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A.
General Principles
Concept, Nature and Characteristics of Taxation and Taxes
1.CIR vs CEBU PORTLAND CEMENT COMPANY
GR L-29059, December 15, 1987
TICKLER: The argument that the assessment cannot as yet be enforced because it
is still being contested loses sight of the urgency of the need to collect taxes as the
lifeblood of the government. If the payment of taxes could be postponed by simply
questioning their validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed.
FACTS:
By virtue of a decision of the Court of Tax Appeals as modified on appeal by the
Supreme Court, the Commissioner of Internal Revenue was ordered to refund to the
Cebu Portland Cement Company the amount of P 359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it after October
1957.
On March 28, 1968, following denial of motions for reconsideration filed by both the
petitioner and the private respondent, the latter moved for a writ of execution to
enforce the said judgment .
The motion was opposed by the petitioner on the ground that the private respondent
had an outstanding sales tax liability to which the judgment debt had already been
credited. In fact, it was stressed, there was still a balance owing on the sales taxes in
the amount of P 4,789,279.85 plus 28% surcharge.
On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the
alleged sales tax liability of the private respondent was still being questioned and
therefore could not be set-off against the refund.
In his petition to review the said resolution, the Commissioner of Internal Revenue
claims that the refund should be charged against the tax deficiency of the private
respondent on the sales of cement under Section 186 of the Tax Code. His position is
that cement is a manufactured and not a mineral product and therefore not exempt
from sales taxes. The petitioner also denies that the sales tax assessments have
already prescribed because the prescriptive period should be counted from the filing
of the sales tax returns, which had not yet been done by the private respondent.
For its part, the private respondent disclaims liability for the sales taxes, on the
ground that cement is not a manufactured product but a mineral product. As such, it
was exempted from sales taxes under Section 188 of the Tax Code. Also, the alleged
sales tax deficiency could not as yet be enforced against it because the tax
assessment was not yet final, the same being still under protest and still to be
definitely resolved on the merits. Besides, the assessment had already prescribed,
not having been made within the reglementary five-year period from the filing of the
tax returns.
ISSUE:
WON sales tax was properly imposed upon private respondent
RULING:
The sales tax was properly imposed upon the private respondent for the reason that
cement has always been considered a manufactured product and not a mineral

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product. This matter was extensively discussed and categorically resolved

in Commissioner of Internal Revenue v. Republic Cement Corporation, decided on
August 10, 1983, stating that cement qua cement was never considered as a mineral
product within the meaning of Section 246 of the Tax Code, notwithstanding that at
least 80% of its components are minerals, for the simple reason that cement is the
product of a manufacturing process and is no longer the mineral product
contemplated in the Tax Code (i.e.; minerals subjected to simple treatments) for the
purpose of imposing the ad valorem tax.
The argument that the assessment cannot as yet be enforced because it is still being
contested loses sight of the urgency of the need to collect taxes as "the lifeblood of
the government." If the payment of taxes could be postponed by simply questioning
their validity, the machinery of the state would grind to a halt and all government
functions would be paralyzed.
That is the reason why, save for the exception already noted, the Tax Code provides:
Sec. 291. Injunction not available to restrain collection of tax. No
court shall have authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge
imposed by this Code.
It goes without saying that this injunction is available not only when the assessment
is already being questioned in a court of justice but more so if, as in the instant case,
the challenge to the assessment is still-and only-on the administrative level. There is
all the more reason to apply the rule here because it appears that even after
crediting of the refund against the tax deficiency, a balance of more than P 4 million
is still due from the private respondent.
To require the petitioner to actually refund to the private respondent the amount of
the judgment debt, which he will later have the right to distrain for payment of its
sales tax liability is in our view an Idle ritual. We hold that the respondent Court of
Tax Appeals erred in ordering such a charade.
2.CIR vs ALGUE INC.
GR L-28896, February 17, 1988
TICKLER: The burden is on the taxpayer to prove the validity of the claimed
deduction. In this case, Algue Inc. has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees in
inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos
FACTS:
Algue Inc. is a domestic corp engaged in engineering, construction and other allied
activities.
On Jan. 14, 1965, the corporation received a letter from the CIR regarding its
delinquency income taxes from 1958-1959, amtg to P83,183.85. A letter of protest or
reconsideration was filed by Algue Inc on Jan 18.
On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its
counsel, Atty. Guevara, who refused to receive it on the ground of the pending
protest. Since the protest was not found on the records, a file copy from the corp was
produced and given to BIR Agent Reyes, who deferred service of the warrant

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On April 7, Atty. Guevara was informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier
sought to be served. Algue filed a petition for review of the decision of the CIR with
the Court of Tax Appeals
The CIR contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. The
payments are fictitious because most of the payees are members of the same family
in control of Algue and that there is not enough substantiation of such payments.
The CTA ruled that 75K had been legitimately paid by Algue Inc. for actual services
rendered in the form of promotional fees. These were collected by the Payees for
their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.
ISSUE:
WON the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by Algue as legitimate business expenses in its income tax returns
RULING:
The P75,000.00 deductions is valid.
Algue Inc. was a family corporation where strict business procedures were not
applied and immediate issuance of receipts was not required. At the end of the year,
when the books were to be closed, each payee made an accounting of all of the fees
received by him or her, to make up the total of P75,000.00. This arrangement was
understandable in view of the close relationship among the persons in the family
corporation.
The amount of the promotional fees was not excessive. The total commission paid by
the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After
deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from
the transaction. The amount of P75,000.00 was 60% of the total commission. This
was a reasonable proportion, considering that it was the payees who did practically
everything, from the formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties.
Sec. 30 of the Tax Code: allowed deductions in the net income Expenses - All the
ordinary and necessary expenses paid or incurred during the taxable year in carrying
on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered.
The burden is on the taxpayer to prove the validity of the claimed deduction. In this
case, Algue Inc. has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and
prominent businessmen to venture in an experimental enterprise and involve
themselves in a new business requiring millions of pesos.
Taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite
the natural reluctance to surrender part of one's hard earned income to the taxing

