Villanueva v City of Iloilo (privilege tax)

Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordi
nance 11 Series of 1960, imposing a municipal license tax on tenement houses in
accordance with the schedule of payment provided by therein. Villanueva and the
other appellees are apartment owners from whom, the city collected license taxes
by virtue of Ordinance 11. Appellees aver that the said ordinance is unconstitu
tional for RA 2264 does not empower cities to impose apartment taxes; that the s
ame is oppressive and unreasonable for it penalizes those who fail to pay the ap
artment taxes; that it constitutes not only double taxation but treble taxation;
and, that it violates uniformity of taxation. Issues: 1. Does the ordinance imp
ose double taxation? 2. Is Iloilo city empowered by RA 2264 to impose tenement t
axes? Held: 1. While it is true that appellees are taxable under the NIRC as rea
l estate dealers, and taxable under Ordinance 11, double taxation may not be inv
oked. This is because the same tax may be imposed by the national government as
well as by the local government. The contention that appellees are doubly taxed
because they are paying real estate taxes and the tenement tax is also devoid of
merit. A license tax may be levied upon a business or occupation although the l
and or property used in connection therewith is subject to property tax. In orde
r to constitute double taxation, both taxes must be the same kind or character.
Real estate taxes and tenement taxes are not of the same character. 2. RA 2264 c
onfers local governments broad taxing powers. The imposition of the tenement tax
es does not fall within the exceptions mentioned by the same law. It is argued h
owever that the said taxes are real estate taxes and thus, the imposition of mor
e the 1 per centum real estate tax which is the limit provided by CA 158, makes
the said ordinance ultra vires. The court ruled that the tax in question is not
a real estate tax. It does not have the 1 attributes of a real estate tax. By th
e title and the terms of the ordinance, the tax is a municipal tax which means a
n imposition or exaction on the right to use or dispose of property, to pursue a
business, occupation or calling, or to exercise a privilege. Tenement houses be
ing offered for rent or lease constitute a distinct form of business or calling
and as such, the imposition of municipal tax finds support in Section 2 of RA 22
64.
Assoc. of Custom Brokers v Municipal Board
(privilege tax) Facts: The disputed ordinance (Ordinance 3379) was passed by the
Municipal Board of the City of Manila under the authority conferred by section
18(p) of RA 409 which confers upon the municipal board the power to tax motor and
other vehicles operating within the City of Manila the provisions of any existi
ng law to the contrary notwithstanding. The plaintiff, an association composed o
f all brokers and public service operators of Motor Vehicles in the City of Mani
la filed this petition for declaratory relief challenging the validity of the or
dinance on the following grounds; that it while it levies a socalled property ta
x, it is in reality a license fee which is beyond the power of the board to impo
se; that the said ordinance goes against the rule on uniformity of taxation; and
, that the said imposition constitutes double taxation. Issues: Can the city val
idly enact such ordinance? Held: No. The Motor Vehicle Law (Section 70[b]) provi
des that no fees may be exacted or demanded for the operation of any motor vehic
le other than those therein provided , the only exception being that which refer
s to property tax which may be imposed by municipal corporations. While the ordi
nance refers to property tax and it is fixed ad valorem, it is merely levied on
motor vehicles operating within the city of Manila with the main purpose of rais
ing funds to be expanded exclusively for the repair, maintenance and improvement
of streets and bridges in said city. Because of this, the ordinance in question
merely imposes a license fee although under the cloak of being an ad valorem ta
x to circumvent the prohibition provided by the Motor 2 Vehicle Law.
It is not a tax on the land on which the tenement houses are erected, although b
oth land and tenement houses may belong to the same owner. Te tax is not a fixed
proportion of the assessed value of the tenement houses, and does not require t
he intervention of the assessors or appraisers. It is not payable at a designate

d time or date, and is not enforceable against the tenement houses either by sal
e or distraint.
1
If a tax is in its nature an excise, it does not become a property tax because i
t is proportioned in the amount to the value of the property used in connection
with the occupation, privilege or act which is taxed. Every excise by necessaril
y must finally fall upon and be paid by property and so may be indirectly a tax
upon property; but if it is really imposed upon the performance of an act, enjoy
ment of a privilege, or the engaging in an occupation, it will be considered exc
ise.
2

Philippine Acetylene Co., Inc. v CIR (Indirect Tax;

also in Nature of Tax Exemption) Facts: Petitioner is a corporation engaged in t
he manufacture and sale of oxygen and acetylene gases. It made various sales of
its product to the National Power Corporation (NPC) an agency of the government
and to Voice of America (VOA) an agency of the US government. The respondent ass
essed against and demanded from the petitioner the payment of deficiency sales t
ax and surcharge as provided by Sections 186 and 183 of the NIRC. Petitioner den
ied liability on the payment of the tax based on the sales made to these agencie
s stating that the same are exempt from taxation because the NPC is exempt from
taxation by virtue of RA 947 Sec2 and because VOA is exempt as well because of t
he Bases Agreement. Issue: Is petitioner exempt from paying the percentage taxes
on the sales made to NPC and VOA? Held: No. The percentage tax provided by Sect
ion 286 of the NIRC is a tax on the producer or manufacturer and not a tax on th
e purchaser. Section 183 of the NIRC provide that sales tax shall be paid by the
manufacturer or producer who must make a true and complete return of the amount
of his or her or its gross monthly sales, receipts or earnings or gross value o
f output actually removed from the factory or mill warehouse and within twenty d
ays after the end of each month, pay the tax due thereon. Since the tax imposed
by section 186 is a tax on the manufacturer or producer and not a tax on the pur
chaser, petitioner could not be considered exempt. As regards VOA, petitioner is
also not exempt from percentage tax because the Bases Agreement only exempts fr
om tax sales made for exclusive use in the construction, maintenance and operatio
n or defense of the bases, or sales to the quartermaster. Sales of goods to any o
ther party even if it be an agency of the US, or even the quartermaster but for
a different purpose are not exempt from tax. It is a familiar learning in the Am
erican law of taxation that tax exemption must be strictly construed and that th
e exemption will not be held to be conferred unless the terms under which it is
granted clearly and distinctly show that such was the intention of the parties.
CIR v. Gotamco (Indirect Tax ; Nature of Tax Exemption)
FACTS: The World Health Organization entered into a Host Agreement between the P
hilippine government. Section 11 of that Agreement provides, that "the Organizat
ion, its assets, income and other properties shall be: (a) exempt from all direc
t and indirect taxes. It is understood, however, that the Organization will not
claim exemption from taxes which are, in fact, no more than charges for public u
tility services; . . . * When the WHO decided to construct a building for its of
fice, it informed the bidders that building to be constructed belonged to an org
anization with diplomatic status and thus exempt from the payment of all fees, l
icenses, and taxes, and that therefore their bids "must take this into account a
nd should not include items for such taxes, licenses and other payments to Gover
nment agencies." * John Gotamco and Sons, Inc. won the bid. * CIR gave an Opinio
n that the 3% contractors tax was exempt but CIR reversed his opinion and stated
that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO
, but a tax that is primarily due from the contractor, the same is not covered b
y . . . the Host Agreement." * CIR demanded from Gotamco the 3% tax plus surchar
ge * CIR alleges that Host Agreement void. Even if valid, contractors tax is not
indirect tax in view of the Agreeement. * Gotamco appealed to the CTA. CTA for G
otamco. ISSUE: WON Gotamco should pay the 3% contractor s tax under Section 191
of NIRC on the gross receipts it realized from the construction of the WHO offic
e? HELD: NO, contractors tax is indirect tax coming within purview of the Host Ag
reement. As to the Agreement, it is valid since less formal types of internation
al agreements may be entered into by the Chief Executive and become binding with
out the concurrence of the legislative body. The Agreement comes within this cat
egory; it is a valid and binding international agreement even without the concur
rence of the Philippine Senate. As to the tax, as correctly held by CTA: In cont
ext, direct taxes are those that are demanded from the very person who, it is in
tended or desired, should pay them; while indirect taxes are those that are dema
nded in the first instance from one person in the expectation and intention that
he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co.) The c
ontractor s tax is of course payable by the contractor but in the last analysis

it is the owner of the building that shoulders the burden of the tax because the
same is shifted by the contractor to the owner as a matter of self-preservation
. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, alt
hough it is payable by the petitioner, the latter can shift its burden on the WH
O. In the last analysis it is the WHO that will pay the tax indirectly through t
he contractor and it certainly cannot be said that this tax has no bearing upon
the World Health Organization. Phil. Acetylene not applicable since the Host Ag
reement, in specifically exempting the WHO from "indirect taxes," contemplates t
axes which, although not imposed upon or paid by the Organization directly, form
part of the price paid or to be paid by it. It is the clear intention of the Ag
reement to exempt the WHO from "indirect" taxation.

Wells Fargo Bank v CIR (Situs of Taxation)

Facts: Birdie Lillian Eye, died on September 16, 1932 at Los Angeles California,
the place of her alleged last residence and domicile. Among the properties she
left was her one half conjugal shares in 70,000 shares of stock in Benguet Conso
lidated Mining Company, an anonymous partnership organized and existing under th
e laws of the Philippines, with its principal office in Manila. She left a will
which was duly admitted to probate in California where her estate was administer
ed and settled. Petitioner is the trustee of the trust created by the will. The
Federal and State of Californias inheritance taxes due on said shares have been d
uly paid. The respondent now claims that the same shares of stocks are also subj
ect to inheritance tax here in the Philippines. Hence, this petition for declara
tory judgment was instituted by plaintiff to ascertain whether the shares are st
ill subject to inheritance tax. Issue: May inheritance taxes be imposed on the s
aid shares? Held: Yes. Originally the settled law in the US is that intangibles
have only one situs for the purpose of inheritance tax, and that such situs is i
n the domicile of the decedent at the time of his death. But this rule has been
relaxed due to (1) the recognition of the inherent power of each government to t
ax persons, properties and rights within its jurisdiction and enjoying thus, the
protection of its laws; and (2) upon the principle that as to intangibles, a si
ngle location in space is hardly possible considering the multiple, distinct rel
ationships which may be entered into with respect thereto. It is the identity or
association of intangibles with the person of their owner at his domicile which
gives jurisdiction to tax. But when the taxpayer extends his activities with re
spect to his intangibles, so as to avail himself of the protection and benefit o
f the laws of another state, in such a way as to bring his person or property wi
thin the reach of the tax gatherer there, the reason for a single place of taxat
ion no longer obtains. In this case, the actual situs of the shares of stock is
in the Philippines, the corporation being domiciled therein. The owner residing
in California has extended her activities with respect to her intangibles so as
to avail herself of the protection and benefit of the Philippine laws. The juris
diction of the Philippine government to impose tax must be upheld.
CIR v Japan Airlines (JAL) (Situs of Taxation)
Facts: JAL is a foreign corporation engaged in the business of International air
carriage. Since mid-July of 1957, JAL had maintained an office at the Filipinas
Hotel, Roxas Boulevard Manila. The said office did not sell tickets but was mer
ely for the promotion of the company. On July 17 1957, JAL constituted PAL as it
s agent in the Philippines. PAL sold tickets for and in behalf of JAL. On June 1
972, JAL then received deficiency income tax assessments notices and a demand le
tter from petitioner for years 1959 through 1963. JAL protested against said ass
essments alleging that as a non-resident foreign corporation, it as taxable only
on income from Philippines sources as determined by section 37 of the Tax Code,
there being no income on said years, JAL is not liable for taxes. Issue: WON pr
oceeds from sales of JAL tickets sold in the Philippines are taxable as income f
rom sources within the Philippines. Held: The ticket sales are taxable. Citing t
he case of CIR v BOAC, the court reiterated that the source of an income is the
property, activity or service that produced the income. For the source of income
to be considered as coming from the Philippines, it is sufficient that the inco
me is derived from activity within the Philippines. The absence of flight operat
ions to and from the Philippines is not determinative of the source of income or
the situs of income taxation. The test of taxability is the source, and the sou
rce of the income is that activity which produced the income. In this case, as J
AL constitutes PAL as its agent, the sales of JAL tickets made by PAL is taxable
.

