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CIR v Pineda CIR v Algue

GR No L-22734, September 15, 1967 GR No. L-28896, February 17, 1988

BIR investigated the income tax liability of FACTS:
Anastacio Pineda’s estate for the years The BIR assessed Algue a total amount of
1945, 1946, 1947, and 1948 and it found delinquency taxes of Php 83,183.85 for the
that the corresponding income tax return years 1958 and 1959. It contends that the
were not filed. This resulted to a P760.28 company's claimed deduction of Php 75,000
deficiency income tax for 1945 and 1946 in the form of promotional fees is disallowed
and real estate dealer’s fixed tax for the because it was not ordinary reasonable or
4th quarter of 1946 and for the whole year necessary business expenses. Algue filed a
1947. Manuel Pineda, eldest son of protest.
Anastacio, received the assessment. He
contested the same alleging that only a BIR did not take any action. So, Algue filed
proportionate part should be his liability. a petition for review with the Court of Tax
CTA ruled that Pineda is liable only for taxes Appeals which rule in favor of Algue. Thus,
corresponding to his share in the estate. the current petition.
Hence, the present petition.
ISSUE: Whether the BIR correctly disallowed the
Whether the Government can require deduction
Manuel Pineda to pay the full amount of the
tax assessed RULING:
Yes. As a holder of property belonging to the The burden is on the taxpayer to prove the
estate, Pineda is liable for the tax up to the validity of the claimed deduction. Here, the
amount of the property in his possession. onus has been discharged satisfactorily.
The BIR is given the discretion to avail of Here, the onus has been discharged
the most expeditious way to collect the tax. satisfactorily. The promotional fees were
This is, of course, without prejudice to necessary and reasonable in the light of the
Pineda’s right of contribution for his co- efforts exerted by the payees in the
heirs. Put simply, the Supreme Court held inducement of investors to venture in an
that the rule on solidarity applies to taxes experimental enterprise. Thus, the payees
because it is not an ordinary contract. Two should be sufficiently recompensed.
persons liable for payment of estate tax:

Francia v Intermediate Appellate Court

1. Executor or administrator; (1988)

2. Heirs up to the extent of their

inheritance. Francia v Intermediate Appellate Court GR
No L-67649, June 28, 1988

Engracio Francia was the registered owner
of a house and lot located in Pasay City. A
portion of such property was
expropriated by the Republic of the
Philippines in 1977. It appeared that Francia
did not pay his real estate taxes from 1963 Progressive Development Corporation v.
to 1977. Thus, his property was sold in a Quezon City
public auction by the City Treasurer of
Pasay City. Francia filed a complaint to Facts:
annual the auction sale. The lower court The City Council of QC passed an
dismissed the complaint and the ordinance known as the Market Code of
Intermediate Appellate Court affirmed the QC, which imposed a 5% supervision fee on
decision of the lower court in toto. Hence, gross receipts on rentals or lease of
this petition for review. Francia contends privately-owned market spaces in QC. In
that his tax delinquency of P 2,400 has been case of failure of the owners of the market
extinguished by legal compensation. He spaces to pay the tax for three consecutive
claims that the government owed him P months, the City shall revoke the permit of
4,116 when a portion of his land was the privately-owned market to operate.
expropriated on October 15, 1977. Progressive Development Corp, owner and
operator of Farmer’s Market, filed a petition
ISSUE: for prohibition against QC on the ground
May the expropriation payment compensate that the tax imposed by the Market Code
for the real estate taxes due? was in reality a tax on income, which the
municipal corporation was prohibited by law
RULING: to impose.
No. There can be no offsetting of taxes Issue:
against the claims that the taxpayer may Whether or not the supervision fee is an
have against the government. A person income tax or a license fee
cannot refuse to pay a tax on the ground Held:
that the government owes him an amount It is a license fee. A LICENSE FEE is
equal to or greater than the tax being imposed in the exercise of the police power
collected. The collection of a tax cannot primarily for purposes of regulation, while
await the results of a lawsuit against the TAX is imposed under the taxing power
government. Internal revenue taxes cannot primarily for purposes of raising revenues. If
be the subject of compensation. The the generating of revenue is the primary
Government and the taxpayer are not purpose and regulation is merely incidental,
mutually creditors and debtors of each other the imposition is a tax; but if regulation is
under Article 1278 of the Civil Code and a the primary purpose, the fact that
claim of taxes is not such a debt, demand, incidentally, revenue is also obtained does
contract or judgment as is allowed to be set- not make the imposition a tax. To be
off. considered a license fee, the imposition
must relate to an occupation or activity that
Moreover, the amount of P4,116 paid by the so engages the public interest in health,
national government for the 125 square morals, safety, and development as to
meter portion of his lot was deposited with require regulation for the protection and
the Philippine National Bank long before the promotion of such public interest; the
sale at public auction of his remaining imposition must also bear a reasonable
property. It would have been an easy matter relation to the probable expenses of
to withdraw P 2,400 from the deposit so that regulation, taking into account not only the
he could pay the tax obligation thus aborting costs of direct regulation but also its
the sale at public auction. Thus, the petition incidental consequences. In this case, the
for review is dismissed. The taxes assessed Farmers’ Market is a privately-owned
are the obligations of the taxpayer arising market established for the rendition of
from law, while the money judgment against service to the general public. It warrants
the government is an obligation arising from close supervision and control by the City for
contract, whether express or implied. the protection of the health of the public by
insuring the maintenance of sanitary for the payment of the cost of public
conditions, prevention of fraud upon the improvements in its immediate vicinity and
buying public, etc. Since the purpose of the levied with reference to special benefits to
ordinance is primarily regulation and not the property assessed.
revenue generation, the tax is a license fee. A special assessment is not, strictly
The use of the gross amount of stall rentals speaking, a tax; and neither the decree nor
as basis for determining the collectible the Constitution exempt the Apostolic
amount of license tax does not, by itself, Prefect from payment of said special
convert the license tax into a prohibited tax assessment.
on income. Such basis actually has a
reasonable relationship to the probable Furthermore, arguendo that exemption may
costs of regulation and supervision encompass such assessment, the Apostolic
of Progressive’s kind of business, since Prefect cannot claim exemption as it has not
ordinarily, the higher the amount of rentals, proven the property in question is used
the higher the volume of items sold. The exclusively for religious purposes; but that it
higher the volume of goods sold, the greater appears that the same is being used to
the extent and frequency of supervision and other non-religious purposes.
inspection may be required in the interest of
the buying public. Thus, the Apostolic Prefect is required to
pay the special assessment.
Apostolic Prefect of Mountain Province v
City Treasurer of Baguio City (1941) RENATO V. DIAZ AND AURORA MA. F.
Apostolic Prefect of Mountain Province v FINANCE and THE COMMISSIONER OF
City Treasurer of Baguio City GR No 47252, INTERNAL REVENUE
April 18, 1941
FACTS: Petitioners Renato Diaz and Aurora Ma. F.
The Apostolic Prefect is a corporation sole, Timbol filed a petition for declaratory relief
of religious character, organized under the assailing the validity of the impending
Philippine laws, and with residence imposition of value-added tax (VAT) by the
in Baguio. The City imposed a special Bureau of Internal Revenue (BIR) on the
assessment against properties within its collections of tollway operators. They
territorial jurisdiction, including those of the alleged that the Congress when it enacted
Apostolic Prefect, which benefits from its the NIRC did not intend to include toll fees
drainage and sewerage system. The within the meaning of "sale of services" that
Apostolic Prefect contends that its are subject to VAT; that a toll fee is a "users
properties should be free from tax. tax," not a sale of services; that to impose
VAT on toll fees would amount to a tax on
ISSUE: public service; and that, since VAT was
Is the Apostolic Prefect exempt from never factored into the formula for
paying? computing toll fees, its imposition would
violate the non-impairment clause of the
RULING: constitution. The government averred that
No, it is liable. the NIRC imposes VAT on all kinds of
services of franchise grantees, including
In its broad meaning, tax includes both tollway operations, except where the law
general taxes and special assessment. Yet provides otherwise; that the Court should
actually, there is a recognized distinction seek the meaning and intent of the law from
between them in that assessment is the words used in the statute; and that the
confined to local impositions upon property imposition of VAT on tollway operations has
been the subject as early as 2003 of several for which will be advanced by NIA. Hydro
BIR rulings and circulars. shall repay NIA the costs incurred and the
manner of repayment shall be through
Issue: Whether or not toll fees collected by deductions from each monthly payment due
tollway operators may be subjected to to Hydro. Hydro shall repay NIA the full
value- added tax. value of the construction before the
eventual transfer of ownership.
Ruling: Upon transfer, Hydro was assessed an
Yes. If the legislative intent was to exempt additional 3% ad valorem duty which it paid
tollway operations from VAT, as petitioners under protest. The Collector of Customs
so strongly allege, then it would have been then ordered for the refund of the ad
well for the law to clearly say so. Tax valorem duty in the form of tax credit. This
exemptions must be justified by clear was then reversed by the Deputy Minister of
statutory grant and based on language in Finance.
the law too plain to be mistaken. The
operation by the government of a tollway Issue:
does not change the character of the road Whether or not the imposition of the 3% ad
as one for public use. Someone must pay valorem tax on importations is valid.
for the maintenance of the road, either the
public indirectly through the taxes they pay Held:
the government, or only those among the No. EO 860 which was the basis for the
public who actually use the road through the imposition of the ad valorem duty took effect
toll fees they pay upon using the road. The December 1982. The importations were
tollway system is even a more efficient and effected in 1978 and 1979 by NIA. It is a
equitable manner of taxing the public for the cardinal rule that laws shall have no
maintenance of public roads. The charging retroactive effect unless contrary is
of fees to the public does not determine the provided. EO 860 does not provide for its
character of the property whether it is for retroactivity. The Deputy Minister of Finance
public dominion or not. Article 420 of the even clarified that letters of credit opened
Civil Code defines property of public prior to the effectivity of EO 860 are not
dominion as "one intended for public use." subject to its provisions.
Even if the government collects toll fees, the In the case, the procurement of the
road is still "intended for public use" if equipment was not on a tax exempt basis
anyone can use the road under the same as the import liabilities have been secured
terms and conditions as the rest of the to paid under a financial scheme. It is a
public. The charging of fees, the limitation matter of implementing a pre-existing
on the kind of vehicles that can use the agreement, hence, the imported articles can
road, the speed restrictions and other only be subject to the rates of import duties
conditions for the use of the road do not prevailing at the time of entry or withdrawal
affect the public character of the road. from the customs’ custody.