ATTY. DANTE

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.
3.C.N. HODGES vs MUNICIPAL BOARD OF THE CITY OF ILOILO
GR L-18129, January 31, 1963
TICKLER: Taxes are the lifeblood of the government. In granting municipal
corporations the power to impose taxes, it is imperative that said power is impliedly
clothed with the authority to devise ways and means to accomplish their collection in
the most effective manner even if those ways and means are not expressly granted
by law.
FACTS:
On 13 June 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33,
series of 1960, invoking R.A. No. 2264 (Local Autonomy Act), which requires that:
Any person, firm, association or corporation to pay a sales tax of 1/2 of 1% of the
selling price of any motor vehicle and prohibiting the registration of the sale of the
motor vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has been
paid.
It is expressly required therein that the payment of the municipal tax shall be a
requirement for registration and transfer of ownership, the tax to be paid in the office
of the city treasurer, and that the tax receipt shall be made part of the documents to
be presented to the Motor Vehicles Office.
On 27 June 1960, C.N. Hodges, who was engaged in the business of buying and
selling of 2nd hand motor vehicles in Iloilo, filed a Petition for Declaratory Relief to
assail the validity of Ordinance 33 before the Court of First Instance of Iloilo. He
argued that said ordinance is null and void since it was enacted beyond the authority
conferred by law on the Municipal Board. He also prayed to be reimbursed by the
City of Iloilo for the taxes he was required to pay under the assailed ordinance.
In response, the City of Iloilo justified the approval of the ordinance alleging that the
same was approved by virtue of the power and authority granted to it by sec. 2 of
the Local Autonomy Act.
On 8 December 1960, the trial court ruled that:
1. The part of the ordinance which requires the owner of a used motor vehicle to pay
a sales tax of 1/2 of 1% of the selling price is VALID;
2. But the portion which requires the payment of the tax as a condition precedent for
the registration of the sale in the Motor Vehicles Office is INVALID for being
repugnant to sec. 2(h) of the Local Autonomy Act.
Both parties appealed.
ISSUE:

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Does the City of Iloilo have the power and authority to require the payment of the
sales tax as a condition precedent for the registration of the sale in the Motor
Vehicles Office?
RULING:
YES. The said condition is coercive measure to make the enforcement of the
contemplated sales tax more effective. It is beyond dispute that the Local Autonomy
Act grants the City of Iloilo the power and authority to levy taxes on sales of motor
vehicles. Hence, in giving the municipal corporation authority to carry out the
powers expressly granted to it, such as the levying of taxes, it is understood that it is
also given the power to adopt such means as may be necessary for accomplishing
their ends.
Well-settled is the principle that taxes are imposed for the support of the government
in return for the general advantage and protection which the government affords to
taxpayers and their property. Taxes are the lifeblood of the government. It is
imperative that the power to impose them to be clothed with the implied authority to
devise ways and means to accomplish their collection in the most effective manner.
Without this implied power the end of government may falter or fail.
Classifications and Distinctions
4.ASSOCIATION OF CUSTOMS BROKERS, INC. vs. THE MUNICIPALITY BOARD
OF MANILA
GR L-4376, May 22, 1953
TICKLER: The character of the tax as a property tax or a license or occupation tax
must be determined by its incidents, and from the natural and legal effect of the
language employed in the act or ordinance, and not by the name by which it is
described, or by the mode adopted in fixing its amount.

ATTY. DANTE

Vehicles Operating Within the City of Manila", and that it provides that the tax should
be 1 per cent ad valorem per annum. It also provides that the proceeds of the tax
shall be expended exclusively for the repair, maintenance and improvement of its
streets and bridges.
ISSUE:
WON the ordinance is valid.

RULING:
The ordinance in question merely imposes a license fee although under the cloak of
an ad valorem tax to circumvent the prohibition intended by Motor Vehicle Law (Act
No. 3992) to prevent duplication in the imposition of fees for the same purpose
considering that municipal corporation already participate in the distribution of the
proceeds that are raised for the same purpose of repairing, maintaining and
improving bridges and public highway.
The ordinance infringes the rule of the uniformity of taxation ordained by our
Constitution. Note that the ordinance exacts the tax upon all motor vehicles
operating within the City of Manila. It does not distinguish between a motor vehicle
for hire and one which is purely for private use. Neither does it distinguish between a
motor vehicle registered in the City of Manila and one registered in another place but
occasionally comes to Manila and uses its streets and public highways. This is an
inequality which we find in the ordinance, and which renders it offensive to the
Constitution.
5.ESSO STANDARD EASTERN, INC. vs CIR
July 7, 1989

FACTS:
The Association of Customs Brokers, Inc., which is composed of all brokers and public
service operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a
member of said association, challenge the validity of Ordinance No. 3379 passed by
the Municipal Board of the City of Manila on the ground that (1) while it levies a socalled property tax it is in reality a license tax which is beyond the power of the
Municipal Board of the City of Manila; (2) said ordinance offends against the rule of
uniformity of taxation; and (3) it constitutes double taxation.

6.PROGRESSIVE DEVT. CORP. vs QUEZON CITY

April 24, 1989

The respondents, represented by the city fiscal, contend on their part that the
challenged ordinance imposes a property tax which is within the power of the City of
Manila to impose under its Revised Charter and that the tax in question does not
violate the rule of uniformity of taxation, nor does it constitute double taxation.

Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit
monthly to the Treasurer's Office, a certified list of stallholders showing the amount
of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the
gross receipts from stall rentals to the City, ... , as supervision fee. Failure to submit
said list and to pay the corresponding amount within the period herein
prescribed shall subject the operator to the penalties provided in this Code ...
includingrevocation of permit to operate. ...

Bearing in mind the pertinent provisions of the Motor Vehicles Law, as amended, (Act
No. 3992), no fees may be exacted or demanded for the operation of any motor
vehicle other than those therein provided, the only exception being that which refers
to the property tax which may be imposed by a municipal corporation. The title of
the ordinance refers to it as "An Ordinance Levying a Property Tax on All Motor

TICKLER:
FACTS:
On 24 December 1969, the City Council of respondent Quezon City adopted
Ordinance No. 7997, otherwise known as the Market Code of Quezon City, Section 3
of which provided:

The Market Code was thereafter amended by Ordinance No. 9236, which reads:

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SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on

rentals or lease of space in privately-owned public markets in Quezon City.
On 15 July 1972, petitioner Progressive Development Corporation, owner and
operator of a public market known as the "Farmers Market & Shopping Center" filed a
Petition for Prohibition with Preliminary Injunction against respondent before the then
Court of First Instance of Rizal on the ground that the supervision fee or license tax
imposed by the above-mentioned ordinances is in reality a tax on income which
respondent may not impose, the same being expressly prohibited by Republic Act
No. 2264, as amended.
In its Answer, respondent, contended that it had authority to enact the questioned
ordinances, maintaining that the tax on gross receipts imposed therein is not a tax
on income but one imposed for the enjoyment of the privilege to engage in a
particular trade or business which was within the power of respondent to impose.
The Solicitor General also filed an Answer arguing that petitioner, not having paid the
ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had no
personality to question, and was estopped from questioning, its validity.
The lower court dismissed the petition, ruling 3 that the questioned imposition is not
a tax on income, but rather a privilege tax or license fee which local governments
are empowered to impose and collect.
ISSUE:
WON the tax imposed by respondent on gross receipts of stall rentals is properly
characterized as partaking of the nature of an income tax or, alternatively, of a
license fee
RULING:
A License fee. First, per Section 12, Article III of Republic Act No. 537, otherwise
known as the Revised Charter of Quezon City, the scope of legislative authority
conferred upon the Quezon City Council in respect of businesses like that of the
petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fix
the license fee," but also " to tax"
Moreover, with Republic Act No. 2264, as amended, it is now settled that The Local
Government Code confers upon local governments broad taxing authority extending
to almost "everything, excepting those which are mentioned therein," provided that
the tax levied is "for public purposes, just and uniform," does not transgress any
constitutional provision and is not repugnant to a controlling statute. Both the Local
Autonomy Act and the Charter of respondent clearly show that respondent is
authorized to fix the license fee collectible from and regulate the business of
petitioner as operator of a privately-owned public market.
The term "tax" frequently applies to all kinds of exactions of monies which become
public funds. It is often loosely used to include levies for revenue as well as levies for
regulatory purposes such that license fees are frequently called taxes
although license fee is a legal concept distinguishable from tax: the former is
imposed in the exercise of police power primarily for purposes of regulation, while

