JOSEPH E. ICARD v.

CITY COUNCIL OF BAGUIO

This is an appeal from a decision of the Court of First Instance of the Mountain Province.

The facts are not in dispute.

The City of Baguio has enacted the following ordinances:

"1. No. 6-V, providing, among other things, for an amusement tax of P0.20 for every person entering a
night club licensed to do business in the city;

"2. No. 11-V, providing for a property tax on motor vehicles kept and operated in the city; and

"3. No. 12-V, imposing a graduated license fee on every admission ticket sold by enterprises enumerated
in said ordinance, among them, cinematographs."

Petitioner, a resident of the City of Baguio, is holder of a municipal license for the operation of a night
club called "El Club Monaco." As owner and operator of said night club, he has to pay to the National
Government an amusement tax on its total gross receipts under section 260 of the Internal Revenue
Code, and to the City of Baguio the annual license fee provided for in said Ordinance No. 6-V. But in
addition to said amusement tax and license fee he has also been required to pay the amusement tax
imposed in that same ordinance, which, on the basis of P0.20 per person entering the night club,
amounted to the total sum of P254.80 for the first quarter of 1946. This sum he paid under protest.

As owner of a six-passenger automobile for private use, a Chevrolet Ford or Sedan kept and operated in
the City of Baguio, petitioner has already paid the sum of P37 as registration fee for 1946 under the
Revised Motor Vehicle Law. But pursuant to Ordinance No. 11-V of said city, he would also have to pay,
in addition, an annual property tax of P15 on the same automobile.

There is no showing that petitioner has any business subject to the payment of the graduated license
fee on admission tickets imposed by Ordinance No. 12-V of the City of Baguio.

Contending that the ordinances above mentioned are unjust and ultra vires, petitioner brought the
present action for declaratory relief to have the said ordinances declared void and also for the refund of
the sum of P254.80 which he has paid to the city under protest.

In an able and well-considered decision, the lower court, presided over by Judge Conrado Sanchez,
denied the petition for declaratory relief in reference to Ordinance No. 12-V on the ground that
petitioner had not been shown to be the owner or operator of any of the enterprises therein
enumerated, but declared null
and void Ordinance No. 11-V and also that portion of Ordinance No. 6-V which provides for an
amusement tax of P0.20 on every person entering a night club, without pronouncement as to the
legality or illegality of the remainder of the said ordinance. And, in consequence, the City of Baguio was
ordered to refund to petitioner the sum of P254.80 paid as amusement tax under Ordinance No. 6-V,
without special pronouncement as to costs.

Appealing from the above decision, the City Attorney of Baguio, as counsel for the respondents,
presents the case here on the following assignment of errors:

"1, The lower court erred in declaring null and void Ordinance No. 11-V;

"2. The lower court erred in declaring null and void that portion of Ordinance No. 6-V, providing for an
amusement tax of F0.20 per person entering a night club; and

"3. The lower court erred in ordering the respondent-appellant, the City of Baguio, to refund to the
petitioner-appellee the sum of P254.80 paid as amusement tax under Ordinance No. 6-V."

The whole case boils down to this question: Is the City of Baguio empowered to levy a property tax on
motor vehicles and an amusement tax on night clubs?

It is settled that a municipal corporation, unlike a sovereign state, is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality
cannot assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the municipality.
Inferences, implications, deductions all these have no place in the interpretation of the taxing power of
a municipal corporation (Cu Unjieng vs. Patstone, 42 Phil., pp. 818, 830; Pacific Commercial Co. vs.
Romualdez, 49 Phil., pp. 917, 924; Batangas Transportation Co. vs. Provincial Treasurer of Batangas, 52
Phil., pp. 190, 196; Baldwin vs. Coty Council, 53 Ala., p. 437; State vs. Smith, 31 Iowa, p. 493; 38 Am. Jur.,
pp. 68, 72-73).

With the above principles in mind, let us now inquire into the authority of the City of Baguio to levy
taxes. That part of the charter of this city which deals with the subject of taxation is found in section
2553 (6) of the Revised Administrative Code, which empowers its city council

"To provide for the levy and collection of taxes and other city revenues, as provided by law, and apply
the same to the payment of municipal expenses in accordance with appropriations."

As the lower court has correctly interpreted it, this provision simply means that the City of Baguio may
impose taxes only in those cases specifically provided by law. In other words, for authority to levy a tax
on specific subjects one must look elsewhere in the statute book. For, had the provision been meant as
a blanket authority to levy taxes, there would have been no need for the phrase "as provided by law."
The insertion of that phrase bespeaks the legislative intent to have the city exercise the power of
taxation within given limits, that is, as the law may provide.