Hydro Resources Contractors Commissioner of Internal Revenue v

Corporation v CTA Ayala Securities Corporation

Facts: Facts:
National Irrigation Administration (NIA) Ayala Securities Corp. (Ayala) failed to file
entered into an agreement with Hydro returns of their accumulated surplus so
Resources for the construction of the Magat Ayala was charged with 25% surtax by the
River Multipurpose Project in Isabela. Under Commissioner of internal Revenue. The
their contract, Hydro was allowed to procure CTA (Court of Tax Appeals) reversed the
new construction equipment, the payment Commissioner’s decision and held that the
assessment made against Ayala was RULING:
beyond the 5-yr prescriptive period as No. The Court has ruled the tenement
provided in section 331 of the National houses constitute a distinct class of property
Internal Revenue Code. Commissioner now and that taxes are uniform and equal when
files a motion for reconsideration of this imposed upon all property of the same class
decision. Ayala invokes the defense of or character within the taxing authority.
prescription against the right of the The fact that the owners of the other
Commissioner to assess the surtax. classes of buildings in Iloilo are not imposed
upon by the ordinance, or that tenement
Issue: taxes are imposed in other cities do not
Whether or not the right to assess and violate the rule of equality and uniformity.
collect the 25% surtax has prescribed after The rule does not require that taxes for the
five years. same purpose should be imposed in
different territorial subdivisions at the same
Held: time. So long as the burden of tax falls
No. There is no such time limit on the right equally and impartially on all owners or
of the Commissioner to assess the 25% operators of tenement houses similarly
surtax since there is no express statutory classified or situated, equality and uniformity
provision limiting such right or providing for is accomplished. The presumption that tax
its prescription. Hence, the collection of statutes are intended to operate uniformly
surtax is imprescriptible. The underlying and equally was not overthrown therein.
purpose of the surtax is to avoid a situation
where the corporation unduly retains its
surplus earnings instead of declaring and CITY OF MANILA vs. COCA-COLA
paying dividends to its shareholders. SC BOTTLERS PHILIPPINES, INC.- CTA,
reverses the ruling of the CTA. Double Taxation

Villanueva v City v Iloilo FACTS:

