TAXATION 1

Case Digests
Professor: Atty. Jerry M. Catague, CPA, REB, REA

LLB 3

PHILIPPINE GUARANTY VS CIR

GR No. L-22074
FACTS: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on various dates, with foreign insurance
companies not doing business in the Philippines.Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of the risks
insured. Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign reinsurers outside the Philippines, except the
contract with Swiss Reinsurance Company, which was signed by both parties in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of Philippine Guaranty Co., Inc. under the original
insurance. Philippine Guaranty Co., Inc. was required to keep a register in Manila where the risks ceded to the foreign reinsurers where entered, and entry
therein was binding upon the reinsurers. A proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for
by the foreign reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to compensate
the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums. Conflicts and/or differences between the parties under the
reinsurance contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and Swiss Reinsurance Company stipulated that their contract shall be
construed by the laws of the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the following premiums:1953P842,466.71,in 1954-721,471.85. Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income when it file its income tax returns
for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, per letter dated April 13, 1959, the Commissioner of Internal Revenue
assessed against Philippine Guaranty Co., Inc. withholding tax on the ceded reinsurance premiums,thus, in 1953 has a total of P230,673.00 and in 1954 was
P234,364.00 ammount due and demandable. Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded to
foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Petitioner maintain that the reinsurance premiums in question did
not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have
office here. Its protest was denied and it appealed to the Court of Tax Appeals.CTA ruled in favour of the CIR.
ISSUE: Whether or not the Commissioner of Internal Revenue's assessment for withholding tax on the reinsurance premiums in 1953 and 1954 to the
foreign reinsurers is valid.
HELD: YES. The reinsurance contracts, however, show that the transactions or activities that constituted the undertaking to reinsure Philippine Guaranty
Co., Inc. against loses arising from the original insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers
commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine Guaranty Co., Inc. kept in Manila a
register of the risks ceded to the foreign reinsurers. Entries made in such register bound the foreign resinsurers, localizing in the Philippines the actual

cession of the risks and premiums and assumption of the reinsurance undertaking by the foreign reinsurers.Taxes on premiums imposed by Section 259 of
the Tax Code for the privilege of doing insurance business in the Philippines were payable by the foreign reinsurers when the same were not recoverable
from the original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums, in consideration for
administration and management by the latter of the affairs of the former in the Philippines in regard to their reinsurance activities here.
The foreign insurers' place of business should not be confused with their place of activity. Business should not be continuity and progression of
transactions 2 while activity may consist of only a single transaction. An activity may occur outside the place of business. Section 24 of the Tax Code does
not require a foreign corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the income is
performed or done in the Philippines.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of Internal
Revenue the sums of P202,192.00 and P173,153.00, or a total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the
amount of P375,345.00 is not paid within 30 days from the date this judgment becomes final, there shall be collected a surcharged of 5% on the amount
unpaid, plus interest at the rate of 1% a month from the date of delinquency to the date of payment, provided that the maximum amount that may be
collected as interest shall not exceed the amount corresponding to a period of three (3) years.

VERA VS. FERNANDEZ

GR No. L-31364
FACTS: This is an appeal from two orders of the CFI entitled: "Intestate Estate of Luis D. Tongoy," the first dismissing the Motion for Allowance of Claim
and for an Order of Payment of Taxes by the Government of the Republic of the Philippines against the Estate of the late Luis D. Tongoy, for deficiency
income taxes for the year 1963-1964 of decedent and second denying the Motion for reconsideration of the Order of dismissal.
The claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency income taxes in the total sum of P3,254.80.The
Administrator opposed the motion solely on the ground that the claim was barred under Section 5, Rule 86 of the Rules of Court which provides that all
claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral
expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice;
otherwise they are barred forever.
Finding the opposition well-founded, the respondent Judge, Jose F. Fernandez, dismissed the motion for allowance of claim filed by herein petitioner,
Regional Director of the Bureau of Internal Revenue. MoR was filed but denied, hence,this petiotion for certiorari.
ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid taxes?
HELD:NO. The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of exception from the application of the
statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need. Upon
taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of
government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This
should not hold true to government officials with respect to matters not of their own personal concern.
Furthermore, as held in Commissioner of Internal Revenue vs. Pineda, citing the last paragraph of Section 315 of the Tax Code, payment of income tax
shall be a lien in favor of the Government of the Philippines from the time the assessment was made by the Commissioner of Internal Revenue until paid
with interests, penalties, etc. By virtue of such lien, this court held that 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 Section 2 of Rule 86 of the Rules of Court. It may truly be said that until 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.

COMMISSIONER VS ALGUE
GR No. L-28896
FACTS: The private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. On January 18, 1965 Algue flied a letter of protest
or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner.
On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused
to receive it on the ground of the pending protest. On April 7, 1965, Atty. Guevara was finally 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. Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. CA ruled in favor of Algue, it held that the said amount had been legitimately paid
by the private respondent for actual services rendered. The payment was in the form of promotional fees. 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: Whether the BIR correctly disallowed the deduction.
HELD: NO. We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate
Development Co. to the private respondent was P125,000.00. 21After 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.

This finding of the respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions , Expenses: In general.--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...
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.

CIR vs. PINEDA

G.R. No. L-22734, September 15, 1967

Facts: Estate proceedings were had to settle the estate of Atanasio Pineda. After said proceedings were closed, the BIR found out that the income tax liability
of the estate during the pendency of the estate proceedings were not paid. The Court of Tax Appeals rendered judgment holding Manuel B. Pineda, the eldest
son of the deceased, liable for the payment corresponding to his share of the estate. The Commissioner of Internal Revenue has appealed to SC and proposed
to hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate instead of only for the amount of taxes
corresponding to his share in the estate.
Issue: Whether or not the Government can require Pineda to pay the full amount of the taxes assessed?
Held: Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As a holder of property belonging
to the estate, Pineda is liable for the tax up to the amount of the property in his possession. The reason is that the Government has a lien on what he received
from the estate as his share in the inheritance for unpaid income taxes for which said estate is liable.
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, to satisfy the income tax assessment in the sum of
P760.28. After such payment, Pineda will have a right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the
distributable estate.
The Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of
the tax proportionate to the inheritance received. The reason why a case suit is filed against all the heirs for the tax due from the estate is to achieve thereby
two results: first, payment of the tax; and second, adjustment of the shares of each heir in the distributed estate as lessened by the tax.
Another remedy is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due. This second
remedy is the very avenue the Government took in this case to collect the tax. The BIR should be given the necessary discretion to avail itself of the most
expeditious way to collect the tax because taxes are the lifeblood of government and their prompt and certain availability is an imperious need. The
adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from
whom the Government recovered said tax.