There is of course no question as to the authority of the City of Baguio to collect a license fee on dance
halls and night clubs, such authority being specifically given by section 260 of the Internal Revenue
Code. As a matter of fact petitioner has been paying such license fee without objection or protest. But
what is objected to is the tax of P0.20 for every person entering those amusement places, as provided
for in Ordinance No. 6-V, and this tax is apart and distinct from the license fee, for the ordinance itself
says that it shall be in addition to the latter. This tax is not authorized by any Act of the Legislature. It is,
therefore, beyond the power of the City of Baguio to levy.

Our attention has been invited to the fact that the charter of the City of Manila contains specific
provisions naming the subjects on which the said city may levy taxes, and the argument is made that the
absence of such specific provisions from the Charter of the City of Baguio is indicative of the legislative
intent to grant the latter city the general power of taxation. The argument is clearly untenable. The
Manila Charter also contains a provision (section 2444 [a] of the Revised Administrative Code)
empowering that city "to provide for the levy and collection of taxes for general and special purposes
in accordance with law." This is the counterpart of the provision in the Baguio Charter (section 2553
[b] of the Revised Administrative Code) already quoted above. Though differently worded, the two
provisions mean exactly the same thing. If those provisions were meant to grant an over-all authority to
levy taxes, surely there would have been no need for those specific provisions in the Manila Charter
which authorize the imposition of taxes in certain given cases. Those specific provisions are proof that
the said city is to exercise the power of taxation granted it by section 2444 (a) of the Revised
Administrative Code "in accordance with law" or, in the wording of the Baguio Charter, "as provided by
law." In other words, there must be specific legislative authority for the tax. Applying these
considerations to the City of Baguio, the logical conclusion is that, where a given tax is not expressly
authorized by law, that city may not impose it despite the provision of section 2553 (b) of the Revised
Administrative Code. This accords with the principle already stated that the power of a municipal
corporation to tax, in order to exist, must be granted expressly, never impliedly or inferentially.

To the plea that the power of taxation is essential to the continued existence of a city government, the
answer is that the City of Baguio is amply provided for by its Charter. It is authorized to levy and collect
license fees on a long list of occupations (section 2553 [c] Rev. Adm. Code) ; to levy and collect taxes on
real estates within its borders (section 2569, id.); to have a share in the internal revenue collections
(section 357, Nat. Int. Rev. Code); and to receive a subsidy from the National Government (section 2553,
id.). In addition, the city derives income from the sale of public lands within its limits and from the
operation of its water system and electric plant. The city is thus provided with ample means with which
to carry on the functions of government.

Having come to the conclusion that the City of Baguio may not levy taxes as it pleases but only as the
Legislature may specifically provide, we have looked in the charter of that city for a specific provision
empowering it to levy an amusement tax on night clubs and have found none. On the other hand, as the
lower court points out, that power is expressly granted to the City of Manila by section 2444 (m) of the
Revised Administrative Code. When it is recollected that, as already explained, both cities may, under a
general provision of their charters, levy taxes only as the law authorizes, the absence of a similar express
grant in the case of the city of Baguio is proof that the power to levy this particular tax has been
intentionally withheld from it.

Coming now to Ordinance No. 11-V, a reading of its terms strikes us that what is therein designated as a
property tax on motor vehicles kept in the City of Baguio has all the earmarks of a municipal license fee,
a thing expressly forbidden by section 70 (b) of the Revised Motor Vehicle Law. But assuming that it is a
property tax (since the point is not raised), we find that, like in the case of the amusement tax on
cabarets and dance halls, there is no legal provision authorizing its levy by the City of Baguio. It is true
that the section of the Revised Motor Vehicle Law just cited contains a proviso to the effect that nothing
in that statute shall be construed to exempt any motor vehicle from the payment of any lawful and
equitable insular, local or municipal property tax imposed thereon. But here again the question arises as
to whether this proviso is in itself an authorization for any municipal authority to provide for the
imposition of a tax. The wording of the proviso obviously refers to a tax lawfully imposed so that, in
accord with the views we have expressed above, the City of Baguio may not collect the tax in the
absence of a specific legal provision authorizing it to do so. It may be remarked in this connection that
the charter of the City of Manila does contain such a provision (section 2444 [n]), Rev. Adm. Code),
which is added proof that the proviso under consideration does not of itself authorize the imposition of
the tax.

In view of the foregoing, it is our conclusion that Ordinance No. 6-V, in so far as it provides for an
amusement tax of r!0.20 for each person entering a night club, and Ordinance No. 11-V, which provides
for a property tax on motor vehicles, should be declared illegal and void as beyond the authority of the
City of Baguio to enact.

Wherefore, in so far as the judgment below makes that declaration and orders the City of Baguio to
refund to petitioner-appellee the sum of P254.80 paid as amusement tax under Ordinance No. 6-V, the
same is hereby affirmed, without special pronouncement as to costs.

