from capital.
For income to be taxable, the following requisites must exist: (1) there must be gain; (2) the gain
must be realized or received and (3)the gain must not be excluded by law or treaty from
taxation.
Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not
income.In other words, it is income, not capital, which is subject to income tax.However, the
MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a
corporation in the sale of its goods,i.e., the cost of goodsand other direct expenses from gross
sales.Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposedin lieuofthe normal net
income tax, and only if the normal income tax is suspiciously low.The MCIT merely approximates
the amount of net income tax due from a corporation, pegging the rate at a very much reduced
2% and uses as the base the corporations gross income.
The United States has a similar alternative minimum tax (AMT) system which is generally
characterized by a lower tax rate but a broader tax base.Since our income tax laws are of
American origin, interpretations by American courts of our parallel tax laws have persuasive
effect on the interpretation of these laws.Although our MCIT is not exactly the same as the AMT,
the policy behind them and the procedure of their implementation are comparable. American
courts have also emphasized that Congress has the power to condition, limit or deny deductions
from gross income in order to arrive at the net that it chooses to tax.This is because deductions
are a matter of legislative grace.
Absent any other valid objection, the assignment of gross income, instead of net income, as the
tax base of the MCIT, taken with the reduction of the tax rate from 32% to 2%, is not
constitutionally objectionable.
Moreover, petitioner does not cite any actual, specific and concrete negative experiences of its
members nor does it present empirical data to show that the implementation of the MCIT
resulted in the confiscation of their property.
In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is
arbitrary and confiscatory.The Court cannot strike down a law as unconstitutional simply because
of its yokes. Taxation is necessarily burdensome because, by its nature, it adversely affects
property rights. The party alleging the laws unconstitutionality has the burden to demonstrate
the supposed violations in understandable terms.
On the other hand, RR 9-98, in declaring that MCIT should be imposed whenever such
corporation has zero or negative taxable income, merely defines the coverage of Section
27(E).This means that even if a corporation incurs a net loss in its business operations or reports
zero income after deducting its expenses, it is still subject to an MCIT of 2% of its gross
income.This is consistent with the law which imposes the MCIT on gross income notwithstanding
the amount of the net income.But the law also states that the MCIT is to be paid only if it is

greater than the normal net income.Obviously, it may well be the case that the MCIT would be
less than the net income of the corporation which posts a zero or negative taxable income.
The withholding tax system is a procedure through which taxes (including income taxes) are
collected. Under Section 57 of RA 8424, the types of income subject to withholding tax are
divided into three categories: (a) withholding of final tax on certain incomes; (b) withholding of
creditable tax at source and (c) tax-free covenant bonds.
TAXATION LAW: authority of the secretary f finance
The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate
the necessary rules and regulations for the effective enforcement of the provisions of the
law.Such authority is subject to the limitation that the rules and regulations must not override,
but must remain consistent and in harmony with, the law they seek to apply and implement. It is
well-settled that an administrative agency cannot amend an act of Congress.
It has been recognized that the method of withholding tax at source is a procedure of collecting
income tax which is sanctioned by our tax laws.The withholding tax system was devised for
three primary reasons: first, to provide the taxpayer a convenient manner to meet his probable
income tax liability; second, to ensure the collection of income tax which can otherwise be lost or
substantially reduced through failure to file the corresponding returns and third, to improve the
governments cash flow.This results in administrative savings, prompt and efficient collection of
taxes, prevention of delinquencies and reduction of governmental effort to collect taxes through
more complicated means and remedies.
Respondent Secretary has the authority to require the withholding of a tax on items of income
payable to any person, national or juridical, residing in the Philippines.Such authority is derived
from Section 57(B) of RA 8424
The questioned provisions of RR 2-98, as amended, are well within the authority given by Section
57(B) to the Secretary,i.e., the graduated rate of 1.5%-5% is between the 1%-32% range; the
withholding tax is imposed on the income payable and the tax is creditable against the income
tax liability of the taxpayer for the taxable year.
POLITICAL LAW: constitutionality of RR 2-98 as amended
Under RR 2-98, the tax base of the income tax from the sale of real property classified as
ordinary assets remains to be the entitys net income imposed under Section 24 (resident
individuals) or Section 27 (domestic corporations) in relation to Section 31 of RA 8424,i.e.gross
income less allowable deductions.The CWT is to be deducted from the net income tax payable by
the taxpayer at the end of the taxable year.Precisely, Section 4(a)(ii) and (c)(ii) of RR 7-2003
reiterate that the tax base for the sale of real property classified as ordinary assets remains to
be the net taxable income
Accordingly, at the end of the year, the taxpayer/seller shall file its income tax return and credit
the taxes withheld (by the withholding agent/buyer) against its tax due.If the tax due is greater
than the tax withheld, then the taxpayer shall pay the difference.If, on the other hand, the tax
due is less than the tax withheld, the taxpayer will be entitled to a refund or tax
credit.Undoubtedly, the taxpayer is taxed on its net income.
The use of the GSP/FMV as basis to determine the withholding taxes is evidently for purposes of
practicality and convenience.Obviously, the withholding agent/buyer who is obligated to withhold
the tax does not know, nor is he privy to, how much the taxpayer/seller will have as its net
income at the end of the taxable year.Instead, said withholding agents knowledge and privity are
limited only to the particular transaction in which he is a party.In such a case, his basis can only
be the GSP or FMV as these are the only factors reasonably known or knowable by him in
connection with the performance of his duties as a withholding agent.
RR 2-98 imposes a graduated CWT on income based on the GSP or FMV of the real property
categorized as ordinary assets. On the other hand, Section 27(D)(5) of RA 8424 imposes a final
tax and flat rate of 6% on the gain presumed to be realized from the sale of a capital asset
based on its GSP or FMV.This final tax is also withheld at source.
As previously stated, FWT is imposed on the sale of capital assets. On the other hand, CWT is
imposed on the sale of ordinary assets.The inherent and substantial differences between FWT
and CWT disprove petitioners contention that ordinary assets are being lumped together with,
and treated similarly as, capital assets in contravention of the pertinent provisions of RA 8424.