National Power Corporation vs City of Cabanatuan

G.R. No. 149110
FACTS: For many years now, National Power Corporation (petitioner),a government-owned and controlled corporation, sells electric power to the residents
of Cabanatuan City. City of Cabanatuan (respondent) assessed the petitioner a franchise tax amounting. Petitioner refused to pay the tax assessment arguing
that the respondent has no authority to impose tax on government entities and contended that as a non-profit organization, it is exempted from the payment of
all forms of taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended.
Respondent filed a collection suit. Respondent alleged that petitioners exemption from local taxes has been repealed by section 193 of the LGC. RTC
upheld NPCs tax exemption. On appeal the CA reversed the trial courts Order on the ground that section 193, in relation to sections 137 and 151 of the
LGC, expressly withdrew the exemptions granted to the petitioner.
ISSUE: W/N the respondent city government has the authority to issue Ordinance No. 165-92 and impose an annual tax on businesses enjoying a franchise
HELD: YES. Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty,
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 common good. The theory behind the exercise of the power to tax emanates from necessity;32 without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.
Section 137 of the LGC clearly states that the LGUs can impose franchise tax notwithstanding any exemption granted by any law or other special law.
This particular provision of the LGC does not admit any exception.The franchise tax is imposable despite any exemption enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax exemptions or
incentives granted to or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations except (1)
local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory construction
that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in point, any existing tax exemption or incentive enjoyed
by MERALCO under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local tax at a rate not

exceeding 50% of 1% of the gross annual receipts for the preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used on (sic) Sections 137 and 193
categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been used.
The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the
delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this
Court observed in the Mactan case, the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled
corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises. With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development,
fiscal or otherwise, by paying taxes or other charges due from them.

CREBA vs. Romulo

G.R. No. 160756
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.

Gomez vs. Palomar

GR No. L-23645
Facts: Petitioner Benjamin Gomez mailed a letter that did not bear the special anti-tb stamp required by the statute, it was returned to the petitioner. In view
of this development, the petitioner brought suit for declaratory relief in the Court of First Instance of Pampanga, to test the constitutionality of the statute, as
well as the implementing administrative orders issued, contending that it violates the equal protection clause of the Constitution as well as the rule of
uniformity and equality of taxation. The lower court declared the statute and the orders unconstitutional; hence this appeal by the respondent postal
authorities.
Issue: W/N the statue is violative of the rule on uniformity and equality of taxation.
Held: It is settled that the legislature has the inherent power to select the subjects of taxation and to grant exemptions.4 This power has aptly been described
as "of wide range and flexibility."5 Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification.6 The reason for this is that traditionally, classification has been a device for fitting tax programs to local needs and usages in order to achieve
an equitable distribution of the tax burden.
The classification is likewise based on considerations of administrative convenience. For it is now a settled principle of law that "consideration of
practical administrative convenience and cost in the administration of tax laws afford adequate ground for imposing a tax on a well recognized and defined
class."9 In the case of the anti-TB stamps, undoubtedly, the single most important and influential consideration that led the legislature to select mail users as
subjects of the tax is the relative ease and convenience of collecting the tax through the post offices. The small amount of five centavos does not justify the
great expense and inconvenience of collecting through the regular means of collection. On the other hand, by placing the duty of collection on postal
authorities the tax was made almost self-enforcing, with as little cost and as little inconvenience as possible.

Lorenzo vs. Posadas

GR No. L-43082
Facts: This is an appeal from a decision of the lower court dismissing an action commenced by plaintiff in his capacity as trustee of the estate of Thomas
Hanley, deceased, against the defendant Collector of Internal Revenue, for the refund of an inheritance tax on the estate of the deceased paid by
plaintiff under protest and for collection of interest thereon. It appears that on May 7, 1922, Thomas Hanley died, leaving a will and some personal and real
properties. The will which was duly admitted to probate, provides among other things, that all properties of the testator shall pass to his nephew, Matthew
Hanley.However,it also provides that all real estate shall be placed under the management of the executors for a period of ten years, after the expiration of
which the properties shall be given to the said Matthew Hanley. The plaintiff contends that the inheritance tax should be based upon the value of the estate at
the expiration of the period of ten years after which according to the testators will, the property could be and was to be delivered to the instituted heir, and
not upon the value thereof at the time of the death of the testator.
Issue: W/N inheritance is taxable at the time of predecessor's death
Held: Invoking the provision of Art. 657 (now Art. 777) of the Civil Code, Whatever may be the time when actual transmission of the inheritance takes
place, succession takes place in any event at the moment of the decedents death. Thomas Hanley having died on May 27, 1922, the inheritance tax accrued
as of that date. If death is the generating source from which the power of the state to impose inheritance taxes takes its being and if, upon the death of the
decedent, succession takes place and the right of the state to tax vests instantly, the tax should be measured by the value of the estate as it stood at the time of
the decedents death, regardless of any subsequent contingency affecting value or any subsequent increase or decrease in value.Consequently, we hold that a
transmission by inheritance is taxable at the time of the predecessors death, notwithstanding the postponement of the actual possession or enjoyment of the
estate by the beneficiary, and the tax is measured by the value of the property transmitted at the time regardless of its appreciation or depreciation.

Icard vs City of Baguio

GR No. L-1281
Facts: The City of Baguio has enacted the following ordinances:
1. No. 6-v, providing among other things for an amusement tax of P0.20 for every person entering a night club licensed to do business in the city;
2. No. 11-V, providing for a property tax on motor vehicles kept and operated in the city; and
3. No. 12-V, imposing a graduated license fee on every admission ticket sold by enterprises enumerated in said ordinance among them, cinematographs.
Contending that the ordinance above mentioned are unjust and ultra vires, petitioner brought the present action for declaratory relief to have the said
ordinance declared void and also for the refund of the sum of P254,80 which he has paid to the city under protest.
Issue: Is the City of Baguio empowered to levy a property tax on motor and an amusement tax on night clubs?
Held: It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation, the charter or statute must plainly show
an intent to confer that power. The city of Baguio may impose taxes only in those cases specifically provided in any law. In other words for authority to levy
a tax on specific subjects one must look elsewhere in the statute book. For had the provision been meant as a blanket authority to levy taxes, their would
have been no need for the phrase "as provided by law." The insertion of that phrase be speaks the legislative intent to have the city exercise the law may
provide.cities may, under a general provision of their charters, levy taxes only as the law authorizes, the absence of a similar express grant in the case of the
city of Baguio is proof that the power to levy this particular tax has been intentionally withheld from it.