PHIL. GUARANTY CO., INC. v. CIR

GR No. L-22074, April 30, 1965
13 SCRA 775

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurancecontracts with foreign insurance companies not doing business in the country, thereby
ceding to foreignreinsurers a portion of the premiums on insurance it has originally underwritten in the
Philippines. The premiumspaid by such companies were excluded by the petitioner from its gross
income when it file its income tax returnsfor 1953 and 1954. Furthermore, it did not withhold or pay tax
on them. Consequently, the CIR assessed againstthe petitioner withholding taxes on the ceded
reinsurance premiums to which the latter protested theassessment on the ground that the premiums
are not subject to tax for the premiums did not constitute incomefrom sources within the Philippines
because the foreign reinsurers did not engage in business in the Philippines,and CIR's previous rulings
did not require insurance companies to withhold income tax due from foreigncompanies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to
foreigninsurance companies, which deprives the government from collecting the tax due from them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is
anecessary burden to preserve the State's sovereignty and a means to give the citizenry an army to
resist anaggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvementdesigned for the enjoyment of the citizenry and those which come within the State's
territory, and facilities and protection which a government is supposed to provide. Considering that the
reinsurance premiums in question were afforded protection by the government and the recipient
foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums
and reinsurers should share the burden of maintaining the state. The petitioner's defense of reliance of
good faith on rulings of the CIR requiring no withholding of tax due on reinsurance premiums may free
the taxpayer from the payment of surcharges or penalties imposed for failure to pay the corresponding
withholding tax, but it certainly would not exculpate it from liability to pay such withholding tax. The
Government is not estopped from collecting taxes by the mistakes or errors of its agents.

cir vs cebu portland cement

Facts: CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement Company,
respondent, P 359,408.98 representing overpayments of ad valorem taxes on cement sold by it.
Execution of judgement was opposed by the petitioner citing that private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, there was
still a P4 M plus balance they owed. The Court of Tax Appeals, in holding that the alleged sales tax
liability of the private respondent was still being questioned and therefore could not be set-off against
the refund, granted private respondent's motion. The private respondent questioned the assessed tax
based on Article 186 of the Tax Code, contending that cement was adjudged a mineral and not a
manufactured product; and thusly they were not liable for their alleged tax deficiency. Thereby,
petitioner filed this petition for review.

Issue: Whether or not assessment of taxes can be enforced even if there is a case contesting it.
Held: The argument that the assessment cannot as yet be enforced because it is still being contested
loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the
payment of taxes could be postponed by simply questioning their validity, the machinery of the state
would grind to a halt and all government functions would be paralyzed. That is the reason why, save for
the exception in RA 1125 , the Tax Code provides that injunction is not available to restrain collection of
tax. Thereby, we hold that the respondent Court of Tax Appeals erred in its order.
 VERA v. FERNANDEZ
GR No. L-31364 March 30, 1979
89 SCRA 199

FACTS: The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes
representing the estate's tax deficiencies in 1963 to 1964 in the intestate proceedings of Luis Tongoy.
The administrator opposed arguing that the claim was already barred by the statute of limitation,
Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against
the decedent, arising from contracts, express or implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and
judgment for money against the decedent, must be filed within the time limited in the notice; otherwise
they are barred forever.

ISSUE: Does the statute of non-claims of the Rules of Court bar the claim of the government for unpaid
taxes?

HELD: No. The reason for the more liberal treatment of claims for taxes against a decedent's estate in
the form of exception from the application of the statute of non-claims, is not hard to find. Taxes are the
lifeblood of the Government and their prompt and certain availability are imperious need. (CIR vs.
Pineda, 21 SCRA 105). Upon taxation depends the Government ability to serve the people for whose
benefit taxes are collected. To safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people,
in the same manner as private persons may be made to suffer individually on account of his own
negligence, the presumption being that they take good care of their personal affairs. This should not
hold true to government officials with respect to matters not of their own personal concern. This is the
philosophy behind the government's exception, as a general rule, from the operation of the principle of
estoppel.

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

FACTS: Petitioner is a government-owned and controlled corporation created under Commonwealth Act
No. 120, as amended.

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent
assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the latters
gross receipts for the preceding year.

Petitioner refused to pay the tax assessment arguing that the respondent has no authority to impose tax
on government entities. Petitioner also contended that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No.
6395, as amended.

The respondent filed a collection suit in the RTC, demanding that petitioner pay the assessed tax due,
plus surcharge. Respondent alleged that petitioners exemption from local taxes has been repealed by
section 193 of the LGC, which reads as follows:

Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.

RTC upheld NPCs tax exemption. On appeal the CA reversed the trial courts Order on the ground that
section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted
to the petitioner.

ISSUE: W/N the respondent city government has the authority to issue Ordinance No. 165-92 and
impose an annual tax on businesses enjoying a franchise

HELD: YES. Taxes are the lifeblood of the government, for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source
from the very existence of the state whose social contract with its citizens obliges it to promote public
interest and common good. The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.