COLLECTOR V. LARA (multiplicity of situs)

FACTS:Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U
.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was c
onnected with the public school system, first as a teacher and later as a divisi
on superintendent of schools. After his retirement, Miller accepted an executive
position in the local branch of Ginn & Co., book publishers with principal offi
ces in New York and Boston, U.S.A., up to the outbreak of the Pacific War. Mille
r lived at the Manila Hotel. He never lived in any residential house in the Phil
ippines. After the death of his wife in 1931, he transferred from the Manila Hot
el to the Army and Navy Club, where he was staying at the outbreak of the Pacifi
c War. On January 17, 1941, Miller executed his last will and testament in Santa
Cruz, California, in which he declared that he was "of Santa Cruz, California".
On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was c
losed, and Miller joined the Board of Censors of the United States Navy. During
the war, he was taken prisoner by the Japanese forces in Leyte, and in January,
1944, he was transferred to Catbalogan, Samar, where he was reported to have bee
n executed by said forces on March 11, 1944. Testate proceedings were instituted
before the Court of California in Santa Cruz County, which subsequently issued
an order and decree of settlement of final account and final distribution. The B
ank of America, National Trust and Savings Association of San Francisco Californ
ia, co-executor named in Miller s will, filed an estate and inheritance tax retu
rn with the Collector, covering only the shares of stock issued by Philippine co
rporations. After due investigation, the Collector assessed estate and inheritan
ce taxes, which was received by the said executor. The estate of Miller proteste
d said assessment. This assessment was appealed by De Lara as Ancilliary Adminis
trator before the Board of Tax Appeals, which appeal was later heard and decided
by the Court of Tax Appeals. In determining the "gross estate" of a decedent, u
nder Section 122 in relation to section 88 of our Tax Code, it is first necessar
y to decide whether the decedent was a resident or a non-resident of the Philipp
ines at the time of his death. The Collector maintains that under the tax laws,
residence and domicile have different meanings; that tax laws on estate and inhe
ritance taxes only mention resident and non-resident, and no reference whatsoeve
r is made to domicile except in Section 93 (d) of the Tax Code; that Miller duri
ng his long stay in the Philippines had required a "residence" in this country,
and was a resident thereof at the time of his death, and consequently, his intan
gible personal properties situated here as well as in the United States were sub
ject to said taxes. The Ancilliary Administrator, however, equally maintains tha
t for estate and inheritance tax purposes, the term "residence" is synonymous wi
th the term domicile. ISSUE: W/N the estate is liable to file an estate and inhe
ritance tax return besides those covering shares of stocks issued by Philippine
corporations. HELD: No. The Court agrees with the Court of Tax Appeals that at t
he time that The National Internal Revenue Code was promulgated in 1939, the pre
vailing construction given by the courts to the "residence" was synonymous with
domicile. and that the two were used intercnangeabiy. Moreover, there is reason
to believe that the Legislature adopted the American (Federal and State) estate
and inheritance tax system (see e.g. Report to the Tax Commision of the Philippi
nes, Vol. II, pages 122-124, cited in I Dalupan, National Internal Revenue Code
Annotated, p. 469-470). In the United States, for estate tax purposes, a residen
t is considered one who at the time of his death had his domicile in the United
States, and in American jurisprudence, for purposes of estate and taxation, "res
idence" is interpreted as synonymous with domicile, and that The incidence of est
ate and succession has historically been determined by domicile and situs and no
t by the fact of actual residence. (Bowring vs. Bowers) At the time of his death
, Miller had his residence or domicile in Santa Cruz, California. During his sta
y in the country, Miller never acquired a house for residential purposes for he
stayed at the Manila Hotel and later on at the Army and Navy Club. The bulk of h
is savings and properties were in the United States. To his home in California,
he had been sending souvenirs. In November, 1940, Miller took out a property ins
urance policy and indicated therein his address as Santa Cruz, California, this

aside from the fact that Miller, as already stated, executed his will in Santa C
ruz, California, wherein he stated that he was "of Santa Cruz, California". ***
As to the shares of stocks issued by Philippine corporations, an exemption was g
ranted to the estate by virtue of Section 122 of the Tax Code, which provides as
follows: . . ."And Provided, however, That no tax shall be collected under this
Title in respect of intangible personal property (a) if the decedent at the tim
e of his death was a resident of a foreign country which at the time of his deat
h did not impose a transfer tax or death tax of any character in respect of inta
ngible personal property of citizens of the Philippines not residing in that cou
ntry, or (b) if the laws of the foreign country of which the decedent was reside
nt at the tune of his death allow a similar exemption from transfer taxes or dea
th taxes of every character in respect of intangible personal property owned by
citizen, of the Philippine not residing in that foreign country. Affirmed, with
modification.

CIR v. Juliane Baier-Nickel (Multiplicity of Situs)

Facts: Respondent Juliane Baier-Nickel, a non-resident German citizen, is the Pr
esident of JUBANITEX, Inc., a domestic corporation engaged in [m]anufacturing, ma
rketing on wholesale only, buying or otherwise acquiring, holding, importing and
exporting, selling and disposing embroidered textile products. Through JUBANITEXs
General Manager, Marina Q. Guzman, the corporation appointed and engaged the se
rvices of respondent as commission agent. It was agreed that respondent will rec
eive 10% sales commission on all sales actually concluded and collected through
her efforts. In 1995, respondent received the amount of P1,707,772.64, represent
ing her sales commission income from which JUBANITEX withheld the corresponding
10% withholding tax amounting to P170,777.26, and remitted the same to the Burea
u of Internal Revenue (BIR). On October 17, 1997, respondent filed her 1995 inco
me tax return reporting a taxable income of P1,707,772.64 and a tax due of P170,
777.26. Respondent filed a claim to refund the amount of P170,777.26 alleged to
have been mistakenly withheld and remitted by JUBANITEX to the BIR. Respondent c
ontended that her sales commission income is not taxable in the Philippines beca
use the same was a compensation for her services rendered in Germany and therefo
re considered as income from sources outside the Philippines. The CTA rendered a
decision denying her claim. It held that the commissions received by respondent
were actually her remuneration in the performance of her duties as President of
JUBANITEX and not as a mere sales agent thereof. The income derived by responde
nt is therefore an income taxable in the Philippines because JUBANITEX is a dome
stic corporation. On petition with the Court of Appeals, the latter reversed the
Decision of the CTA, holding that respondent received the commissions as sales
agent of JUBANITEX and not as President thereof. And since the source of income me
ans the activity or service that produce the income, the sales commission receiv
ed by respondent is not taxable in the Philippines because it arose from the mar
keting activities performed by respondent in Germany. Petitioner maintains that
the income earned by respondent is taxable in the Philippines because the source
thereof is JUBANITEX, a domestic corporation located in the City of Makati. It
further argued that since respondent is the President of JUBANITEX, any remunera
tion she received from said corporation should be construed as payment of her ov
erall managerial services to the company and should not be interpreted as a comp
ensation for a distinct and separate service as a sales commission agent. Respon
dent, on the other hand, claims that the income she received was payment for her
marketing services. She contended that income of nonresident aliens like her is
subject to tax only if the source of the income is within the Philippines. Sour
ce, according to respondent is the situs of the activity which produced the inco
me. And since the source of her income were her marketing activities in Germany,
the
income she derived from said activities is not subject to Philippine income taxa
tion. Issue/s: W/N respondents sales commission income is taxable in the Philippi
nes. Held/Ratio: Yes. Section 25 of the NIRC provides that non-resident aliens,
whether or not engaged in trade or business, are subject to Philippine income ta
xation on their income received from all sources within the Philippines. Thus, t
he keyword in determining the taxability of non-resident aliens is the incomes sou
rce. Source of income relates to the property, activity or service that produced th
e income. With respect to rendition of labor or personal service, as in the inst
ant case, it is the place where the labor or service was performed that determin
es the source of the income. There is therefore no merit in petitioners interpret
ation which equates source of income in labor or personal service with the resid
ence of the payor or the place of payment of the income. The decisive factual co
nsideration here is not the capacity in which respondent received the income, bu
t the sufficiency of evidence to prove that the services she rendered were perfo
rmed in Germany. The settled rule is that tax refunds are in the nature of tax e
xemptions and are to be construed strictissimi juris against the taxpayer. The f
axed documents presented by respondent did not constitute substantial evidence,
or that relevant evidence that a reasonable mind might accept as adequate to sup
port the conclusion that it was in Germany where she performed the income produc

ing service which gave rise to the reported monthly sales in the months of March
and May to September of 1995. She thus failed to discharge the burden of provin
g that her income was from sources outside the Philippines and exempt from the a
pplication of our income tax law. Petition GRANTED. The June 28, 2000 Decision o
f the Court of Tax Appeals in C.T.A. Case No. 5633, which denied respondents clai
m for refund of income tax paid for the year 1995 is REINSTATED.

Alcan v. Treasurer of Manila

(Double Taxation: Strict Sense)
CIR v. Solidbank (Double Taxation: Strict Sense) Facts: For the calendar year 19
95, [respondent] seasonably filed its Quarterly Percentage Tax Returns reflectin
g gross receipts (pertaining to 5% [Gross Receipts Tax] rate) in the total amoun
t of P1,474,691,693.44 with corresponding gross receipts tax payments in the sum
of P73,734,584.60. On January 30, 1996, [the Court of Tax Appeals] rendered a d
ecision in CTA Case No. 4720 entitled Asian Bank Corporation vs. Commissioner of
Internal Revenue[,] wherein it was held that the 20% final withholding tax on [
a] banks interest income should not form part of its taxable gross receipts for p
urposes of computing the gross receipts tax. On June 19, 1997, on the strength o
f the aforementioned decision, [respondent] filed with the Bureau of Internal Re
venue [BIR] a letter-request for the refund or issuance of [a] tax credit certif
icate in the aggregate amount of P3,508,078.75, representing allegedly overpaid
gross receipts tax for the year 1995. The CTA rendered its decision ordering pet
itioner to refund in favor of respondent the reduced amount of P1,555,749.65 as
overpaid [gross receipts tax] for the year 1995. The CA held that the 20% FWT on
a banks interest income did not form part of the taxable gross receipts in compu
ting the 5% GRT, because the FWT was not actually received by the bank but was d
irectly remitted to the government. The appellate court curtly said that while t
he Tax Code does not specifically state any exemption, x x x the statute must rec
eive a sensible construction such as will give effect to the legislative intenti
on, and so as to avoid an unjust or absurd conclusion.
Issue/s:W/N the 20% final withholding tax on [a] banks interest income forms part
of the taxable gross receipts in computing the 5% gross receipts tax. Held/Rati
o: Yes, the amount of interest income withheld in payment of the 20% FWT forms p
art of gross receipts in computing for the GRT on banks. Two types of taxes are
involved in the present controversy: (1) the GRT, which is a percentage tax; and
(2) the FWT, which is an income tax. As a bank, petitioner is covered by both t
axes. Gross receipts refer to the total, as opposed to the net, income. These are
therefore the total receipts before any deduction for the expenses of management
. Websters New International Dictionary, in fact, defines gross as whole or entire
. No Double Taxation The two taxes, subject of this litigation, are different fro
m each other. The basis of their imposition may be the same, but their natures a
re different, thus leading us to a final point. Double taxation means taxing the
same property twice when it should be taxed only once; that is, x x x taxing the
same person twice by the same jurisdiction for the same thing. It is obnoxious w
hen the taxpayer is taxed twice, when it should be but once. Otherwise described
as direct duplicate