The fact that the tax is withheld at source does not automatically mean that it is treated exactly
the same way as capital gains.As aforementioned, the mechanics of the FWT are distinct from
those of the CWT. The withholding agent/buyers act of collecting the tax at the time of the
transaction by withholding the tax due from the income payable is the essence of the
withholding tax method of tax collection.
Section 57(A) expressly states that final tax can be imposed on certain kinds of income and
enumerates these as passive income.
Passive income generated by the taxpayers assets. These assets can be in the form of real
properties that return rental income, shares of stock in a corporation that earn dividends or
interest income received from savings.
On the other hand, Section 57(B) provides that the Secretary can require a CWT on income
payable to natural or juridical persons, residing in the Philippines.There is no requirement that
this income be passive income.If that were the intent of Congress, it could have easily said so.
Indeed, Section 57(A) and (B) are distinct.Section 57(A) refers to FWT while Section 57(B)
pertains to CWT.The former covers the kinds of passive income enumerated therein and the
latter encompassesany income other than those listed in 57(A).Since the law itself makes
distinctions, it is wrong to regard 57(A) and 57(B) in the same way.
To repeat, the assailed provisions of RR 2-98, as amended, do not modify or deviate from the
text of Section 57(B).RR 2-98 merely implements the law by specifying what income is subject to
CWT.It has been held that, where a statute does not require any particular procedure to be
followed by an administrative agency, the agency may adopt any reasonable method to carry
out its functions.Similarly, considering that the law uses the general term income, the Secretary
and CIR may specify the kinds of income the rules will apply to based on what is feasible.In
addition, administrative rules and regulations ordinarily deserve to be given weight and respect
by the courts in view of the rule-making authority given to those who formulate them and their
specific expertise in their respective fields.
POLITICAL LAW: no deprivation of due process
CWT is creditable against the tax due from the seller of the property at the end of the taxable
year.The seller will be able to claim a tax refund if its net income is less than the taxes
withheld.Nothing is taken that is not due so there is no confiscation of property repugnant to the
constitutional guarantee of due process.More importantly, the due process requirement applies
to the power to tax. The CWT does not impose new taxes nor does it increase taxes.It relates
entirely to the method and time of payment.
The practical problems encountered in claiming a tax refund, as claimed by the petitioner, do not
affect the constitutionality and validity of the CWT as a method of collecting the tax. Petitioners
lamentations will not support its attack on the constitutionality of the CWT.Petitioners complaints
are essentially matters of policy best addressed to the executive and legislative branches of the
government.Besides, the CWT is applied only on the amounts actually received or receivable by
the real estate entity.Sales on installment are taxed on a per-installment basis. Petitioners desire
to utilize for its operational and capital expenses money earmarked for the payment of taxes
may be a practical business option but it is not a fundamental right which can be demanded
from the court or from the government.
POLITICAL LAW: no violation of equal protection clause
The equal protection clause under the Constitution means that no person or class of persons
shall be deprived of the same protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances.Stated differently,all persons belonging to
the same class shall be taxed alike.It follows that the guaranty of the equal protection of the
laws is not violated by legislation based on a reasonable classification.Classification, to be valid,
must (1) rest on substantial distinctions; (2) be germane to the purpose of the law; (3) not be
limited to existing conditions only and (4) apply equally to all members of the same class.
The taxing power has the authority to make reasonable classifications for purposes of taxation.
Inequalities which result from a singling out of one particular class for taxation, or exemption,
infringe no constitutional limitation. The real estate industry is, by itself, a class and can be
validly treated differently from other business enterprises.

Petitioner, in insisting that its industry should be treated similarly as manufacturing enterprises,
fails to realize that what distinguishes the real estate business from other manufacturing
enterprises, for purposes of the imposition of the CWT, is not their production processes but the
prices of their goods sold and the number of transactions involved. The income from the sale of
a real property is bigger and its frequency of transaction limited, making it less cumbersome for
the parties to comply with the withholding tax scheme.
On the other hand, each manufacturing enterprise may have tens of thousands of transactions
with several thousand customers every month involving both minimal and substantial amounts.
To require the customers of manufacturing enterprises, at present, to withhold the taxes on each
of their transactions with their tens or hundreds of suppliers may result in an inefficient and
unmanageable system of taxation and may well defeat the purpose of the withholding tax
system.
REMEDIAL LAW: justiciable controversy
Courts will not assume jurisdiction over a constitutional question unless the following requisites
are satisfied: (1) there must be an actual case calling for the exercise of judicial review; (2) the
question before the court must be ripe for adjudication;(3)thepersonchallengingthevalidityofthe
act must have standing to do so; (4) the question of constitutionality must have been raised at
the earliest opportunity and (5) the issue of constitutionality must be the verylis motaof the
case.
An actual case or controversy involves a conflict of legal rights or an assertion of opposite legal
claims which is susceptible of judicial resolution as distinguished from a hypothetical or abstract
difference or dispute.On the other hand, a question is considered ripe for adjudication when the
act being challenged has a direct adverse effect on the individual challenging it.
Contrary to respondents assertion, it no longer has to be waited until petitioners members have
shut down their operations as a result of the MCIT or CWT.The assailed provisions are already
being implemented.
If the assailed provisions are indeed unconstitutional, there is no better time than the present to
settle such question once and for all.
Legal standing orlocus standiis a partys personal and substantial interest in a case such that it
has sustained or will sustain direct injury as a result of the governmental act being challenged.
In any event, this Court has the discretion to take cognizance of a suit which does not satisfy the
requirements of an actual case, ripeness or legal standing when paramount public interest is
involved.The questioned MCIT and CWT affect not only petitioners but practically all domestic
corporate taxpayers in our country. The transcendental importance of the issues raised and their
overreaching significance to society make it proper for the Court to take cognizance of this
petition.
MCIT and CWT are constitutional.