Section 137 of the LGC clearly states that the LGUs can impose franchise tax notwithstanding any
exemption granted by any law or other special law. This particular provision of the LGC does not admit
any exception. In City Government of San Pablo, Laguna v. Reyes,74 MERALCOs exemption from the
payment of franchise taxes was brought as an issue before this Court. The same issue was involved in
the subsequent case of Manila Electric Company v. Province of Laguna.75 Ruling in favor of the local
government in both instances, we ruled that the franchise tax in question is imposable despite any
exemption enjoyed by MERALCO under special laws, viz:

It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to support
their position that MERALCOs tax exemption has been withdrawn. The explicit language of section 137
which authorizes the province to impose franchise tax notwithstanding any exemption granted by any
law or other special law is all-encompassing and clear. The franchise tax is imposable despite any
exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless
otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled corporations except (1)
local water districts, (2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit
hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious
import is to limit the exemptions to the three enumerated entities. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence excludes all others as
expressed in the familiar maxim expressio unius est exclusio alterius. In the absence of any provision of
the Code to the contrary, and we find no other provision in point, any existing tax exemption or
incentive enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the local government
unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the
preceding calendar based on the incoming receipts realized within its territorial jurisdiction. The
legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested
by the language used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject
only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided
for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal
language could have been used.76 (emphases supplied)

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises. With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise, by
paying taxes or other charges due from them.

Commissioner of Internal Revenue vs. Algue Inc.

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

Facts:

Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities
 On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes
from 1958-1959, amtg to P83,183.85

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

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

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

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

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

CIR contentions:

- the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary
reasonable or necessary business expense

- payments are fictitious because most of the payees are members of the same family in control of
Algue and that there is not enough substantiation of such payments

CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of
promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the properties of the
Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by
Algue as legitimate business expenses in its income tax returns

Ruling:

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

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

During the intervening period, the warrant was premature and could therefore not be served.
 Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but
later on conformed to the decision of CTA

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

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

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

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

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

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

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

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

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

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

Facts: Petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA), an association of real
estate developers and builders in the Philippines, questioned the validity of Section 27(E) of the Tax
Code which imposes the minimum corporate income tax (MCIT) on corporations.

Under the Tax Code, a corporation can become subject to the MCIT at the rate of 2% of gross income,
beginning on the 4th taxable year immediately following the year in which it commenced its business
operations, when such MCIT is greater than the normal corporate income tax. If the regular income tax
is higher than the MCIT, the corporation does not pay the MCIT.

CREBA argued, among others, that the use of gross income as MCIT base amounts to a confiscation of
capital because gross income, unlike net income, is not realized gain.

CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, otherwise known as the
Consolidated Withholding Tax Regulations, which prescribe the rules and procedures for the collection
of CWT on sales of real properties classified as ordinary assets, on the grounds that these regulations:

Use gross selling price (GSP) or fair market value (FMV) as basis for determining

the income tax on the sale of real estate classified as ordinary assets, instead of the entitys net taxable
income as provided for under the Tax Code;

Mandate the collection of income tax on a per transaction basis, contrary to the Tax Code provision
which imposes income tax on net income at the end of the taxable period;
 Go against the due process clause because the government collects income tax even when the net
income has not yet been determined; gain is never assured by mere receipt of the selling price; and

Contravene the equal protection clause because the CWT is being charged upon real estate
enterprises, but not on other business enterprises, more particularly, those in the manufacturing sector,
which do business similar to that of a real estate enterprise.

Issues: (1) Is the imposition of MCIT constitutional? (2) Is the imposition of CWT on income from sales of
real properties classified as ordinary assets constitutional?

Held: (1) Yes. The imposition of the MCIT is constitutional. An income tax is arbitrary and confiscatory if
it taxes capital, because it is income, and not capital, which is subject to income tax. However, MCIT is
imposed on gross income which is computed by deducting from gross sales the capital spent by a
corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales.
Clearly, the capital is not being taxed.

Various safeguards were incorporated into the law imposing MCIT.

Firstly, recognizing the birth pangs of businesses and the reality of the need to recoup initial major
capital expenditures, the MCIT is imposed only on the 4th taxable year immediately following the year in
which the corporation commenced its operations.

Secondly, the law allows the carry-forward of any excess of the MCIT paid over the normal income tax
which shall be credited against the normal income tax for the three immediately succeeding years.

Thirdly, since certain businesses may be incurring genuine repeated losses, the law authorizes the
Secretary of Finance to suspend the imposition of MCIT if a corporation suffers losses due to prolonged
labor dispute, force majeure and legitimate business reverses.

(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base for sales of real property
classified as ordinary assets remains as the entitys net taxable income as provided in the Tax Code, i.e.,
gross income less allowable costs and deductions. The seller shall file its income tax return and credit
the taxes withheld by the withholding agent-buyer against its tax due. If the tax due is greater than the
tax withheld, then the taxpayer shall pay the difference. If, on the other hand, the tax due is less than
the tax withheld, the taxpayer will be entitled to a refund or tax credit.

