WILLIAM REAGAN v.

COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-26379, 27 December 1969, EN BANC, (Fernando, J.)

The Philippines, being independent and sovereign, its authority may be exercised over its
entire domain. There is no portion thereof that is beyond its power. Within its limits, its decrees
are supreme, its commands paramount. Its laws govern therein, and everyone to whom it applies
must submit to its terms. That is the extent of its jurisdiction, both territorial and personal.
Necessarily, likewise, it has to be exclusive. If it were not thus, there is a diminution of its
sovereignty.

Petitioner is a citizen of the United States and an employee of Bendix Radio and was
assigned at Clark Air Base, Philippines. 9 months thereafter and before his tour of duty expired,
petitioner imported a tax free 1960 Cadillac car. Petitioner then requested the Base Commander
of Clark Air Base, for a permit to sell the car, which was granted provided that the sale was made
to a member of the United States Armed Forces or a citizen of the United States employed in the
U.S. military bases in the Philippines. On the same date petitioner sold his car for $6,600.00 to a
certain Willie Johnson, Jr. executed at Clark Air Base. On the same date, Pfc. Willie (William)
Johnson, Jr. sold the car to Fred Meneses as evidenced by a deed of sale executed in Manila.

As a result of the transaction thus made, respondent Commissioner of Internal Revenue fixed
petitioners net taxable income arising from such transaction the amount of P17,912.34, rendering
him liable for income tax in the sum of P2,979.00. After paying the sum, he sought a refund from
respondent claiming that he was exempt, but pending action on his request for refund, he filed the
case with the Court of Tax Appeals seeking recovery.

ISSUE:

Is the sale considered done in a foreign soil not subject to Philippine income tax?

HELD:

No. Nothing is better settled than that the Philippines being independent and sovereign, its
authority may be exercised over its entire domain. There is no portion thereof that is beyond its
power. Within its limits, its decrees are supreme, its commands paramount. Its laws govern
therein, and everyone to whom it applies must submit to its terms. That is the extent of its
jurisdiction, both territorial and personal. Necessarily, likewise, it has to be exclusive. If it were
not thus, there is a diminution of its sovereignty.

It is to be admitted that any state may, by its consent, express or implied, submit to a restriction of
its sovereign rights. There may thus be a curtailment of what otherwise is a power plenary in
character. That is the concept of sovereignty as auto-limitation. A state then, if it chooses to, may
refrain from the exercise of what otherwise is illimitable competence.

Its laws may as to some persons found within its territory no longer control. Nor does the matter
end there. It is not precluded from allowing another power to participate in the exercise of
jurisdictional right over certain portions of its territory. If it does so, it by no means follows that
such areas become impressed with an alien character. They retain their status as native soil. They
are still subject to its authority. Its jurisdiction may be diminished, but it does not disappear. So it
is with the bases under lease to the American armed forces by virtue of the military bases
agreement of 1947. They are not and cannot be foreign territory.

COR JESU COLLEGE, LAW 2017

 JOHN HAY E PEOPLES ALTERNATIVE COALITION v. VICTOR LIM
G.R. No. 119775, 24 October 2003, EN BANC, (Morales, J.)

It is only the legislature, as limited by the provisions of the Constitution, that has full power
to exempt any person or corporation or class of property from taxation. The Constitution may
itself provide for specific tax exemptions or local governments may pass ordinances providing for
exemption from local taxes, but otherwise, it is only the legislative branch which has the power to
grant tax exemptions, its power to exempt being as broad as its power to tax.

R.A. No. 7227 likewise created the Subic Special Economic [and Free Port] Zone (Subic
SEZ). It granted the Subic SEZ incentives ranging from tax and duty-free importations,
exemption of businesses therein from local and national taxes, to other hallmarks of a liberalized
financial and business climate. R.A. No. 7227 expressly gave authority to the President to create
through executive proclamation, subject to the concurrence of the local government units directly
affected, other Special Economic Zones (SEZ) in the areas covered, such as Camp John Hay.