ATTY. DANTE

the latter is imposed under the taxing power primarily for purposes of raising
revenues. Thus, if the generating 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 incidentally revenue is also obtained does not make the imposition a
tax.
To be considered a license fee, the imposition questioned must relate to an
occupation or activity that so engages the public interest in health, morals, safety
and development as to require regulation for the protection and promotion of such
public interest; the imposition must also bear a reasonable relation to the probable
expenses of regulation, taking into account not only the costs of direct regulation but
also its incidental consequences as well.
When an activity, occupation or profession is of such a character that inspection or
supervision by public officials is reasonably necessary for the safeguarding and
furtherance of public health, morals and safety, or the general welfare, the
legislature may provide that such inspection or supervision or other form of
regulation shall be carried out at the expense of the persons engaged in such
occupation or performing such activity, and that no one shall engage in the
occupation or carry out the activity until a fee or charge sufficient to cover the cost
of the inspection or supervision has been paid. Accordingly, a charge of a fixed sum
which bears no relation at all to the cost of inspection and regulation may be held to
be a tax rather than an exercise of the police power.
In the case at bar, the "Farmers' Market and Shopping Center" being a public market
in the' sense of a market open to and inviting the patronage of the general public,
even though privately owned, petitioner's operation thereof required a license issued
by the respondent City, the issuance of which, applying the standards set forth
above, was done principally in the exercise of the respondent's police power.
We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee
for the regulation of the business in which the petitioner is engaged. While it is true
that the amount imposed by the questioned ordinances may be considered in
determining whether the exaction is really one for revenue or prohibition, instead of
one of regulation under the police power, it nevertheless will be presumed to be
reasonable. Local governments are allowed wide discretion in determining the rates
of imposable license fees even in cases of purely police power measures.
An ordinance carries with it the presumption of validity.. Much should be left thus to
the discretion of municipal authorities. Courts will go slow in writing off an ordinance
as unreasonable unless the amount is so excessive as to be prohibitory, arbitrary,
unreasonable, oppressive, or confiscatory.
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably
large and excessive and so grossly disproportionate to the costs of the regulatory

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service being performed by the respondent as to compel the Court to characterize

the imposition as a revenue measure exclusively.
ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City,
is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of merit.
7. PAL vs EDU
August 15, 1988

8.VILLEGAS vs HIU CHIONG TSAI PAO HO

GR L-29646, November 10, 1978
TICKLER:
FACTS:
Petitioner Mayor Antonio J. Villegas of Manila signed City Ordinance No. 6537 which
prohibits aliens from being employed or to engage in any position or occupation or
business in the City of Manila without first securing an employment permit and
paying the permit fee of P50.00. Private respondent Hiu Chiong Tsai Pao Ho who was
employed in Manila, filed a petition for the issuance of writ of preliminary injunction
and restraining order to stop the enforcement of Ordinance No. 6537 as well to
declare it null and void. Judge Francisco Arca of CFI Manila declared Ordinance No.
6537 null and void.
Petitioner argues that Ordinance No. 6537 cannot be declared null and void on the
ground that it violated the rule on uniformity of taxation because the subject
ordinance is not a tax or revenue measure but is an exercise of the police power of
the state, it being principally a regulatory measure in nature.
ISSUE:
WON Ordinance No. 6537 is a tax or revenue measure
RULING:
Ordinance No. 6537 is a tax or revenue measure. The contention that
Ordinance No. 6537 is not a purely tax or revenue measure because its principal
purpose is regulatory in nature has no merit. While it is true that the first part which
requires that the alien shall secure an employment permit from the Mayor involves
the exercise of discretion and judgment in the processing and approval or
disapproval of applications for employment permits and therefore is regulatory in
character the second part which requires the payment of P50.00 as employee's fee is
not regulatory but a revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment. It is obvious that the
purpose of the ordinance is to raise money under the guise of regulation.

ATTY. DANTE

9. COMPAIA GENERAL DE TABACOS DE FILIPINAS vs. CITY OF MANILA, ET

AL
GR L-16619, June 29, 1963
TICKLER: It is already settled in this connection that both a license fee and a tax
may be imposed on the same business or occupation, or for selling the same article,
this not being in violation of the rule against double taxation
FACTS:
Appellee Compania General de Tabacos de Filipinas hereinafter referred to simply
as Tabacalera filed this action in the Court of First Instance of Manila to recover
from appellants, City of Manila and its Treasurer, Marcelino Sarmiento also
hereinafter referred to as the City the sum of P15,280.00 allegedly overpaid by it
as taxes on its wholesale and retail sales of liquor for the period from the third
quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos.
3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the
City the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to
1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also
paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.
It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail
liquor license fees under Ordinance No. 3358. In 1954, City Ordinance No. 3634,
amending City Ordinance No. 3420, and City Ordinance No. 3816, amending City
Ordinance No. 3301 were passed. By reason thereof, the City Treasurer issued the
regulations marked Exhibit A, according to which, the term "general merchandise as
used in said ordinances, includes all articles referred to in Chapter 1, Sections 123 to
148 of the National Internal Revenue Code. Of these, Sections 133-135 included
liquor among the taxable articles. Pursuant to said regulations, Tabacalera included
its sales of liquor in its sworn quarterly declaration submitted to the City Treasurer
beginning from the third quarter of 1954 to the second quarter of 1957, with a total
value of P722,501.09 and correspondingly paid a wholesaler's tax amounting to
P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of P15,208.00
the amount sought to be recovered.
Tabacalera's action for refund is based on the theory that, in connection with its
liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but not
the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and
since it already paid the license fees aforesaid, the sales taxes paid by it
amounting to the sum of P15,208.00 under the three ordinances mentioned
heretofore is an overpayment made by mistake, and therefore refundable.
ISSUE:
WON Tabacalera is entitled to a refund
RULING:
No. The term "tax" applies generally speaking to all kinds of exactions which
become public funds. The term is often loosely used to include levies for revenue as