The use of the GSP or FMV as basis to determine the CWT is for purposes of practicality and
convenience. The knowledge of the withholding agent-buyer is limited to the particular transaction in
which he is a party. Hence, his basis can only be the GSP or FMV which figures are reasonably known to
him.
Also, the collection of income tax via the CWT on a per transaction basis, i.e., upon consummation of the
sale, is not contrary to the Tax Code which calls for the payment of the net income at the end of the
taxable period. The taxes withheld are in the nature of advance tax payments by a taxpayer in order to
cancel its possible future tax obligation. They are installments on the annual tax which may be due at
the end of the taxable year. The withholding agent-buyers act of collecting the tax at the time of the
transaction, by withholding the tax due from the income payable, is the very essence of the withholding
tax method of tax collection.

On the alleged violation of the equal protection clause, the taxing power has the authority to make
reasonable classifications for purposes of taxation. Inequalities which result from singling out a
particular class for taxation, or exemption, infringe no constitutional limitation. The real estate industry
is, by itself, a class and can be validly treated differently from other business enterprises.

What distinguishes the real estate business from other manufacturing enterprises, for purposes of the
imposition of the CWT, is not their production processes but the prices of their goods sold and the
number of transactions involved. The income from the sale of a real property is bigger and its frequency
of transaction limited, making it less cumbersome for the parties to comply with the withholding tax
scheme. On the other hand, each manufacturing enterprise may have tens of thousands of transactions
with several thousand customers every month involving both minimal and substantial amounts.

Valentin Tio vs Videogram Regulatory Board

151 SCRA 208 Political Law The Embrace of Only One Subject by a Bill

Delegation of Power Delegation to Administrative Bodies

In 1985, Presidential Dedree No. 1987 entitled An Act Creating the Videogram Regulatory Board was
enacted which gave broad powers to the VRB to regulate and supervise the videogram industry. The said
law sought to minimize the economic effects of piracy. There was a need to regulate the sale of
videograms as it has adverse effects to the movie industry. The proliferation of videograms has
significantly lessened the revenue being acquired from the movie industry, and that such loss may be
recovered if videograms are to be taxed. Section 10 of the PD imposes a 30% tax on the gross receipts
payable to the LGUs.

In 1986, Valentin Tio assailed the said PD as he averred that it is unconstitutional on the following
grounds:
1. Section 10 thereof, which imposed the 30% tax on gross receipts, is a rider and is not germane to the
subject matter of the law.

2. There is also undue delegation of legislative power to the VRB, an administrative body, because the
law allowed the VRB to deputize, upon its discretion, other government agencies to assist the VRB in
enforcing the said PD.

ISSUE: Whether or not the Valentin Tios arguments are correct.

HELD: No.

1. The Constitutional requirement that every bill shall embrace only one subject which shall be
expressed in the title thereof is sufficiently complied with if the title be comprehensive enough to
include the general purpose which a statute seeks to achieve. In the case at bar, the questioned
provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general
object of the PD, which is the regulation of the video industry through the VRB as expressed in its title.
The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for
regulation it is simply one of the regulatory and control mechanisms scattered throughout the PD.

2. There is no undue delegation of legislative powers to the VRB. VRB is not being tasked to legislate.
What was conferred to the VRB was the authority or discretion to seek assistance in the execution,
enforcement, and implementation of the law. Besides, in the very language of the decree, the authority
of the BOARD to solicit such assistance is for a fixed and limited period with the deputized agencies
concerned being subject to the direction and control of the [VRB].

WALTER LUTZ, as Judicial Administrator of the Intestate of the deceased Antonio Jayme Ledesma,
plaintiff-appellant v. J. ANTONIO ARANETA, as collector of Internal Revenue, defendant-apppelle

FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate of the
deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the Internal Revenue the total
sum of fourteen thousand six hundred sixty six and forty cents (P 14, 666.40) paid by the estate as taxes,
under section 3 of Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for the crop
years 1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2 provides for an increase of the
existing tax on the manufacture of sugar on a graduated basis, on each picul of sugar manufacturer;
while section 3 levies on the owners or persons in control of the land devoted tot he cultivation of
sugarcane and ceded to others for consideration, on lease or otherwise - "a tax equivalent to the
difference between the money value of the rental or consideration collected and the amount
representing 12 per centum of the assessed value of such land. It was alleged that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be constitutionally levied. The action was
dismissed by the CFI thus the plaintiff appealed directly to the Supreme Court.

ISSUE:

Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.