BCDA entered into a Memorandum of Agreement and Escrow Agreement with private
respondents Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld Internationale Group, Inc.
(ASIAWORLD). Four months later, BCDA, TUNTEX and ASIAWORD executed a Joint Venture
Agreement whereby they bound themselves to put up a joint venture company known as the
Baguio International Development and Management Corporation which would lease areas within
Camp John Hay and Poro Point for the purpose of turning such places into principal tourist and
recreation spots.

Subsequently President Ramos issued Proclamation No. 420, the title of which was earlier
indicated, which established a SEZ on a portion of Camp John Hay.

The issuance of Proclamation No. 420 spawned the present petition for prohibition,
mandamus and declaratory relief. Petitioner alleges that Presidential Proclamation No. 420, in so
far as it grants tax exemptions, is invalid and illegal as it is an unconstitutional exercise by the
president of a power granted only to the legislature.

ISSUE:

Whether or not the tax exemptions and other financial incentives granted to the Subic SEZ
under Section 12 of RA 7227 are applicable to the John Hay SEZ?

HELD:

No. It is the legislative branch which has the inherent power not only to select the subjects of
taxation but also grant exemptions. Paragraph 4, Section 28 of Article VI of the Constitution
provides: "No law granting tax exemption shall be passed without the concurrence of a majority
of all the Members of the Congress."

Thus, it is only the legislature, as limited by the provisions of the Constitution, that has full
power to exempt any person or corporation or class of property from taxation.

The Constitution may itself provide for specific tax exemptions or local governments may
pass ordinances providing for exemption from local taxes, but otherwise, it is only the legislative
branch which has the power to grant tax exemptions, its power to exempt being as broad as its
power to tax.

There is absolutely nothing in RA 7227 which can be considered a grant of tax exemption in
favor of public respondent BCDA. Rather, the beneficiaries of the tax exemptions and other
incentives in Section 12 (the only provision in RA 7227 which expressly grants tax exemptions)
are clearly the business enterprises located within the Subic SEZ.

Consequently, respondents' arguments for a liberal construction of RA 7227 in favor of tax

exemptions and incentives to business enterprises in the John Hay SEZ must necessarily fail. As
the Court, speaking through Justice Mendoza in the recent case of PLDT v. city of Davao, has
occasion to stress:

"Along with the police power and eminent domain, TAXATION is one of the three necessary
attributes of sovereignty. Consequently, statutes in derogation of sovereignty, such as those
containing exemption from taxation, should be strictly construed in favor of the state. A state
cannot be stripped of this most essential power by doubtful words and of this highest attribute of
sovereignty by ambiguous language."

Necessarily, respondents' arguments, dependent as they are on a liberal construction of tax

exemptions, also fail.

Public respondents' argument that tax exemptions are "inherent" in the term "special
economic zone" stands the concept on its head and cannot be accepted. The tax exempt character
of an SEZ proceeds from the statutory provisions expressly conferring such exemptions, not vice
versa.

COR JESU COLLEGE, LAW 2017

 ANTERO M. SISON v. RUBEN B. ANCHETA
G.R. No. L-59431, 25 July 1984, EN BANC, (Fernando, C.J.)

With respect to equal protection, it suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the
principle is that equal protection and security shall be given to every person under
circumstances which if not identical are analogous. 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.

The petitioner in this case challenges the validity of Section I of Batas Pambansa Blg
135. The assailed provision further amends Section 21 of the National Internal Revenue
Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings,
(d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of
individual partner in the net profits of taxable partnership, (f) adjusted gross income.

Petitioner as taxpayer alleges that by virtue thereof, "he would be unduly

discriminated against by the imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis those which are imposed upon fixed income
or salaried individual taxpayers. He characterizes the above sction as arbitrary amounting
to class legislation, oppressive and capricious in character. For petitioner, therefore, there
is a transgression of both the equal protection and due process clauses of the Constitution
as well as of the rule requiring uniformity in taxation.