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well as levies for regulatory purposes. Thus license fees are commonly called taxes.
Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while
the latter is imposed under the taxing power for the purpose of raising revenues.
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the
privilege to engage in the business of selling liquor or alcoholic beverages, having
been enacted by the Municipal Board of Manila pursuant to its charter power to fix
license fees on, and regulate, the sale of intoxicating liquors, whether imported or
locally manufactured. The license fees imposed by it are essentially for purposes of
regulation, and are justified, considering that the sale of intoxicating liquor is,
potentially at least, harmful to public health and morals, and must be subject to
supervision or regulation by the state and by cities and municipalities authorized to
act in the premises.
On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose
taxes on the sales of general merchandise, wholesale or retail, and are revenue
measures enacted by the Municipal Board of Manila by virtue of its power to tax
dealers for the sale of such merchandise.
That Tabacalera is being subjected to double taxation is more apparent than real. As
already stated what is collected under Ordinance No. 3358 is a license fee for the
privilege of engaging in the sale of liquor, a calling in which it is obvious not
anyone or anybody may freely engage, considering that the sale of liquor
indiscriminately may endanger public health and morals. On the other hand, what
the three ordinances mentioned heretofore impose is a tax for revenue purposes
based on the sales made of the same article or merchandise. It is already settled in
this connection that both a license fee and a tax may be imposed on the same
business or occupation, or for selling the same article, this not being in violation of
the rule against double taxation.
10. AMERICAN MAIL LINE, ET AL. vs CITY OF BASILAN, ET AL.
GR L-12647, May 31, 1961
TICKLER: The power to regulate as an exercise of police power does not include the
power to impose fees for revenue purposes. Fees for purely regulatory purposes
"may only be of sufficient amount to include the expenses of issuing the license and
the cost of the necessary inspection or police surveillance, taking into account not
only the expense of direct regulation but also incidental expenses.

ATTY. DANTE

thereof, PROVIDED, that maximum charge shall not exceed, seventy-five pesos
(P75.00) per day, irrespective of the greater tonnage of the vessels.
Petitioners are foreign shipping companies licensed to do business in the Philippines,
with offices in Manila. Their vessels call at Basilan City and anchor in the bay or
channel within its territorial waters. They filed an action to declare void Ordinance
No. 180. Respondents filed their answer alleging that:
1. the City of Basilan had authority, through its city council, to enact the questioned
ordinance in the exercise of either its revenue-raising power or of its police power.
Respondent relies upon the following provisions of its Charter (Republic Act 288):
SEC. 14. General Powers and Duties of the Council. Except as otherwise provided
by law, and subject to the conditions and limitations thereof, the Council shall have
the following legislative powers:
(a) To levy and collect taxes for general and special purposes in accordance with law.
(v) To fix the charges to be paid by all watercraft landing at or using public wharves,
docks, levees, or landing places.
2. the ordinance in question was validly enacted in the exercise of the city's police
power and that the fees imposed therein are for purely regulatory purposes.
ISSUE:
WON City of Basilan has the authority to enact Ordinance 180 and to collect the
anchorage fees prescribed therein.
RULING:
NO. Under RA 288 Sec. 14(a) it is clear that the City of Basilan may only levy and
collect taxes for general and special purposes in accordance with or as provided by
law; in other words, the city of Basilan was not granted a blanket power of taxation.
Section 14(v) of Republic Act No. 288 does not authorize the City of Basilan to
promulgate ordinances providing for the collection of "Anchorage" fees. This is
clearly not included in the power granted by the provision under consideration "to fix
the charges to be paid by all watercraft landing at or using public wharves, docks,
levees, or landing places."

FACTS:
In 1955 the City Council of Basilan City enacted Ordinance No. 180 Series of 1955
amending Ordinance No. 7 Series of 1948 by adding thereto Section 1 (D):

It has been held that the power to regulate as an exercise of police power does not
include the power to impose fees for revenue purposes. Fees for purely regulatory
purposes "may only be of sufficient amount to include the expenses of issuing the
license and the cost of the necessary inspection or police surveillance, taking into
account not only the expense of direct regulation but also incidental expenses.

Any foreign vessel engaged in coastwise trade which may anchor at any open bay,
channel, or any loading point within the territorial waters of the City of Basilan for
the purpose of loading or unloading logs or passengers and other cargoes shall pay
an anchorage fee of 1/2 centavo (P.005) per registered gross ton of the vessel for the
first twenty-four (24) hours, or part thereof, and for succeeding hours, or part

In the first place, being cased upon the tonnage of the vessels, the fees have no
proper or reasonable relation to the cost of issuing the permits and the cost of
inspection or surveillance. In the second place, the fee imposed on foreign vessels
1/2 centavo per registered gross ton for the first 24 hours and which shall not exceed
P75.00 per day exceeds even the harbor fee imposed by the National

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Government, which is only P50.00 for foreign vessels. Moreover, Mariano Mancao,
Port Inspector of the City of Basilan states that were it not for the injunction issued
by the lower court in this case, the city "would have collected considerable amounts
from the plaintiffs for anchorage fees". All these circumstances point to the
conclusion that the fees were intended for revenue purposes.
Lastly, the city's own contention that the questioned ordinance was enacted in the
exercise of its power of taxation, makes it obvious that the fees imposed are not
merely regulatory.
11. OSMENA vs ORBOS
March 31, 1993
12. REPUBLIC OF THE PHILIPPINES vs. BACOLOD-MURCIA MILLING CO., INC.
GRs L-19824, L-19825 and 19826, July 9, 1966
TICKLER: Taxation may be made the implement of the state's police power.
FACTS:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao
Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one
controlling ownership and management, from a decision of the Court of First Instance
of Manila finding them liable for special assessments under Section 15 of Republic
Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for
short, a semi-public corporation.
Sections 15 and 16 of the aforementioned law provide:
Sec. 15. Capitalization. To raise the necessary funds to carry out the provisions of
this Act and the purposes of the corporation, there shall be levied on the annual
sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected
for a period of five (5) years beginning the crop year 1951-1952. The amount shall
be borne by the sugar cane planters and the sugar centrals in the proportion of their
corresponding milling share, and said levy shall constitute a lien on their sugar
quedans and/or warehouse receipts.
Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside to
constitute a special fund to be known as the "Sugar Research and Stabilization
Fund," which shall be available exclusively for the use of the corporation. All the
income and receipts derived from the special fund herein created shall accrue to,
and form part of the said fund to be available solely for the use of the corporation.
The facts of this case bearing relevance to the issue under consideration, as recited
by the lower court and accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953,
1953-1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc.,
has paid P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao
Sugar Central Co., Inc., has paid P117,613.44 but left unpaid balance of P235,800.20;
defendant Talisay-Silay Milling Company has paid P251,812.43 but left unpaid