Sison v Ancheta G.R. No. L-59431. July 25, 1984.

C. J. Fernando
Declaratory Relief
Facts:
Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended
Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on
citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties,
prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary
benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and
share of individual partner in the net profits of taxable partnership, (f) adjusted gross income.

Petitioner as taxpayer alleged that "he would be unduly discriminated against by the imposition
of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those
which are imposed upon fixed income or salaried individual taxpayers." He characterizes the
above section as arbitrary amounting to class legislation, oppressive and capricious in character.
For petitioner, therefore, there is a transgression of both the equal protection and
due process clauses of the Constitution as well as of the rule requiring uniformity in taxation.
The OSG prayed for dismissal of the petition due to lack of merit.
Issue: Whether the imposition of a higher tax rate on taxable net income derived from business
or profession than on compensation is constitutionally infirm.
(WON there is a transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation)
Held: No. Petition dismissed
Ratio:
The need for more revenues is rationalized by the government's role to fill the gap not done by
public enterprise in order to meet the needs of the times. It is better equipped to administer for
the public welfare.
The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital
state functions. It is the source of the bulk of public funds.
The power to tax is an attribute of sovereignty and the strongest power of the government.
There are restrictions, however, diversely affecting as it does property rights, both the
due process and equal protection clauses may properly be invoked, as petitioner does, to
invalidate in appropriate cases a revenue measure. If it were otherwise, taxation would be a
destructive power.
The petitioner failed to prove that the statute ran counter to the Constitution. He used
arbitrariness as basis without a factual foundation. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection clauses are invoked, considering that
they are not fixed rules but rather broad standards, there is a need for proof of such persuasive
character as would lead to such a conclusion.
It is undoubted that the due process clause may be invoked where a taxing statute is so
arbitrary that it finds no support in the Constitution. An obvious example is where it can be
shown to amount to the confiscation of property. That would be a clear abuse of power.
It has also been held that where the assailed tax measure is beyond the jurisdiction of the state,
or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it
is subject to attack on due process grounds.
For equal protection, the applicable standard to determine whether this was denied in the
exercise of police power or eminent domain was the presence of the purpose of hostility or
unreasonable discrimination.
It suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not being
different, both in the privileges conferred and the liabilities imposed. Favoritism and undue
preference cannot be allowed. For the principle is that equal protection and security shall be
given to every person under circumstances, which if not identical are analogous. If law be looks
upon in terms of burden or charges, those that fall within a class should be treated in the same
fashion, whatever restrictions cast on some in the group equally binding on the rest.
The equal protection clause is, of course, inspired by the noble concept of approximating the
ideal of the laws's benefits being available to all and the affairs of men being governed by that
serene and impartial uniformity, which is of the very essence of the idea of law.
The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising
out of specific difficulties, addressed to the attainment of specific ends by the use of specific

remedies. The Constitution does not require things which are different in fact or opinion to be
treated in law as though they were the same.
Lutz v Araneta- it is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of
one particular class for taxation, or exemption infringe no constitutional limitation.
Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformity
does not call for perfect uniformity or perfect equality, because this is hardly attainable
Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation
There is quite a similarity then to the standard of equal protection for all that is required is that
the tax "applies equally to all persons, firms and corporations placed in similar situation"
There was a difference between a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate.
The discernible basis of classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the class and fixing a set
of reduced tax rates to be applied to all of them. As there is practically no overhead expense,
these taxpayers are not entitled to make deductions for income tax purposes because they are
in the same situation more or less.
Taxpayers who are recipients of compensation income are set apart as a class.
On the other hand, in the case of professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to produce their income. It would not
be just then to disregard the disparities by giving all of them zero deduction and indiscriminately
impose on all alike the same tax rates on the basis of gross income.
There was a lack of a factual foundation, the forcer of doctrines on due process and equal
protection, and he reasonableness of the distinction between compensation and taxable net
income of professionals and businessmen not being a dubious classification.

Sison vs Ancheta
GR No. L-59431, 25 July 1984
Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as
taxpayer, alleges that "he would be unduly discriminated against by the imposition of higher
rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers. He characterizes said provision as
arbitrary amounting to class legislation, oppressive and capricious in character. It therefore
violates both the equal protection and due process clauses of the Constitution as well asof the
rule requiring uniformity in taxation.
Issue: Whether or not the assailed provision violates the equal protection and due process
clauses of the Constitution while also violating the rule that taxes must be uniform and
equitable.
Held: The petition is without merit.

On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can be shown to
amount to the confiscation of property from abuse of power. Petitioner alleges arbitrariness but
his mere allegation does not suffice and there must be a factual foundation of such
unconsitutional taint.
On equal protection - it suffices that the laws operate equally and uniformly on all persons under
similar circumstances, both in the privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable - this requirement is met
when the tax operates with the same force and effect in every place where the subject may be
found." Also, :the rule of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly unattainable." When the problem of classification became of issue, the
Court said: "Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation..." As provided by this
Court, where "the differentation" complained of "conforms to the practical dictates of justice and
equity" it "is not discriminatory within the meaning of this clause and is therefore uniform."
Sison vs Ancheta (1984)
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section
1) unduly discriminated against him by the imposition of higher rates upon his income as a
professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring uniformity in
taxation.
Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.
Held: There is a need for proof of such persuasive character as would lead to a conclusion that
there was a violation of the due process and equal protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation. Where
the differentitation conforms to the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within the meaning of the clause and is
therefore uniform. Taxpayers may be classified into different categories, such as recipients of
compensation income as against professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as there is no practically no overhead
expense, while professionals and businessmen have no uniform costs or expenses necessaryh to
produce their income. There is ample justification to adopt the gross system of income taxation
to compensation income, while continuing the system of net income taxation as regards
professional and business income.