taxation, the two taxes must be imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period; and they must be of the same kind or character. First, the t
axes herein are imposed on two different subject matters. The subject matter of
the FWT is the passive income generated in the form of interest on deposits and
yield on deposit substitutes, while the subject matter of the GRT is the privile
ge of engaging in the business of banking. A tax based on receipts is a tax on b
usiness rather than on the property; hence, it is an excise rather than a proper
ty tax. It is not an income tax, unlike the FWT. These two taxes are entirely di
stinct and are assessed under different provisions. Second, although both taxes
are national in scope because they are imposed by the same taxing authority -the
national government under the Tax Code -- and operate within the same Philippin
e jurisdiction for the same purpose of raising revenues, the taxing periods they
affect are different. The FWT is deducted and withheld as soon as the income is
earned, and is paid after every calendar quarter in which it is earned. On the
other hand, the GRT is neither deducted nor withheld, but is paid only after eve
ry taxable quarter in which it is earned. Third, these two taxes are of differen
t kinds or characters. The FWT is an income tax subject to withholding, while th
e GRT is a percentage tax not subject to withholding. In short, there is no doub
le taxation, because there is no taxing twice, by the same taxing authority, wit
hin the same jurisdiction, for the same purpose, in different taxing periods, so
me of the property in the territory. Subjecting interest income to a 20% FWT and
including it in the computation of the 5% GRT is clearly not double taxation. P
etition granted.
China Bank v. CA (Constitutionality of Double Taxation) Facts: The Court of Appe
als affirmed the Decision of the Court of Tax Appeals, which granted China Banki
ng Corporation (CBC) a tax refund or credit of P123,278.73 but denied due to insuf
ficiency of evidence the remainder of CBCs claim for P1,140,623.82. On 20 July 19
94, CBC paid P12,354,933.00 as gross receipts tax on its income from interests o
n loan investments, commissions, services, collection charges, foreign exchange
profits and other operating earnings during the second quarter of 1994. On 30 Ja
nuary 1996, the Court of Tax Appeals in Asian Bank Corporation v. Commissioner o
f Internal Revenue ruled that the 20% final withholding tax on a banks passive in
terest income does not form part of its taxable gross receipts. On 19 July 1996,
CBC filed with the Commissioner of Internal Revenue (Commissioner) a formal claim
for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipt
s tax that CBC paid for the second quarter of 1994. Citing Asian Bank, CBC argue
d that it was not liable for the gross receipts tax - amounting to P1,140,623.82
- on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding
tax on CBCs passive interest income in 1994. Disputing CBCs claim, the Commissione
r asserted that CBC paid the gross receipts tax pursuant to Section 119 (now Sec
tion 121) of the National Internal Revenue Code (Tax Code) and pertinent Bureau of
Internal Revenue (BIR) regulations. The Commissioner argued that the final withho
lding tax on a banks interest income forms part of its gross receipts in computin
g the gross receipts tax. The Commissioner contended that the term gross receipts
means the entire income or receipt, without any deduction.
Issue/s:W/N the 20% final withholding tax on interest income should form part of
CBCs gross receipts in computing the gross receipts tax on banks; Held/Ratio: Ye
s. As commonly understood, the term gross receipts means the entire receipts witho
ut any deduction. Deducting any amount from the gross receipts changes the resul
t, and the meaning, to net receipts. Any deduction from gross receipts is incons
istent with a law that mandates a tax on gross receipts, unless the law itself m
akes an exception. The Court of Tax Appeals reversed its ruling in Asian Bank. I
n Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v. Commi
ssioner, both promulgated on 16 November 2001, the tax court ruled that the fina
l withholding tax forms part of the banks gross receipts in computing the gross r
eceipts tax. The tax court also held in Far East Bank and Standard Chartered Ban
k that the exclusion of the final withholding tax from gross receipts operates a
s a tax exemption which the law must expressly grant. No law provides for such e

xemption. On Double Taxation: There is no double taxation when Section 121 of th

e Tax Code imposes a gross receipts tax on interest income that is already subje
cted to the 20% final withholding tax under Section 27 of the Tax Code. The gros
s

receipts tax is a business tax under Title V of the Tax Code, while the final wi
thholding tax is an income tax under Title II of the Code. There is no double ta
xation if the law imposes two different taxes on the same income, business or pr
operty. Constitutionality: City of Baguio v. De Leon: As to why double taxation
is not violative of due process, Justice Holmes made clear in this language: The
objection to the taxation as double may be laid down on one side . . . . The 14t
h Amendment [the due process clause] no more forbids double taxation than it doe
s doubling the amount of a tax, short of confiscation or proceedings unconstitut
ional on other grounds. With that decision rendered at a time when American sover
eignty in the Philippines was recognized, it possesses more than just a persuasi
ve effect. To some, it delivered the coup de grace to the bogey of double taxati
on as a constitutional bar to the exercise of the taxing power. It would seem th
ough that in the United States, as with us, its ghost, as noted by an eminent cr
itic, still stalks the juridical stage. In a 1947 decision, however, we quoted w
ith approval this excerpt from a leading American decision: Where, as here, Congr
ess has clearly expressed its intention, the statute must be sustained even thou
gh double taxation results. Reversed.
City of Baguio v. De Leon
(Constitutionality of Double Taxation) Facts:An ordinance of the City of Baguio
imposed a license fee on any person, firm, entity or corporation doing business
in the City of Baguio. Fortunato de Leon was held liable as a real estate dealer
with a property therein worth more than P10,000, but not in excess of P50,000,
and therefore obligated to pay under such ordinance the P50 annual fee. In its d
ecision of December 19, 1964, the lower court declared the above ordinance as am
ended, valid and subsisting, and held defendant-appellant liable for the fees th
erein prescribed as a real estate dealer. Its validity on constitutional grounds
is challenged because of the allegation that it imposed double taxation, which
is repugnant to the due process clause, and that it violated the requirement of
uniformity. Issue/s: W/N the ordinance is valid. Held/Ratio: Yes. The source of
authority for the challenged ordinance is supplied by Republic Act No. 329, amen
ding the city charter of Baguio2 empowering it to fix the license fee and regula
te "businesses, trades and occupations as may be established or practiced in the
City." On double taxation: As to why double taxation is not violative of due pr
ocess, Justice Holmes made clear in this language: "The objection to the taxatio
n as double may be laid down on one side. ... The 14th Amendment [the due proces
s clause] no more forbids double taxation than it does doubling the amount of a
tax, short of confiscation or proceedings unconstitutional on other grounds." Wi
th that decision rendered at a time when American sovereignty in the Philippines
was recognized, it possesses more than just a persuasive effect. To some, it de
livered the coup de grace to the bogey of double taxation as a constitutional ba
r to the exercise of the taxing power. It would seem though that in the United S
tates, as with us, its ghost as noted by an eminent critic, still stalks the jur
idical state. In a 1947 decision, however, we quoted with approval this excerpt
from a leading American decision: "Where, as here, Congress has clearly expresse
d its intention, the statute must be sustained even though double taxation resul
ts." At any rate, it has been expressly affirmed by us that such an "argument ag
ainst double taxation may not be invoked where one tax is imposed by the state a
nd the other is imposed by the city ..., it being widely recognized that there i
s nothing inherently obnoxious in the requirement that license fees or taxes be
exacted with respect to the same occupation, calling or activity by both the sta
te and the political subdivisions thereof." On uniformity: Equality and uniformi
ty in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to mak
e reasonable and natural classifications for purposes of taxation; Affirmed.

CIR v. SC Johnson & Son (Tax Treaties) Facts: S. C. Johnson and Son, Inc. entere
d into a license agreement with SC Johnson and Son, United States of America (US
A) For the use of the trademark or technology, S. C. Johnson and Son, Inc. was o
bliged to pay SC Johnson and Son, USA royalties based on a percentage of net sal
es and subjected the same to 25% withholding tax on royalty payments S. C. Johns
on and Son, Inc. filed with the International Tax Affairs Division (ITAD) of the
BIR a claim for refund of overpaid withholding tax on royalties arguing that th
e preferential tax rate of 10% should apply to them
Issue Whether or not SC Johnson and Son, USA is entitled to the "most favored na
tion" tax rate of 10% on royalties as provided in the RP-US Tax Treaty in relati
on to the RP-West Germany Tax Treaty. Held/Ratio NO. Under Article 13 of the RPUS Tax Treaty, the Philippines may impose one of three rates 25 percent of the g
ross amount of the royalties; 15 percent when the royalties are paid by a corpor
ation registered with the Philippine Board of Investments and engaged in preferr
ed areas of activities; or the lowest rate of Philippine tax that may be imposed
on royalties of the same kind paid under similar circumstances to a resident of
a third state. The RP-US and the RP-West Germany Tax Treaties do not contain si
milar provisions on tax crediting. Since the RP-US Tax Treaty does not give a ma
tching tax credit of 20 percent for the taxes paid to the Philippines on royalti
es as allowed under the RP-West Germany Tax Treaty, private respondent cannot be
deemed entitled to the 10 percent rate granted under the latter treaty for the
reason that there is no payment of taxes on royalties under similar circumstance
s.
Delpher v. IAC (Tax avoidance)
Facts The Pacheco siblings leased a piece of real estate to Construction Compone
nts International Inc., providing that during the existence or after the term of
the lease that should the lessor decide to sell the property leased, it shall f
irst be offered to the lessee and the lessee has the priority to buy under simil
ar conditions. Construction Components International, Inc. assigned its rights a
nd obligations under the contract of lease in favor of Hydro Pipes Philippines,
Inc. with the signed conformity of the Pacheco siblings. A deed of exchange was
executed between the Pachecos and Delpher Trades Corporation whereby the former
conveyed to the latter the leased property together with another parcel of land
for 2,500 shares of stock of defendant corporation with a total value of P1,500,
000.00. Issue Whether or not the "Deed of Exchange" of the properties executed b
y the Pachecos and Delpher Trades Corporation was meant to be a contract of sale
which, in effect, prejudiced the private respondent s right of first refusal ov
er the leased property included in the "deed of exchange." Held/Ratio NO. In eff
ect, 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 ow
nership from unincorporated to incorporated form by organizing Delpher Trades Co
rporation to take control of their properties and at the same time save on inher
itance taxes. The "Deed of Exchange" of property between the Pachecos and Delphe
r Trades Corporation cannot be considered a contract of sale. There was no trans
fer 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 re
mained in the same hands. Hence, the private respondent has no basis for its cla
im of a light of first refusal under the lease contract.

Yutivo v. CTA (Tax avoidance)

Facts Yutivo Sons Hardware Co. bought a number of cars and trucks from General M
otors Overseas Corporation. As importer, GM paid sales tax prescribed by section
s 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo.
Said tax being collected only once on original sales, Yutivo paid no further sal
es tax on its sales to the public. Southern Motors, Inc. was organized to engage
in the business of selling cars, trucks and spare parts. After the incorporatio
n of SM and until the withdrawal of GM from the Philippines in the middle of 194
7, the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM whi
ch, in turn, sold them to the public in the Visayas and Mindanao. Issue Whether
or not Southern Motors, Inc. was organized as a tax evasion device. Held/Ratio N
O. SM was organized in June, 1946 when it could not have caused Yutivo any tax s
avings. From that date up to June 30, 1947, or a period of more than one year, G
M was the importer of the cars and trucks sold to Yutivo, which, in turn resold
them to SM. During that period, it is not disputed that GM as importer, was the
one solely liable for sales taxes. Neither Yutivo or SM was subject to the sales
taxes on their sales of cars and trucks. The sales tax liability of Yutivo did
not arise until July 1, 1947 when it became the importer and simply continued it
s practice of selling to SM. The decision, therefore, of the Tax Court that SM w
as organized purposely as a tax evasion device runs counter to the fact that the
re was no tax to evade.
Republic v. Gonzales (Tax evasion) Facts Since 1946, Blas Gonzales, has been a p
rivate concessionaire in the U.S. Military Base at Clark Field, Angeles City: He
was engaged in the manufacture of furniture and, per agreement with base author
ities, supplied them with his manufactured articles. The appellant filed his inc
ome tax returns for the years 1946 and 1947, respectively, with the then Municip
al Treasurer of Angeles, Pampanga. Upon investigation, however, the BIR discover
ed that for the years 1946 and 1947, the appellant had been paid a total of P2,1
99,920.50 for furniture delivered by him to the base authorities. Compared again
st the sales figure provided by the base authorities, therefore, the amount of P
1,787,848.32 declared by the appellant as his total sales for the two tax years
in question was short or underdeclared by some P412,072.18. Accordingly, the app
ellee considered this last mentioned amount as unreported item of income of the
appellant for 1946. Further investigation into the appellant s 1946 profit and l
oss statement disclosed "local sales," that is, sales to persons other than the
United States Army, in the amount of P124,510.43. As a result, the appellee like
wise considered the said amount as unreported income for the said year. The full
amount of P124,510.43 was considered as taxable income because the appellant co
uld not produce the books of account on the same upon which any deduction could
be based.
Issues 1. Whether or not Gonzales is subject to Philippine tax laws pursuant to
the United States-Philippine Military Bases Agreement 2. Whether or not Gonzales
is guilty of fraud. Held/Ratio 1. YES. None of the mentioned covenants shields
a concessionaire, like the appellant, from the payment of the income tax. For on
e thing, even the exemption in favor of members of the United States Armed Force
s and nationals of the United States does not include income derived from Philip
pine sources. The appellant cannot seek refuge in the use of "excise" or "other
taxes or imposts" in paragraph 1 of Article XVIII of the Military Bases Agreemen
t, because, as already stated, said terms are employed with specific application
to the right to establish agencies and concessions within the bases and to the
merchandise or services sold or dispensed by such agencies or concessions. 2. YE
S. As rightly argued by the Solicitor General s office, since fraud is a state o
f mind, it need not be proved by direct evidence but may be inferred from the ci
rcumstances of the case. The failure of the appellant to declare for taxation pu
rposes his true and actual income derived from his furniture business at the Cla
rk Field Air Base for two consecutive years is an indication of his fraudulent i
ntent to cheat the Government of its due taxes.