ATTY. DANTE

balance of P208,193.74; and defendant Central Azucarera del Danao made a

payment of P49,897.78 but left unpaid balance of P48,059.77. There is no question
regarding the correctness of the amounts paid and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was disclosed that
on September 3, 1951, the Philippine Sugar Institute, known as the PHILSUGIN for
short, acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60
payable, in accordance with the deed of sale Exhibit A, in 3 installments from the
process of the sugar tax to be collected, under Republic Act 632. The evidence
further discloses that the operation of the Insular Sugar Refinery for the years, 1954,
1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred
tremendous losses as shown by an examination of the statements of income and
expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor
Cruz, former acting general manager of PHILSUGIN and at present technical
consultant of said entity, presented by the defendants as witnesses, it has been
shown that the operation of the Insular Sugar Refinery has consumed 70% of the
thinking time and effort of the PHILSUGIN management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from the
Philsugin Fund was not authorized by Republic Act 632 and that the continued
operation of the said refinery was inimical to their interests, the appellants refused to
continue with their contributions to the said fund. They maintained that their
obligation to contribute or pay to the said Fund subsists only to the limit and extent
that they are benefited by such contributions since Republic Act 632 is not a revenue
measure but an Act which establishes a "Special assessments." Adverting to the
finding of the lower court that proceeds of the said Fund had been used or applied to
absorb the "tremendous losses" incurred by Philsugin in its "disastrous operation" of
the said refinery, the appellants herein argue that they should not only be released
from their obligation to pay the said assessment but be refunded, besides, of all that
they might have previously paid thereunder.
The lower court adjudged the appellants herein liable under the aforementioned law,
Republic Act 632. Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin
to buy and operate machineries, equipment, merchant vessels, etc., and any other
equipment and material for the production, manufacture, handling, transportation
and warehousing of sugar and its by-products. It was, therefore, authorized to
purchase and operate a sugar refinery. Also, it would be dangerous to sanction the
unilateral refusal of the appellants herein to continue with their contribution to the
Fund for that conduct is no different "from the case of an ordinary taxpayer who
refuses to pay his taxes on the ground that the money is being misappropriated by
Government officials." This is taking the law into their own hands.
Against the above ruling of the trial court, the appellants contend that the issue on
hand is not whether Philsugin abused or not its powers when it purchased the Insular
Sugar Refinery. The issue, rather, is whether Philsugin had any power or authority at
all to acquire the said refinery. The appellants deny that Philsugin is possessed of any
such authority because what it is empowered to purchase is not a "sugar refinery but
a central experiment station or perhaps at the most a sugar central to be used for

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that purpose." (Sec. 3[a], Rep. Act 632). Also, The appellants' refusal to continue
paying the assessment under Republic Act 632 may not rightly be equated with a
taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial
distinction between a "special assessment" and an ordinary tax. The purpose of the
former is to finance the improvement of particular properties, with the benefits of the
improvement accruing or inuring to the owners thereof who, after all, pay the
assessment. The purpose of an ordinary tax, on the other hand, is to provide the
Government with revenues needed for the financing of state affairs. Thus, while the
refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned because it
would impair government functions, the same would not hold true in the case of a
refusal to comply with a special assessment.

ISSUE:
WON the appellants' refusal to continue paying the assessment under Republic Act
632 may rightly be equated with a taxpayer's refusal to pay his ordinary taxes
RULING:
The Court held in the affirmative.
The nature of a "special assessment" similar to the case at bar has already been
discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148.
For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar
Adjustment Act, 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
a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the assessed
value of such land. (Sec. 3).
Under Section 6 of the said law, Commonwealth Act 567, all collections made
thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as
the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for
any or all of the following purposes or to attain any or all of the following objectives,
as may be provided by law." It then proceeds to enumerate the said purposes,
among which are "to place the sugar industry in a position to maintain itself; ... to
readjust the benefits derived from the sugar industry ... so that all might continue
profitably to engage therein; to limit the production of sugar to areas more
economically suited to the production thereof; and to afford laborers employed in the
industry a living wage and to improve their living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax
or special assessment was unconstitutional because it was being "levied for the aid
and support of the sugar industry exclusively," and therefore, not for a public
purpose. In rejecting the theory advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for
in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the
Act, and particularly Section 6, will show that the tax is levied with a regulatory

ATTY. DANTE

purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily an exercise of the police power.
It was competent for the Legislature to find that the general welfare demanded that
the sugar industry should be stabilized in turn; and in the wide field of its police
power, the law-making body could provide that the distribution of benefits therefrom
be readjusted among its components, to enable it to resist the added strain of the
increase in taxes that it had to sustain.
Once it is conceded, as it must that the protection and promotion of the sugar
industry is a matter of public concern, it follows that the Legislature may determine
within reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed full play, subject only to
the test of reasonableness; and it is not contended that the means provided in
Section 6 of the law (above quoted) 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.
On the authority of the above case, then, We hold that the special assessment at
bar may be considered as similarly as the above, that is, that the levy for
the Philsugin Fund is not so much an exercise of the power of taxation, nor
the imposition of a special assessment, but, the exercise of the police
power for the general welfare of the entire country. It is, therefore, an
exercise of a sovereign power which no private citizen may lawfully resist.
13. VICTORIAS MILLING CO. INC. VS MUNICIPALITY OF VICTORIAS
GR L-21183, September 27, 1968
TICKLER:
FACTS:
Ordinance No. 1 is labeled "An Ordinance Amending Ordinance No. 25, Series of
1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates
on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on Capacity
Annual Output Respectively". It was enacted pursuant to the taxing power conferred
by Commonwealth Act 472.
Of importance are the provisions of Section 1(m) relating to sugar centrals and
Section 2(m) covering sugar refineries with specific reference to the maximum
annual license tax, viz:
Section No. 1 Any person, corporation or other forms of Companies, operating
Sugar Central or engage[d] in the manufacture of centrifugal sugar shall be required
to pay the following annual municipal license tax, payable quarterly, to wit:
xxx
xxx
xxx

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ATTY. DANTE

(m) Sugar Central with mill having a capacity of producing an annual output of from
1,500,001 piculs or more shall be required to pay an annual municipal license tax of
P40,000.00.

What are these taxes for? Resolution No. 60 of the municipal council of
Victorias, adopted also on September 22, 1956 in conjunction with Ordinance No. 1,
series of 1956, furnishes a ready answer. It reads in part:

Section No. 2 Any person, corporation or other forms of Companies shall be

required to pay an annual municipal license tax for the operation of Sugar Refinery
Mill at the following rates:
xxx
xxx
xxx

WHEREAS, the Municipal Treasurer informed the Municipal Council of the revenue of
the Municipality and the heavy obligations which confront it because of the
implementation of Minimum Wage Law on the salaries and wages it pays to its
municipal employees and laborers thus greatly draining the Municipal Treasury;

(m) Sugar Refinery with mill having a capacity of producing an annual output of from
1,750,001 bags of 100 lbs. or more shall be required to pay an annual municipal
license tax of P40,000.00.