G.R. No. L-14595

October 11, 1919
GREGORIO SARASOLA, plaintiff-appellant,
vs.
WENCESLAO TRINIDAD, Collector of Internal Revenue of the Philippine
Islands, defendant-appellee.
Cohn and Fisher for appellant.
Attorney-General Paredes for appellee.
MALCOLM, J.:
The complaint in this case was filed in the Court of First Instance of Manila for the purpose of
having an injunction issue to restrain the defendant, the Collector of Internal Revenue, from the
alleged illegal collection of taxes in the amount of P11,739.29. The defendant interposed a
demurrer to the complaint, based on two grounds, namely: (1) that the court had no jurisdiction
of the subject-matter of the action because of the provisions of section 1578 of the
Administrative Code of 1917; and (2) that the facts stated in the complaint did not entitle the

plaintiff to the relief demanded. The Honorable James A. Ostrand, Judge of First Instance,
sustained the demurrer, holding that "In the opinion of the court, the case is still controlled by
the decision of the Supreme Court in the case of Churchill and Tait vs. Rafferty (32 Phil., 580).
The fact that section 1579 of the Administrative Code of 1917 disallows interest on the internal
revenue taxes recovered back is hardly sufficient to vary the rule." It is from the final order
dismissing the complaint, without special finding as to costs, that the plaintiff to this court.
As will be noted, the judge was induced to take such action be reason of his understanding of the
decision of this court in the case of Churchill and Tait vs. Rafferty (supra, appeal dismissed in the
United States Supreme Court [1918], 248 U.S., 555), in which the plaintiffs likewise endeavor
unsuccessfully to have the defendant Collector of Internal Revenue enjoined from collecting and
enforcing against the plaintiffs an internal revenue tax on bill boards. Both counsel for appellant
and appellee herein seem to find comfort in this decision. Instead, however, of devoting our time
to a fine analysis of this decision with the object of ascertaining if it is still controlling, it would
seem preferable to place it to one side for the nonce and to proceed independently thereof to
settle the instant issues.
Appellant's formal specifications of error are epitomized in three points: "1. The statute is a mere
expression of the equity rule and does not close the door of equity where there is no adequate
remedy at law; 2. The equitable jurisdiction to issue writs where the legal remedy is inadequate
is crystallized and cannot be abbreviated by local statute; 3. The legal remedy is grossly
inadequate and the injury irreparable and the writ should issue." The Attorney-General, in his
brief for the appellee, says that a resolution of the three errors assigned by appellant depends
upon the answer to the question, "Is the legal provision prohibiting the courts from granting an
injunction to retrain the collection of internal revenue taxes constitutional?" Whether, therefore,
we agree with the Attorney-General in his bold assertion relative to the issue being the
constitutionality of sections 1578 and 1579 of the Administrative Code of 1917, or whether we
consider the more subtle argument of the learned counsel for appellant which seems merely to
squint at this question, it is necessary to have before us the pertinent provisions of Philippine
law.
Sections 1578 and 1579 of the Administrative Code of 1917 read as follows:
SEC. 1578. Injunction not available to restrain collection of tax. No court shall have authority
to grant an injunction to restrain the collection of any internal-revenue tax.
SEC. 1579. Recovery of tax paid under protest. When the validity of any tax is questioned, or
its amount disputed, or other question raised as to liability therefor, the person against whom or
against whose property the same is sought to be enforced shall pay the tax under instant
protest, or upon protest within ten days, and shall thereupon request the decision of the
Collector of Internal Revenue. If the decision of the Collector of Internal Revenue is adverse, or if
no decision is made by him within six months from the date when his decision was requested,
the taxpayer may proceed, at any time within two years after the payment of the tax, to bring an
action against the Collector of Internal Revenue for the recovery without interest of the sum
alleged to have been illegally collected, the process to be served upon him, upon the provincial
treasurer, or upon the officer collecting the tax.
These portions of our tax laws, leaving out of notice the two words "without interest," are in no
way different from American tax laws. The antecedents of sections 1578 and 1579 of the
existing Administrative Code are the Administrative Code of 1916, the Internal Revenue Law of
1914 (Act No. 2339), and Internal Revenue Law of 1904 (Act No. 1189). Section 1578 of the
Administrative Code and its corresponding sections in previous Philippine Laws, found its
particular inspiration in a similar provision in the Act of Congress of March 2, 1867. (14 Stat. at
L., 475; sec. 3224, U.S. Rev. Stat.) Again expressly leaving out of our present consideration the
phrase "without interest," a vast array of interpretative jurisprudence which culminates in the
decision in Churchill and Tait vs.Rafferty, supra, would leave no room for doubt that such
legislation is constitutional. The point, however, to keep sharply before us is, that until the
enactment of the Administrative Code of 1917, no law of the Philippine Legislature or
Commission had contained a provision permitting the recovery of taxes "without interest," and
no provision essentially the same can be found in the statutes United States or of the several
States.
Before we recur to our precise question, a good background for this decision might well concern
the more general subject of the remedies of the taxpayer. The broad principle is that every
taxpayer has a right to a remedy for any actual wrong he may have suffered in the collection of
taxes. Usually a party will find a plain and sufficient remedy for the injuries complained of, or
threatened, in the courts of law; in such instances, equity will not take jurisdiction.
"Presumptively," Judge Cooley says, "the remedy at law is adequate." (Cooley on Taxation, 3d
Ed., Vol. 2, pp. 1377, 1412, 1415.) Where, as in the Philippines, the taxpayer is permitted to pay
the amount demanded of him under protest and then maintain an action at law to recover back
the whole amount paid or so much of it as was illegally exacted, this is ordinarily regarded as an
adequate remedy. Thus, the Legislature of the State of Tennessee enacted a statute not greatly
different from the Philippine statute, with the exception that the words, "without interest," were
not included, and the United States Supreme Court in discussing the law said: "This remedy is