GR No L-26521, December 28, 1968 Respondent paid the local business tax only
as a manufacturers as it was expressly
FACTS: exempted from the business tax under a
On September 30, 1946, the Municipal different section and which applied to
Board of Iloilo City enacted Ordinance 86 businesses subject to excise, VAT or
imposing license tax fees upon percentage tax under the Tax Code. The
tenement houses. The validity of such City of Manila subsequently amended the
ordinance was challenged by Eusebio and ordinance by deleting the provision
Remedios Villanueva, owners of four exempting businesses under the latter
tenement houses containing 34 apartments. section if they have already paid taxes
The Supreme Court held the ordinance to under a different section in the ordinance.
be ultra views. On January 15, 1960, This amending ordinance was later declared
however, the municipal board, believing that by the Supreme Court null and void.
it acquired authority to enact an ordinance Respondent then filed a protest on the
of the same nature pursuant to the Local ground of double taxation. RTC decided in
Autonomy Act, enacted Ordinance 11, favor of Respondent and the decision was
Eusebio and Remedios Villanueva assailed received by Petitioner on April 20, 2007. On
the ordinance anew. May 4, 2007, Petitioner filed with the CTA a
Motion for Extension of Time to File Petition
ISSUE: for Review asking for a 15-day extension or
Does Ordinance 11 violate the rule of until May 20, 2007 within which to file its
uniformity of taxation? Petition. A second Motion for Extension was
filed on May 18, 2007, this time asking for a
10-day extension to file the Petition. Estate of Benigno Toda Jr.
Petitioner finally filed the Petition on May G.R. No. 147188. September 14, 2004
30, 2007 even if the CTA had earlier issued DAVIDE, JR., C.J.
a resolution dismissing the case for failure
to timely file the Petition. FACTS:
March 2, 1989: Cibeles Insurance Corp.
(CIC) authorized Benigno P. Toda Jr.,
President and Owner of 99.991% of
ISSUES: outstanding capital stock, to sell the Cibeles
(1) Has Petitioner’s the right to appeal with Building and 2 parcels of land which he sold
the CTA lapsed? to Rafael A. Altonaga on August 30, 1987
(2) Does the enforcement of the latter for P 100M who then sold it on the same
section of the tax ordinance constitute day to Royal Match Inc. for P 200M.
double taxation? CIC included gains from sale of real
property of P 75,728.021 in its annual
income tax return while Altonaga paid a 5%
HELD: capital gains tax of P 10M
(1) NO. Petitioner complied with the July 12, 1990: Toda sold his shares to Le
reglementary period for filing the petition. Hun T. Choa for P 12.5M evidenced by a
From April 20, 2007, Petitioner had 30 days, deed of sale of shares of stock which
or until May 20, 2007, within which to file provides that the buyer is free from all
their Petition for Review with the CTA. The income tax liabilities for 1987, 1988 and
Motion for Extension filed by the petitioners 1989.
on May 18, 2007, prior to the lapse of the Toda Jr. died 3 years later.
30-day period on 20 May 2007, in which March 29, 1994: BIR sent an assessment
they prayed for another extended period of notice and demand letter to CIC for
10 days, or until 30 May 2007, to file their deficiency of income tax of P 79,099, 999.22
Petition for Review was, in reality, only the January 27, 1995: BIR sent the same to the
first Motion for Extension of petitioners. estate of Toda Jr.
Thus, when Petitioner filed their Petition via Estate filed a protest which was dismissed -
registered mail their Petition for Review on fraudulent sale to evade the 35% corporate
30 May 2007, they were able to comply with income tax for the additional gain of P 100M
the period for filing such a petition. and that there is in fact only 1 sale.
Since it is falsity or fraud, the prescription
(2) YES. There is indeed double taxation if period is 10 years from the discovery of the
respondent is subjected to the taxes under falsity or fraud as prescribed under Sec. 223
both Sections 14 and 21 of the tax (a) of the NIRC
ordinance since these are being imposed: CTA: No proof of fraudulent transaction so
(1) on the same subject matter — the the applicable period is 3 years after the last
privilege of doing business in the City of day prescribed by law for filing the return
Manila; (2) for the same purpose — to make CA: affirmed
persons conducting business within the City CIR appealed
of Manila contribute to city revenues; (3) by ISSUE: W/N there is falsity or fraud
the same taxing authority — petitioner City resulting to tax evasion rather than tax
of Manila; (4) within the same taxing avoidance so the period for assessment has
jurisdiction — within the territorial not prescribed.
jurisdiction of the City of Manila; (5) for the
same taxing periods — per calendar year; HELD: YES. Estate shall be liable since
and (6) of the same kind or character — a NOT yet prescribed.
local business tax imposed on gross sales Tax avoidance and tax evasion are the two
or receipts of the business. most common ways used by taxpayers in
escaping from taxation. ax avoidance is the "A law appropriating the public revenue is
tax saving device within the means invalid if the public advantage or benefit,
sanctioned by law. This method should be derived from such expenditure, is merely
used by the taxpayer in good faith and at incidental in the promotion of a particular
arms length. Tax evasion, on the other enterprise."
hand, is a scheme used outside of those
lawful means and when availed of, it usually FACTS: Governor Wenceslao Pascual of
subjects the taxpayer to further or additional Rizal instituted this action for declaratory
civil or criminal liabilities. relief, with injunction, upon the ground that
Tax evasion connotes the integration of RA No. 920, which apropriates funds for
three factors: public works particularly for the construction
(1) the end to be achieved, i.e., the payment and improvement of Pasig feeder road
of less than that known by the taxpayer to terminals. Some of the feeder roads,
be legally due, or the non-payment of tax however, as alleged and as contained in the
when it is shown that a tax is due tracings attached to the petition, were
(2) an accompanying state of mind which is nothing but projected and planned
described as being evil, in bad faith, subdivision roads, not yet constructed within
willfull,or deliberate and not accidental; and the Antonio Subdivision, belonging to
(3) a course of action or failure of action private respondent Zulueta, situated at
which is unlawful. Pasig, Rizal; and which projected feeder
All are present in this case. The trial roads do not connect any government
balance showed that RMI debited P 40M as property or any important premises to the
"other-inv. Cibeles Building" that indicates main highway. The respondents' contention
RMI Paid CIC (NOT Altonaga) is that there is public purpose because
Fraud in its general sense, is deemed to people living in the subdivision will directly
comprise anything calculated to deceive, be benefitted from the construction of the
including all acts, omissions, and roads, and the government also gains from
concealment involving a breach of legal or the donation of the land supposed to be
equitable duty, trust or confidence justly occupied by the streets, made by its owner
reposed, resulting in the damage to another, to the government.
or by which an undue and unconscionable
advantage is taken of another. ISSUE: Should incidental gains by the
Here, it is obvious that the objective of the public be considered "public purpose" for
sale to Altonaga was to reduce the amount the purpose of justifying an expenditure of
of tax to be paid especially that the transfer the government?
from him to RMI would then subject the
income to only 5% individual capital gains HELD: No. It is a general rule that the
tax, and not the 35% corporate income tax. legislature is without power to appropriate
Generally, a sale of or exchange of assets public revenue for anything but a public
will have an income tax incidence only when purpose. It is the essential character of the
it is consummated but such tax incidence direct object of the expenditure which must
depends upon the substance of the determine its validity as justifying a tax, and
transaction rather them mere formalities. not the magnitude of the interest to be
affected nor the degree to which the general
advantage of the community, and thus the
Pascual vs. Secretary of Public Works public welfare, may be ultimately benefited
PASCUAL vs. SECRETARY OF PUBLIC by their promotion. Incidental to the public
WORKS or to the state, which results from the
110 PHIL 331 promotion of private interest and the
GR No. L-10405, December 29, 1960 prosperity of private enterprises or
business, does not justify their aid by the directly used in its operations, the Quezon
use public money. City government cannot levy real property
The test of the constitutionality of a statute taxes on the real properties of Bayantel that
requiring the use of public funds is whether are in Quezon City area.
the statute is designed to promote the public For sure, in Philippine Long Distance
interest, as opposed to the furtherance of Telephone Company, Inc. (PLDT) vs. City of
the advantage of individuals, although each Davao, this Court has upheld the power of
advantage to individuals might incidentally Congress to grant exemptions over the
serve the public. power of local government units to impose
taxes. There, the Court wrote:
Quezon City vs. Bayantel G.R. No. Indeed, the grant of taxing powers to
162015 March 6, 2006 Local Taxation local government units under the
NOVEMBER 9, 2017 Constitution and the LGC does not affect
FACTS: the power of Congress to grant
BAYANTEL is a legislative franchise holder exemptions to certain persons, pursuant to
under RA 3259 to establish and operate a declared national policy. The legal effect
radio stations for domestic of the constitutional grant to local
telecommunications, radiophone, governments simply means that in
broadcasting and telecasting. On January 1, interpreting statutory provisions on
2992, RA 7160 of the “Local Government municipal taxing powers, doubts must be
Code of 1991” took effect. Section 232 of resolved in favor of municipal corporations.
the Code grants local government units
within the Metro Manila area the power to PHILCOMSAT VS. ALCUAZ [180 SCRA
levy tax on real properties. Section 234 of 218; G.R. NO.84818; 18 DEC 1989]
the same Code withdrew any exemption
from realty tax granted to all persons, Facts: Herein petitioner is engaged in
natural or juridical. providing for services involving
On July 20, 1992, few months after the LGC telecommunications. Charging rates for
took effect, Congress enacted RA 7633, certain specified lines that were reduced by
amending Bayantel’s original franchise. In order of herein respondent Jose Alcuaz
1993, the Quezon City government enacted Commissioner of
the Quezon City Revenue Code imposing the National Telecommunications
real property tax on all real properties in Commission. The rates were ordered to be
Quezon City. reduced by fifteen percent (15%) due to
Executive Order No. 546 which granted the
ISSUE: NTC the power to fix rates. Said order was
What is the extent of the Power of Local issued without prior notice and hearing.
Issue: Whether or Not E.O. 546 is
RULING: unconstitutional.
The power to tax is primarily vested in the
Congress; however, it may be exercised by Held: Yes. Respondents admitted that
local legislative bodies pursuant to direct the application of a policy like the fixing of
authority conferred by Section 5, Article X of rates as exercised by administrative bodies
the Constitution. Under the latter, the is quasi-judicial rather than quasi-legislative.
exercise of the power may be subject to But respondent’s contention that notice and
such guidelines and limitations as Congress hearing are not required since the assailed
may provide. order is merely incidental to the entire
Since RA 7633 amended Bayantel’s original proceedings and temporary in nature is
franchise and granted it real property tax erroneous. Section 16(c) of the Public
exemption from its real properties that is Service Act, providing for the proceedings of
the Commission, upon notice and hearing, violates theequal protection and uniformity
dictates that a Commission has power to fix of taxation clauses because older brands
rates, upon proper notice and hearing, and, are taxedbased on their 1996 net retail
if not subject to the exceptions, limitations or prices while new brands are taxed based on
saving provisions. theirpresent day net retail prices.