WHEREAS, this local administration is committed to the plan of ameliorating the

deplorable situation existing in the barrios, sitios and rural areas by giving them
essential and necessary facilities calculated to improve conditions thereat thru
improvements of roads and feeder roads;
WHEREAS, one of the causes of the municipality's financial difficulty is low rates of
municipal taxes imposed by some of the ordinances enacted by the local legislative
body;

For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and
its sugar refinery located in the Municipality of Victorias comes within these items in
the schedule.
Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of
1956, null and void.
Among the reasons put forth by plaintiff are that: (a) the ordinance exceeds the
amounts fixed in Provincial Circular 12-A issued by the Finance Department on
February 27, 1940; (b) it is discriminatory since it singles out plaintiff which is the
only operator of a sugar central and a sugar refinery within the jurisdiction of
defendant municipality
ISSUES:
a) Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a
regulatory enactment or as a revenue measure?
b)Was the ordinance discriminatory?
RULING:
a) The trial court says, and plaintiff seconds, that the amounts set forth in the
ordinance in question did exceed the cost of licensing, regulating and surveillance,
and that defendant cannot impose a tax for revenue in the guise of a police or a
regulatory measure. Our finding, however, is the other way.
The ordinance itself recites that its source of taxing power emanates from
Commonwealth Act 472, Section 1. Under the statute just quoted and pertinent
jurisprudence, a municipality is authorized to impose three kinds of licenses: (1)
license for regulation of useful occupations or enterprises; (2) license for restriction
or regulation of non-useful occupations or enterprises; and (3) license for revenue.
The first two easily fall within the broad police power granted under the general
welfare clause. The third class, however, is for revenue purposes. It is not a license
fee, properly speaking, and yet it is generally so termed. It rests on the taxing power.
That taxing power must be expressly conferred by statute upon the municipality. It is
so granted under Commonwealth Act 472.

Given the purposes just mentioned, we find no warrant in logic to give our assent to
the view that the ordinance in question is solely for regulatory purpose. Plain is the
meaning conveyed. The ordinance is for raising money. To say otherwise is to
misread the purpose of the ordinance.
We should not hang so heavy a meaning on the use of the term "municipal license
tax". This does not necessarily connote the idea that the tax is imposed as the
lower court would want it to mean a revenue measure in the guise of a license tax.
For really, this runs counter to the declared purpose to make money.
Besides, the term "license tax" has not acquired a fixed meaning. It is often "used
indiscriminately to designate impositions exacted for the exercise of various
privileges."It does not refer solely to a license for regulation. In many instances, it
refers to "revenue-raising exactions on privileges or activities." On the other
hand, license fees are commonly called taxes. But, legally speaking, the latter are
"for the purpose of raising revenues," in contrast to the former which are imposed "in
the exercise of police power for purposes of regulation."
We accordingly say that the designation given by the municipal authorities does not
decide whether the imposition is properly a license tax or a license fee. The
determining factors are the purpose and effect of the imposition as may be apparent
from the provisions of the ordinance.Thus, "[w]hen no police inspection, supervision,
or regulation is provided, nor any standard set for the applicant to establish, or that
he agrees to attain or maintain, but any and all persons engaged in the business
designated, without qualification or hindrance, may come, and a license on payment
of the stipulated sum will issue, to do business, subject to no prescribed rule of
conduct and under no guardian eye, but according to the unrestrained judgment or
fancy of the applicant and licensee, the presumption is strong that the power of
taxation, and not the police power, is being exercised."
Precisely because of these considerations the present imposition must be treated as
a levy for revenue purposes. A quick glance at the big amount of maximum annual

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tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for
sugar refineries, will readily convince one that the tax is really a revenue tax. And
then, we read in the ordinance nothing which would as much as indicate that the tax
imposed is merely for police inspection, supervision or regulation.
We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of
Victorias, was promulgated not in the exercise of the municipality's regulatory power
but as a revenue measure a tax on occupation or business. The authority to
impose such tax is backed by the express grant of power in Section 1 of
Commonwealth Act 472.
b) The ordinance does not single out Victorias as the only object of the ordinance but
is made to apply to any sugar central or sugar refinery which may happen to operate
in the municipality. The fact that Victorias Milling is actually the sole operator of a
sugar central and a sugar refinery does not make the ordinance discriminatory. The
ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board of Ormoc City,
which specifically spelled out Ormoc Sugar as the subject of the taxation, the name
of the company herein was never mentioned in the ordinance.

ATTY. DANTE

the so-called CIIF companies had not been impleaded by the PCGG as partiesdefendants in its July 31, 1987 Complaint for reconveyance, reversion, accounting,
restitution and damages.
This Sandiganbayan Resolution was challenged by the PCGG.
Meanwhile, upon motion of Cojuangco, the anti-graft court ordered the holding of
elections for the Board of Directors of UCPB. However, the PCGG applied for and was
granted by this Court a Restraining Order enjoining the holding of the election.
Subsequently, the Court lifted the Restraining Order and ordered the UCPB to
proceed with the election of its board of directors. Furthermore, it allowed the
sequestered
shares
to
be
voted
by
their
registered
owners.

14. LUTZ vs ARANETA

December 22, 1955

On February 23, 2001, COCOFED, et al. and Ballares, et al. filed the Class Action
Omnibus Motion referred to earlier in Sandiganbayan Civil Case Nos. 0033-A, 0033-B
and 0033-F, asking the court a quo: 1.) To enjoin the PCGG from voting the UCPB
shares of stock registered in the respective names of the more than one million
coconut farmers; and 2.) To enjoin the PCGG from voting the SMC shares registered
in the names of the 14 CIIF holding companies including those registered in the
name of the PCGG.