RULING:

Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry of our
nation, sugar occupying a leading position among its export products; that it gives employment to
thousands of laborers in the fields and factories; that it is a great source of the state's wealth, is one of
the important source of foreign exchange needed by our government and is thus pivotal in the plans of a
regime committed to a policy of currency stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find
that the general welfare demanded that the sugar industry be stabilized in turn; and in the wide field of
its police power, the law-making body could provide that the distribution of benefits therefrom be
readjusted among its components to enable it to resist the added strain of the increase in taxes that it
had to sustain.

The subject tax is levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is primarily a valid exercise of
police power.

PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988

FACTS:

The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a
legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a
regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation
and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration
fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor
vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Land
Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied
the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo
Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified
the case to the Supreme Court.

ISSUE:

Whether or not motor vehicle registration fees are considered as taxes.

RULING:

Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees.
The motor vehicle registration fees are actually taxes intended for additional revenues of the
government even if one fifth or less of the amount collected is set aside for the operating expenses of
the agency administering the program.

GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It
did not bear
the special anti-TB stamp required by the RA 1635. It was returned to the petitioner. Petitioner now
assails the
constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB Stamp law is
violative of
the equal protection clause because it constitutes mail users into a class for the purpose of the tax
while leaving
untaxed the rest of the population and that even among postal patrons the statute discriminatorily
grants
exemptions. The law in question requires an additional 5 centavo stamp for every mail being posted,
and no mail
shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?
HELD: No. It is settled that the legislature has the inherent power to select the subjects of taxation
and to grant
exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said
that in the
field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification. The
reason for this is that traditionally, classification has been a device for fitting tax programs to local
needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on
administrative
convenience. Tax exemptions have never been thought of as raising revenues under the equal
protection clause.

PASCUAL vs. SECRETARY OF PUBLIC WORKS

110 PHIL 331
GR No. L-10405, December 29, 1960

"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from
such expenditure, is merely incidental in the promotion of a particular enterprise."

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with
injunction, upon the ground that RA No. 920, which apropriates funds for public works particularly
for the construction and improvement of Pasig feeder road terminals. Some of the feeder roads,
however, as alleged and as contained in the tracings attached to the petition, were nothing but
projected and planned subdivision roads, not yet constructed within the Antonio Subdivision,
belonging to private respondent Zulueta, situated at Pasig, Rizal; and which projected feeder roads do
not connect any government property or any important premises to the main highway. The
respondents' contention is that there is public purpose because people living in the subdivision will
directly be benefitted from the construction of the roads, and the government also gains from the
donation of the land supposed to be occupied by the streets, made by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of
justifying an expenditure of the government?

HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the expenditure
which must determine its validity as justifying a tax, and not the magnitude of the interest to be
affected nor the degree to which the general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state,
which results from the promotion of private interest and the prosperity of private enterprises or
business, does not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the use of public funds is whether the statute
is designed to promote the public interest, as opposed to the furtherance of the advantage of
individuals, although each advantage to individuals might incidentally serve the public.
 Reyes vs. Almanzor
FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied
as dwelling
units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the
Rental
Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly rentals
of dwelling
units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses were precluded
from
raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-
classified and
reassessed the value of the subject properties based on the schedule of market values, which entailed
an
increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement
averring
that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and
unconstitutional"
considering that the taxes imposed upon them greatly exceeded the annual income derived from their
properties. They argued that the income approach should have been used in determining the land
values instead
of the comparable sales approach which the City Assessor adopted.

ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?

HELD: No. The taxing power has the authority to make a reasonable and natural classification for
purposes of
taxation but the government's act must not be prompted by a spirit of hostility, or at the very least
discrimination
that finds no support in reason. It suffices then that the laws operate equally and uniformly on all
persons under
similar circumstances or that all persons must be treated in the same manner, the conditions not being
different
both in the privileges conferred and the liabilities imposed.
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental
Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the
same government by the imposition of excessive taxes petitioners can ill afford and eventually result
in the
forfeiture of their properties.

Arturo Tolentino vs Secretary of Finance

Tolentino et al is questioning the constitutionality of RA 7716 otherwise known as the Expanded Value
Added Tax (EVAT) Law. Tolentino averred that this revenue bill did not exclusively originate from the
House of Representatives as required by Section 24, Article 6 of the Constitution. Even though RA 7716
originated as HB 11197 and that it passed the 3 readings in the HoR, the same did not complete the 3
readings in Senate for after the 1st reading it was referred to the Senate Ways & Means Committee
thereafter Senate passed its own version known as Senate Bill 1630. Tolentino averred that what Senate
could have done is amend HB 11197 by striking out its text and substituting it w/ the text of SB 1630 in
that way the bill remains a House Bill and the Senate version just becomes the text (only the text) of
the HB. Tolentino and co-petitioner Roco [however] even signed the said Senate Bill.

ISSUE: Whether or not EVAT originated in the HoR.