CIR vs Fortune Tobacco

GR Nos. 167274-75
Facts: Respondent FTC is a domestic corporation that manufactures cigarettes packed by machine under several brands. Prior to January 1, 1997, Section
142 of the 1977 Tax Code subjected said cigarette brands to ad valorem tax. Annex D of R.A. No. 4280 prescribed the cigarette brands tax classification
rates based on their net retail price. On January 1, 1997, R.A. No. 8240 took effect. Sec. 145 thereof now subjects the cigarette brands to specific tax and also
provides that: (1) the excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the
tax, which is due from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated therein shall be increased by 12% on January 1,
2000; and (3) the classification of each brand of cigarettes based on its average retail price as of October 1, 1996, as set forth in Annex D shall remain in
force until revised by Congress. The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax increase. RR No. 17-99
added the qualification that the new specific tax rate xxx shall not be lower than the excise tax that is actually being paid prior to January 1, 2000. In effect,
it provided that the 12% tax increase must be based on the excise tax actually being paid prior to January 1, 2000 and not on their actual net retail price. FTC
filed 2 separate claims for refund or tax credit of its purportedly overpaid excise taxes for the month of January 2000 and for the period January 1-December
31, 2002. It assailed the validity of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaid qualification. In this petition, petitioner CIR
alleges that the literal interpretation given by the CTA and the CA of Section 145 would lead to a lower tax imposable on 1 January 2000 than that imposable
during the transition period, which is contrary to the legislative intent to raise revenue.
Issue: Should the 12% tax increase be based on the net retail price of the cigarettes in the market as outlined in Section 145 of the 1997 Tax Code?
Held: YES. Section 145 is clear and unequivocal. It states that during the transition period, i.e., within the next 3 years from the effectivity of the 1997 Tax
Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is
conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January
2000. Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without
regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date. The qualification added by
RR No. 17-99 imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the 3-year transition period and the specific tax
under Section 145, as increased by 12% a situation not supported by the plain wording of Section 145 of the 1997 Tax Code. Administrative issuances
must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. Revenue generation is not the sole purpose
of the passage of the 1997 Tax Code. The shift from the ad valorem system to the specific tax system in the Code is likewise meant to promote fair
competition among the players in the industries concerned and to ensure an equitable distribution of the tax burden.

VALENTIN TIO Vs. VIDEOGRAM REGULATORY BOARD, G.R. No. L-75697, June 18, 1987
Facts: This is a case whereby petitioner assailed the constitutionality of PD 1987 (An Act Creating the Videogram Regulatory Board).
The purpose of the law is to regulate the circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or
variation thereof. Included in its Decree is the tax imposed (30%) on the gross receipts payable to the local government.
Petitioner alleged that the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of the
Constitution and the 30% tax imposed on the gross receipts payable to the local government is a RIDER and the same is not germane to the subject matter
thereof.
ISSUE:
I. Whether or not the tax provision inconsistent with the constitution.
II. Whether or not the tax imposed is harsh, oppressive, confiscatory and unlawful restraint of trade.
RULING: No. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for regulation it is simply one of the
regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in
order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain
the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the DECREE.
Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyond serious question
that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited
in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect
the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another.

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 "inequities which result from a singling
out of one particular class for taxation or exemption infringe no constitutional limitation". Taxation has been made the implement of the state's police power.

MERALCO Vs. Yatco, G.R. No. 45697, November 1, 1939

FACTS: In 1935, plaintiff Manila Electric Company, a corporation organized and existing under the laws of the Philippines, with its principal office and
place of business in the City of Manila, insured with the city of New York Insurance Company and the United States Guaranty Company, certain real and
personal properties situated in the Philippines. The insurance was entered into in behalf of said plaintiff by its broker in New York City. The insurance
companies are foreign corporations not licensed to do business in the Philippines and having no agents therein.
Plaintiff through its broker paid, in New York, to said insurance company premiums in the sum of P91,696. The Collector of Internal Revenue, under
the authority of section 192 of act No. 2427, as amended, assessed and levied a tax of one per centum on said premiums, which plaintiff paid under protest.
The protest having been overruled, plaintiff instituted the present action to recover the tax. The trial court dismissed the complaint, and from the judgment
thus rendered, plaintiff took the instant appeal.
ISSUE: Whether or not the disputed tax is one imposed by the Commonwealth of the Philippines upon a contract beyond its jurisdiction.
RULING: No. The court said We are of the opinion and so hold that where the insured against also within the Philippines, the risk insured against also
within the Philippines, and certain incidents of the contract are to be attended to in the Philippines, such as, payment of dividends when received in cash,
sending of an unjuster into the Philippines in case of dispute, or making of proof of loss, the Commonwealth of the Philippines has the power to impose the
tax upon the insured, regardless of whether the contract is executed in a foreign country and with a foreign corporation. Under such circumstances,
substantial elements of the contract may be said to be so situated in the Philippines as to give its government the power to tax. And, even if it be assumed that
the tax imposed upon the insured will ultimately be passed on the insurer, thus constituting an indirect tax upon the foreign corporation, it would still be
valid, because the foreign corporation, by the stipulations of its contract, has subjected itself to the taxing jurisdiction of the Philippines. After all,
Commonwealth of the Philippines, by protecting the properties insured, benefits the foreign corporation, and it is but reasonable that the latter should pay a
just contribution therefor. It would certainly be a discrimination against domestic corporations to hold the tax valid when the policy is given by them and
invalid when issued by foreign corporations.

PHILIPPINE AIRLINES, INC. Vs. ROMEO F. EDU and UBALDO CARBONELL, G.R. No. L- 41383 August 15, 1988
FACTS: The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation
business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment
of taxes.
Sometime in 1971, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor
vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed under Republic Act 4136 were
paid. The appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its motor vehicles.
PAL wrote a letter through their legal counsel demanding a refund of the amount paid and invoke the ruling in the case of Calalang Vs. Lorenzo where it
was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise.
Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., to the effect that motor vehicle
registration fees are regulatory exceptional and not revenue measures and, therefore, do not come within the exemption granted to PAL.
ISSUE: What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
RULING: The court said that Fees may be properly regarded as taxes even though they also serve as an instrument of regulation.
the fees may properly be regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if
revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing
Cooley on Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions are sometimes called
regulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on tobacco and
alcohol as regulatory taxes.)
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax (Umali,
Id.) Such is the case of motor vehicle registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in
the Calalang case. The same provision appears as Section 591-593 in the Land Transportation code. It is patent therefrom that the legislators had in mind a

regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act
4136 does the law specifically state that the imposition is a tax, Section 591-593 speaks of "taxes" or fees ... for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent.
It is quite apparent that vehicle registration fees were originally simple exceptional, intended only for rigidly purposes in the exercise of the State's
police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modern life
as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without
changing the earlier deputy of registration payments as "fees," their nature has become that of "taxes."