15. PCGG vs COJUANGCO

GR 147062-64, December 14, 2001

ISSUES:
1. WON the PCGG can vote the sequestered UCPB shares
2. WON Coconut Levy Funds are raised through the State's police and taxing power

TICKLER: Coconut Levy Funds are prima facie public funds, they partake the nature
of taxes.
FACTS:
On the premise that vast resources of the government have been amassed by former
President Marcos, his family, relatives, and close associates both here and abroad,
the Presidential Commission on Good Government (PCGG) was created by Executive
Order No. 1, under the Aquino administration, to assist the President in the recovery
of the ill-gotten wealth, whether located in the Philippines or abroad. The PCGG
issued and implemented numerous sequestrations, freeze orders and provisional
takeovers of allegedly ill-gotten companies, assets and properties, real or personal.
Among the properties sequestered by the Commission were shares of stock in the
United Coconut Planters Bank (UCPB) registered in the names of the alleged one
million coconut farmers, the so-called Coconut Industry Investment Fund companies
(CIIF companies) and Private Respondent Eduardo Cojuangco Jr. In connection with
the sequestration of the said UCPB shares, the PCGG, on July 31, 1987, instituted an
action for reconveyance, reversion, accounting, restitution and damages in the
Sandiganbayan
.
On November 15, 1990, upon Motion of Private Respondent COCOFED, the
Sandiganbayan issued a Resolution lifting the sequestration of the subject UCPB
shares on the ground that herein private respondents in particular, COCOFED and

RULING:
1. The registered owner of the shares of a corporation exercises the right and the
privilege of voting. This principle applies even to shares that are sequestered by the
government, over which the PCGG as a mere conservator cannot, as a general rule,
exercise acts of dominion. On the other hand, it is authorized to vote these
sequestered shares registered in the names of private persons and acquired with
allegedly ill-gotten wealth, if it is able to satisfy the two-tiered test devised by the
Court in Cojuangco v. Calpo and PCGG v. Cojuangco Jr. Two clear public character
exceptions under which the government is granted the authority to vote the shares
exist (1) Where government shares are taken over by private persons or entities
who/which registered them in their own names, and (2) Where the capitalization or
shares that were acquired with public funds somehow landed in private hands. The
exceptions are based on the common-sense principle that legal fiction must yield to
truth; that public property registered in the names of non-owners is affected with
trust relations; and that the prima facie beneficial owner should be given the
privilege of enjoying the rights flowing from the prima facie fact of ownership. In
short, when sequestered shares registered in the names of private individuals or
entities are alleged to have been acquired with ill-gotten wealth, then the two-tiered
test is applied. However, when the sequestered shares in the name of private
individuals or entities are shown, prima facie, to have been (1) originally government
shares, or (2) purchased with public funds or those affected with public interest, then
the two-tiered test does not apply. Rather, the public character exceptions in Baseco

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v. PCGG and Cojuangco Jr. v. Roxas prevail; that is, the government shall vote the
shares. Herein, the money used to purchase the sequestered UCPB shares came
from the Coconut Consumer Stabilization Fund (CCSF), otherwise known as the
coconut levy funds. The sequestered UCPB shares are confirmed to have been
acquired with coco levies, not with alleged ill-gotten wealth. As the coconut levy
funds are not only affected with public interest, but are in fact prima facie public
funds, the Court believes that the government should be allowed to vote the
questioned shares, because they belong to it as the prima facie beneficial and true
owner. The Sandiganbayan committed grave abuse of discretion in grossly
contradicting and effectively reversing existing jurisprudence, and in depriving the
government of its right to vote the sequestered UCPB shares which are prima facie
public
in
character.
2. Coconut Levy Funds partake the nature of taxes, which, in general, are 1) enforced
proportional contributions from persons and properties; 2) imposed and exacted by
the State by virtue of its sovereignty; 3) levied for the support of government and for
public needs. Taxation is done not merely to support the government but also to
provide for the rehabilitation and stabilization of a threatened industry, which is so
affected with public interest as to be within the police power of the State. Having
conclusively shown that the sequestered UCPB shares were purchased with coconut
levies, these funds and shares are, at the very least, affected with public interest.
Until it is demonstrated satisfactorily that they have legitimately become private
funds, they must prima facie and by reason of the circumstances in which they were
raised and accumulated be accounted subject to the measures prescribed in E.O.
Nos. 1, 2, and 14 to prevent their concealment, dissipation, etc., which measures
include the sequestration and other orders of the PCGG complained of. Coconut Levy
Funds are Prima Facie Public Funds as public funds are those moneys belonging to
the State or to any political subdivision of the State; more specifically, taxes,
customs duties and moneys raised by operation of law for the support of the
government or for the discharge of its obligations. (Beckner v. Commonwealth, 5
SE2d 525, Nov. 20, 1939)
Undeniably, coconut levy funds satisfy this general definition of public funds,
because of the following reasons:
1. Coconut levy funds are raised with the use of the police and taxing powers of the
State.
2. They are levies imposed by the State for the benefit of the coconut industry and
its
farmers.
3. Respondents have judicially admitted that the sequestered shares were purchased
with
public
funds.
4. The Commission on Audit (COA) reviews the use of coconut levy funds.
5. The Bureau of Internal Revenue (BIR), with the acquiescence of private
respondents, has treated them as public funds.
6. The very laws governing coconut levies recognize their public character.
Limitations on the Power of Taxation

ATTY. DANTE

16. WENCESLAO PASCUAL vs

COMMUNICATIONS
GR L-10405, December 29, 1960

SECRETARY

OF

PUBLIC

WORKS

AND

TICKLER: Money raised by taxation can be expended only for public purposes and
not for the advantage of private individuals. The validity of a statute depends upon
the powers of Congress at the time of its passage or approval, not upon events
occurring, or acts performed, subsequently thereto, unless the latter consists of an
amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute.
FACTS:
Petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action
for declaratory relief, with injunction, upon the ground that Republic Act No. 920,
entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953,
contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the
construction, reconstruction, repair, extension and improvement" of Pasig feeder
road terminals ; that, at the time of the passage and approval of said Act, the
aforementioned feeder roads were "nothing but projected and planned subdivision
roads, not yet constructed within the Antonio Subdivision situated at Pasig, Rizal
which were private properties of respondent Jose C. Zulueta, who, at the time of the
passage and approval of said Act, was a member of the Senate of the Philippines.
The property was to be donated to the local government, though the donation was
made a few months after the appropriation was included in RA 920. Respondent
moved to dismiss the petition upon the ground that petitioner had "no legal capacity
to sue", and that the petition did "not state a cause of action". The CFI of Rizal, ruled
that the petitioner has standing to assail the validity of RA 920, due to the public
interest involved in the appropriation. However, he does not have a standing with
respect to the donation since he does not have an interest that will be injured by said
donation, hence it dismissed the petition.
ISSUE:
WON the petitioner has the standing to file the petition
RULING:
Yes, petitioner has standing to file the petition. He is not merely a taxpayer but the
governor of the province of Rizal which is considered one of the most populated
biggest provinces during that time, its taxpayers bear a substantial portion of the
burden of taxation in the country.
Public funds can only be appropriated for a public purpose. The test of the
constitutionality of a statute requiring the use of public funds is whether it is used to
promote public interest. Moreover, the validity of a stature depends on the powers of
the Congress at the time of its passage or approval, not upon events occurring, or
acts performed subsequent thereto, unless it is an amendment of the organic law.
17. OSMENA vs ORBOS
March 31, 1993
18. PEPSI-COLA BOTTLING CO. vs MUNICIPALITY OF TANAUAN