HELD: By a 9-6 vote, the SC rejected the challenge, holding that such consolidation was consistent with
the power of the Senate to propose or concur with amendments to the version originated in the HoR.
What the Constitution simply means, according to the 9 justices, is that the initiative must come from
the HoR. Note also that there were several instances before where Senate passed its own version rather
than having the HoR version as far as revenue and other such bills are concerned. This practice of
amendment by substitution has always been accepted. The proposition of Tolentino concerns a mere
matter of form. There is no showing that it would make a significant difference if Senate were to adopt
his over what has been done.

Mactan Intl Airport vs. Lapu-lapu City, G.R. No. 181756, Case Digest

Petitioner, Mactan-Cebu International Airport Authority (MCIAA) was created by Congress under
Republic Act No. 6958. Upon its creation, petitioner enjoyed exemption from realty taxes imposed by
the National Government or any of its political subdivision. However, upon the effectivity of the LGC the
Supreme Court rendered a decision that the petitioner is no longer exempt from realty estate taxes.

Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots comprising
the Mactan International Airport which included the airfield, runway, taxi way and the lots on which
these are built. Petitioner contends that these lots, and the lots to which they are built, are utilized
solely and exclusively for public purposes and are exempt from real property tax. Petitioner based its
claim for exemption on DOJ Opinion No. 50.

Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner filed a petition
for Prohibition, TRO, and a writ of preliminary injunction with RTC Lapulapu which sought to enjoin
respondent City from issuing the warrant of levy against petitioners properties from selling them at
public auction for delinquency in realty tax obligations.
Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund (SEF), and a
penalty interest for its nonpayment. Petitioner argued that without the corresponding tax ordinances,
respondent City could not impose and collect real property tax, an additional tax for the SEF, and
penalty interest from petitioner.

RTC granted the writ of preliminary which was later on lifted upon motion by the respondents.

(fait accompli)

RULING OF THE CA: Court of Appeals held that petitioners airport terminal building, airfield, runway,
taxiway, and the lots on which they are situated are not exempt from real estate tax reasoning as
follows: Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional
mandate of local autonomy, all natural and juridical persons, including government-owned or controlled
corporations (GOCCs), instrumentalities and agencies, are no longer exempt from local taxes even if
previously granted an exemption. The only exemptions from local taxes are those specifically provided
under the Code itself, or those enacted through subsequent legislation.

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which
they are situatedNOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-
Lapu;

b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the
Special Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to
Section 255 of the Local Government Code, respondent city can only collect an interest of 2%
per month on the unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;

We DECLARE the sale in public auction of the aforesaid properties and the eventual forfeiture and
purchase of the subject property by the respondent City of Lapu-Lapu asNULL and VOID. However,
petitioner MCIAAs property is encumbered only by a limited lien possessed by the respondent City of
Lapu-Lapu in accord with Section 257 of the Local Government Code.
RULING OF THE SUPREME COURT:

MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation.Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII
of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential public
services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of tax by local governments under Section
133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply
to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies
only if the beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic.

As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport
Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local
Government Code. This Court has also repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.

1. Petitioners properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax for the special education
fund and the penalty interest, as well as the final notices of real property tax delinquencies,
issued by the City of Lapu-Lapu on petitioners properties, except the assessment covering the
portions that petitioner has leased to private parties.

3. NULL and VOID the sale in public auction of 27 of petitioners properties and the eventual
forfeiture and purchase of the said properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of Delinquent Property issued to respondent
City of Lapu-Lapu.
Sison vs Ancheta (1984)
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher rates upon his income as a professional, that it
amounts to class legislation, and that it transgresses against the equal protection and due process
clauses of the Constitution as well as the rule requiring uniformity in taxation.

Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity
in taxation.

Held: There is a need for proof of such persuasive character as would lead to a conclusion that there
was a violation of the due process and equal protection clauses. Absent such showing, the presumption
of validity must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. Where the differentitation conforms to
the practical dictates of justice and equity, similar to the standards of equal protection, it is not
discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be classified
into different categories, such as recipients of compensation income as against professionals. Recipients
of compensation income are not entitled to make deductions for income tax purposes as there is no
practically no overhead expense, while professionals and businessmen have no uniform costs or
expenses necessaryh to produce their income. There is ample justification to adopt the gross system of
income taxation to compensation income, while continuing the system of net income taxation as
regards professional and business income

Ormoc Sugar vs Treasurer of Ormoc City (1968)

Facts: In 1964, the Municipal Board of Ormoc City passed Ordinance 4, imposing on any and all
productions of centrifuga sugar milled at the Ormoc Sugar Co. Inc. in Ormoc City a municpal tax
equivalent to 1% per export sale to the United States and other foreign countries. The company paid the
said tax under protest. It subsequently filed a case seeking to invalidate the ordinance for being
unconstitutional.

Issue: Whether the ordinance violates the equal protection clause.