LUTZ vs. ARANETA

G.R. No. L-7859December 22, 1955
FACTS: Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent
imposition of export taxes upon sugar as provided in the Tydings-McDuffie Act, and the "eventual loss of its preferential position in the United States
market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements
thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the
imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of
sugar manufactures; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector
of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public
purpose for which a tax may be constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case
directly to this Court
ISSUE: Whether or not taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act is legal?
RULING: As the protection and promotion of the sugar industry is a matter of public concern the Legislature may determine within reasonable bounds what
is necessary for its protection and expedient for its promotion. Here, the legislative must be allowed full play, subject only to the test of reasonableness; and
it is not contended that the means provided in section 6 of Commonwealth Act No. 567 bear no relation to the objective pursued or are oppressive in
character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and
attainment. Taxation may be made the implement of the state's police power.
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

Manila Memorial Park vs. DSWD

GR. 175356
Facts: On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following privileges: SECTION 4. Privileges for the Senior Citizens.
The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to utilization of transportation services, hotels and similar lodging
establishment[s], restaurants and recreation centers and purchase of medicine anywhere in the country: Provided, That private establishments may claim the
cost as tax credit;
b) a minimum of twenty percent (20%) discount on admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals and other similar
places of culture, leisure, and amusement;
xxx
On August 23, 1993, Revenue Regulations (RR) No. 0294 was issued to implement RA 7432. Sections 2(i) and 4 of RR No. 0294 provide:
Sec. 2. DEFINITIONS. For purposes of these regulations: i. Tax Credit refers to the amount representing the 20% discount granted to a qualified senior
citizen by all establishments relative to their utilization of transportation services, hotels and similar lodging establishments, restaurants, drugstores,
recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture, leisure and amusement, which discount
shall be deducted by the said establishments from their gross income for income tax purposes and from their gross sales for valueadded tax or other
percentage tax purposes.
On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:SECTION 4. Privileges for the Senior Citizens. The senior citizens
shall be entitled to the following:(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of
senior citizens, including funeral and burial services for the death of senior citizens;
xxxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the goods sold or services
rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted.
Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax

purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended.
To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 42006, the pertinent provision of which provides:
SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM GROSS INCOME. Establishments enumerated in
subparagraph (6) hereunder granting sales discounts to senior citizens on the sale of goods and/or services specified thereunder are entitled to deduct the
said discount from gross income subject to the following conditions:
Xxx
To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 42006, the pertinent provision of which provides:
SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM GROSS INCOME. Establishments enumerated in
subparagraph (6) hereunder granting sales discounts to senior citizens on the sale of goods and/or services specified thereunder are entitled to deduct the
said discount from gross income subject to the following conditions:
Xxx
Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying that Section 4 of RA 7432, as amended by RA 9257, and
the implementing rules and regulations issued by the DSWD and the DOF be declared unconstitutional insofar as these allow business establishments to
claim the 20% discount given to senior citizens as a tax deduction; that the DSWD and the DOF be prohibited from enforcing the same; and that the tax
credit treatment of the 20% discount under the former Section 4 (a) of RA 7432 be reinstated.
Issue: WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND ITS IMPLEMENTING RULES AND REGULATIONS, INSOFAR AS THEY
PROVIDE THAT THE TWENTY PERCENT (20%) DISCOUNT TO SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE
PRIVATE ESTABLISHMENTS, ARE INVALID AND UNCONSTITUTIONAL.
Ruling: No. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the discount privilege accorded to
senior citizens. This is because the discount is treated as a deduction, a tax-deductible expense that is subtracted from the gross income and results in a lower
taxable income. Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes
owed. Theoretically, the treatment of the discount as a deduction reduces the net income of the private establishments concerned. The discounts given would
have entered the coffers and formed part of the gross sales of the private establishments, were it not for R.A. No. 9257. The permanent reduction in their total
revenues is a forced subsidy corresponding to the taking of private property for public use or benefit. This constitutes compensable taking for which
petitioners would ordinarily become entitled to a just compensation. Just compensation is defined as the full and fair equivalent of the property taken from its

owner by the expropriator. The measure is not the takers gain but the owners loss. The word just is used to intensify the meaning of the word compensation,
and to convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just compensation. Having
said that, this raises the question of whether the State, in promoting the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program. The Court believes so.
The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-building, and to grant benefits and privileges to
them for their improvement and well-being as the State considers them an integral part of our society.
The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself.
As a form of reimbursement, the law provides that business establishments extending the twenty percent discount to senior citizens may claim the
discount as a tax deduction. The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its
object.
While the Constitution protects property rights, petitioners must accept the realities of business and the State, in the exercise of police power, can
intervene in the operations of a business which may result in an impairment of property rights in the process.
Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners and the other private establishments
concerned. This being the case, the means employed in invoking the active participation of the private sector, in order to achieve the purpose or objective of
the law, is reasonably and directly related. Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the continued implementation of
the same would be unconscionably detrimental to petitioners, the Court will refrain from quashing a legislative act. Carlos Superdrug Corp v. DSWD, 553
Phil. 120 (2007).
When we ruled that petitioners in Carlos Superdrug case failed to prove that the 20% discount is arbitrary, oppressive or confiscatory. We noted that no
evidence, such as a financial report, to establish the impact of the 20% discount on the overall profitability of petitioners was presented in order to show that
they would be operating at a loss due to the subject regulation or that the continued implementation of the law would be unconscionably detrimental to the
business operations of petitioners.
In the case at bar, petitioners proceeded with a hypothetical computation of the alleged loss that they will suffer similar to what the petitioners in Carlos
Superdrug Corporationdid.

We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of the police power of the State. Thus, it is constitutional.
CARLOS SUPERDRUG CORP., ET. AL. vs. DSWD
G.R. No. 166494 June 29, 2007
FACTS: Petitioners are domestic corporations and proprietors operating drugstores in the Philippines. Meanwhile, AO 171 or the Policies and Guidelines to
Implement the Relevant Provisions of Republic Act 9257, otherwise known as the Expanded Senior Citizens Act of 2003 was issued by the DOH,
providing the grant of twenty percent (20%) discount in the purchase of unbranded generic medicines from all establishments dispensing medicines for the
exclusive use of the senior citizens.
DOH issued Administrative Order No 177 amending A.O. No. 171. Under A.O. No. 177, the twenty percent discount shall not be limited to the
purchase of unbranded generic medicines only, but shall extend to both prescription and non-prescription medicines whether branded or generic. Thus, it
stated that [t]he grant of twenty percent (20%) discount shall be provided in the purchase of medicines from all establishments dispensing medicines for the
exclusive use of the senior citizens.
Petitioners assert that Section 4(a) of the law is unconstitutional because it constitutes deprivation of private property. Compelling drugstore owners
and establishments to grant the discount will result in a loss of profit and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded
medicines; and 2) the law failed to provide a scheme whereby drugstores will be justly compensated for the discount.
RULING: The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property for public use or benefit. This
constitutes compensable taking for which petitioners would ordinarily become entitled to a just compensation.
Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. The measure is not the takers
gain but the owners loss. The word just is used to intensify the meaning of the word compensation, and to convey the idea that the equivalent to be
rendered for the property to be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of just compensation.
Having said that, this raises the question of whether the State, in promoting the health and welfare of a special group of citizens, can impose upon
private establishments the burden of partly subsidizing a government program.
The Court believes so.