simple and effective. . . . It is a wise and reasonable precaution for the security of the
government. No government could exist that permitted its collection to be delayed by every
litigious man or every embarrassed man, to whom delay was more important than the payment
of costs." (State of Tennessee vs. Sneed [1877], 6 Otto, 69. See also 37 Cyc., 1267, 1268.) Again
in the case of Snyder vs. Marks ([1883], 109 U.S., 185) the sole object of the suit was to restrain
the collection of a tax which was assessed under the United States Internal Revenue Laws. The
court said: The remedy of a suit to recover back the tax after it is paid, is provided by statute,
and a suit to restrain its collection is forbidden. The remedy so given is exclusive, and no other
remedy can be substituted for it."
An exceptional circumstance which serves to take cases out of the general rule comes under the
head of irreparable injury. In a decision of the United States Supreme Court in which this was
explained (Dows vs. The City of Chicago [1871], 11 Wall., 108) it was remarked that there can be
no case of equitable cognizance "where there is a plain and adequate remedy at law. And except
where the special circumstances which we have mentioned exist, the party of whom an illegal
tax is collected has ordinarily ample remedy, either by action against the officer making the
collection or the body to whom the tax is paid." Accordingly it was held that since the plaintiff
had his action after the tax was paid "against the officer or the city to recover back the money,"
a bill in equity to restrain the collection of a tax would not be sustained. If the ground alleged is
alone that the tax was illegal, this is not sufficient for the maintenance of an injunction.
(Dows vs .The City of Chicago, supra; Shelton vs. Platt [1891], 139 U.S., 591, reviewing previous
decisions; Nye Jenks & Co. vs. Town of Washburn [1903], 125 Fed., 817; Churchill and
Tait vs. Rafferty, supra, followed approvingly in Young vs. Rafferty [1916], 33 Phil., 556, 563.)
While we have these decisions in mind, it might be well to recall that in one way or another, the
whole question harks back to the legality of sections 1578 and 1579 of the Administrative Code.
But in addition, according to the averments of the plaintiff's complaint which are provisionally
admitted by the demurrer of the defendant, the plaintiff's claim is, that he was not engaged in
the business of a commission merchant in the city of Manila, and so was not liable to the
payment of a tax as such, and that he is without means of complying with the demand of the
defendant under protest or otherwise. Such, likewise, was one of three grounds which were
suggested as giving equitable jurisdiction to the Supreme Court of the State of Michigan.
Regarding it, Judge Cooley said:
The force of the third contention must rest in the fact that enforcing the tax may in some cases
compel the suspension of business, because it is more than the person taxed can afford to pay.
But if this consideration is sufficient to justify the transfer of a controversy from a court of law to
a court of equity, then every controversy where money is demanded may be made the subject of
equitable cognizance. To enforce against a dealer a promissory not may in some cases as
effectually break up his business as to collect from him a tax of equal amount. This is not what is
known to the law as irreparable injury. The courts have never recognized the consequences of
the mere enforcement of a money demand as falling within that category.
(Youngblood vs. Sexton [1875], 32 Mich., 406.)
No one could very convincingly argue against the force of these leading cases. Not neglecting,
therefore, to remember their importance, the precise and narrower question is suggested Did
the addition of the words "without interest" in the statute so deprive an aggrieved taxpayer of
his adequate remedy at law as to justify judicial interference? In two recent decisions of this
court, interest on judgments for the recovery of taxes was allowed, but without deciding this
precise question. Thus, in Viuda e Hijos de Pedro P. Roxas vs. Rafferty [1918], 37 Phil., 957), it
was said that whether interest could be adjudged a taxpayer against the United States, a State
of the American Union, or the Government of the Philippine Islands, was beside the question.
And in Hongkong & Shanghai Banking Corporation vs. Rafferty [1918], 39 Phil., 145), it was said
that whether interest may be recovered under section 1579 of the Administrative Code, is left for
decision when a case arises after the Code became effective. As the point can no longer be
evaded, we shall proceed to resolve it, and in so doing can find no better approach than that to
be found in the right to interest.
It is well settled both on principle and authority that interest is not to be awarded against a
sovereign government, as the United States or a State, unless its consent has been manifested
by an Act of its Legislature or by a lawful contract of its executive officers. If there be doubt upon
the subject, that doubt must be resolved in favor of the State. In Gosman's Case ([1881], L. R. 17
Ch. Div., 771) Sir George Jessel, Master of the Rolls, speaking for the Court of Appeals, summed
up the Law of England in this concise statement: "There is no ground for charging the Crown with
interest. Interest is only payable by statute or by contract." In Attorney-General vs. Cape Fear
Navigation Co. ([1843], 37 N.C., 444) Chief Justice Ruffin laid down as undoubted law that "the
State never pays interest unless she expressly engages to do so." Judge Cooley says that "The
recovery (in tax suits) must be limited to the money received. . . . Interest is recoverable only
when expressly allowed by statute." (2 Cooley on Taxation, 3d Ed., p. 1510; Savings and Loan
Society vs. San Francisco [1901], 131 Cal., 356.) In United States vs.Sherman [1878], 98 U.S.,
465) the court, in considering a law relating to suits against revenue officers providing for
recovery of the amount payable out of the treasury, held that the amount recoverable did not