Held: The Ordinance taxes only centrifugal sugar produced and exported by the Ormoc Sugar Co. Inc.
and none other. At the time of the taxing ordinances enacted, the company was the only sugar central
in Ormoc City. The classification, to be reasonable, should be in terms applicable to future conditions as
well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently
established sugar central, of the same class as the present company, from the coverage of the tax. As it
is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance
expressly points only to the company as the entity to be levied upon.

Lutz vs. Araneta

Facts: Commonwealth Act No. 567, otherwise known as Sugar Adjustment Act was promulgated in 1940
to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential
position in the United States market and the imposition of export taxes. Plaintiff, Walter Lutz, in
his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover
from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under Sec.3 of
the Act, alleging that such tax is unconstitutional and void, being levied for the aid and support of the
sugar industry exclusively, which in plaintiffs opinion is not a public purpose for which a tax may be
constitutionally levied. The action has been dismissed by the Court of First Instance.

Issue: Whether or not the tax imposed is constitutional.

Held: Yes. The act is primarily an exercise of the police power. It is shown in the Act that the tax is levied
with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that inequalities which result from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation.

The funds raised under the Act should be exclusively spent in aid of the sugar industry, since it is that
very enterprise that is being protected. It may be that other industries are also in need of similar
protection; but the legislature is not required by the Constitution toadhere to a policy of all or none.

Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte [GR

27588, 31 December 1927]

Facts: The Roman Catholic Apostolic Church is the owner of a parcel of land in San Nicolas, Ilocos Norte.
On the south side is a part of the Church yard, the convent and an adjacent lost used for a vegetable
garden in which there is a stable and a well for the use of the convent. In the center is the remainder of
the churchyard and the Church. On the north side is an old cemetery with its two walls still standing, and
a portion where formerly stood a tower. The provincial board assessed land tax on lots comprising the
north and south side, which the church paid under protest. It filed suit to recover the amount.
Issue: Whether the lots are covered by the Churchs tax exemption.

Held: The exemption in favor of the convent in the payment of land tax refers to the home of the priest
who presides over the church and who has to take care of himself in order to discharge his duties.
The exemption includes not only the land actually occupied by the Church but also the adjacent ground
destined to the ordinary incidental uses of man. A vegetable garden, thus, which belongs to a convent,
where its use is limited to the necessity of the priest, comes under the exemption. Further, land used as
a lodging house by the people who participate in religious festivities, which constitutes an incidental use
in religious functions, likewise comes within the exemption. It cannot be taxed according to its former
use, i.e. a cemetery.

American Bible Society v City of Manila (1957)

FACTS:
In the course of its ministry, the Philippine agency of American Bible Society (a foreign, non-stock, non-
profit, religious,
missionary corporation) has been distributing and selling bibles and/or gospel portions thereof
throughout the Philippines. The acting City Treasurer of Manila informed plaintiff that it was conducting
the business of general merchandise since November 1945, without providing itself with the necessary
Mayors permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances
Nos. 2529, 3028 and 3364. The society paid such under protest and filed suit questioning the legality of
the ordinances under which the fees are being collected.

ISSUES:

1. Whether or not the ordinances of the City of Manila are constitutional and valid

2. Whether the provisions of said ordinances are applicable or not to the case at bar

RULING:
1. Yes, they are constitutional. The ordinances do not deprive defendant of his constitutional right of the
free exercise and enjoyment of religious profession and worship, even though it prohibits him from
introducing and carrying out a scheme or purpose which he sees fit to claim as part of his religious
system. It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even
if applied to plaintiff society.

2. The ordinance is inapplicable to said business, trade or occupation of the plaintiff. Even if religious
groups and the press are not altogether free from the burdens of the government, the act of distributing
and selling bibles is purely religious and does not fall under Section 27e of the Tax Code (CA 466). The
fact that the price of bibles, etc. are a little higher than actual cost of the same does not necessarily
mean it is already engaged in business for profit. Thus, the Ordinances are not applicable to the Society.
CIR v CA & YMCA (1998)

FACTS:
In 1980, YMCA earned an income of 676,829.80 from leasing out a portion of its premises to small shop
owners, like restaurants and canteen operators and 44,259 from parking fees collected from non-members.
On July 2, 1984, the CIR issued an assessment to YMCA for deficiency taxes which included the income
from lease of YMCAs real property. YMCA formally protested the assessment but the CIR denied the
claims of YMCA. On appeal, the CTA ruled in favor of YMCA and excluded income from lease to small
shop owners and parking fees. However, the CA reversed the CTA but affirmed the CTA upon motion for
reconsideration.

ISSUE:
Whether the rental income of YMCA is taxable

RULING:
Yes. The exemption claimed by YMCA is expressly disallowed by the very wording of then Section 27 of
the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their
properties, real or personal, be subject to the tax imposed by the same Code. While the income received
by the organizations enumerated in 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 exemption does not apply to income derived from
any of their properties, real or personal or from any of their activities conducted for profit, regardless of
the disposition made of such income.