The law grants a twenty percent discount to senior citizens for medical and dental services, and diagnostic and laboratory fees; admission fees
charged by theaters, concert halls, circuses, carnivals, and other similar places of culture, leisure and amusement; fares for domestic land, air and sea travel;
utilization of services in hotels and similar lodging establishments, restaurants and recreation centers; and purchases of medicines for the exclusive use or
enjoyment of senior citizens. As a form of reimbursement, the law provides that business establishments extending the twenty percent discount to senior
citizens may claim the discount as a tax deduction.
The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object. Police power is not
capable of an exact definition, but has been purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies and provide enough
room for an efficient and flexible response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as the
most essential, insistent and the least limitable of powers, extending as it does to all the great public needs. It is [t]he power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with penalties or without, not
repugnant to the constitution, as they shall judge to be for the good and welfare of the commonwealth, and of the subjects of the same.
For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the primacy of police power because
property rights, though sheltered by due process, must yield to general welfare.
Police power as an attribute to promote the common good would be diluted considerably if on the mere plea of petitioners that they will suffer loss of
earnings and capital, the questioned provision is invalidated. Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the
provision in question, there is no basis for its nullification in view of the presumption of validity which every law has in its favor.
Given these, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their business, because
petitioners have not taken time to calculate correctly and come up with a financial report, so that they have not been able to show properly whether or not the
tax deduction scheme really works greatly to their disadvantage.
The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive pricing component of the business. While the
Constitution protects property rights, petitioners must accept the realities of business and the State, in the exercise of police power, can intervene in the
operations of a business which may result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides the precept for the protection of property,
various laws and jurisprudence, particularly on agrarian reform and the regulation of contracts and public utilities, continuously serve as a reminder that the
right to property can be relinquished upon the command of the State for the promotion of public good.

PLANTERS v FERTIPHIL
G.R. No. 166006
March 14, 2008
FACTS:
Tax subject: FERTIPHIL, engaged in the import and distribution of fertilizers, pesticides, and agri chemicals.
Tax law: Letter of Instruction 1465 issued by Marcos in 1985
Tax: 10 peso levy per bag of fertilizer
Taxing Authority: the Fertilizer Pesticide Authority (FPA)
FPA would collect the tax and remit the amounts to the Far East bank account of Planters Products Inc. From 1985 to 1986, Fertiphil paid about 6m. After
the EDSA Revolution, Fertiphil questioned the constitutionality of LOI 1465 among other grounds, that the tax collected solely favored PPI, a privately
owned corporation.
ISSUE: WON LOI 1465 was unconstitutional.
HELD: YES. Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to
give undue benefit to PPI.
Inherent limitation: must be levied for public purposes
One of the inherent limitations is that a tax may be levied only for public purposes. The power to tax can be resorted to only for a constitutionally valid
public purpose. By the same token, taxes may not be levied for purely private purposes, for building up of private fortunes, or for the redress of private
wrongs. They cannot be levied for the improvement of private property, or for the benefit, and promotion of private enterprises, except where the aid is
incident to the public benefit. It is well-settled principle of constitutional law that no general tax can be levied except for the purpose of raising money which
is to be expended for public use. Funds cannot be exacted under the guise of taxation to promote a purpose that is not of public interest. Without such
limitation, the power to tax could be exercised or employed as an authority to destroy the economy of the people. A tax, however, is not held void on the
ground of want of public interest unless the want of such interest is clear.
Public Purpose defined
The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit modern standards. Jurisprudence states that "public
purpose" should be given a broad interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government

functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public money may
now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform.
LOI 1465 gave undue benefit to PPI.
The LOI expressly provided that the levy be imposed to benefit PPI, a private company. The purpose is explicit from Clause 3 of the law:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula a capital contribution component of not less than
P10 per bag. This capital contribution shall be collected until adequate capital is raised to make PPI viable.
Ensuring the continued supply and distribution of fertilizer in the country is an undertaking imbued with public interest. However, the method by which LOI
1465 sought to achieve this is by no means a measure that will promote the public welfare. The governments commitment to support the successful
rehabilitation and continued viability of PPI, a private corporation, is an unmistakable attempt to mask the subject statutes impartiality. There is no way to
treat the self-interest of a favored entity, like PPI, as identical with the general interest of the countrys farmers or even the Filipino people in general.
> PPI was ordered to refund Fertiphil

Gerochi vs DOE
GR No. 159796
Facts: Petitoner Gerochi questioned the constitutionality of the implementation of Universal charge in electric bill and alleged that SEC 34 of EPIRA law or
Universal charge tax which is to be collected from all end-users and self-generating entities. The power to tax is strictly a legislative function thus, delegation
of said power to any admin agency like ERC in unconstitutional.
Issue: WON the universal charge under Sec 34 of EPIRA is a tax on the part of the ERC.
Held: NO. Sec 34 is not a tax. The power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that
security against the abuse is to be found only in the responsibility of the legislature which imposes the ta on the constituency that is to pay it. It is based on
the principle that taxes are the lifeblood of the government and their prompt and certain availability is an imperious need.
On the other hand police power is the power of the welfare by restraining and regulating the use of liberty and property. The distinction between these
two powers rests in the purpose for which the charge is made. If the 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.
Universal charge exercised by EPIRA is not a tax but an execution in the exercise of the States police power. Public welfare is surely promoted.