include interest upon the judgment. Justice Strong, delivering the opinion of the court, in part
said:
When the obligation arises, it is an obligation to pay the amount recovered; that is, the amount
for which judgment has been given. The act of Congress says not a word about interest.
Judgments, it is true, are by the law of South Carolina, as well as by Federal legislation, declared
to bear interest. Such legislation, however, has no application to the government. And the
interest is no part of the amount recovered. It accrues only after the recovery has been had.
Moreover, whenever interest is allowed either by statute or by common law, except in cases
where there has been a contract to pay interest, it is allowed for delay or default of the debtor.
But delay or default cannot be attributed to the government. It is presumed to be always ready
to pay what it owes. (See also U.S. vs .Bayard [1888], 127 U.S., 251; U.S. vs. North Carolina
[1890], 136 U.S., 211 Board of County Commissioners vs. Kaul [1908], 17 L. R. A. [N.S.], 552.)
As this is the main rule, the converse proposition must be equally true, that taxes only draw
interest as do sums of money when expressly authorized. A corollary to the principle is also selfevident, that interest cannot be recovered on an abatement unless the statute provides for it. (1
Cooley on Taxation, 3d Ed., p. 20; 2 Cooley on Taxation, 3d Ed., p. 1392; City of Lowell vs. County
Commissioners of Middlesex [1862], 3 Allen [Mass.], 550.) The only contrary dictum is to the
effect that where an illegal tax has been collected, the citizen who has paid and is obliged to
bring suit against the collector is entitled to interest from the time of the illegal exaction.
(Erskine vs. Van Arsdale [1872], 15 Wall., 75; National Home vs. Parrish [1913], 229 U.S., 494;
Matter of O'Berry [1904], 179 N.Y., 285.) The distinction undoubtedly arises through the fiction
that the suit is against the collector and not against the State, although the judgment is not to
be paid by the collector but directly from the treasury.
It has been urged that since interest is in the nature of damages, it is proper for allowance. While
this may be true in the general run of cases, it is not necessary true when the sovereign power is
concerned. The state is not amenable to judgments for damages or costs without its consent.
(Hongkong & Shanghai Banking Corporation vs.Rafferty, supra, citing numerous decisions.) In
Morley vs. Lakeshore & Michigan Southern Railway Co. ([1892], 146 U.S., 162, followed recently
in Missouri & Arkansas Lumber & Mining Co. vs. Greenwood District of Sebastian County,
Arkansas [1919], U.S. Sup. Ct. Adv. Op., April 1, 1919, p .239), the United States Supreme Court
had under consideration a state statute which reduced the rate of interest upon all judgments
obtained within the courts of the state. The court said:
After the cause of action, whether a tort or a broken contract, not itself prescribing interest till
payment, shall have been merged into a judgment, whether interest shall accrue upon the
judgment is a matter not of contract between the parties, but of legislative discretion, which is
free, so far as the Constitution of the United States is concerned, to provide for interest as a
penalty or liquidated damages for the nonpayment of the judgment, or not to do so. When such
provision is made by statute, the owner of the judgment is, of course, entitled to the interest so
prescribed until payment is received, or until the State shall, in the exercise of its discretion,
declare that such interest shall be changed or cease to accrue. Should the statutory damages for
nonpayment of a judgment be determined by a State, either in whole or in part, the owner of a
judgment will be entitled to receive and have a vested right in the damages which shall have
accrued up to the date of the legislative change; but after that time his rights as to interests as
damages are, as when he first obtained his judgment, just what the legislature chooses to
declare. He has no contract whatever on the subject with the defendant in the judgment, and his
right is to receive, and the defendant's obligation is to pay, as damages, just what the State
chooses to prescribe. . . .
If it be true, as we have endeavored to show, that interest allowed for nonpayment of judgments
is in the nature of statutory damages, and if the plaintiff in the present case has received all
such damages which accrued while his judgment remained unpaid, there is no change or
withdrawal of remedy. His right was to collect such damages as the State, in its discretion,
provided should be paid by defendant who should fail to promptly pay judgments which should
be entered against them, and such right has not been destroyed or interfered with by legislation.
The discretion exercised by the legislature in prescribing what, if any, damages shall be paid by
way of compensation for delay in the payment of judgments is based on reasons of public policy,
and is altogether outside the sphere of private contracts.
Our statute, it will be remembered, not only does not authorize interest but negatives the
payment of interest .While, therefore, coming under the purview of the general principle
pertaining to legislative discretion, it also avoids any trouble to be found in those decisions which
allow interest without any express provision on the subject, because the statute provides that
interest shall not be allowed .From whatever direction we look at the subject, therefore, we
reach either the conclusion that the law is valid, or that the plaintiff has not proven such a case
of irreparable injury as would warrant the issuance of the extraordinary writ of injunction.
The reason for what superficially seems to be a harsh ruling goes back to the fundamental
conception of the nature of taxation. It is but a truism to restate that taxation is an attribute of
sovereignty. It is the strongest of all the powers of government. It involves, as Chief Justice
Marshall in his historical statement said, the power to destroy. (McCulloch vs. Maryland [1819], 4