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ATTY. DANTE

February 27, 1976

19. SSS vs CITY OF BACOLOD
GR L-35726, July 21, 1982
TICKLER: Section 29 of the Commonwealth Act No. 326- It bears emphasis that
the said section does not contain any qualification whatsoever in providing for the
exemption from real estate taxes of "lands and buildings owned by the
Commonwealth or Republic of Philippines." Hence, when the legislature exempted
lands and buildings owned by the government from payment of said taxes, what it
intended was a broad and comprehensive application of such mandate, regardless of
whether such property is devoted to governmental or proprietary purpose.
FACTS:
Petitioner Social Security System is a government agency created under Republic Act
No. 1161, whose primary function is to "develop, establish gradually and perfect a
social security system which shall be suitable to the needs of the people throughout
the Philippines, and shall provide protection against the hazards of disability,
sickness, old age, and death."
In pursuance of its operations, petitioner, maintains a number of regional offices, one
of which is the five-storey building, known as SSS Building in Bacolod City, occupying
four parcels of land. In 1970, said lands and building were assessed for taxation at
P1,744,840.00.
For petitioner's failure to pay the realty taxes for the years 1968, 1969 and 1970
which, including penalties, amounted to P104,956.06, respondent city sometime in
early 1970 levied upon said lands and building; and on April 3, 1970, it declared said
properties forfeited in its favor.
In protest thereto, petitioner addressed a letter dated July 27, 1970 to the City Mayor
of Bacolod, through respondent city treasurer, seeking reconsideration of the
forfeiture proceedings on the ground that petitioner, being a government-owned and
controlled corporation, is exempt from payment of real estate taxes.
When no action thereon was taken by respondent city treasurer, petitioner filed an
action in the Court of First Instance of Negros Occidental for nullification of the
forfeiture proceedings. In the same complaint it sought the issuance of a writ of
preliminary injunction to restrain respondent city from consolidating its ownership
over the forfeited properties, and this writ was issued by the court upon petitioner's
posting of a cash bond in the amount of P105,000.00.
After due hearing, the lower court rendered a decision declaring
... the properties of the Social Security System not exempt from the payment of real
property tax inasmuch as the SSS does not fall under the provisions of Section 29 of
the Charter of the City of Bacolod, and considering further that there is no law which
exempts said entity from taxes, the same should therefore be subject to taxation like
any other corporation in accordance with Section 27 of the City Charter of Bacolod
City. The complaint is hereby dismissed with costs against the plaintiff. Hence, this
petition.

ISSUE:
WON the properties in question, which are concededly owned by the government,
are exempt from realty taxes
RULING:
Yes the properties in question are exempt from realty taxes. It bears emphasis that
Section 29 of the Commonwealth Act No. 326 does not contain any qualification
whatsoever in providing for the exemption from real estate taxes of "lands and
buildings owned by the Commonwealth or Republic of Philippines." Hence, when the
legislature exempted lands and buildings owned by the government from payment of
said taxes, what it intended was a broad and comprehensive application of such
mandate, regardless of whether such property is devoted to governmental or
proprietary purpose. And in "Board of Assessment Appeals vs. Court of Tax Appeals"
5
, this Court interpreted this provision in this wise: ... in exempting from taxation
'property owned by the Republic of the Philippines, any province, city, municipality or
municipal district ... said section 3(a) of Republic Act No. 470 makes no distinction
between property held in a sovereign, governmental or political capacity and those
possessed in a private propriety or patrimonial character. And where the law does
not distinguish neither may we, unless there are facts and circumstances clearly
showing that the lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention. The distinction laid down in
"NACOCO vs. Bacani" 6 between government agencies exercising constituent
functions, on the one hand, and those performing ministrant functions, on the other,
has therefore no relevance to the issue before us.
In connection with the issue at hand, it would not be amiss to state that Presidential
Decree No. 24, which amended the Social Security Act of 1954, has already removed
all doubts as to the exemption of the SSS from taxation.
SEC. 16. Exemption from tax, legal process, and lien. All laws to the contrary
notwithstanding, the SSS and all its assets, all contributions collected and all
accruals thereto and income therefrom as well as all benefit payments and all papers
or documents which may be required in connection with the operation or execution
of this Act shall be exempt from any tax, assessment, fee, charge or customs or
import duty.
20. SEALAND SERVICES vs CA
April 30, 2001
TICKLER:
FACTS:
SEALAND, an American international shipping company, entered into a contract with
the United
States Government to transport military household goods and effects of U.S. military
personnel assigned to the Subic Naval Base.

CASE DIGESTS IN TAXATION 1 3B 2016

BRAVO

In 1984, SEALAND paid the income tax due thereon of 1.5% (of P58,006,207.54) as
required in Section 25 (a)(2) of the NIRC in relation to Article 9 of the RPUS Tax
Treaty, amounting to P870,093.12.
Claiming that it paid the aforementioned income tax by mistake, a written claim for
refund was filed with the BIR. However, before the said claim for refund could be
acted upon by public respondent Commissioner of Internal Revenue, petitioner filed a
petition for review with the CTA to judicially pursue its claim for refund and to stop
the running of the two-year prescriptive period under the then Section 243 of the
NIRC.
CTA rendered its decision denying SEALANDs claim for refund of the income tax.
Petitioner appealed the decision to the Court of Appeals which subsequently
dismissed the appeal.
ISSUE:
Whether or not the income that petitioner derived from services in transporting the
household goods and effects of U.S. military personnel falls within the tax exemption
provided in Article XII, paragraph 4 of the RPUS Military Bases Agreement.
HELD:
No. The RPUS Military Bases Agreement provides:
"No national of the United States, or corporation organized under the laws of the
United States, shall be liable to pay income tax in the Philippines in respect of any
profits derived under a contract made in the United States with the government of
the United States in connection with the construction, aintenance, operation and
defense of the bases, or any tax in the nature of a license in respect of any service or
work for the United States in connection with the construction, maintenance,
operation and defense of the bases.
Laws granting exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power. Taxation is the rule and
exemption is the exception." The law "does not look with favor on tax exemptions
and that he who would seek to be thus privileged must justify it by words too plain to
be mistaken and too categorical to be misinterpreted.
The transport or shipment of household goods and effects of U.S. military personnel
is not included in the term "construction, maintenance, operation and defense of the
bases." Neither could the performance of this service to the U.S. government be
interpreted as directly related to the defense and security of the Philippine
territories.
The purpose of tax exemption "is some public benefit or interest, which the
lawmaking body considers sufficient to offset the monetary loss entailed in the grant
of the exemption." The hauling or transport of household goods and personal effects
of U. S. military personnel would not directly contribute to the defense and security
of the Philippines.

ATTY. DANTE