British Tobacco v. Camacho

GR No. 163583
Facts: BIR implemented RA 8240, which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New
brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate survey to
determine their current net retail price is conducted.
Petitioner then introduced Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per
pack. 3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack. BIR then amended its law
prescribing the guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products. Subsequently, Revenue
Regulations No. 22-2003 6 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market
after January 1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky
Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively.
Petitioner filed a TRO alleging that such amendment of
in violation of the equal protection and uniformity provisions of the Constitution.

the

law

discriminates

against

new

brands

of

cigarettes,

ISSUE: WON the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution.
Held: NO. In the instant case, there is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed
law applies to all cigarette brands in the Philippines. And, for reasons already adverted to in our August 20, 2008 Decision, the four-fold test has been met in
the present case. As held in the assailed Decision, the instant case neither involves a suspect classification nor impinges on a fundamental right.
Consequently, the rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protection challenge. It
has been held that "in the areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes constitutional
rights must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the
classification." Under the rational basis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest.
Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance specifically named and taxed only the Ormoc
Sugar Company, and excluded any subsequently established sugar central from its coverage. Thus, the ordinance was found unconstitutional on equal
protection grounds because its terms do not apply to future conditions as well. This is not the case here. The classification freeze provision uniformly applies
to all cigarette brands whether existing or to be introduced in the market at some future time. It does not purport to exempt any brand from its operation nor

single out a brand for the purpose of imposition of excise taxes.

Tan v. Del Rosario
GR Nos. 109289 & 109446
Facts:Petitioners questioned the constitutionality of RA 7496 of the Simplified Net Income Taxation Scheme (SNIT). It allegedly violated the following
provisions of the Constitution:
Art VI, Sec. 26(1)Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.
Art. Vi, Sec. 28(1)The rule on taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Art III, Sec. 1No person shall be deprived of life, liberty and property without due process of law, nor shall any person be denied equal protection of
laws.
They also alleged that respondents exceeded their rule making authority in applying said law to general professional partnerships.
Issue: WON the tax law is unconstitutional for violating due process.
Held: NO. The due process clause may correctly invoke only when there is a clear contravention of inherent or constitutional limitations in the exercise of
the tax power. No such transgression is evident in this case. Uniformity of taxation like the concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities. Uniformity does not violate classification as long as:
1. The standards that are used therefor are substantial and not arbitrary,
2. The categorization is germane to achieve the legislative purpose,
3. The law applies, all things being equal, to both present and future conditions,
4. The classification applies equally well to the same class.
What is apparent from the law is the legislative intent to increasingly shirt the income tax system towards the scheduler approach in the income taxation
of individual taxpayers and maintain, by and large, the present global treatment on taxable corporations. The Court does not view this classification to be
arbitrary and inappropriate.

PASEO REALTY AND DEVELOPMENT CORP. Vs. COURT OF APPEALS

G.R. No. 119286, October 13, 2004
FACTS: Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two parcels of land at Paseo de Roxas in Makati City.
On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989 declaring a gross income of P1,855,000.00, deductions of
P1,775,991.00, net income of P79,009.00, an income tax due thereon in the amount of P27,653.00, prior years excess credit of P146,026.00, and creditable
taxes withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit balance of P172,477.00.
In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July 29, 1993 and dismissed the petition for review, stating that it
has overlooked the fact that the petitioners 1989 Corporate Income Tax Return (Exh. A) indicated that the amount of P54,104.00 subject of petitioners
claim for refund has already been included as part and parcel of the P172,477.00 which the petitioner automatically applied as tax credit for the succeeding
taxable year 1990. Petitioner filed a Motion for Reconsideration which was denied by respondent Court on March 10, 1994.
Petitioner filed a Petition for Review dated April 3, 1994with the Court of Appeals. Resolving the twin issues of whether petitioner is entitled to a refund
of P54,104.00 representing creditable taxes withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990 income tax liability,
the appellate court held that petitioner is not entitled to a refund because it had already elected to apply the total amount of P172,447.00, which includes the
P54,104.00 refund claimed, against its income tax liability for 1990. The appellate court elucidated on the reason for its dismissal of petitioners claim for
refund.
ISSUE: Whether or not the alleged excess taxes paid by a corporation during a taxable year should be refunded or credited against its tax liabilities for the
succeeding year?
RULING: The petition must be denied. As a matter of principle, it is not advisable for this Court to set aside the conclusion reached by an agency such as
the CTA which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident exercise of its authority.
This interdiction finds particular application in this case since the CTA, after careful consideration of the merits of the Commissioner of Internal
Revenues motion for reconsideration, reconsidered its earlier decision which ordered the latter to refund the amount of P54,104.00 to petitioner. Its
resolution cannot be successfully assailed based, as it is, on the pertinent laws as applied to the facts.
Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00, representing its 1988 excess credit of P146,026.00 and 1989 creditable
tax of P54,104.00 less tax due for 1989, which it elected to apply as tax credit for the succeeding taxable year.19 According to petitioner, it successively

utilized this amount when it obtained refunds in CTA Case No. 4439 and CTA Case No. 4528 and applied its 1990 tax liability, leaving a balance of
P54,104.00, the amount subject of the instant claim for refund.
The confusion as to petitioners entitlement to a refund could altogether have been avoided had it presented its tax return for 1990. Such return would
have shown whether petitioner actually applied its 1989 tax credit of P172,477.00, which includes the P54,104.00 creditable taxes withheld for 1989 subject
of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return, or at least, whether petitioners tax credit of P172,477.00 was
applied to its approved refunds as it claims.
As clearly shown from the above-quoted provisions, in case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid,
the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of
the succeeding year. The carrying forward of any excess or overpaid income tax for a given taxable year is limited to the succeeding taxable year only.
Taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for
the support of the government. And since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are thus construed strictly against the taxpayer and liberally in favor of the taxing authority. A claim of
refund or exemption from tax payments must be clearly shown and be based on language in the law too plain to be mistaken. Else wise stated, taxation is the
rule, exemption therefrom is the exception

Roxas vs. CTA

GR No. L-25043, April 26, 1968
Facts: Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their grandchildren by hereditary succession the following properties:
a.

Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas

Tenants who have been tilling the lands expressed their desire to purchase from Roxas y Cia, the parcels which they actually occupied
The govt, in line with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded
the Roxas brothers to part with their landholdings
The brothers agreed to sell 13,500 hec to the govt for P2.079Mn, plus 300K survey and subdivision expenses
Unfortunately, the govt did not have funds
A special arrangement was made with the Rehabilitation Finance Corporation to advance to Roxas y Cia the amount of P1.5Mn as loan
Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the RFC to
pay its loan from the proceeds of the yearly amortizations paid by the farmers
In 1953 and 1955, Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. 50% of said net gain was
reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Sec. 34 of the Tax Code

b.

Residential house and lot at Wright St., Malate, Manila

After the marriage of Antonio and Eduardo, Jose lived in the house where he paid rentals of 8K/year to Roxas y Cia

c.