ISSUE:

Whether or not BP 135 violates the due process and equal protection clauses, and the
rule on uniformity in taxation

HELD:

No. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A

mere allegation, as here. does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision
as void or its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that were the due process and equal protection clauses are invoked,
considering that they arc not fixed rules but rather broad standards, there is a need for of
such persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.
 With respect to equal protection, it suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the
principle is that equal protection and security shall be given to every person under
circumstances which if not identical are analogous. If law be looked upon in terms of
burden or charges, those that fall within a class should be treated in the same fashion,
whatever restrictions cast on some in the group equally binding on the rest." That same
formulation applies as well to taxation measures.

The SC further held that 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. As clarified by Justice Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and equity" it "is not discriminatory within
the meaning of this clause and is therefore uniform." There is quite a similarity then to
the standard of equal protection for all that is required is that the tax "applies equally to
all persons, firms and corporations placed in similar situation."

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 necessary 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.
 COR JESU COLLEGE, LAW 2017

COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS, COURT OF

TAX APPEALS, and YOUNG MENS CHRISTIAN ASSOCIATION OF THE
PHILIPPINES, INC.
G.R. No. 124043, 14 October 1998, FIRST DIVISION, (Panganiban, J.)

Taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from
taxation should be manifest. and unmistakable from the language of the law on which it is based.
Thus, the claimed exemption "must expressly be granted in a statute stated in a language too
clear to be mistaken."

Private Respondent YMCA is a non-stock, non-profit institution, which conducts various

programs and activities that are beneficial to the public, especially the young people, pursuant to
its religious, educational and charitable objectives.

In 1980, private respondent earned, among others, an income of P676,829.80 from leasing
out a portion of its premises to small shop owners, and P44,259.00 from parking fees collected
from non-members. The Commissioner of internal revenue (CIR) issued an assessment to private
respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency
income tax, deficiency expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. Private respondent formally protested the assessment.

The CIR argues that while the income received by the organizations enumerated in 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 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 . . . ."

The CIR adds that "rental income derived by a tax-exempt organization from the lease of its
properties, real or personal, is not, therefore, exempt from income taxation, even if such income
is exclusively used for the accomplishment of its objectives."

ISSUE:

Whether or not the income derived from rentals of real property owned by YMCA subject to
income tax?
HELD:

Yes. Taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict
in interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from
taxation should be manifest. and unmistakable from the language of the law on which it is based.
Thus, the claimed exemption "must expressly be granted in a statute stated in a language too clear
to be mistaken."

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very
wording of the last paragraph 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. Because the last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA from its real property, the Court is
duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted
attempt at construction.

The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification
that the income from the properties must arise from activities 'conducted for profit' before it may
be considered taxable." 23 This argument is erroneous. As previously stated, a reading of said
paragraph ineludibly shows that the income from any property of exempt organizations, as well
as that arising from any activity it conducts for profit, is taxable. The phrase "any of their
activities conducted for profit" does not qualify the word "properties." This makes from the
property of the organization taxable, regardless of how that income is used whether for profit
or for lofty non-profit purposes.

Invoking not only the NIRC but also the fundamental law, private respondent submits that
Article VI, Section 28 of par. 3 of the 1987 Constitution, exempts "charitable institutions" from
the payment not only of property taxes but also of income tax from any source. Private
respondent also invokes Article XIV, Section 4, par. 3 of the Character, claiming that the YMCA
"is a non-stock, non-profit educational institution whose revenues and assets are used actually,
directly and exclusively for educational purposes so it is exempt from taxes on its properties and
income."

The SC disagrees with private respondent. The SC reiterated that private respondent is
exempt from the payment of property tax, but not income tax on the rentals from its property. The
bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax.

For the YMCA to be granted the exemption it claims under the above provision, it must
prove with substantial evidence that (1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be exempted from taxation is used actually,
directly, and exclusively for educational purposes. Unfortunately for respondent, the Court noted
that not a scintilla of evidence was submitted to prove that it met the said requisites.

The Court appreciates the nobility of respondents cause. However, the Courts power and
function are limited merely to applying the law fairly and objectively. It cannot change the law or
bend it to suit its sympathies and appreciations. Otherwise, it would be overspilling its role and
invading the realm of legislation. The Court regrets that, given its limited constitutional authority,
it cannot rule on the wisdom or propriety of legislation. That prerogative belongs to the political
departments of government.
 COR JESU COLLEGE, LAW 2017

MANUEL N. MAMBA v. EDGAR R. LARA

G.R. No. 165109, 14 December 2009, SECOND DIVISION, (Del Castillo, J.)

A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed,
or that the public money is being deflected to any improper purpose, or that there is wastage of
public funds through the enforcement of an invalid or unconstitutional law. A person suing as a
taxpayer, however, must show that the act complained of directly involves the illegal
disbursement of public funds derived from taxation. He must also prove that he has sufficient
interest in preventing the illegal expenditure of money raised by taxation and that he will sustain
a direct injury because of the enforcement of the questioned statute or contract.

The Sangguniang Panlalawigan of Cagayan passed Resolution No. 2001-272 authorizing

Governor Edgar R. Lara (Gov. Lara) to engage the services of and appoint Preferred Ventures
Corporation as financial advisor or consultant for the issuance and flotation of bonds to fund the
priority projects of the governor without cost and commitment.

Petitioners Manuel N. Mamba, Raymund P. Guzman and Leonides N. Fausto filed a Petition
for Annulment of Contracts and Injunction with prayer for a Temporary Restraining Order/Writ of
Preliminary Injunction against Edgar R. Lara and others.

At the time of the filing of the petition, Manuel N. Mamba was the Representative of the 3rd
Congressional District of the province of Cagayan while Raymund P. Guzman and Leonides N.
Fausto were members of the Sangguniang Panlalawigan of Cagayan. Edgar R. Lara was sued in
his capacity as governor of Cagayan, while the other respondents were sued as members of the
Sangguniang Panlalawigan of Cagayan. The respondents filed an Answer with Motion to
Dismiss, raising as a defense that the petitioners are not the proper parties or they lack locus
standi in court.

The RTC decided in favor of the respondents and dismissed the petition to annul the
contract, ruling that the petitioners had no locus standi to file the petition as they were not parties
to the contract.

ISSUE:

Whether or not the parties have locus standi to sue in court?

HELD:

Yes. A taxpayer is allowed to sue where there is a claim that public funds are illegally
disbursed, or that the public money is being deflected to any improper purpose, or that there is
wastage of public funds through the enforcement of an invalid or unconstitutional law.

A person suing as a taxpayer, however, must show that the act complained of directly
involves the illegal disbursement of public funds derived from taxation. He must also prove that
he has sufficient interest in preventing the illegal expenditure of money raised by taxation and
that he will sustain a direct injury because of the enforcement of the questioned statute or
contract.

In other words, for a taxpayers suit to prosper, two requisites must be met: (1) public funds
derived from taxation are disbursed by a political subdivision or instrumentality and in doing so,
a law is violated or some irregularity is committed and (2) the petitioner is directly affected by the
alleged act.

In light of the foregoing, it is apparent that contrary to the view of the RTC,a taxpayer need
not be a party to the contract to challenge its validity. As long as taxes are involved, people have a
right to question contracts entered into by the government.

In this case, although the construction of the town center would be primarily sourced from
the proceeds of the bonds, which respondents insist are not taxpayers money, a government
support in the amount of P187 million would still be spent for paying the interest of the bonds. In
fact, a Deed of Assignment was executed by the governor in favor of respondent RCBC over the
Internal Revenue Allotment (IRA) and other revenues of the provincial government as payment
and/or security for the obligations of the provincial government under the Trust Indenture
Agreement dated September 17, 2003. Records also show that on March 4, 2004, the governor
requested the Sangguniang Panlalawigan to appropriate an amount of P25 million for the interest
of the bond. Clearly, the first requisite has been met.

As to the second requisite, the court, in recent cases, has relaxed the stringent "direct injury
test" bearing in mind that locus standi is a procedural technicality. By invoking "transcendental
importance", "paramount public interest", or "far-reaching implications", ordinary citizens and
taxpayers were allowed to sue even if they failed to show direct injury. In cases where serious
legal issues were raised or where public expenditures of millions of pesos were involved, the
court did not hesitate to give standing to taxpayers.
COR JESU COLLEGE, LAW 2017