Wheat., 316; Loan Association vs. Topeka [1875], 20 Wall., 655.) "The right of taxation where it
exists," the court said in Austin vs. Aldermen ([1868], 7 Wall., 694), "is necessarily unlimited in
its nature. It carriers with it inherently the power to embarrass and destroy." 1awph!l.net
Public policy decrees that, since upon the prompt collection of revenue there depends the very
existence of government itself, whatever determination shall be arrived at by the Legislature
should not be interfered with, unless there be a clear violation of some constitutional inhibition.
As said in Dows vs. The City of Chicago, supra, "It is upon taxation that the several states chiefly
rely to obtain the means to carry on their respective governments, and it is of the utmost
importance to all of them that the modes adopted to enforce the taxes levied should be
interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the
duty is devolved of collecting the taxes, may derange the operations of government, and
thereby cause serious detriment to the public." Or as said in Snyder vs. Marks, supra, "The
system prescribed by the United States in regard to both customs duties and internal revenue
taxes, of stringent measures, not judicial, to collect them, with appeals to specified tribunals and
suits to recover back moneys illegally exacted, was a system of corrective justice, intended to be
complete and enacted under the right belonging to the Government, to prescribe the conditions
on which it would subject itself to the judgment of the courts in the collection of its revenues." Or
as said in Tennesse vs.Sneed, supra, "The Government may fix the conditions upon which it will
consent to litigate the validity of its original taxes." Or as said in a New York case, "The power of
taxation being legislative, all the incidents are within the control of the Legislature."
(Genet vs .City of Brooklyn [1885], 99 N.Y., 296.) Or as said by Chief Justice Marshall in
McCulloch vs. Maryland, supra, "The people of a state give to their government a right of taxing
themselves and their property, and as the exigencies of the Government cannot be limited, they
prescribe no limit to the exercise of this right, resting confidently on the interest of the legislator
and on the influence of the constituents over their representatives, to guard themselves against
its abuse." (See to the same effect the Philippine case of De Villata vs. Stanley [1915], 32 Phil.,
541; and Churchill and Tait vs. Concepcion [1916], 34 Phil., 969.)
Applying these well-known principles to the case at bar, it would seem that the legislature has
considered that a law providing for the payment of a tax with a right to bring a suit before a
tribunal to recover back the same without interest is a full and adequate remedy for the
aggrieved taxpayer. The disallowance of interest in such case, like the other steps prescribed as
conditional to recovery, has been made one of the conditions which the lawmakers have seen fit
to attach to the remedy provided. As the Legislature in the exercise of its wide discretionary
power, has deemed the remedy provided in section 1579 of the Administrative Code to be an
adequate mode of testing the validity of an internal revenue tax and has willed that such a
remedy shall be exclusive, the courts not only owe it to a coordinate branch of the government
to respect the opinion thus announced, but have no right to interfere with the enforcement of
such a law.
The last remaining point touches upon the possibility that section 1579 of the Administrative
Code, in conjunction with the following section, has served to diminish the jurisdiction of the
courts and, in pursuance of well-known principles, is thus invalid. Section 9 of the Philippine Bill
and section 26 of the Jones Law, the first the Act of Congress of July 1, 1902, and the second the
Act of Congress of August 29, 1916, have provided "That the Supreme Court and the Courts of
First Instance of the Philippine Islands shall possess and exercise jurisdiction as heretofore
provided and such additional jurisdiction as shall hereafter be prescribed by law. . . ." The
Supreme Court of the Philippines, in interpreting these provisions, has reached the conclusion
that they had the effect of taking one or more Acts of the Philippine Commission and Legislature
out of the field of ordinary legislation and making of them in effect basic laws. In other words, it
was held that the Legislature could add to but could not diminish the jurisdiction of the courts.
(Barrameda vs .Moir [1913], 25 Phil., 44.) But any argument predicated upon such a proposition
must necessarily assume that the Philippine courts have had the power to restrain by injunction
the collection of taxes. And since, with or without a law, the Philippine courts would not have
presumed to issue an injunction to restrain the collection of a tax, the prohibition expressed in
the law has had no other effect than to confirm a universal principle. This was expressly decided
in the case of Churchill and Tait vs. Rafferty, supra, and has since then not been open to
discussion.
To conclude in answer to the argument made by appellant, we can say that sections 1578 and
1579 of the Administrative Code establish an adequate remedy at law and that we are not
convinced that the enforcement of the tax will produce irreparable injury, and, in answer to the
argument of appellee, that sections 1578 and 1579 of the Administrative Code of 1917 are valid.
The result is, thus, to affirm the final order appealed from. Costs shall be taxed against the
appellant. So ordered.
Arellano, C.J., Torres, Araullo, Street and Avancea, JJ., concur.

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988
Facts:

Algue Inc. is a domestic corp engaged in engineering, construction and other allied
activities

On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income
taxes from 1958-1959, amtg to P83,183.85

A letter of protest or reconsideration was filed by Algue Inc on Jan 18

On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel,
Atty. Guevara, who refused to receive it on the ground of the pending protest

Since the protest was not found on the records, a file copy from the corp was produced
and given to BIR Agent Reyes, who deferred service of the warrant

On April 7, Atty. Guevara was informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to
be served


On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax
Appeals

CIR contentions:
the claimed deduction of P75,000.00 was properly disallowed because it was not an
ordinary reasonable or necessary business expense
payments are fictitious because most of the payees are members of the same family in
control of Algue and that there is not enough substantiation of such payments

CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form
of promotional fees. These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company.
Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by Algue as legitimate business expenses in its income tax returns
Ruling:

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance, made in accordance with law.

RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling
challenged

During the intervening period, the warrant was premature and could therefore not be
served.

Originally, CIR claimed that the 75K promotional fees to be personal holding company
income, but later on conformed to the decision of CTA

There is no dispute that the payees duly reported their respective shares of the fees in
their income tax returns and paid the corresponding taxes thereon. CTA also found, after
examining the evidence, that no distribution of dividends was involved

CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an

imaginary deduction

Algue Inc. was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. at the end of the year, when the books were to
be closed, each payee made an accounting of all of the fees received by him or her, to make up
the total of P75,000.00. This arrangement was understandable in view of the close relationship
among the persons in the family corporation

The amount of the promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees,
Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of
P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that
it was the payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate properties.

Sec. 30 of the Tax Code: allowed deductions in the net income Expenses - All the
ordinary and necessary expenses paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for salaries or other compensation for
personal services actually rendered xxx

the burden is on the taxpayer to prove the validity of the claimed deduction

In this case, Algue Inc. has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos.

Taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for
its part, is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values

Taxation must be exercised reasonably and in accordance with the prescribed procedure.
If it is not, then the taxpayer has a right to complain and the courts will then come to his succor
Algue Inc.s appeal from the decision of the CIR was filed on time with the CTA in accordance
with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted
under the Internal Revenue Code and should therefore not have been disallowed by the CIR

CIR v Algue, Inc., & CTA

G.R. No. L-28896 February 17, 1988
FACTS: Algue, Inc., a domestic corporation engaged in engineering, construction and other allied
activities. Philippine Sugar Estate Development Company had earlier appointed Algue as its
agent, authorizing it to sell its land, factories and oil manufacturing process. [There was a sale
for which] Algue received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. The
payees duly reported their respective shares of the fees in their income tax returns and paid the
corresponding taxes thereon, and there was no distribution of dividends was involved.
[Algue claimed the 75,000 to be deductible from their tax, to which the CIR disallowed.]
ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its income
tax returns.
HELD: NO CIR is not correct. The burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, we find that the onus has been discharged

satisfactorily. The private respondent has proved that the payment of the fees was necessary
and reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve themselves in a
new business requiring millions of pesos. This was no mean feat and should be, as it was,
sufficiently recompensed.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government. The government for
its part, is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in
all democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to
his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed.

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005
FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10%
VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or
lease of properties. These questioned provisions contain a uniformp ro v is o authorizing the
President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that
the law is unconstitutional.
ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec
28(2) of the Constitution.
3. Whether or not there is a violation of the due process and equal protection under Article III
Sec. 1 of the Constitution.
RULING:
1. Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional power to introduce amendments
to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income
taxes, percentage, and excise and franchise taxes.
2. There is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it, and what is the scope
of his authority; in our complex economy that is frequently the only way in which the legislative
process can go forward.
3. The power of the State to make reasonable and natural classifications for the purposes of
taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment,
valuation and collection, the States power is entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.

G.R. No. 168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO, Petitioners, vs. THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA;
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE
COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.
FACTS:
RA 9337, an act amending certain sections of the National Internal Revenue Code of 1997, is
questioned by petitioners for being unconstitutional. Procedural issues raised by petitioners are
the legality of the bicameral proceedings, exclusive origination of revenue measures and the
power of the Senate concomitant thereto. Also, an issue was raised with regard to the undue
delegation of legislative power to the President to increase the rate of value-added tax to 12%.
Petitioners also argue that the increase to 12%, as well as the 70% limitation on the creditable
input tax, the 60- month amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive
taxation, among others.
ISSUE:
Whether RA 9337 is constitutional

RULING:
Yes. Mounting budget deficit, revenue generation, inadequate fiscal allocation for education,
increased emoluments for health workers, and wider coverage for full value-added tax
benefits ... these are the reasons why Republic Act No. 9337 (R.A. No. 9337) was enacted.
Reasons, the wisdom of which, the Court even with its extensive constitutional power of review,
cannot probe.
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema,
a first-aid measure to resuscitate an economy in distress. The Court is neither blind nor is it
turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady
that the law seeks to remedy. As in other cases, the Court cannot strike down a law as
unconstitutional simply because of its yokes.

Gerochi vs. DOE

Facts: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA),
which sought to impose a universal charge on all end-users of electricity for the purpose of
funding NAPOCORs projects, was enacted and took effect in 2001.
Petitioners contest the constitutionality of the EPIRA, stating that theimposition of the universal
charge on all end-users is oppressive and confiscatory and amounts to taxation without
representation for not giving the consumers a chance to be heard and be represented.
Issue: Whether or not the universal charge is a tax.
Held: NO. The assailed universal charge is not a tax, but anexaction in the exercise of the
States police power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA,
which enumerates the policies of the State regarding electrification. Moreover, the Special Trust
Fund feature of the universal charge reasonably serves and assures the attainment
and perpetuity of the purposes for which the universal charge is imposed (e.g. to ensure the
viability of the countrys electric power industry), further boosting the position that the same is
an exaction primarily in pursuit of the States police objectives
If generation of revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is
incidentally raised does not make the imposition a tax.

The taxing power may be used as an implement of police power. The theory behind the exercise
of the power to tax emanates from necessity; without taxes, government cannot fulfill
its mandate of promoting the general welfare and well-being of the people.
The issue here is about the powers delegated to the Department of Energy (DOE) pursuant to
EPIRA (Electric Power Industry Reform Act of 2001) under the R.A. 9136. A logical corollary to
the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in
the Latin maxim potestas delegate non delegari potest (what has been delegated cannot be
further delegated). This is based on the ethical principle that such delegated power constitutes
not only a right but a duty to be performed by the delegate through the instrumentality of his
own judgment and not through the intervening mind of another. In the face of the increasing
complexity of modern life, delegation of legislative power to various specialized administrative
agencies is allowed as an exception to this principle. Given the volume and variety of
interactions in todays society, it is doubtful if the legislature can promulgate laws that will deal
adequately with and respond promptly to the minutiae of everyday life. Hence, the need to
delegate to administrative bodies- the principal agencies tasked to execute laws in their
specialized fields the authority to promulgate rules and regulations to implement a given
statute and effectuate its policies. All that is required for the valid exercise of this power of
subordinate legislation is that the regulation be germane to the objects and purposes of the law
and that the regulation be not in contradiction to, but in conformity with, the standards
prescribed by law. These requirements are denominated as the completeness test and the
sufficient standard test. The Court elucidated. As to the second test, the court had, in the past,
accepted as sufficient standards the following: interest of law and order; adequate and
efficient instruction; public interest; justice and equity; public convenience and welfare:
simplicity, economy and efficiency; standardization and regulation of medical education; and
fair and equitable employment practices. Provisions of the EPIRA such as among others, to
ensure the total electrification of the country and the quality, reliability, security and affordability
of the supply of electric power and watershed rehabilitation and management meet the
requirements for the valid delegation, as they provide the limitations on the ERCs power to
formulate the IRR (Implementing Rules and Regulations).These are sufficient standards. (Gerochi
vs. Department of Energy (DOE), G.R. No. 159796, July 17, 2007).