Shares of stocks in different corporations

To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the children, formed a partnership called Roxas y Compania
On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 amtg to P150.00 plus P10.00 compromise penalty
for late payment, and P150.00 tax for dealers of securities plus P10.00 compromise penalty for late payment.
Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating that an owner of a real estate who derives a yearly rental
income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax
The Commissioner further assessed deficiency income taxes against the brothers for 1953 and 1955, resulting from the inclusion as income of
Roxas y Cia of the unreported 50% of the net profits derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of

deductions from gross income of various business expenses and contributions claimed by Roxas y Cia and the Roxas brothers
The brothers protested the assessment but was denied, thus appealing to the CTA
CTA decision: sustained the assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the
deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa
Issue: Should Roxas y Cia be considered a real estate dealer because it engaged in the business of selling real estate
Ruling: NO, being an isolated transaction
Real estate dealer: any person engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and
holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate
amount of three thousand pesos or more a year:
Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide
any qualification as to the persons paying the rentals
The fact that there were hundreds of vendees and them being paid for their respective holdings in installment for a period of ten years, it would
nevertheless not make the vendor Roxas y Cia. a real estate dealer during the 10-year amortization period
The sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to allocate lands to the landless
It was the duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently
subdivide them among the farmers at very reasonable terms and prices. But due to the lack of funds, Roxas y Cia. shouldered the Government's burden,
went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government
done it itself
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly, equally and uniformly
Therefore, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to
the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%
As to the deductions
a.

P40 tickets to a banquet given in honor of Sergio Osmena and P28 San Miguel beer given as gifts to various persons representation expenses
Representation expenses: deductible from gross income as expenditures incurred in carrying on a trade or business
In this case, the evidence does not show such link between the expenses and the business of Roxas y Cia

b.

Contributions to the Pasay police and fire department and other police departments as Christmas funds
Contributions to the Christmas funds are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas
gifts to the families of the members of said entities
Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes
As to the contribution to the Manila Police trust fund, such is an allowable deduction for said trust fund belongs to the Manila Police, a government
entity, intended to be used exclusively for its public functions.

c.

Contributions to the Philippines Herald's fund for Manila's neediest families

The contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for
charitable purposes
There is no question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest
families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of
the Tax Code

d.

Contribution to Our Lady of Fatima chapel at the FEU

University gives dividends to its stockholders
Located within the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious
organization.
The contributions belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code for the
reason that the net income of said university injures to the benefit of its stockholders

No deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the
sum of P109.00, P91.00 and P49.00, respectively.

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN vs. TAN

G.R. No. 81311 June 30, 1988
FACTS: This petition seeks to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect
on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates
the due process and equal protection clauses and other provisions of the 1987 Constitution.
ISSUE: Whether or not EO 273 was enacted by the president with grave abuse of discretion and whether or not such law is unconstitutional.
RULING: Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or
personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved
in its implementation, even under the past administration. The petitioners have failed to adequately show that the VAT is oppressive, discriminatory or
unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law, there must
be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. The disputed sales tax is also equitable. It is imposed
only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores
are consequently exempt from its application.

Tolentino vs Secretary. G.R. No. 115455

Facts of the Case: The petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded ValueAdded Tax (E-VAT) Law. The law seeks to widen the tax base of the existing VAT system and enhance its administration by amending the National Internal
revenue Code. Such tax is levied on the sale, barter or exchange of goods and properties as well as on the sale or exhange of services. Various petitioners
herein seeks to declare such law as unconstitutional. Various reasons include that:
1. The said law was violative of the Article VI, Section 28 (1) which provides that the rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
2.R.A.7716 violates their press freedom and religious liberty, having removed them from the exemption to pay Value Added Tax. It is contended by the PPI that by removing the
exemption of the press from the VAT while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."PPI argued that the VAT is in the nature of a license tax.
Issue:
1. Whether or not RA 7166 violates the principle of progressive system of taxation.
2. Whether or not the purpose of E-VAT is the same as that of a license tax.
Held:
1. No. Lacking empirical data on which to base any conclusion regarding these arguments, any discussion whether the VAT is regressive in the sense that it
will hit the poor and middle income group in society harder than it will the rich is largely an academic exercise.
Regressivity is not a negative standard for courts to enforce. Evolve a progressive system of taxation is a directive to Congress. These provisions are
placed in the Constitution as moral incentives to legislation, not as judicially enforceable rights.
2. NO. A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on
the exercise of its right. Hence, although its application to others, such those selling goods, is valid, its application to the press or to religious groups, such as
the Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one
thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon."

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale,
barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the
press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to
violate its freedom under the Constitution.
REPUBLIC OF THE PHILIPPINES vs. INTERMEDIATE APPELLATE COURT and SPOUSES ANTONIO and CLARA PASTOR.
Facts: The Republic of the Philippines, through the Bureau of Internal Revenue, commenced an action to collect from the spouses Antonio Pastor and Clara
Reyes-Pastor deficiency income taxes for the years 1955 to 1959 in the amount of P17,117.08 with a 5% surcharge and 1% monthly interest, and costs. The
petitioners admitted that there was an assessment made against them but denied liability thereof. They contended that they had availed of the tax amnesty
under P.D.'s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes. Consequently, the Government is in estoppel to demand and compel further
payment of income taxes by them.
The Government filed an action against the spouses ten (10) years after the assessment of the income tax deficiency was made. The trial court rendered a
judgment holding that the defendant spouses were already able to settle their income tax deficiency under PD 213 and that by accepting the payment made
by the defendants, the Government waived its right to further recover deficiency income taxes.An appeal was made but the CA affirmed the previous
decision.
Issue: Whether or not the the tax amnesty payments made by the private respondents bar an action for recovery of deficiency income taxes.
Held: Yes. Since the Spouses have already paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No. 213, and were
granted not merely an exemption, but an amnesty, for their past tax failings, the Government is estopped from collecting the difference between the
deficiency tax assessment and the amount already paid by them as amnesty tax.
A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and
in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of
the new society with a clean slate

Juan Luna Subdivision vs Sarmiento

Facts of the Case: The plaintiff issued checks covering its land tax for the second semester of 1941- the exact amount of which was yet undetermine, to the
City Treasurer drawn upon the Philippine Trust Company. The checks were deposited to the Philippine National Bank but by virtue of the Japanese military
authoritys order,it had to be closed. After the Citys liberation from the Japanese, it refused to refund the plaintiff's deposit or apply it to such future taxes as
might be found due, while the Philippine Trust Company was unwilling to reverse its debit entry against the Juan Luna Subdivision, Inc. It was upon this
predicament that the Juan Luna Subdivision, Inc. brought this suit against the City Treasurer and the Philippine Trust Company as defendants in the
alternative. The plaintiff claims the whole amount of the check contending that taxes for the last semester of 1941 have been remitted by Commonwealth Act
No. 703.
Issue: Whether or not CA 703 cover taxes paid before its enactment or only to taxes which were still unpaid.
Held: The law is clear that it applies to taxes and penalties due and payable, i.e. taxes owed and owing. The remission of taxes due and payable to the
exclusion of taxes already collected does not constitute unfair discrimination. The taxpayers who paid their taxes before liberation and those who had not
were not on the same footing on the need of material relief. Taxpayers who had been in arrears in their obligation would have to satisfy their liability with
genuine currency, while the taxes paid during the occupation had been satisfied in Japanese War Notes, many of them at a time when those notes were wellnigh worthless. To refund those taxes with restored currency would unduly enrich many of the payers at a greater expense to the people at large.