It is thus clear that with regard to rate-fixing, HELD: Petition is denied

respondent has no authority to make such Without merit
order without first giving petitioner a and a rehash of petitioner’s previous
hearing, whether the order be temporary or arguments before this Court.
permanent, and it is immaterial whether the The rational basis test was properly applied
same is made upon a complaint, a summary to gauge the constitutionality of the assailed
investigation, or upon the commission's law in the face of an equal protection
own motion as in the present case. challenge. The classification is considered
valid and reasonable provided that: (1) it
WHEREFORE, the writ prayed for is rests on substantial distinctions; (2) it is
GRANTED and the order of respondents is germane to the purpose of the law; (3) it
hereby SET ASIDE. applies, all things being equal, to both
present and future conditions; and (4) it
applies equally to all those belonging to the
same class.
The classification freeze provision
British American Tobacco Corporation v. was inserted in the law for reasons of
Finance Secretary Camacho, practicality and expediency.
BIRCommissioner Parayno Since a new brand was not yet in existence
(2009)Doctrine: at the time of the passage of RA8240, then
A levy of tax is not unconstitutional because Congress needed a uniform mechanism to
it is not intrinsically equal and uniform in its fix the tax bracket of anew brand.
operation. The uniformity rule does not The current net retail price, similar to what
prohibit classification for purposes of was used to classify the brands
taxation under Annex “D” as of October 1, 1996, was
Facts: thus the logical and practical
British American Tobacco filed a Motion choice
for Reconsideration for the Court’s decision The classification freeze provision
in 2008 was in the main the result of Congress’s
Petitioner interposes that the assailed earnest efforts to improve the efficiency and
provisions:(1) violate the equal protection effectivity of the tax administration over sin
and uniformity of taxation clauses of products while trying to balance the same
the Constitution,(2) contravene Section 19, with other State interest.
[1] Article XII of the Constitution on unfair
competition, and(3) infringe the PHILRECA vs DILG GR 143076 10
constitutional provisions on regressive and June 2003
inequitable taxation.
Petitioner further argues that assuming the Facts: Under Presidential Decree (PD) 269,
assailed provisions are constitutional, itis as amended, or the National Electrification
entitled to a downward reclassification of Administration Decree, it is the declared
Lucky Strike from the premium-priced to the policy of the State to provide “the total
high-priced tax bracket. electrification of the Philippines on an area
Lucky Strike reiterates in its MR that the coverage basis” the same “being vital to the
classification freeze provision people and the sound development of the
Pursuant to this policy, PD 269 aims to and impairing the obligation of contracts
“promote, encourage and assist all public between the Philippine Government and the
service entities engaged in supplying United States Government.
electric service, particularly electric Issue: Whether or not the Local
cooperatives” by “giving every tenable Government Code unduly discriminated
support and assistance” to the electric against electric cooperatives organized and
cooperatives coming within the purview of existing under PD 269 on the ground that it
the law. violated the equal protection clause.
From 1971 to 1978, in order to finance the Decision: The equal protection clause
electrification projects envisioned by PD under the Constitution means that “no
269, as amended, the Philippine person or class of persons shall be deprived
Government, acting through the National of the same protection of laws which is
Economic Council (now National Economic enjoyed by other persons or other classes in
Development Authority) and the NEA the same place and in like circumstances.”
(National Electrification Administration), Thus, the guaranty of the equal protection of
entered into 6 loan agreements with the the laws is not violated by a law based on
government of the United States of America reasonable classification.
through the United States Agency for Classification, to be reasonable, must (1)
International Development (USAID) with rest on substantial distinctions; (2) be
electric cooperatives, including Agusan Del germane to the purposes of the law; (3) not
Norte Electric Cooperative, Inc. (ANECO); be limited to existing conditions only; and
Iloilo I Electric Cooperative, Inc. (ILECO I); (4) apply equally to all members of the
and Isabela I Electric Cooperative, Inc. same class.
(ISELCO I), as beneficiaries. There is reasonable classification under the
The 6 loan agreements involved a total Local Government Code to justify the
amount of approximately different tax treatment between electric
US$86,000,000.00. These loan agreements cooperatives covered by PD 269, as
are existing until today. amended, and electric cooperatives under
The loan agreements contain similarly RA 6938 (Cooperative Code of the
worded provisions on the tax application of Philippines).
the loan and any property or commodity First, nowhere in PD 269, as amended,
acquired through the proceeds of the loan. does it require cooperatives to make
On 23 May 2000, a class suit was filed by equitable contributions to capital. Under the
the Philippine Rural Electric Cooperatives Cooperative Code, the articles of
Association, Inc. (PHILRECA); ANECO, cooperation of a cooperative applying for
ILECO I and ISELCO I; in their own behalf registration must be accompanied with the
and in behalf of other electric cooperatives bonds of the accountable officers and a
organized and existing under PD 269, sworn statement of the treasurer elected by
against the Secretary of the Department of the subscribers showing that at least 25% of
Interior and Local Government (DILG) and the authorized share capital has been
the Secretary of the Department of Finance, subscribed and at least 25% of the total
through a petition for prohibition, contending subscription has been paid and in no case
that pursuant to the provisions of PD 269, shall the paid-up share capital be less than
as amended, and the provision in the loan P2,000.00.
agreements, they are exempt from payment Second, another principle adhered to by the
of local taxes, including payment of real Cooperative Code is the principle of
property tax. subsidiarity. Pursuant to this principle, the
With the passage of the Local Government government may only engage in
Code, however, they allege that their tax development activities where cooperatives
exemptions have been invalidly withdrawn, do not possess the capability nor the
in violation of the equal protection clause resources to do so and only upon the
request of such cooperatives. In contrast, [G.R. No. L-39086; June 15,
PD 269, as amended by PD 1645, is replete 1988] Constitutional Law| Power of
with provisions which grant the NEA, upon Taxation
the happening of certain events, the power FACTS:
to control and take over the management Abra Valley College is an educational
and operations of cooperatives registered corporation and institution of higher learning
under it. The extent of government control in Bangued, Abra. In 1974, the CFI ordered
over electric cooperatives covered by PD for the seizure and sale of the subject
269, as amended, is largely a function of the school property for non-payment of real
role of the NEA as a primary source of funds estate taxes and penalties. Private
of these electric cooperatives. It is crystal respondents stated that the college lot and
clear that NEA incurred loans from various building in question are not only used for
sources to finance the development and educational purposes of the college, but
operations of the electric cooperatives. also as the permanent residence of the
Consequently, amendments to PD 269 were President and Director, Mr. Pedro V.
primarily geared to expand the powers of Borgonia, and his family including his in-
the NEA over the electric cooperatives to laws and grandchildren; while the ground
ensure that loans granted to them would be floor of the college building is being used
repaid to the government. In contrast, and rented by a commercial establishment.
cooperatives under RA 6938 are envisioned ISSUE:
to be self-sufficient and independent Whether or not the lot and building in
organizations with minimal government question are used exclusively for
intervention or regulation. educational purposes and thus exempted
Lastly, the transitory provisions of RA 6938 from paying taxes.
are indicative of the recognition by HELD:
Congress of the fundamental distinctions The 1935 Philippine Constitution, Art. VI,
between electric cooperatives organized par. 3 Sec. 22, expressly grants
under PD 269, as amended, and exemption from realty taxes
cooperatives under the new Cooperative for “Cemeteries, churches and parsonages
Code. or convents appurtenant thereto, and all
Article 128 of the Cooperative Code lands, buildings, and improvements
provides that all cooperatives registered used exclusively for religious, charitable
under previous laws shall be deemed or educational purposes….
registered with the CDA upon submission of Relative thereto, CA No. 470 as amended
certain requirements within one year. by RA No. 409, Sec. 54, paragraph c
However, cooperatives created under PD otherwise known as the Assessment Law,
269, as amended, are given three years provides:
within which to qualify and register with the The following are exempted from real
CDA, after which, provisions of PD 1645 property tax under the Assessment Law:
which expand the powers of the NEA over (c) churches and parsonages or convents
electric cooperatives, would no longer apply. appurtenant thereto, and all lands,
buildings, and improvements used
ABRA VALLEY COLLEGE VS exclusively for religious, charitable, scientific
AQUINO (1988) or educational purposes.
ABRA VALLEY COLLEGE, INC., Thus, the use of the second floor of the
represented by PEDRO V. BORGONIA main building for residential purposes of the
vs. Director and his family, may find justification
HON. JUAN P. AQUINO, Judge, Court of under the concept of incidental use, which is
First Instance. et. al. complimentary to the main or primary
purpose–educational. The lease of the first
floor, however, by a commercial
establishment cannot be considered the 1973 and 1987 Constitution. Under PD
incidental to the purpose of education. 1823, the petitioner is a non-profit and non-
Under the 1935 Constitution, the trial court stock corporation which, subject to the
correctly arrived at the conclusion that the provisions of the decree, is to be
school building as well as the lot where it is administered by the Office of the President
built, should be taxed, not because the with the Ministry of Health and the Ministry
second floor of the same is being used by of Human Settlements. The purpose for
the Director and his family for residential which it was created was to render medical
purposes, but because the first floor thereof services to the public in general including
is being used for commercial purposes. those who are poor and also the rich, and
become a subject of charity. Under PD
LUNG CENTER OF THE PHILIPPINES VS 1823, petitioner is entitled to receive
QUEZON CITY donations, even if the gift or donation is in
Posted by kaye lee on 5:15 PM the form of subsidies granted by the
G.R. No. 144104, June 29, 2004 government.
[Constitutional Law - Article VI: Legislative
Department; Taxation ] 2. Partly No. Under PD 1823, the lung
center does not enjoy any property tax
FACTS: exemption privileges for its real properties
Petitioner is a non-stock, non-profit entity as well as the building constructed thereon.
established by virtue of PD No. 1823, seeks The property tax exemption under Sec.
exemption from real property taxes when 28(3), Art. VI of the Constitution of the
the City Assessor issued Tax Declarations property taxes only. This provision was
for the land and the hospital building. implanted by Sec.243 (b) of RA 7160.which
Petitioner predicted on its claim that it is a provides that in order to be entitled to the
charitable institution. The request was exemption, the lung center must be able to
denied, and a petition hereafter filed before prove that: it is a charitable institution and;
the Local Board of Assessment Appeals of its real properties are actually, directly and
Quezon City (QC-LBAA) for reversal of the exclusively used for charitable purpose.
resolution of the City Assessor. Petitioner Accordingly, the portions occupied by the
alleged that as a charitable institution, is hospital used for its patients are exempt
exempted from real property taxes under from real property taxes while those leased
Sec 28(3) Art VI of the Constitution. QC- to private entities are not exempt from such
LBAA dismissed the petition and the taxes.
decision was likewise affirmed on appeal by CIR v. ST. LUKE'S
the Central Board of Assessment Appeals of COMMISSIONER OF INTERNAL
Quezon City. The Court of Appeals affirmed REVENUE, Petitioner VS ST. LUKE’S
the judgment of the CBAA. MEDICAL CENTER INC., Respondent
G.R. No. 203514
ISSUE: February 13, 2017
1. Whether or not petitioner is a charitable
institution within the context of PD 1823 and
the 1973 and 1987 Constitution and Section FACTS:
234(b) of RA 7160.
The respondent St. Luke’s Medical Center,
2. Whether or not petitioner is exempted Inc. (SLMC) received a tax payment
from real property taxes. assessment from the Large Taxpayers
Service-Documents Processing and Quality
RULING: Assurance Division of the Bureau of Internal
1. Yes. The Court hold that the petitioner is Revenue Audit Result/Assessment Notice
a charitable institution within the context of on December 14, 2007. Based on the
assessment the respondent SLMC has a NIRC, and liable to pay the compromise
deficiency income tax under Section 27 (B) penalty. SLMC argues that the income
of the 1997 National Internal Revenue Code derives from operating a hospital is not
(NIRC), as amended for the taxable year income from activities conducted for profit.
2005 in the amount of P78, 617,434.54 and And the case should be dismissed since
for taxable year 2006 in the amount of P57, payment to BIR for the basic taxes due for
119,867.33. taxable years 1998, 2000-2002 and 2004-
2007 has been made.
In response to the received assessment
from NIRC on January 14, 2008, SLMC filed
with the petitioner Commission on Internal ISSUES:
Revenue (CIR) an administrative protest
assailing the assessments. The SLMC 1. Whether or not SLMC is liable for income
alleged that they are exempted from paying tax under Section 27 (B) of the 1997 NIRC.
the income tax since SLMC is a non-stock,
non-profit, charitable and social welfare 2. Whether or not SLMC is not liable for
organization under Section 30 (E) and (G) compromise penalty.
of the 1997 NIRC as amended.
3. Whether or not the petition is rendered
However, on April 25, 2008, SLMC received moot by payment made by SLMC on April
the petitioner CIR’s Final Decision on the 30, 2013.
Disputed Assessment dated April 9, 2008
increasing the deficiency income from P78,
617, 434.54 to P82,419,522.21 for taxable HELD:
year 2005 and from P57,119,867.33 to P60,
259,885.94 for taxable year 2006. 1. Yes. Based on Section 27 (B) of the NIRC
imposes 10% preferential tax rate on the
The aggrieved SLMC elevated the matter to income of (1) proprietary non-profit
Court of Tax Appeal (CTA) finding the educational institutions and (2) proprietary
decision that SLMC is not liable for the non-profit hospitals. The only qualifications
deficiency income tax under Section 27 (B) for hospitals are they must be proprietary
of the 1997 NIRC, as amended and exempt and non-profit. Proprietary means private,
from paying the income under Section 30 following the definition of a proprietary
(E) and (G) of the same code. educational institution, as any other private
school maintained and administered by
Consequently, the CIR moved for private individuals or groups with
reconsideration but the CTA Division denied government permit. While non-profit means
which the CIR prompted to file a petition for no net income or asset accrues to or
review before the CTA En Banc which benefits any member or specific person with
eventually denied and affirmed the first all the net income or asset devoted to the
decision of the CTA Division. institution’s purposes and all its activities
conducted not for profit.
Moreover, the CIR filed an instant petition
contending that the CTA erred in exempting 2. Yes. Under Sections 248 and 249 of the
SLMC from payment of income tax, where 1997 NIRC the imposition of surcharges
the CIR petition is partly granted. SLMC and interests were deleted on the basis of
ordered to pay the deficiency income tax in good faith and honest belief on the part of
1998 based on the 10% preferential income SLMC that it is not subject to tax so
tax. The CIR argues that under the doctrine therefore, SLMC is not liable to pay the
of Stare Decisis SLMC is subject to 10% compromise penalty.
income tax under Section 27 (B) of the 1997
3. Yes. The payment of basic taxes made by subject to the tax imposed by the same
the SLMC has become moot even the court Code. While the income received by the
agrees with the CIR that the payment organizations enumerated in Section 26 of
confirmation from the BIR is not competent the NIRC is, as a rule, exempted from the
proof as presented by SLMC due to no payment of tax in respect to income
specific taxable period for payments that it received by them as such, the exemption
covers. However, the court finds sufficient does not apply to income derived from any
proof of payment based on the Certification of their properties, real or personal or from
of Payment issued by the Large Taxpayers any of their activities conducted for profit,
Service of the BIR since CIR never question regardless of the disposition made of such
for its documents authenticity. The court income.
dismissed the petition and lowered the basic
taxes for taxable year 2005 and 2006, in the Tolentino vs. Secretary of Finance
amounts of P49, 919,496.40 and P41, G.R. No. 115455
525,608.40. 235 SCRA 630 (1994)
CIR v CA & YMCA (1998) RA 7716, otherwise known as the Expanded
Digest #1 Value-Added Tax Law, is an act that seeks
to widen the tax base of the existing VAT
CIR v CA & YMCA system and enhance its administration by
GR No 124043, October 14, 1998 amending the National Internal Revenue
Code. There are various suits questioning
FACTS: and challenging the constitutionality of RA
In 1980, YMCA earned an income of 7716 on various grounds.
676,829.80 from leasing out a portion of its Tolentino contends that RA 7716 did not
premises to small shop owners, like originate exclusively from the House of
restaurants and canteen operators and Representatives but is a mere consolidation
44,259 from parking fees collected from of HB. No. 11197 and SB. No. 1630 and it
non-members. On July 2, 1984, the CIR did not pass three readings on separate
issued an assessment to YMCA for days on the Senate thus violating Article VI,
deficiency taxes which included the income Sections 24 and 26(2) of the Constitution,
from lease of YMCA’s real property. YMCA respectively.
formally protested the assessment but the Art. VI, Section 24: All appropriation,
CIR denied the claims of YMCA. On appeal, revenue or tariff bills, bills authorizing
the CTA ruled in favor of YMCA and increase of the public debt, bills of local
excluded income from lease to small shop application, and private bills shall originate
owners and parking fees. However, the CA exclusively in the House of Representatives,
reversed the CTA but affirmed the CTA upon but the Senate may propose or concur with
motion for reconsideration. amendments.
Art. VI, Section 26(2): No bill passed by
ISSUE: either House shall become a law unless it
Whether the rental income of YMCA is has passed three readings on separate
taxable days, and printed copies thereof in its final
form have been distributed to its Members
RULING: three days before its passage, except when
Yes. The exemption claimed by YMCA is the President certifies to the necessity of its
expressly disallowed by the very wording of immediate enactment to meet a public
then Section 27 of the NIRC which calamity or emergency. Upon the last
mandates that the income of exempt reading of a bill, no amendment thereto
organizations (such as the YMCA) from any shall be allowed, and the vote thereon shall
of their properties, real or personal, be
be taken immediately thereafter, and the
yeas and nays entered in the Journal. Issue:
Whether or not RA 7716 violated Art. VI, WON Proclamation No. 420 is constitutional
Section 24 and Art. VI, Section 26(2) of the by providing for national and local tax exem
Constitution. ption within and granting other economic inc
HELD entives to the John Hay SEZ
No. The phrase “originate exclusively” refers
to the revenue bill and not to the revenue NO!
law. It is sufficient that the House of Nowhere in RA 7227 is there a grant of tax
Representatives initiated the passage of the exemption to SEZs yet to be established in
bill which may undergo extensive changes base areas, unlike the grant under Section 1
in the Senate. 2 which provides for tax exemption to the es
SB. No. 1630, having been certified as tablished Subic SEZ. The tax exemption gra
urgent by the President need not meet the nt to John Hay SEZ contravenes Article VI,
requirement not only of printing but also of Section 28 (4) of the 1987 Constitution whic
reading the bill on separate days. h provides that “No law granting any tax exe
mption shall be passed without the concurre
nce of a majority of all the members of Cong
[G. R. No. 119775. October 24, 2003]
JOHN HAY PEOPLES Furthermore, it is the Legislature, unless limi
ALTERNATIVE COALITION ted by a provision of the state constitution,
Facts: which has the full power to exempt any pers
R.A. No. 7227 likewise created and grantedt on or corporation or class of property from t
he Subic SEZ incentives ranging from tax a axation, its power to exempt being as broad
nd duty-free importations, exemption of busi as its power to tax. The grant by Proclamati
nesses therein from local and national taxes on No. 420 of tax exemption and other privil
, to other hallmarks of a liberalized financial eges to the John Hay SEZ is VOID for being
and business climate. violative of the Constitution.
And R.A. No. 7227 expressly gave authority
to the President to create through executive
proclamation, subject to the concurrence of BPI LEASING CORP. vs. CA, et al.
the local government units directly affected, GR No. 127624, 18 Nov. 2003
other Special Economic Zones (SEZ) in the FACTS:
areas covered respectively by the Clark milit BLC is a corporation engaged in the
ary reservation, the Wallace Air Station in S business of leasing properties. For the
an Fernando, La Union, and Camp John Ha calendar year 1986, it paid Commissioner of
y. Internal Revenue a total of P1,139,041.49 r
On July 5, 1994 then President Ramos issu epresenting 4% contractor’s percentage tax
ed Proclamation No. 420 which established as imposed by the National Internal
a SEZ on a portion of Camp John Hay. Revenue Code. However, in November
In maintaining the validity of Proclamation N 1986, CIR issued a Revenue Regulation
o. 420, respondents contend that by extendi which provides that companies registered
ng to the John Hay SEZ economic incentive under RA 5980, like BLC, are no longer
s similar to those enjoyed by the Subic SEZ liable for contractor’s percentage tax,
which was established under R.A. No. 7227, instead, subject only to gross
the proclamation is merely implementing the receipts tax. Thereafter, BLC filed a claim
legislative intent of said law to turn the US for refund before the CIR and
military bases into hubs of business activity simultaneously filed a petition for review
or investment. before the Court of Tax Appeal in order to
stop the running of the prescriptive period Code was implemented it adopted the
for refunds. Both cases were denied, provisions of VAT and E-VAT. On 1999, the
despite motion for reconsideration by BIR sent Philhealth an assessment notice
BLC, hence, they appealed before the Court for deficiency VAT and documentary stamp
of Appeals, which the latter affirmed the taxes for taxable years 1996 and
decision of CTA and CIR. Aggrieved by the 1997. After CIR did not act on it, Philhealth
decision, BLC instituted a petition before the filed a petition for review with the CTA. The
SC. However, the certification against non- CTA withdrew the VAT assessment. The
forum shopping attached to the petition was CIR then filed an appeal with the CA which
signed by the counsel on record of the BLC, was denied.
who was not specifically authorized to ISSUES:
do so. 1. Whether Philhealth is subject to
Whether or not a lawyer is authorized to 2. Whether VAT Ruling No. 231-88
validly sign, for and in behalf of its client, the exempting Philhealth from payment
certification of non-forum shopping. of VAT has retroactive application.
It was held that while the certification of
non-forum shopping may be signed,for YES. Section 103 of the NIRC exempts
an on behalf of a corporation, by a specifical taxpayers engaged in the performance of
ly authorized lawyer who has personal medical, dental, hospital, and veterinary
knowledge of the facts required to be services from VAT. But, in Philhealth's letter
disclosed in such document, it doesnot requesting of its VAT-exempt status, it was
mean that any lawyer, acting on behalf of held that it showed Philhealth provides
the corporation he is medical service only between their
representing,may routinely sign a certificatio members and their accredited hospitals,
n of non-forum shopping – the lawyer must that it only provides for the provision of pre-
be“specifically authorized” in order to need health care services, it contracts the
validly sign the certification. Since powers of services of medical practitioners and
corporations are exercised through their establishments for their members in the
board of directors delivery of health services.
and/or duly authorized officers and agents, Thus, Philhealth does not fall under the
physical acts, like the signing of documents, exemptions provided in Section 103, but
can be performed only by natural persons d merely arranges for such, making Philhealth
uly authorized for thepurpose by corporate not VAT-exempt. YES. Generally, the NIRC
by laws or by specific acts of the board of has no retroactive application except when:
directors. Being 1. where the taxpayer deliberately
counsel of record does not vest upon a lawy misstates or omits material facts
er the authority to execute the certification from his return or in any document
on behalf of his client. PETITION DENIED. required of him by the Bureau of
Internal Revenue;
COMMISSIONER OF INTERNAL 2. where the facts subsequently
REVENUE v. PHILIPPINE HEALTH CARE gathered by the Bureau of Internal
PROVIDERS, INC. G.R. No. 168129. April Revenue are materially different
24, 2007 from the facts on which the ruling is
FACTS: based, or
3. where the taxpayer acted in bad
On 1987, CIR issued VAT Ruling No. 231- faith.
88 stating that Philhealth, as a provider of
medical services, is exempt from the VAT The Court held that Philhealth acted in good
coverage. When RA 8424 or the new Tax faith. The term health maintenance
organization was first recorded in the changed the prescriptive period of 2 years
Philippine statute books in 1995. It is to 10 years. Such clear inconsistency
apparent that when VAT Ruling No. 231-88 legislated guidelines contrary to the statute
was issued in Philhealth's favor, the term passed by Congress.
health maintenance organization was
unknown and had no significance for Philippine Health Care Providers v CIR
taxation purposes. Philhealth, therefore, G.R. No. 167330 June 12, 2008
believed in good faith that it was VAT
exempt for the taxable years 1996 and 1997 Facts:
on the basis of VAT Ruling No. 231-88. The The petitioner, a prepaid health-care
rule is that the BIR rulings have no organization offering benefits to its
retroactive effect where a grossly unfair deal members. The CIR found that the
would result to the prejudice of the taxpayer. organization had a deficiency in the
payment of the DST under Section 185 of
PBCom v CIR the 1997 Tax Code which stipulated its
GR No 112024, January 28, 1999 implementation:
“On all policies of insurance or bonds or
FACTS: obligations of the nature of indemnity for
PBCom filed its quarterly income tax returns loss, damage, or liability made or renewed
for the first and second quarters of 1985, by any person, association or company or
reported profits and paid the total income corporation transacting the business of
tax of P5,016,954. But, PBCom suffered net accident, fidelity, employer's liability, plate,
losses at the end of the year 1985 in the glass, steam boiler, burglar, elevator,
amount of P25,317,288 and P14,129,602 at automatic sprinkler, or other branch of
the end of 1986. But during these two years, insurance (except life, marine, inland, and
PBCom earned rental income from leased fire insurance)”
properties. The lessees withheld and The CIR sent a demand for the payment
remitted to the BIR withholding creditable of deficiency taxes, including surcharges
taxes in 1985 and 1986. On August 7, 1987, and interest, for 1996-1997 in the total
petitioner requested the CIR for a tax credit amount of P224,702,641.18.
of P5,016,954 representing overpayment of The petitioner protested to the CIR, but it
taxes. Thereafter, petitioner filed claim for didn’t act on the appeal. Hence, the
refund of creditable taxes. company had to go to the CTA. The latter
declared judgment against them and
ISSUES: reduced the taxes. It ordered them to pay
1. Whether PBCom is entitled to the tax 22 million pesos for deficiency VAT for 1997
refund 2. Whether the action has and 31 million deficiency VAT for 1996.
prescribed CA denied the company’s appeal an d
increased taxes to 55 and 68 million for
RULING: 1996 to 1997.
1. No. The corporation must signify in its
annual corporate adjustment return its Issues: WON a health care agreement in
intention whether to request for a refund or the nature of an insurance contract and
claim for an automatic tax credit for the therefore subject to the documentary stamp
succeeding taxable year. That the petitioner tax (DST) imposed under Section 185 of
opted for an automatic tax credit, his choice Republic Act 8424 (Tax Code of 1997)
precludes the other.
2. The action has prescribed. The Held: Yes. Petition dismissed.
prescriptive period per Section 230 of the
1977 NIRC is 2 years and must be followed Ratio:
notwithstanding the RMC 7-85 which
The DST is levied on the exercise by THE CITY OF ILOILO vs. SMART
persons of certain privileges conferred by COMMUNICATIONS, INC. (SMART)
law for the creation, revision, or termination GR No. 167260
of specific legal relationships through February 27, 2009
the execution of specific instruments.
The DST is an excise upon the privilege, FACTS:
opportunity, or facility offered
at exchanges for the transaction of the SMART received a letter of assessment
business. In particular, the DST under dated February 12, 2002 from petitioner
Section 185 of the 1997 Tax Code is requiring it to pay deficiency local franchise
imposed on the privilege of making or and business taxes, in the amount of
renewing any policy of insurance (except P764,545.29, which it incurred for the years
life, marine, inland and fire insurance), bond 1997 to 2001. SMART protested the
or obligation in the nature of indemnity for assessment, claiming exemption from
loss, damage, or liability. payment of local franchise and business
Petitioner's health care agreement is taxes based on Section 9 of its legislative
primarily a contract of indemnity. And in the franchise under Republic Act (R.A.) No.
recent case of Blue Cross Healthcare, Inc. 7294 (SMART’s franchise). Under SMART’s
v. Olivares, this Court ruled that a health franchise, it was required to pay a franchise
care agreement is in the nature of a non-life tax equivalent to 3% of all gross receipts,
insurance policy. which amount shall be in lieu of all taxes.
Its health care agreement is not a contract SMART contends that the “in lieu of all
for the provision of medical services. taxes” clause covers local franchise and
Petitioner does not actually provide medical business taxes. SMART similarly invoked
or hospital services but merely arranges for R.A. No. 7925 or the Public
the same Telecommunications Policy Act (Public
It is also incorrect to say that the health care Telecoms Act) whose Section 23 declares
agreement is not based on loss or damage that any existing privilege, incentive,
because, under the said agreement, advantage, or exemption granted under
petitioner assumes the liability and existing franchises shall ipso facto become
indemnifies its member for hospital, medical part of previously granted-
and related expenses (such as professional telecommunications franchise. SMART
fees of physicians). The term "loss or contends that by virtue of Section 23, tax
damage" is broad enough to cover the exemptions granted by the legislature to
monetary expense or liability a member will other holders of telecommunications
incur in case of illness or injury. franchise may be extended to and availed of
Philamcare Health Systems, Inc. v. CA.- by SMART.
The health care agreement was in the
nature of non-life insurance, which is The petitioner posits that SMART’s claim for
primarily a contract of indemnity. exemption under its franchise is not
Similarly, the insurable interest of every equivocal enough to prevail over the
member of petitioner's health care program specific grant of power to local government
in obtaining the health care agreement is his units to exact taxes from businesses
own health. Under the agreement, petitioner operating within its territorial jurisdiction
is bound to indemnify any member who under Section 137 in relation to Section 151
incurs hospital, medical or any of the LGC. More importantly, it claimed that
other expense arising from sickness, injury exemptions from taxation have already
or other stipulated contingency to the extent been removed by Section 193 of the LGC,
agreed upon under the contract. which provides that tax exemptions or
THE CITY OF ILOILO vs. SMART incentives granted to, or presently enjoyed
COMMUNICATIONS, INC. (SMART) by all persons, whether natural or juridical,
including government-owned or controlled R.A. No 7294 does not expressly provide
corporations, except local water districts, what kind of taxes SMART is exempted
cooperatives duly registered under RA No. from. It is not clear whether the “in lieu of all
6938, non-stock and non-profit hospitals taxes” provision in the franchise of SMART
and educational institutions, are hereby would include exemption from local or
withdrawn upon the effectivity of this Code. national taxation. What is clear is that
SMART shall pay franchise tax equivalent to
three percent (3%) of all gross receipts of
ISSUE: whether or not SMART is exempt the business transacted under its franchise.
from the payment of local franchise and But whether the franchise tax exemption
business taxes under Section 9 of its would include exemption from exactions by
franchise and Section 23 of the Public both the local and the national government
Telecoms Act. is not unequivocal.

The uncertainty in the “in lieu of all taxes”

HELD: clause in R.A. No. 7294 on whether SMART
is exempted from both local and national
The basic principle in the construction of franchise tax must be construed strictly
laws granting tax exemptions is he who against SMART which claims the
claims an exemption from his share of the exemption.
common burden of taxation must justify his
claim by showing that the Legislature SMART’s claim for exemption from local
intended to exempt him by words too plain business and franchise taxes based on
to be beyond doubt or mistake. Section 9 of its franchise is therefore
We have indeed ruled that by virtue of
Section 193 of the LGC, all tax exemption Whether Section 23 of the Public Telecoms
privileges then enjoyed by all persons, save Act extends tax exemptions granted by
those expressly mentioned, have been Congress to new franchise holders to
withdrawn effective January 1, 1992 – the existing ones has been answered in the
date of effectivity of the LGC. The first negative in the case of PLDT v. City of
clause of Section 137 of the LGC states the Davao. The term “exemption” in Section 23
same rule. However, the withdrawal of of the Public Telecoms Act does not mean
exemptions, whether under Section 193 or tax exemption; rather, it refers to exemption
137 of the LGC, pertains only to those from certain regulatory or reporting
already existing when the LGC was requirements imposed by government
enacted. The intention of the legislature was agencies such as the National
to remove all tax exemptions or incentives Telecommunications Commission. The
granted prior to the LGC. As SMART’s thrust of the Public Telecoms Act is to
franchise was made effective on March 27, promote the gradual deregulation of entry,
1992 – after the effectivity of the LGC – pricing, and operations of all public
Section 193 will therefore not apply in this telecommunications entities, and thus to
case. level the playing field in the
telecommunications industry. The language
But while Section 193 of the LGC will not of Section 23 and the proceedings of both
affect the claimed tax exemption under Houses of Congress are bereft of anything
SMART’s franchise, we fail to find a that would signify the grant of tax
categorical and encompassing grant of tax exemptions to all telecommunications
exemption to SMART covering exemption entities. Intent to grant tax exemption
from both national and local taxes: cannot therefore be discerned from the law;
the term “exemption” is too general to
include tax exemption and runs counter to Rule 47, provides, with certain conditions,
the requirement that the grant of tax for annulment of judgment done by a
exemption should be stated in clear and superior court, like the Court of Appeals,
unequivocal language too plain to be against the final judgment, decision or ruling
beyond doubt or mistake. of an inferior court, which is the Regional
Trial Court, based on the grounds of
FACTS: extrinsic fraud and lack of jurisdiction. The
Respondent KEPCO ILIJAN Corporation Regional Trial Court, in turn, also is
filed with the Bureau of Internal Revenue empowered to, upon a similar action, annul
(BIR) its claim for refund for input tax a judgment or ruling of the Metropolitan or
incurred for the first and second quarters of Municipal Trial Courts within its territorial
the calendar year 2000 from its importation jurisdiction. But, again, the said Rules are
and domestic purchases of capital goods silent as to whether a collegial court
and services preparatory to its production sitting en banc may annul a final judgment
and sales of electricity to the National of its own division. As earlier explained,
Power Corporation. the silence of the Rules may be
For failure of petitioner BIR to act upon attributed to the need to preserve the
respondent’s claim for refund or issuance of principles that there can be no hierarchy
tax credit certificate, respondent filed a within a collegial court between its
Petition for Review. Thereafter, respondent divisions and the en banc, and that a
filed its Memorandum, but petitioner failed court’s judgment, once final, is
to file its Memorandum despite notice, thus, immutable.
the case was submitted for decision. A direct petition for annulment of a
Subsequently, Court of Tax Appeals (CTA) judgment of the CTA to the Supreme
First Division rendered a Decision, holding Court, meanwhile, is likewise unavailing,
that respondent is entitled to a refund for its for the same reason that there is no
unutilized input VAT paid. There being no identical remedy with the High Court to
motion for reconsideration filed by the annul a final and executory judgment of
petitioner, the said decision became final the Court of Appeals. RA No. 9282,
and executory. Section 1 puts the CTA on the same level as
Aggrieved, petitioner filed a petition for the Court of Appeals, so that if the latter’s
annulment of judgment with the CTA en final judgments may not be annulled before
banc but the same was dismissed, and its the Supreme Court, then the CTA’s own
motion for reconsideration was likewise decisions similarly may not be so annulled.
denied. Petitioner elevated the case to the And more importantly, it has been previously
Supreme Court via petition for review. discussed that annulment of judgment is an
ISSUE: original action, yet, it is not among the
Whether or not the Court of Tax Appeals en cases enumerated in the Constitution,
banc has jurisdiction to take cognizance of Article VIII, Section 5, over which the
the Petition for Annulment of Judgment filed Supreme Court exercises original
by petitioner. jurisdiction. Annulment of judgment also
RULING: often requires an adjudication of facts, a
The Revised Rules of the CTA and even task that the Court loathes to perform, as it
the Rules of Court which apply is not a trier of facts.
suppletorily thereto provide for no Instead, what remained as a remedy for
instance in which the en banc may the petitioner was to file a petition for
reverse, annul or void a final decision of certiorari under Rule 65, which could
a division. Verily, the Revised Rules of have been filed as an original action
the CTA provide(s) for no instance of an before this Court and not before the CTA
annulment of judgment at all. On the en banc. xxx In any event, petitioner’s
other hand, the Rules of Court, through failure to avail of this remedy and mistake in
filing of the wrong action are fatal to its case mean unrealized increments in the value of
and renders and leaves the CTA First the property. A stock dividend really takes
Division’s decision as indeed final and nothing from the property of the corporation,
executory. By the time the instant petition for and adds nothing to the interests of the
review was filed by petitioner with this shareholders. Its property is not diminished
Court, more than sixty (60) days have and their interest are not increased. The
passed since petitioner’s alleged discovery proportional interest of each shareholder
of its loss in the case as brought about by remains the same. In short, the corporation
the alleged negligence or fraud of its is no poorer and the stockholder is no richer
counsel. then they were before. In the case of Doyle
WHEREFORE, premised considered, the vs. Mitchell Bros. Co. (247 U.S., 179), Mr.
petition for review is hereby DENIED. The Justice Pitney, said that the term "income" in
assailed Resolutions dated July 27,2011 its natural and obvious sense, imports
and November 15, 2011 of the Court of Tax something distinct from principal or capital
Appeals En Banc are AFFIRMED. and conveying the idea of gain or increase
arising from corporate activity. In the case of
Eisner vs. Macomber (252 U.S., 189),
income was defined as the gain derived
from capital, from labor, or from both
combined, provided it be understood to
include profit gained through a sale or
conversion of capital assets. When a
Issue: corporation or company issues "stock
Whether or not the stock dividend was an dividends" it shows that the company's
income and therefore taxable accumulated profits have been capitalized,
instead of distributed to the stockholders or
Ruling: retained as surplus available for distribution,
No. Generally speaking, stock dividends in money or in kind, should opportunity offer.
represent undistributed increase in the The essential and controlling fact is that the
capital of corporations or firms, joint stock stockholder has received nothing out of the
companies, etc., etc., for a particular period. company's assets for his separate use and
The inventory of the property of the benefit; on the contrary, every dollar of his
corporation for particular period shows an original investment, together with whatever
increase in its capital, so that the stock accretions and accumulations resulting from
theretofore issued does not show the real employment of his money and that of the
value of the stockholder's interest, and other stockholders in the business of the
additional stock is issued showing the company, still remains the property of the
increase in the actual capital, or property, or company, and subject to business risks
assets of the corporation. In the case of which may result in wiping out of the entire
Gray vs. Darlington (82 U.S., 653), the US investment. The stockholder by virtue of the
Supreme Court held that mere advance in stock dividend has in fact received nothing
value does not constitute the "income" that answers the definition of an "income."
specified in the revenue law as "income" of The stockholder who receives a stock
the owner for the year in which the sale of dividend has received nothing but a
the property was made. Such advance representation of his increased interest in
constitutes and can be treated merely as an the capital of the corporation. There has
increase of capital. In the case of Towne vs. been no separation or segregation of his
Eisner, income was defined in an income interest. All the property or capital of the
tax law to mean cash or its equivalent, corporation still belongs to the corporation.
unless it is otherwise specified. It does not There has been no separation of the
interest of the stockholder from the general
capital of the corporation. The stockholder, by a stock dividend is still in the corporation
by virtue of the stock dividend, has no and not in the holder of such stock, then it is
separate or individual control over the difficult to understand how it can be
interest represented thereby, further than he regarded as income to the stockholder and
had before the stock dividend was issued. not as a part of the capital or assets of the
He cannot use it for the reason that it is still corporation. If the holder of the stock
the property of the corporation and not the dividend is required to pay an income tax on
property of the individual holder of stock the same, the result would be that he has
dividend. A certificate of stock represented paid a tax upon an income which he never
by the stock dividend is simply a statement received. Such a conclusion is absolutely
of his proportional interest or participation in contradictory to the idea of an income. As
the capital of the corporation. The receipt of stock dividends are not "income," the same
a stock dividend in no way increases the cannot be considered taxes under that
money received of a stockholder nor his provision of Act No. 2833. For all of the
cash account at the close of the year. It foregoing reasons, SC held that the
simply shows that there has been an judgment of the lower court should be
increase in the amount of the capital of the REVOKED.
corporation during the particular period,
which may be due to an increased business
or to a natural increase of the value of the
capital due to business, economic, or other
reasons. We believe that the Legislature,
when it provided for an "income tax,"
intended to tax only the "income" of
corporations, firms or individuals, as that
term is generally used in its common
acceptation; that is that the income means
money received, coming to a person or
corporation for services, interest, or profit
from investments. We do not believe that
the Legislature intended that a mere
increase in the value of the capital or assets
of a corporation, firm, or individual, should
be taxed as "income." A stock dividend, still
being the property of the corporation and
not the stockholder, may be reached by an
execution against the corporation, and sold
as a part of the property of the corporation.
In such a case, if all the property of the
corporation is sold, then the stockholder
certainly could not be charged with having
received an income by virtue of the
issuance of the stock dividend. Until the
dividend is declared and paid, the corporate
profits still belong to the corporation, not to
the stockholders, and are liable for
corporate indebtedness. The rule is well
established that cash dividend, whether
large or small, are regarded as "income"
and all stock dividends, as capital or assets
If the ownership of the property represented