CIR v. Estate of Benigno Toda (Tax evasion)

Facts:CIC 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. 30 August 1989, Toda purportedly sold the property for P100 million to
Altonaga, who, in turn, sold the same property on the same day to Royal Match In
c. (RMI) for P200 million. These two transactions were evidenced by Deeds of Abs
olute Sale notarized on the same day by the same notary public. For the sale of
the property to RMI, Altonaga paid capital gains tax in the amount of P10 millio
n. On 16 April 1990, CIC filed its corporate annual income tax return for the ye
ar 1989, declaring, among other things, its gain from the sale of real property
in the amount of P75,728.021. After crediting withholding taxes of P254,497.00,
it paid P26,341,207 for its net taxable income of P75,987,725. On 12 July 1990,
Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million
, as evidenced by a Deed of Sale of Shares of Stocks. Issue: WON this is a case
of tax evasion or tax avoidance. Held/Ratio: Tax avoidance and tax evasion are t
he two most common ways used by taxpayers in escaping from taxation. Tax avoidan
ce is the tax saving device within the means sanctioned by law. It should be use
d by the taxpayer in good faith and at arms length. Tax evasion is a scheme used
outside of those lawful means and when availed of, it usually subjects the taxp
ayer to further or additional civil or criminal liabilities. Tax evasion connote
s the integration of three factors: (1) the end to be achieved, i.e., the paymen
t of less than that known by the taxpayer to be legally due, or the non-payment
of tax when it is shown that a tax is due; (2) an accompanying state of mind whi
ch is described as being "evil," in "bad faith," "willfull," or "deliberate and
not accidental"; (3) a course of action or failure of action which is unlawful.
All these factors are present in the instant case. That Altonaga was a mere cond
uit finds support in the admission of respondent .Estate that the sale to him wa
s part of the tax planning scheme of CIC. The scheme resorted to by CIC in makin
g 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. It is tainted with fraud. Here, it is obvious that the objective of t
he sale to Altonaga was to reduce the amount of tax to be paid. The transfer fro
m him to RMI would result to 5% individual capital gains tax, instead of 35% cor
porate income tax. Altonagas sole purpose of acquiring and transferring title of
the properties on the same day was to create a tax shelter. Altonaga never contr
olled the property and did not enjoy the normal benefits and burdens of ownershi
p. The sale to him was merely a tax ploy, a sham, and without business purpose a
nd 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 li
ability. In a nutshell, the intermediary transaction, i.e., the sale of Altonaga
, which was prompted more on the mitigation of tax liabilities than for legitima
te business purposes constitutes tax evasion.
Greenfield v. Meer (Exemption from Taxation)
Facts Since the year 1933, the plaintiff has been continuously engaged in the em
broidery business. In 1935, the plaintiff began engaging in buying and selling m
ining stocks and securities for his own exclusive account and not for the accoun
t of others. The plaintiff has not been a dealer in securities as defined in sec
tion 84 (t) of Commonwealth Act No. 466; he has no established place of business
for the purchase and sale of mining stocks and securities; and he was never a m
ember of any stock exchange. The plaintiff filed an income tax return where he c
laims a deduction of P67,307.80 representing the net loss sustained by him in mi
ning stocks securities during the year 1939. The defendant disallowed said item
of deduction on the ground that said losses were sustained by the plaintiff from
the sale of mining stocks and securities which are capital assets, and that the
loss arising from the sale of the same should be allowed only to the extent of
the gains from such sales, which gains were already taken into consideration in
the computation of the alleged net loss of P67,307.80. Issue Whether the persona
l and additional exemptions granted by section 23 of Commonwealth Act No. 466 sh

ould be considered as a credit against or be deducted from the net income, or wh

ether it is the tax on such exemptions that should be deducted from the tax on t
he total net income. Held/Ratio Personal and additional exemptions claimed by ap
pellant should be credited against or deducted from the net income. "Exception i
s an immunity or privilege; it is freedom from a charge or burden to which other
s are subjected." (If the amounts of personal and additional exemptions fixed in
section 23 are exempt from taxation, they should not be included as part of the
net income, which is taxable. There is nothing in said section 23 to justify th
e contention that the tax on personal exemptions (which are exempt from taxation
) should first be fixed, and then deducted from the tax on the net income.

CIR v. PLDT (Nature of Taxation Exemption) FACTS: * PLDT paid to the BIR taxes f
or the for equipment, machineries and spare parts it imported for its business.
* After such payment, it wrote to the BIR to seek a confirmatory ruling on its e
xemption privileges. The BIR issued a ruling stating that PLDT is exempt from al
l taxes including the 10% value-added tax (VAT) on its importations of equipment
, machineries and spare parts necessary in the conduct of its business covered b
y the franchise. * Based on the BIR ruling, PLDT filed a claim for tax credit/re
fund of the VAT, compensating taxes, advance sales taxes and other taxes it had
been paying in its importation of various equipment, machineries and spare parts
needed for its operations. * PLDT filed with the CTA a petition for review. CTA
granted the credit/refund. BIRs MfR denied. * BIR appealed to CA which affirmed
CTA judgment. Hence this appeal.
ISSUE: WONPLDT is exempt from paying VAT, compensating taxes, advance sales taxe
s and internal revenue taxes on its importations? HELD: YES, PLDT exempt from pa
ying direct taxes but not indirect taxes (ie VAT). Taxation is the rule, exempti
on is the exception. Statutes granting tax exemptions must be construed in stric
tissimi juris against the taxpayer and liberally in favor of the taxing authorit
y. To him who claims a refund or exemption from tax payments rests the burden of
justifying the exemption by words too plain to be mistaken and too categorical
to be misinterpreted. Tax exemption represents a loss of revenue to the governme
nt and must, therefore, not rest on vague inference. When claimed, it must be st
rictly construed against the taxpayer who must prove that he falls under the exc
eption. If an exemption is found to exist, it must not be enlarged by constructi
on, since the reasonable presumption is that the state has granted in express te
rms all it intended to grant at all, and that, unless the privilege is limited t
o the very terms of the statute the favor would be extended beyond dispute in or
dinary cases. DISPOSITIVE: CA modified. PLDT to get refund on advance sales tax
and compensating tax it paid less the VAT due on the importations.
Basco v. Pagcor (Nature of Power to grant tax exemption) FACTS: * PAGCOR was cre
ated and given a franchise under PD 1067. * Petitioner filed a petition on the g
rounds that the PAGCOR Charter is contrary to morals, public policy and order, a
nd because it constitutes a waiver of the right of Manila City government s righ
t to impose taxes and license fees, which is recognized by law. They assail Sect
ion 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from
paying any "tax of any kind or form, income or otherwise, as well as fees, charg
es or levies of whatever nature, whether National or Local."
ISSUE: WON PAGCOR Charter is violative of the autonomy of the local government?
HELD: NO, it is not violative of the law. Manila s power to impose license fees
on gambling, has long been revoked. As early as 1975, the power of local governm
ents to regulate gambling thru the grant of "franchise, licenses or permits" was
withdrawn by P.D. No. 771 and was vested exclusively on the National Government
(Note: Since the case doesn t directly say anything about the "nature of the po
wer to grant tax exemption", use the doctrine mentioned in the case [which speak
s of the "nature of the power to tax"] and extend them to tax exemption.) Manila
has no inherent right to impose taxes. Thus, "the Charter or statute must plain
ly show an intent to confer that power or the municipality cannot assume it". It
s "power to tax" therefore must always yield to a legislative act which is super
ior having been passed upon by the state itself which has the "inherent power to
tax". Local governments have no power to tax instrumentalities of the National
Government. "The states have no power by taxation or otherwise, to retard, imped
e, burden or in any manner control the operation of constitutional laws enacted
by Congress to carry into execution the powers vested in the federal government.
(MC Culloch v. Marland, 4 Wheat 316, 4 L Ed. 579)" The power of local governmen
t to "impose taxes and fees" is always subject to "limitations" which Congress m
ay provide by law. DISPOSITIVE: PAGCOR Charter valid since exemption was granted
by Congress.

MACEDA v. MACARAIG(Rationale/Ground for tax exemption & Construction of Statutes

Granting Tax Exemption Exemption) FACTS: (same as 1991 case) * CA 120 created N
APOCOR as a public corporation to undertake the development of hydraulic power a
nd the production of power from other sources. * RA 358 (1949) granted NAPOCOR t
ax and duty exemption privileges. RA 6395 (1971) revised the charter of the NAPO
COR, tasking it to carry out the policy of the national electrification, and pro
vided in detail NAPOCORs tax exceptions. PD 380 (1974) specified that NAPOCORs exe
mption includes all taxes, etc. imposed directly or indirectly. * PD 938 integrate
d the exemptions in favor of GOCCs including their subsidiaries; however, empowe
ring the President or the Minister of Finance, upon recommendation of the Fiscal
Incentives Review Board (FIRB) to restore, partially or completely, the exempti
ons withdrawn or revised. * The FIRB issued Resolution 10-85 (7 February 1985) r
estoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 19
84- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefi
nitely effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB is
sued Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which was appr
oved by the President on 5 October 1987. * Since 1976, oil firms never paid exci
se or specific and ad valorem taxes for petroleum products sold and delivered to
NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sa
les of oil products to NAPOCOR only in 1984. * NAPOCOR claimed for a refund (P46
8.58 million). Only portion thereof, corresponding to Caltex, was approved and r
eleased by way of a tax credit memo. The claim for refund of taxes paid by Petro
Phil, Shell and Caltex amounting to P410.58 million was denied. * NAPOCOR moved
for reconsideration, starting that all deliveries of petroleum products to NAPOC
OR are tax exempt, regardless of the period of delivery. ISSUE: WON NAPOCOR ceas
e to enjoy exemption from indirect tax when exemption in PD 938 is in general te
rms. HELD: NO, NAPOCOR still exempt. Tax exemptions are undoubtedly to be constr
ued strictly but not so grudgingly as knowledge that many impositions taxpayers
have to pay are in the nature of indirect taxes. To limit the exemption granted
the National Power Corporation to direct taxes notwithstanding the general and b
road language of the statute will be to thwart the legislative intention in givi
ng exemption from all forms of taxes and impositions without distinguishing betw
een those that are direct and those that are not.
1991 case held: NAPOCOR is a non-profit public corporation created for the gener
al good and welfare, and wholly owned by the government of the Republic of the P
hilippines. From the very beginning of the corporations existence, NAPOCOR enjoye
d preferential tax treatment to enable the corporation to pay the indebtness and
obligation and effective implementation of the policy enunciated in Section 1 of
RA
6395. From the preamble of PD 938, it is evident that the provisions of PD 938 w
ere not intended to be strictly construed against NAPOCOR. On the contrary, the
law mandates that it should be interpreted liberally so as to enhance the tax ex
empt status of NAPOCOR. It is recognized principle that the rule on strict inter
pretation does not apply in the case of exemptions in favor of government politi
cal subdivision or instrumentality. The basis for applying the rule of strict co
nstruction to statutory provisions granting tax exemptions or deductions, even m
ore obvious than with reference to the affirmative or levying provisions of tax
statutes, is to minimize differential treatment and foster impartiality, fairnes
s, and equality of treatment among tax payers. The reason for the rule does not
apply in the case of exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an exemption is merely to
reduce the amount of money that has to be handled by government in the course of
its operations. For these reasons, provisions granting exemptions to government
agencies may be construed liberally, in favor of non tax liability of such agen
cies. In the case of property owned by the state or a city or other public corpo
rations, the express exemption should not be construed with the same degree of s
trictness that applies to exemptions contrary to the policy of the state, since
as to such property exemption is the rule and taxation the exception. DISPOSITIVE:
NAPOCOR exempt from tax.

CIR v. CA (Construction of Statutes granting tax exemption:general rule) Facts:

* YMCA is a non-stock, non-profit institution, which conducts various programs a
nd activities that are beneficial to the public, especially the young people, pu
rsuant to its religious, educational and charitable objectives. * CIR issued an
assessment including surcharge and interest, for deficiency tax. * YMCA proteste
d but denied by the CIR, so it filed in the CTA. * CTA ruled in favor of YMCA, s
o CIR appealed to CA * CA in favor of CIR but upon MfR by YMCA, it ruled in favo
r of the latter. Hence, this petition. * CIR argues the income received by YMCA
enumerated in 3 Section 27 (now Section 26) of the NIRC is, as a rule, exempted
from the payment of tax in respect to income received by them as such, the exempti
on does not apply to income derived xxx from any if their properties, real or per
sonal, or from any of their activities conducted for profit, regardless, of the
disposition made of such income xxx. * YMCA argues that it is an exempt organizat
ion due to its nature and because the income it derives from renting its space a
nd the fees it derives from parking is minimal (therefore not for profit). ISSUE
: WON the income derived from rentals of real property owned by YMCA exempt from
tax? HELD: NO, YMCA not exempt organization since it doesn t come within the pu
rview of the provision. Because taxes are the lifeblood of the nation, the Court
has always applied the doctrine of strict interpretation in construing tax exem
ptions. A claim of statutory exemption from taxation should be manifest and unmi
stakable from the language of the law on which it is based. Thus, the claimed ex
emption must expressly be granted in a statute stated in a language too clear to
be mistaken." Where the language of the law is clear and unambiguous, its expres
s terms must be applied. Laws allowing tax exemption are construed strictissimi
juris. DISPOSITIVE: YMCA to pay tax liability.
Luzon Stevedoring v. CTA (Construction of Statutes granting tax exemption:genera
l rule) FACTS: * Luzon Stevedoring for the and maintenance of its tugboats, impo
rted various engine parts and other equipment for which it paid, under protest,
the assessed compensating tax. * Unable to secure a tax refund from the CIR, it
filed a petition in the CTA. * CTA denied its petition hence this appeal. * Luzo
n Stevedoring argues contends that tugboats are embraced and included in the ter
m cargo vessel under the tax 4 exemption provisions of Sec. 190 of the NIRC, as
amended by RA 3176. * CTA argues that "tugboats" are not "Cargo vessel" because
they are neither designed nor used for carrying and/or transporting persons or g
oods by themselves but are mainly employed for towing and pulling purposes. Henc
e, Luzon Stevedoring should be taxed. ISSUE: WON Luzon Stevedoring should be exe
mpt from tax? HELD: NO, tugboats not embraced in the provision hence Luzon Steve
doring doesn t come under the exemption. "As the power of taxation is a high pre
rogative of sovereignty, the relinquishment is never presumed and any reduction
or dimunition thereof with respect to its mode or its rate, must be strictly con
strued, and the same must be coached in clear and unmistakable terms in order th
at it may be applied." (84 C.J.S. pp. 659-800), More specifically stated, the ge
neral rule is that any claim for exemption from the tax statute should be strict
ly construed against the taxpayer. DISPOSITIVE: Luzon Stevedoring doesn t come u
nder the purview of the exception. Pay tax liability.
SEC. 27. Exemptions from tax on corporations. -- The following organizations shal
l not be taxed under this Title in respect to income received by them as such -x
xx xx x xxx (g) Civic league or organization not organized for profit but operat
ed exclusively for the promotion of social welfare; (h) Club organized and opera
ted exclusively for pleasure, recreation, and other non-profitable purposes, no
part of the net income of which inures to the benefit of any private stockholder
or member; xxx xx x xxx Notwithstanding the provision in the preceding paragrap
hs, the income of whatever kind and character of the foregoing organization from
any of their properties, real or personal, or from any of their activities cond
ucted for profit, regardless of the disposition made of such income, shall be su
bject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)
3

Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in th
is section shall not apply to articles to be used by the importer himself in the
manufacture or preparation of articles subject to specific tax or those for con
signment abroad and are to form part thereof or to articles to be used by the im
porter himself as passenger and/or cargo vessel, whether coastwise or oceangoing
, including engines and spare parts of said vessel. ....
4

MACEDA v. MACARAIG (Construction of Statutes

Granting Tax Exemption Exemption) FACTS: * CA 120 created NAPOCOR as a public co
rporation to undertake the development of hydraulic power and the production of
power from other sources. * RA 358 (1949) granted NAPOCOR tax and duty exemption
privileges. RA 6395 (1971) revised the charter of the NAPOCOR, tasking it to ca
rry out the policy of the national electrification, and provided in detail NAPOC
ORs tax exceptions. PD 380 (1974) specified that NAPOCORs exemption includes all t
axes, etc. imposed directly or indirectly. * PD 938 integrated the exemptions in f
avor of GOCCs including their subsidiaries; however, empowering the President or
the Minister of Finance, upon recommendation of the Fiscal Incentives Review Bo
ard (FIRB) to restore, partially or completely, the exemptions withdrawn or revi
sed. * The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and
tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Res
olution 1-86 (1January 1986) restored such exemption indefinitely effective 1 Ju
ly 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87
(24 June 1987) restoring NAPOCORs exemption, which was approved by the President
on 5 October 1987. * Since 1976, oil firms never paid excise or specific and ad
valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil compani
es started to pay specific and ad valorem taxes on their sales of oil products t
o NAPOCOR only in 1984. * NAPOCOR claimed for a refund (P468.58 million). Only p
ortion thereof, corresponding to Caltex, was approved and released by way of a t
ax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Calte
x amounting to P410.58 million was denied. * NAPOCOR moved for reconsideration,
starting that all deliveries of petroleum products to NAPOCOR are tax exempt, re
gardless of the period of delivery. ISSUE: WON NAPOCOR cease to enjoy exemption
from indirect tax when PD 938 stated the exemption in general terms. HELD: NO, N
APOCOR still exempt. NAPOCOR is a non-profit public corporation created for the
general good and welfare, and wholly owned by the government of the Republic of
the Philippines. From the very beginning of the corporations existence, NAPOCOR e
njoyed preferential tax treatment to enable the corporation to pay the indebtness
and obligation and effective implementation of the policy enunciated in Section
1 of RA 6395. From the preamble of PD 938, it is evident that the provisions of
PD 938 were not intended to be strictly construed against NAPOCOR. On the contra
ry, the law mandates that it should be interpreted liberally so as to enhance th
e tax exempt status of NAPOCOR. It is recognized principle that the rule on stri
ct interpretation does not apply in the case of exemptions in favor of governmen
t political subdivision or instrumentality.
The basis for applying the rule of strict construction to statutory provisions g
ranting tax exemptions or deductions, even more obvious than with reference to t
he affirmative or levying provisions of tax statutes, is to minimize differentia
l treatment and foster impartiality, fairness, and equality of treatment among t
ax payers. The reason for the rule does not apply in the case of exemptions runn
ing to the benefit of the government itself or its agencies. In such case the pr
actical effect of an exemption is merely to reduce the amount of money that has
to be handled by government in the course of its operations. For these reasons,
provisions granting exemptions to government agencies may be construed liberally
, in favor of non tax liability of such agencies. In the case of property owned
by the state or a city or other public corporations, the express exemption shoul
d not be construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property exemption is the
rule and taxation the exception. DISPOSITIVE: NAPOCOR exempt from tax. DISSENTING
, Cruz: It is important to note that when P.D. Nos. 1931 and 1955 were issued by
President Marcos, the rule under the 1973 Constitution was that "no law grantin
g a tax exemption shall be passed without the concurrence of a majority of all t
he members of the Batasang Pambansa." (Art. VIII, Sec. 17[4]). Laws are usually
passed by only a majority of those present in the chamber, there being a quorum,
but not where it grants a tax exemption. This requires an absolute majority. Ye
t, despite this stringent limitation on the national legislature itself, such st
ricture does not inhibit the President and the FIRB in the exercise of their del

egated power. It would seem that the delegate has more power than the principal.
Significantly, this limitation is maintained in the present Constitution under
Article VI, Section 28(4). The ponencia holds that the rule of strict constructi
on is not applicable where the grantee is an agency of the government itself, li
ke the MPC in the case before us. I notice, however, that the ultimate beneficia
ries of the expected tax credit will be the oil companies, which certainly are n
ot part of the Republic of the Philippines. As the tax refunds will not be enjoy
ed by the MPC itself, I see no reason why we should be exceptionally lenient in
applying the exception. Sarmiento: Acetylene s pronouncement is founded on the v
ery science of taxationthat indirect taxes are no taxes for purposes of exemption
, and that consequently, one who did not pay taxes can not claim an exemption al
though the price he paid for the goods included taxes. To enable him to claim an
exemption, as the majority would now enable him (Acetylene having been "abrogat
ed"), is, I submit, to defeat the very laws of science. The theory of "indirect
taxes" and that no exemption is possible therefrom, so I reiterate, are well-set
tled concepts of taxation, as the law of supply and demand is to the law of econ
omics. A President is said (unfairly) to have attempted it, but one can not repe
al the law on supply and demand.

PHILEX. v. CIR, CA, CTA (Set- Off)

FACTS: * BIR sent a letter to Philex asking it to settle its tax liabilities. *
Philex protested the demand stating that it has pending claims for VAT input cre
dit/refund. Therefore these claims for tax credit/refund should be applied again
st the tax liabilities. * BIRfound no merit in Philex s position since these pen
ding claims have not yet been established or determined with certainty. * Philex
raised the issue to the CTA and CA which both favored CIR. * A few days after t
he denial of its MfR on the CA decision, Philex was able to obtain its VAT input
credit/refund. Hence, this petition. * Philex argues that that the refund/credi
t should off-set its tax liabilities since both had already become "due and dema
ndable, as well as fully liquidated;" hence, legal compensation can properly tak
e place. * Respondents argues that taxes cannot be subject to set-off on compens
ation since claim for taxes is not a debt or contract. ISSUE: Whether tax liabil
ities could be subject to set-off? HELD: NO, tax liabilities could not be set-of
f. Taxes cannot be subject to compensation for the simple reason that the govern
ment and the taxpayer are not creditors and debtors of each other. Taxes cannot
be subject to set-off or compensation, thus: ...there can be no off-setting of t
axes against the claims that the taxpayer may have against the government. A per
son cannot refuse to pay a tax on the ground that the government owes him an amo
unt equal to or greater than the tax being collected. The collection of a tax ca
nnot await the results of a lawsuit against the government. (Francia v. Intermed
iate Appellate Court). Aforementioned ruling has been applied in Caltex Philippi
nes, Inc. v. Commission on Audit, which reiterated that: ...a taxpayer may not o
ffset taxes due from the claims that he may have against the government. Taxes c
annot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such
a debt, demand, contract or judgment as is allowed to be set-off. A taxpayer can
not refuse to pay his taxes when they fall due simply because he has a claim aga
inst the government or that the collection of the tax is contingent on the resul
t of the lawsuit it filed against the government.
CIR v. ESSO(Set-off) Facts: ESSO overpaid its 1959 income tax by P221,033.00. It
was accordingly granted a tax credit. However, ESSOs payment of its income tax
for 1960 was found to be short by P367,994. So the Commissioner demanded payment
of the deficiency, with interest. ESSO paid under protest, including the intere
st as reckoned by the Commissioner.
ESSOs contention: The interest was more than that properly due. It should not hav
e been required to pay interest on the total amount of the deficiency tax, P367,
994.00, but only on the amount of P146,961.00representing the difference between
said deficiency and ESSOs earlier overpayment. ESSO thus asked for a refund. CIRs
contention: It denied the claim for refund. Income taxes are determined and pai
d on an annual basis, such determination and payment are separate and independen
t transactions; and a tax credit could not be considered until it has been final
ly approved and the taxpayer notified. Since in this case, the tax credit was ap
proved only on August 5, 1964, it could not be availed of in reduction of ESSOs
earlier tax deficiency for 1960; as of that year there was no tax credit to spea
k of. In support of this, the Commissioner invokes the Section 51 of the Tax Cod
e: (d) Interest on deficiency. Interest upon the amount determined as deficiency
shall be assessed at the same time as the deficiency and shall be paid upon not
ice and demand from the Commissioner of Internal Revenue; and shall be collected
as a part of the tax... ESSO appealed to the Court of Tax Appeals, which in tur
n ordered payment to ESSO of its "refund-claim. Hence, this appeal by the Commis
sioner. ISSUE: Was it proper to apply ESSOs tax credit in reducing the total defi
ciency subject to interest? YES. Ratio Decidendi: 1. Regardless of CIRs assertion
s, the fact is that as early as July 15, 1960, the Government already had in its
hands the sum representing excess payment. Having been paid and received by mis
take, that sum unquestionably belonged to ESSO, and the Government had the oblig
ation to return it to ESSO. 2. The obligation to return money mistakenly paid ar
ises from the moment that payment is made, and not from the time that the payee
admits the obligation to reimburse. The obligation of the payee to reimburse res

ults from the mistake, not from the payee s confession of the mistake or recogni
tion of the obligation to reimburse. In other words, since the amount of P221,03
3.00 belonging to ESSO was already in the hands of the Government as of July, 19
60, it was neither legally nor logically possible for ESSO thereafter to be cons
idered a debtor of the Government; and whatever other obligation ESSO might subs
equently incur in favor of the Government would have to be reduced by that sum,
in respect of which no interest could be charged. 3. "Nothing is better settled
than that courts are not to give words a meaning which would lead to absurd or u
nreasonable consequences. "Statutes should receive a sensible construction, such
as will give effect to the legislative intention and so as to avoid an unjust or
absurd conclusion." Holding: Petition denied, CTA affirmed.

Dumlao v. Comelec (Taxpayers Suit)

Facts: This is a Petition for Prohibition seeking to enjoin COMELEC from impleme
nting certain provisions of BP 51, 52, and 53 for being unconstitutional. The pe
titioners: Patricio Dumlao, is a former Governor of Nueva Vizcaya, who has filed
his certificate of candidacy for said position. Romeo B. Igot, is a taxpayer, a
qualified voter and a member of the Bar. Alfredo Salapantan, Jr., is also a tax
payer, a qualified voter, and a resident of San Miguel, Iloilo. (Dumlaos contenti
on will be skipped as his situation was not dicussed in the discussion on taxpay
ers suits) Igots and Salapantanans contentions: Assail the ff: Sec. 4. ... Any pers
on who has committed any act of disloyalty to the State, including acts amountin
g to subversion, insurrection, rebellion or other similar crimes, shall not be q
ualified to be a candidate for any of the offices covered by this Act, or to par
ticipate in any partisan political activity therein ISSUE: Do the petitioners ha
ve standing to sue? NO. Ratio Decidendi: 1. "the person who impugns the validity
of a statute must have a personal and substantial interest in the case such tha
t he has sustained, or will sustain, direct injury . In the case of petitioners I
got and Salapantan, it was only during the hearing, that Igot is said to be a ca
ndidate for Councilor. Even then, it cannot be denied that neither one has been
convicted nor charged with acts of disloyalty, nor disqualified from being candi
dates. Theirs is a generated grievance. They have no personal nor substantial in
terest at stake. They can claim no locus standi. 2. It is true that petitioners
Igot and Salapantan have instituted this case as a taxpayer s suit, and that the
rule has been relaxed, thus: ... there are many decisions nullifying at the ins
tance of taxpayers, laws providing for the disbursement of public funds, upon th
e theory that "the expenditure of public funds, by an officer of the State for t
he purpose of administering an unconstitutional act constitutes a misapplication
of such funds," which may be enjoined at the request of a taxpayer. 3. However,
the statutory provisions questioned in this case, do not directly involve the d
isbursement of public funds. While, concededly, the elections to be held involve
the expenditure of public moneys, nowhere in their Petition do said petitioners
allege that their tax money is "being extracted and spent in violation of speci
fic constitutional protections against abuses of legislative power", or that the
re is a misapplication of such funds by respondent COMELEC, or that public money
is being deflected to any improper purpose. Neither do petitioners seek to rest
rain respondent from wasting public funds through the enforcement of an invalid
or unconstitutional law. 4. Besides, the institution of a taxpayer s suit, per s
e is no assurance of judicial review. As held by this Court in Tan vs. Macapagal
, this Court is vested with discretion as to whether or not a taxpayer s suit sh
ould be entertained. Holding: Petition denied.
Lozada & Igot v. Comelec (Taxpayers Suit) Facts: This is a petition for mandamus
filed as a representative suit for and in behalf of those who wish to participat
e in the election irrespective, to compel the respondent COMELEC to call a speci
al election to fill up existing vacancies) in the Interim Batasan Pambansa. The
petition is based on Section 5(2), Article VIII of the 1973 Constitution which r
eads: (2) In case a vacancy arises in the Batasang Pambansa eighteen months or m
ore before a regular election, the Commission on Election shall call a special e
lection to be held within sixty (60) days after the vacancy occurs to elect the
Member to serve the unexpired term.
The petitioners: Petitioner Lozada claims that he is a taxpayer and a bonafide e
lector of Cebu City and a transient voter of Quezon City, Metro Manila, who desi
res to run for the position in the Batasan Pambansa; while petitioner Romeo B. I
got alleges that, as a taxpayer, he has standing to petition by mandamus the cal
ling of a special election as mandated by the 1973 Constitution. COMELEC opposed
the petition alleging, that 1) petitioners lack standing to file the instant pe
tition for they are not the proper parties to institute the action; 2) this Cour
t has no jurisdiction to entertain this petition; and 3) Section 5(2), Article V
III of the 1973 Constitution does not apply to the Interim Batasan Pambansa. ISS
UE: Do the petitioners have standing to sue? NO. Ratio Decidendi: I. No standing
as taxpayers 1. As taxpayers, petitioners may not file the instant petition, fo

r nowhere therein is it alleged that tax money is being illegally spent. The act
complained of is the inaction of the COMELEC and therefore, involves no expendi
ture of public funds. 2. It is only when an act complained of involves the illeg
al expenditure of public money that the so-called taxpayer suit may be allowed.
3. What the case at bar seeks is one that entails expenditure of public funds. (
In other words, they are effectively asking for the government to spend, not que
stioning the validity of such spending). Moreover, such spending could actually
be illegal because it would be spent for a purpose that, as will be shown, COMEL
EC has no authority to call for. II. No standing as voters 1. As voters, neither
have petitioners the requisite interest or personality to qualify them to maint
ain and prosecute the present petition. 2. The unchallenged rule is that the per
son who impugns the validity of a statute must have a personal and substantial i
nterest in the case such that he has sustained, or will sustain, direct injury a
s a result of its enforcement. 3. In the case before Us, the alleged inaction of
the COMELEC to call a special election would adversely affect only the generali
zed interest of all citizens. Petitioners standing to sue may not be predicated
upon an interest of the kind alleged, which is held in common by all members of
the public because of the necessarily abstract nature of the injury supposedly
shared by all citizens. Concrete injury, actual or threatened, is that indispens
able element of a dispute which serves in part to cast it in a form traditionall
y capable of judicial resolution. Holding: Petition denied.

Gonzales v. Marcos (Taxpayers Suit)

Facts: The action is centered on the validity of the creation in EO 30 of a trus
t for the benefit of the Filipino people under the name and style of the Cultura
l Center of the Philippines. It was likewise alleged that the Board of Trustees
did accept donations from the private sector and did secure from the Chemical Ba
nk of New York a loan of $5 million guaranteed by the National Investment & Deve
lopment Corporation as well as $3.5 million received from President Johnson of t
he United States in the concept of war damage funds, all intended for the constr
uction of the Cultural Center building estimated to cost P48 million. Respondent
s contention: petitioner did not have the requisite personality to contest as a
taxpayer the validity of the executive order in question, as the funds held by t
he Cultural Center came from donations and contributions, not one centavo being
raised by taxation. ISSUE: Does the petitioner have standing to sue? NO. Ratio D
ecidendi: 1. It was pointed out as "one more valid reason" why such an outcome w
as unavoidable was that "the funds administered by the President of the Philippi
nes came from donations [and] contributions [not] by taxation." 2. Accordingly,
there was that absence of the "requisite pecuniary or monetary interest." 3. Thi
s is not to retreat from the liberal approach followed in Pascual v. Secretary o
f Public Works, foreshadowed by People v. Vera, where the doctrine of standing w
as first fully discussed. It is only to make clear that petitioner, judged by or
thodox legal learning, has not satisfied the elemental requisite for a taxpayer
s suit. 4. Moreover, even on the assumption that public funds raised by taxation
were involved, it does not necessarily follow that such kind of an action to as
sail the validity of a legislative or executive act has to be passed upon. This
Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discret
ion as to whether or not it should be entertained." Holding: Petition denied.
CIR v. CA, ROH Auto (BIR Rules and Regulations) Facts: EO41 was promulgated decl
aring a one-time tax amnesty on unpaid income taxes, later amended to include es
tate and donor s taxes and taxes on business, for the taxable years 1981 to 1985
. Availing itself of the amnesty, R.O.H. Auto Products filed, tax amnesty return
ms and paid the amnesty taxes due. Prior to this availment, CIR assessed the ROH
deficiency income and business taxes in an aggregate amount of P1,410,157.71. R
OH wrote back to state that since it had been able to avail itself of the tax am
nesty, the deficiency tax notice should forthwith be cancelled and withdrawn. Th
e request was denied by the Commissioner on the ground that Revenue Memorandum O
rder No. 4-87, dated 09 February 1987, implementing Executive Order No. 41, had
construed the amnesty coverage to include only assessments issued by the Bureau
of Internal Revenue after the promulgation of the executive order on 22 August 1
986 and not to assessments theretofore made.
ISSUE: Is ROH covered by the tax amnesty? YES. Was the CIRs position correct? NO.
Ratio Decidendi: 1. The added exception urged by petitioner Commissioner based
on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnes
ty clearly amounts to an act of administrative legislation quite contrary to the
mandate of the law which the regulation ought to implement. 2. The authority of
the Secretary of Finance, in conjunction with the CIR, to promulgate rules and
regulations for the enforcement of internal revenue laws cannot be controverted.
Neither can it be disputed that such rules and regulations, as well as administ
rative opinions and rulings, ordinarily should deserve weight and respect by the
courts. Much more fundamental than either of the above, however, is that all su
ch issuances must not override, but must remain consistent and in harmony with,
the law they seek to apply and implement. Administrative rules and regulations a
re intended to carry out, neither to supplant nor to modify, the law. 3. If, as
the Commissioner argues, EO 41 had not been intended to include 1981-1985 tax li
abilities already assessed prior to 22 August 1986, the law could have simply so
provided in its exclusionary clauses. It did not. The conclusion is unavoidable
, and it is that the executive order has been designed to be in the nature of a
general grant of tax amnesty subject only to the cases specifically excepted by
it Holding: CA affirmed.

CIR V. CA, CTA, & Fortune Tobacco

(BIR Rules and Regulations) Facts: CIR, through RMC 37-93, aims to collect defic
iencies on ad valorem taxes against Fortune Tobacco following a reclassification
of foreign branded cigarettes, as per RA 7654. Fortune Tobacco raised the issue
of the propriety of the assessment to the CTA, which decided against the CIR. C
TA was affirmed by CA. ISSUE: Is RMC 37-93 a mere interpretative ruling, therefo
re not requiring, for its effectivity, hearing and filing with the UP Law Center
? NO. Ratio Decidendi: 1. When an administrative rule is merely interpretative,
its applicability needs nothing further than its bare issuance for it gives no r
eal consequence more than what the law itself has already prescribed. 2. When, u
pon the other hand, the administrative rule goes beyond merely providing for the
means that can facilitate or render least cumbersome the implementation of the
law but substantially adds to or increases the burden of those governed, it beho
oves the agency to accord at least to those directly affected a chance to be hea
rd, and thereafter to be duly informed, before that new issuance is given the fo
rce and effect of law. 3. A reading of RMC 37-93, particularly considering the c
ircumstances under which it has been issued, convinces us that the circular cann
ot be viewed simply as a corrective measure or merely as construing Section 142(
c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made
in order to place "Hope Luxury," "Premium More" and "Champion" within the classi
fication of locally manufactured cigarettes bearing foreign brands and to thereb
y have them covered by RA 7654. 4. Specifically, the new law would have its amen
datory provisions applied to locally manufactured cigarettes which at the time o
f its effectivity were not so classified as bearing foreign brands. (Prior to th
e issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champ
ion" cigarettes were in the category of locally manufactured cigarettes not bear
ing foreign brand subject to 45% ad valorem tax.) 5. Hence, without RMC 37-93, t
he enactment of RA 7654, would have had no new tax rate consequence on private r
espondent s products. 6. Evidently, in order to place "Hope Luxury," "Premium Mo
re," and "Champion" cigarettes within the scope of the amendatory law and subjec
t them to an increased tax rate, the now disputed RMC 37-93 had to be issued. 7.
In so doing, the BIR not simply intrepreted the law; verily, it legislated unde
r its quasi-legislative authority. The due observance of the requirements of not
ice, of hearing, and of publication should not have been then ignored. Holding:
CTA, CA affirmed.
CIR v. Telefunken (BIR Rules and Regulations) FACTS: Telefunken is a domestic co
rporation registered with the Board of Investments (BOI) as an export producer o
n a preferred pioneer status under RA 6135. From October 1979 to September 1981,
Telefunken produced semi-conductor devices amounting to P92,843,774.00 which we
re entirely sold to foreign markets. BIR denied Telefunkens request for a tax ref
und/tax credit from the contractors tax which it paid for said amount. Telefunken
contended that under the provisions of Section 7 of RA 6135 in relation to Sect
ion 8 (a) of RA 5186 (The Investment Act), it was exempted from the payment of a
ll national internal revenue taxes for the period in question, except for income
tax. 5 Section 7 of RA. 6135 (the law under which Telefunken is registered) pro
vides that registered export producers in a pioneer status are entitled to the i
ncentives provided in section 8 (a) of RA 5186. On the other hand CIR argues tha
t the law speaks of firms registered under RA 5186 only and thus, the privilege
of tax exemption does not apply to firms registered under RA 6135.
ISSUE: WON Telefunken, registered under RA 6135 as a pioneer export producer, is
exempted from payment of the 3% contractor s tax from October 1979 to September
1981. HELD: YES. 1. The controlling statute is Section 205 (16) of the 1977 Nat
ional Internal Revenue Code which states: Sec. 205. Contractors, proprietors or
operators of dockyards and others. A contractor s tax of three percentum of gros
s receipts is hereby imposed on the following: xxx xxx xxx (16) Business agents
and other independent contractors including private detective or watchman agenci
es, except gross receipts of a pioneer enterprise registered with the Board of I
nvestments under Republic Act 5186. (As amended by P.D. No. 1457 , June 11, 1978
) There is no difference between the gross receipts of pioneer enterprises regis

tered with the Board of Investments under RA 6135 and the gross receipts of regi
stered pioneer enterprises under RA 5186. In fact the CIR himself had ruled in t
his vein on February 4, 6 1974 in the case of Asian Transmission Corporation.
5 Sec. 7. Incentives to registered export producers Registered export producers.
Registered export producers unless they already enjoy the same privileges under
other laws shall be entitled to the incentives set forth in parahraphs (h), (i)
and (j) of Section 7 of Republic Act Numbered Fifty-one hundred eigthy-six, kno
wn as the Investment Incentives Act; and registered export producers that are pi
oneer enterprises shall be entitled also to the incentives set forth in paragrap
hs (a), (b) and (c) of Section 8 of the said Act. In addition to the said incent
ives, and in lieu of other incentives provided in Section 7 and in Section 9 of
that Act, registered export producer shall be entitled to benefits and incentive
s as enumerated hereunder:
6 Pursuant to Section 7 of Republic Act No. 6135, that corporation as a register
ed export producer on a pioneer status is entitled to the same tax incentives gr
anted to a pioneer industry set forth in section 8(a) of

This 1974 ruling was based the same on Section 191(16) of the Tax Code which sta
tes: Sec. 191. Contractors, proprietors or operators of dockyards, and others. A
contractor s tax of three per centum of the gross receipts is hereby imposed on
the following: xxx xxx xxx (16) Business agents and other independent contracto
rs except persons, associations and corporations under contract for embroidery a
nd apparel for export, as well as their agents and contractors and except gross
receipts of or from a pioneer industry registered with the Board of Investments
under the provisions of Republic Act Numbered Five Thousand one hundred and eigh
ty-six. (Emphasis supplied) A comparison of the above with the previously quoted
Section 205(16) of the 1977 Tax Code reveals that both provisions specifically
mention pioneer industries registered with the Board of Investments under Republ
ic Act No. 5186 as exempt from payment of the contractor s tax. 2. Also, this 19
74 ruling has not been abrogated with the passage of the 1977 Tax Code, Section
205(16) which expressly mentions only pioneer enterprises registered with the Bo
ard of Investments under RA 5186 as exempt from the contractor s tax (though wit
h no reference being made regarding pioneer enterprises registered under RA 6135
). Lastly, under Sec. 246 of the National Internal Revenue Code, rulings of the
BIR may not be given retroactive effect, if the same is prejudicial to the taxpa
yer.
CIR v. Mega Gen. Merch (BIR Rules and Regulations) FACTS: (BACKGROUND)Prior to t
he promulgation of P.D. No. 392 on February 18, 1974, importations of all kinds
of paraffin wax were subject to 7% advance sales tax on landed costs plus 25% ma
rk up pursuant to Section 183(b) now Section 197(II) in relation to Section 186
(now Section 200) of the Tax Code. With the promulgation of P.D. No. 392, a new
provision for the imposition of specific tax was added to Section 142 of the Tax
7 Code (effective Feb 18 1974) On April 1975 Mega wrote the CIR for clarificati
on as to whether imported crude paraffin wax is subject to specific tax or advan
ce sales tax. On May 14, 1975 Former Commissioner Misael P. Vera in his reply ru
led that only wax used as high pressure lubricant and micro crystallin is subjec
t to specific tax; that paraffin which was used as raw material in the manufactu
re of candles, wax paper, matches, crayons, drugs, appointments etc., is subject
to the 7% advance sales tax, the tax to be based on the landed cost thereof, pl
us 25% mark-up. Due to Commissioner Vera s ruling Mega filed several claims for
tax refund/tax credit of the specific tax paid by them. However, on January 28,
1977, then Acting CIR Efren Plana denied Megas claim. According to him the law do
es not make any distinction as to the kind of wax subject to specific tax. Durin
g the pendency of Megas request for reconsideration, an investigation was conduct
ed by the BIR in connection with the importations of wax and petroleum that arri
ved in the country on or subsequent to the date of the ruling of January 28, 197
7 and it was ascertained that Mega owes the government specific tax for importat
ion of paraffin wax on June 21, 1977 and August 17, 1977 which gave rise to the
letter of assessment dated May 8, 1978. Prior, however, to the issuance of said
letter of assessment of May 8, 1978, CIR in a letter dated January 11, 1978, gra
nted Megas claim for refund or tax credit since the importation which had arrived
in Manila on April 18, 1975 was covered by the ruling of May 14, 1975 (before i
ts revocation by the ruling of January 28, 1977). Issue: WON Megas importation of
crude paraffin wax on June 21 and August 17, 1977 are subject to specific tax u
nder Section 142(i) of the Tax Code promulgated on February 18, 1974. HELD: Yes.
RATIO: 8 Contrary to the CTAs ruling , the Court believes that the letter of Com
missioner Plana dated January 11, 1978 did not in any
Section 142. Specific tax on manufactured oils and other fuels.On refined and man
ufactured mineral oils and other motor fuels, there shall be collected the follo
wing taxes: xxx xxx xxx
7
republic Act No. 5186. Under this latter provision, a pioneer industry is exempt
from all taxes under the National Internal Revenue Code, except income tax. In
other words, both a registered export producer on a pioneer status under Republi
c Act No. 6135 and a pioneer industry under Republic Act No. 5186 are entitled t

o the same tax exemption benefits under the Tax Code.

(i) Greases, waxes and petroleum, per kilogram, thirty-five centavos; ...
8
Excerpt from CTA ruling:

way revoke his ruling dated January 28,1977 which ruling applied the specific ta
x to wax (without distinction). The reason he removed in 1978 private respondent
s liability for the specific tax was NOT because he wanted to revoke, expressly
or implicitly, his ruling of January 28, 1977 but because the P321,436.79 tax r
eferred to importation BEFORE January 28, 1977 and hence still covered by the ru
ling of Commissioner Vera, Megas request for refund of the amount of P321,436.79
was granted in CIRs letter dated January 11, 1978 because the importation of priv
ate respondent was made on April 18,1975 wherein petitioner made clear that all
importation of crude paraffin wax only after the ruling of January 28, 1977, is
subject to specific tax The importation which gave rise to the assessment in the
amount of P275,652.00 subject of this case, was made on June 27, 1977 and Augus
t 17, 1977 and that the petitioner s ruling of January 28,1977 was not revoked o
r overruled by his letter of January 11, 1978 granting respondent corporation s
request for refund of the amount of P321,436.79.
CIR v. Burroughs (BIR Rules and Regulations) FACTS:In March 1979, the branch off
ice of Burroughs Ltd. in the country applied with the Central Bank for authority
to remit to its parent company abroad branch profit amounting to P7,647,058.00.
On March 14, 1979, it paid the 15% branch profit remittance 9 tax pursuant to S
ec. 24 (b) (2) (ii) . Based on this law Burroughs Ltd remitted to its head offic
e the amount of P6,499,999.30 However on December 24, 1980 Burroughs Ltd. filed
a written claim for the refund or tax credit of the amount of P172,058.90 repres
enting alleged overpaid branch profit remittance tax. BIR ruled in favor of the
refund on January 21, 1980. CIR contends that there should be no refund because
Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed th
e BIR ruling of January 21, 1980. Said memorandum circular statesConsidering that
the 15% branch profit remittance tax is imposed and collected at source, necess
arily the tax base should be the amount actually applied for by the branch with
the Central Bank of the Philippines as profit to be remitted abroad. Issue: WON B
urroughs Limited is entitled to a refund (in the amount of P172,058.90). Held: Y
es. In a BIR ruling dated January 21, 1980 by then Acting Commissioner of Intern
al Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to
mean that "the tax base upon which the 15% branch profit remittance tax ... sha
ll be imposed...(is) the profit actually remitted abroad and not on the total br
anch profits out of which the remittance is to be made." What is applicable in t
he case at bar is still the BIR Ruling of January 21, 1980 because Burroughs Ltd
. paid the branch profit remittance tax in question on March 14, 1979. Memorandu
m Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in t
he light of Section 10 327 of the National Internal Revenue Code. The prejudice
that would result to private Burroughs Ltd. by a retroactive application of Memo
randum Circular No. 8-82 is beyond question for it would be deprived of the subs
tantial amount of P172,058.90.
To make petitioner liable for specific tax after it has made the importations, w
ould surely prejudice petitioner as it would be subject to a tax liability of wh
ich the Bureau of Internal Revenue has not made it fully aware. As a result, the
rulings of May 8, 1978 and February 15, 1980 having been issued long after the
importations on June 21 and August 1 7, 1977 in question cannot be applied with
legal effect in this case because to do so will violate the prohibition against
retroactive application of the rulings of executive bodies. Rulings or circulars
promulgated by the Commissioner of Internal Revenue, such as the rulings of Jan
uary 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any r
etroactive application, where to do so, as it did in the case at bar, would prej
udice the taxpayer.
Sec. 24. Rates of tax on corporations.... (b) Tax on foreign corporations. ... (
2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branc
h to its head office shall be subject to a tax of fifteen per cent (15 %) ... 10
Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or revers
al of any of the rules and regulations promulgated in accordance with the preced

ing section or any of the rulings or circulars promulgated by the Commissioner s

hag not be given retroactive application if the revocation, modification, or rev
ersal will be prejudicial to the taxpayer except in the following cases (a) wher
e the taxpayer deliberately misstates or omits material facts from his return or
in any document required of him by the Bureau of Internal Revenue; (b) where th
e facts subsequently gathered by the Bureau of Internal Revenue are materially d
ifferent from the facts on which the ruling is based, or (c) where the taxpayer
acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)
9

ABS-CBN v. CTA (BIR Rules and Regulations)

FACTS: ABS-CBN is engaged in the business of telecasting local as well as foreig
n films acquired from foreign corporations not engaged in trade or business with
in the Philippines. The applicable law wrt the income tax of non-resident corpor
ations is section 24 (b) of the National Internal Revenue Code, as 11 amended by
Republic Act No. 2343 dated June 20, 1959 . On April 12, 1961, in implementatio
n of said provision, the CIR 12 Pursuant to the issued General Circular No. V-33
4 . foregoing, ABS-CBN dutifully withheld and turned over to the BIR the amount
of 30% of one-half of the film rentals paid by it to foreign corporations not en
gaged in trade or business within the Philippines. The last year that ABS-CBN wi
thheld taxes pursuant to the foregoing Circular was in 1968. 13 On June 27, 1968
, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30
% to 35 % and revising the tax basis from "such amount" referring to rents, etc
. to "gross income." On February 8, 1971, the CIR issued Revenue Memorandum Circ
ular No. 4-71, revoking General Circular No. V-334, and holding that the latter
was "erroneous for lack of legal basis," because "the tax therein prescribed sho
uld be based on gross income without deduction whatever. On the basis of this ne
w Circular, CIR issued against ABSCBN a letter of assessment and demand requirin
g them to pay deficiency withholding income tax on the remitted film rentals for
the years 1965 through 1968 and film royalty as of the end of 1968 in the total
amount of P525,897.06. ISSUE: WON respondent can apply General Circular No. 4-7
1 retroactively and issue a deficiency assessment against petitioner in the amou
nt of P 525,897.06 as deficiency withholding income tax for the years 1965, 1966
, 1967 and 1968.
HELD: No. Sec. 338-A (now Sec. 327) of the Tax Code applies in this case. Ruling
s or circulars promulgated by the CIR have no retroactive application where to s
o apply them would be prejudicial to taxpayers. The retroactive application of M
emorandum Circular No. 4-71 prejudices ABSCBN since: a) it was issued only in 19
71, or 3 years after 1968, the last year that petitioner had withheld taxes unde
r General Circular No. V-334. b) the assessment and demand on petitioner to pay
deficiency withholding income tax was also made three years after 1968 for a per
iod of time commencing in 1965. c) ABS-CBN was no longer in a position to withho
ld taxes due from foreign corporations because it had already remitted all film
rentals and no longer had any control over them when the new Circular was issued
. And in so far as the enumerated exceptions (to nonretroactivity) are concerned
, ABS-CBN does not fall under any of them.
14
11
(b) Tax on foreign corporations.-(1) Non-resident corporations.- There shall be
levied, collected, and paid for each taxable year, in lieu of the tax imposed by
the preceding paragraph, upon the amount received by every foreign corporation
not engaged in trade or business within the Philippines, from an sources within
the Philippines, as interest, dividends, rents, salaries, wages, premiums, annui
ties, compensations, remunerations, emoluments, or other fixed or determinable a
nnual or periodical gains, profits, and income, a tax equal to thirty per centum
of such amount. (Emphasis supplied)
In connection with Section 24 (b) of Tax Code, the amendment introduced by Repub
lic Act No. 2343, under which an income tax equal to 30% is levied upon the amou
nt received by every foreign corporation not engaged in trade or business within
the Philippines from all sources within this country as interest, dividends, re
nts, salaries, wages, premiums, annuities, compensations, remunerations, emolume
nts, or other fixed or determinable annual or periodical gains, profits, and inc
ome, it has been determined that the tax is still imposed on income derived from
capital, or labor, or both combined, in accordance with the basic principle of
income taxation (Sec. 39, Income Tax Regulations), and that a mere return of cap

ital or investment is not income (Par. 5,06, 1 Mertens Law of Federal Taxation)
. Since according to the findings of the Special Team who inquired into business
of the non-resident foreign film distributors, the distribution or exhibition r
ight on a film is invariably acquired for a consideration, either for a lump sum
or a percentage of the film rentals, whether from a parent company or an indepe
ndent outside producer, a part of the receipts of a non-resident foreign film di
stributor derived from said film represents, therefore, a return of investment.
xxx xxx xxx 13 Amended version: (b) Tax on foreign corporations.-(1) Non-residen
t corporations.-A foreign corporation not engaged in trade or business in the Ph
ilippines including a foreign life insurance company not engaged in the life ins
urance business in the Philippines shall pay a tax equal to thirty-five per cent
of the gross income received during each taxable year from all sources within t
he Philippines, as interests, dividends, rents, royalties, salaries, wages, prem
iums, annuities, compensations, remunerations for technical services or otherwis
e, emoluments or other fixed or determinable annual, periodical or casual gains,
profits, and income, and capital gains, Provided however, That premiums shah no
t include reinsurance premiums. (Emphasis supplied)
12
14
As inserted by Republic Act No. 6110 on August 9, 1969, it provides:
Sec. 338-A. Non-retroactivity of rulings. - Any revocation, modification, or rev
ersal of and of the rules and regulations promulgated in accordance with the pre
ceding section or any of the rulings or circulars promulgated by the Commissione
r of Internal Revenue shall not be given retroactive application if the relocati
on, modification, or reversal will be prejudicial to the taxpayers, except in th
e following cases: (a) where the taxpayer deliberately mis-states or omits mater
ial facts from his return or any document required of him by the Bureau of Inter
nal Revenue: (b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is based; o
r (c) where the taxpayer acted in bad faith. (italics for emphasis)

CIR v. Benguet Corp (BIR Rules and Regulations) FACTS:(Benguet Corporation is a

domestic corporation engaged in the exploration, development and operation of mi
neral resources, and the sale or marketing thereof to various entities. It is a
value added tax (VAT) registered enterprise.)
The transactions in question occurred during the period between 1988 and 1991. U
nder Sec. 99 of NIRC as amended by E.O. 273 s. 1987 then in effect, any person w
ho, in the course of trade or business, sells, barters or exchanges goods, rende
rs services, or engages in similar transactions and any person who imports goods
is liable for output VAT at rates of either 10% or 0% (zero-rated) depending on
the classification of the transaction under Sec. 100 of the NIRC. In January of
1988, Benguet applied for and was granted by the BIR zero-rated status on its s
ale of gold to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued
which declared that the sale of gold to Central Bank is considered as export sa
le subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by E
O 273. Relying on its zero-rated status and the above issuances, Benguet sold go
ld to the Central Bank during the period of 1 August 1989 to 31 July 1991 and en
tered into transactions that resulted in input VAT incurred in relation to the s
ubject sales of gold. It then filed applications for tax refunds/credits corresp
onding to input VAT. However, such request was not granted due to BIR VAT Ruling
No. 008-92 dated 23 January 1992 that was issued subsequent to the consummation
of the subject sales of gold to the Central Ban
k which provides that sales of
gold to the Central Bank shall not be considered as export sales and thus, shall
be subject to 10% VAT. BIR VAT Ruling No. 00892 withdrew, modified, and superse
ded all inconsistent BIR issuances. Both petitioner and Benguet agree that the r
etroactive application of VAT Ruling No. 008-92 is valid only if such applicatio
n would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC. MAIN IS
SUE: WON Benguets sale of gold to the Central Bank during the period when such wa
s classified by BIR issuances as zerorated could be taxed validly at a 10% rate
after the consummation of the transactions involved. NO. SUB ISSUE: (WON there w
as prejudice to Benguet Corp due to the new BIR VAT Ruling. YES. RATIO: (main is
sue): 1. At the time when the subject transactions were consummated, the prevail
ing BIR regulations relied upon by Benguet ordained that gold sales to the Centr
al Bank were zero-rated. Benguet should not be faulted for relying on the BIRs i
nterpretation of the said laws and regulations.
While it is true, as CIR alleges, that government is not estopped from collectin
g taxes which remain unpaid on account of the errors or mistakes of its agents a
nd/or officials and there could be no vested right arising from an erroneous int
erpretation of law, these principles must give way to exceptions based on and in
keeping with the interest of justice and fairplay. (then the Court cited the AB
S-CBN case). (sub-issue) 2. The adverse effect is that Benguet Corp became the u
nexpected and unwilling debtor to the BIR of the amount equivalent to the total
VAT cost of its product, a liability it previously could have recovered from the
BIR in a zero-rated scenario or at least passed on to the Central Bank had it k
nown it would have been taxed at a 10% rate. Thus, it is clear that Benguet suff
ered economic prejudice when its consummated sales of gold to the Central Bank w
ere taken out of the zero-rated category. The change in the VAT rating of Bengue
ts transactions with the Central Bank resulted in the twin loss of its exemption
from payment of output VAT and its opportunity to recover input VAT, and at the
same time subjected it to the 10% VAT sans the option to pass on this cost to th
e Central Bank, with the total prejudice in money terms being equivalent to the
10% VAT levied on its sales of gold to the Central Bank. 3. Even assuming that t
he right to recover Benguets excess payment of income tax has not yet prescribed
, this relief would only address Benguets overpayment of income tax but not the o
ther burdens discussed above. Verily, this remedy is not a feasible option for B
enguet because the very reason why it was issued a deficiency tax assessment is
that its input VAT was not enough to offset its retroactive output VAT. Indeed,
the burden of having to go through an unnecessary and cumbersome refund process
is prejudice enough.

BPI Leasing v.CA,CTA,CIR (BIR Rules & Regulations) FACTS:For the calendar year 1
986, BLC paid the CIR a total of P1,139,041.49 representing 4% "contractors perce
ntage tax" imposed by Section 205 of the NIRC based on its gross rentals from eq
uipment leasing for said year.
On November 10, 1986, CIR issued Revenue Regulation 1986. Section 6.2 thereof pr
ovided that finance and leasing companies registered under RA 5980 shall be subj
ect to gross receipt tax of 5%-3%-1% on actual income earned. This means that co
mpanies registered under Republic Act 5980, such as BLC, are not liable for "con
tractors percentage tax" under Section 205 but are, instead, subject to "gross re
ceipts tax" under Section 260 (now Section 122) of the NIRC. Since BLC had earli
er paid the "contractors percentage tax for its 1986 lease rentals BLC filed a cl
aim for a refund with the CIR on April 1988 for the amount representing the diff
erence between what it had paid as "contractors percentage tax" and what it shoul
d have paid for "gross receipts tax." ISSUES: 15 1. WON Revenue Regulation 19-86
is legislative rather than interpretative in character. 2. WON it should retroa
ct to the date of effectivity of the law it seeks to interpret. RATIO: 1. NO. Se
ction 1 of Revenue Regulation 19-86 plainly states that it was promulgated pursu
ant to Section 277 of the NIRC. Section 277 (now Section 244) is an express gran
t of authority to the Secretary of Finance to promulgate all needful rules and r
egulations for the effective enforcement of the provisions of the NIRC. 2.NO. Th
e principle is well entrenched that statutes, including administrative rules and
regulations, operate prospectively only, unless the legislative intent to the c
ontrary is manifest by express terms or by necessary implication. In the present
case, there is no indication that the revenue regulation may operate retroactiv
ely. Furthermore, there is an express provision stating that it "shall take effe
ct on January 1, 1987," and that it "shall be applicable to all leases written O
N OR AFTER the said date." Being clear on its prospective application, it must b
e given its literal meaning and applied without further interpretation. Thus, BL
C is not in a position to invoke the provisions of Revenue Regulation 19-86 for
lease rentals it received prior to January 1, 1987.
15
Administrative issuances may be distinguished according to their nature and subs
tance: legislative and interpretative. A legislative rule is in the matter of su
bordinate legislation, designed to implement a primary legislation by providing
the details thereof. An interpretative rule, on the other hand, is designed to p
rovide guidelines to the law which the administrative agency is in charge of enf
orcing.