Surigao Consolidated Mining vs. Collector

GR L-14878, 26 December 1963
Facts:
Before the outbreak of the War, the Surigao Consolidated Mining Co. was operating its mining concessions in Mainit, Surigao. Due to the interruption of
communications at the outbreak of the war, the company lost contact with its mines and never received the production reports for the 4thquarter of 1941.
Toavoid incurring any tax liability or penalty, it deposited of check payable to and indorsed in favor of the City Treasurer, in payment of ad valorem taxes
for the said period. After the war, the company filed its ad valoremtax for the said period pursuant to Commonwealth Act 772. Its return was revised, until
eventually the company claimed a refund of P17,158.01. The collector of Internal Revenue denied the request for refund.
Issue: Whether Surigao Consolidated may recover its tax payment in light of the condonation made under a subsequent law, RA 81.
Held:RA 81, Section 1(d) provided that all unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or concessions existing
an din force on 1 January 1942, and which minerals were lost by reason of war, of circumstance arising therefrom are condoned The provision refers to
thecondonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of tax exemption. Being so, it should be sustained
only when expressed in explicit terms, and it cannot be extended beyond the plain meaning of those terms. He who claims an exemption from his share of
the common burden of taxation must justify his claim by showing t hat the Legislature intended to exempt him. The company failed to show any portion of
the law that explicitly provided for a refund of those taxpayers who had paid their taxes on the items.

Mactan Cebu International Airport Authority v. Marcos 261 SCRA 667 (1996)
Facts: Petitioner Mactan Cebu International Airport Authority was created by virtue of R.A. 6958, mandated to principally undertake the economical,
efficient, and effective control, management, and supervision of the Mactan International Airport and Lahug Airport, and such other airports as may be
established in Cebu. Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with
Section 14 of its charter. However, on October 11, 1994, Mr. Eustaquio B. Cesa, Officer in Charge, Office of the Treasurer of the City of Cebu, demanded
payment from realty taxes in the total amount of P2229078.79. Petitioner objected to such demand for payment as baseless and unjustified claiming in its
favor the afore cited Section 14 of R.A. 6958. It was also asserted that it is an instrumentality of the government performing governmental functions, citing
Section 133 of the Local Government Code of 1991.
Section 133. Common limitations on the Taxing Powers of Local Government Units.
The exercise of the taxing powers of the provinces, cities, barangays, municipalities shall not extend to the levi of the following:
xxx Taxes, fees or charges of any kind in the National Government, its agencies and instrumentalities, and LGUs. xxx
Respondent City refused to cancel and set aside petitioners realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of Labor Code that took effect on January 1, 1992.
Issue: Whether or not the petitioner is a taxable person
Rulings: Taxation is the rule and exemption is the exception. MCIAAs exemption from payment of taxes is withdrawn by virtue of Sections 193 and 234 of
Labor Code. Statutes granting tax exemptions shall be strictly construed against the taxpayer and liberally construed in favor of the taxing authority.
The petitioner cannot claim that it was never a taxable person under its Charter. It was only exempted from the payment of realty taxes. The grant of the
privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax.

COMMISSIONER OF INTERNAL REVENUE vs. PILIPINAS SHELL PETROLEUM CORPORATION

G.R. No. 188497
February 19, 2014
FACTS: Shell filed a claim for refund for excise taxes it paid on sales of gas and fuel oils to various international carriers. The Court initially denied the
claims but the respondent filed a Motion for Reconsideration.
ISSUE: Whether or not Shell is entitled to refund for payment of the excise taxes
RULING: Yes. Section 135 is concerned with the exemption of the article itself and not the ostensible exemption of the international carrier-buyer. In
addition, the failure to grant exemption will cause adverse impact on the domestic oil industry (similar to the practice of tankering) as well as result to
violations of international agreements on aviation. Thus, respondent, as the statutory taxpayer who is directly liable to pay the excise tax, is entitled to a
refund or credit for taxes paid on products sold to international carriers.

COMMISSIONER OF INTERNAL REVENUE vs. THE ESTATE OF BENIGNO P. TODA, JR., Represented by Special Co-administrators Lorna
Kapunan and Mario Luza Bautista
G.R. No. 147188. September 14, 2004
Facts: Cebiles Insurance Corporation authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the
Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million. Toda purportedly sold the property for
P100 million to Rafael A. Altonaga. However, Altonaga in turn, sold the same property on the same day to Royal Match Inc. for P200 million. These two
transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. For the sale of the property to Royal Dutch,
Altonaga paid capital gains tax [6%] in the amount of P10 million.
Issue: Whether or not the scheme employed by Cibelis Insurance Company constitutes tax evasion.
Ruling: Yes! The scheme, explained the Court, resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to
Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud.
Fraud in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable
duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another.
It is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the
income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of acquiring and transferring title of the subject properties
on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was
merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end
in view of reducing the consequent income tax liability. In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of
tax liabilities than for legitimate business purposes constitutes one of tax evasion.
Generally, a sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the substance of a
transaction. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather,
the transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation of the sale is relevant. A sale by one person cannot

be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. To permit the true nature of the transaction to be
disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress.
To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is
to sanction a circumvention of our tax laws. Hence, the sale to Altonaga should be disregarded for income tax purposes. The two sale transactions should be treated as a
single direct sale by CIC to RMI.

DELPHER TRADES CORPORATION vs. IAC

G.R. No. L-69259 January 26, 1988
Facts: Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now Valenzuela). On April 3, 1974, they leased to Construction
Components International Inc. the property and providing for a right of first refusal should it decide to buy the said property.
Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with
the signed conformity and consent of Delfin and Pelagia. In 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and
defendant Delpher Trades Corporation whereby the Pachecos conveyed to the latter the leased property together with another parcel of land also located in
Malinta Estate, Valenzuela for 2,500 shares of stock of defendant corporation with a total value of P1.5M.
On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes
Philippines, Inc., filed an amended complaint for reconveyance of the lot.
Issue: WON the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation on the other was meant to be a contract
of sale which, in effect, prejudiced the Hydro Phil's right of first refusal over the leased property included in the "deed of exchange,"
Held: No, by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45%
of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What
they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at the same time save on inheritance taxes.
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of
actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership
remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal