TAXATION 1 CASE DOCTRINES of the municipal government.
In this jurisdiction, well-settled
ATTY. IBANEZ
By: PARRENO, ANTONY
and
OLIVA, STEPHANIE FAYE
Part I. General Principles of Taxation
Concept, Underlying Basis, and Purpose
1. CIR v. Pineda, 21 SCRA 105
Liability of an heir for tax.—An heir is liable for the
assessment as an heir and as a holder-transferee of property
belonging to the estate/taxpayer. As an heir, he is individually
answerable for the part of the tax proportionate to the share he
received from the inheritance. His liability, however, cannot
exceed the amount of his share (Art. 1311, Civil Code). As a
holder of the property belonging to the estate, he is liable for
the tax up to the amount of the property in his possession. The
reason is that the Government has a lien on such property. But
after payment of such amount, he will have a right to
contribution from his co-heirs.
Ways available to government to collect the tax.—The
Government has two ways of collecting the taxes in question.
One, by going after all the heirs and collecting from each one
of them the amount of the tax proportionate to the inheritance
received, Another remedy, pursuant to the lien created by
Section 315 of the Tax Code upon all property and rights to
property belong to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of
an heir or transferee to the payment of the tax due the estate.
Taxes are the lifeblood of the government.—Taxes are the
lifeblood of government and their prompt and certain
availability is an imperious need.
2. CIR v. Algue, Inc. 158 SCRA 9
Nature of taxes; Purpose of taxation; Collection of taxes
should be made in accordance with law.—Taxes are the
lifeblood of the government and so should be collected
without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.
It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common
good, may be achieved.
Taxation; Nature of taxes; Purpose of taxation; Collection of
taxes should be made in accordance with law.—Taxes are the
lifeblood of the government and so should be collected
without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.
It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common
good, may be achieved.
3. Mun. of Makati v. CA, 190 SCRA 206
Public Funds; Properties of a municipality, whether real or
personal, which are necessary for public use cannot be
attached and sold at execution sale to satisfy a money
judgment against the municipality. Public funds are not
subject to levy and execution.—The funds deposited in the
second PNB Account No. S/A 263-530850-7 are public funds
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is the rule that public funds are not subject to levy and
execution, unless otherwise provided for by statute. More
particularly, the properties of a municipality, whether real or
personal, which are necessary for public use cannot be
attached and sold at execution sale to satisfy a money
judgment against the municipality. Municipal revenues
derived from taxes, licenses and market fees, and which are
intended primarily and exclusively for the purpose of
financing the governmental activities and functions of the
Municipality, are exempt from execution. The foregoing rule
finds application in the case at bar. Absent a showing that the
municipal council of Makati has passed an ordinance
appropriating from its public funds an amount corresponding
to the balance due under the RTC decision dated June 4, 1987,
less the sum of P99,743.94 deposited in Account No. S/A 265-
537154-3, no levy under execution may be validly effected on
the public funds of petitioner deposited in Account No. S/A
263-530850-7.
4. Sison v. Ancheta, 130 SCRA 654
The Constitution sets forth the restrictions to the power to
tax.—The power to tax moreover, to borrow from Justice
Malcolm, “is an attribute of sovereignty. It is the strongest of
all the powers of government.” It is, of course, to be admitted
that for all its plenitude, the power to tax is not unconfined.
There are restrictions. The Constitution sets forth such limits.
Adversely affecting as it does property rights, both the due
process and equal protection clauses may properly be invoked,
as petitioner does, to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1803
dictum of Chief Justice Marshall that “the power to tax
involves the power to destroy.” In a separate opinion in
Graves v. New York, Justice Frankfurter, after referring to it
as an “unfortunate remark,” characterized it as “a flourish of
rhetoric [attributable to] the intellectual fashion of the times
[allowing] a free use of absolutes.” This is merely to
emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully
conclude: “The web of unreality spun from Marshall’s famous
dictum was brushed away by one stroke of Mr. Justice
Holmes’s pen: ‘The power to tax is not the power to destroy
while this Court sits.’ ” So it is in the Philippines.
Due process clause may be invoked where a tax statute is so
arbitrary as to find no support in Constitution.—It is
undoubted that the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the
Constitution. An obvious example is where it can be shown to
amount to the confiscation of property. That would be a clear
abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an
authority not conferred. That properly calls for the application
of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or
is not for a public purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to attack on due
process grounds.
Uniformity in taxation quite similar to the standard of equal
protection.—Petitioner likewise invoked the kindred concept
of uniformity. According to the Constitution: “The rule of
taxation shall be uniform and equitable.” This requirement is
met according to Justice Laurel in Philippine Trust Company
v. Yatco, decided in 1940, when the tax “operates with the
same force and effect in every place where the subject may be
found.” He likewise added: “The rule of uniformity does not
call for perfect uniformity or perfect equality, because this is
hardly attainable.” The problem of classification did not
present itself in that case. It did not arise until nine years later,
when the Supreme Court held: “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 where it
rests on real differences.—Apparently, what misled petitioner
is his failure to take into consideration the distinction between
a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable
tax rate. Taxpayers may be classified into different categories.
To repeat, it is enough that the classification must rest upon
substantial distinctions that make real differences. In the case
of the gross income taxation embodied in Batas Pambansa
Blg. 135, the discernible basis of classification is the
susceptibility of the income to the application of generalized
rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all
of them. Taxpayers who are recipients of compensation
income are set apart as a class. As there is practically no
overhead expense, these taxpayers are not entitled to make
deductions for income tax purposes because they are in the
same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen,
there is no uniformity in the costs or expenses necessary to
produce their income. It would not be just then to disregard
the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification then for the
Batasang Pambansa 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.
Principles of a Sound Tax System
Scope and Limitation of Taxation
Inherent Limitations
1. Pascual v. Sec. of Public Works, 110 Phil 331
CONSTITUTIONAL LAW; LEGISLATIVE POWERS;
APPROPRIATION OF PUBLIC REVENUES ONLY FOR
PUBLIC PURPOSES; WHAT DETERMINES VALIDITY
OF A PUBLIC EXPENDITURE.—"It is a general rule that
the legislature is without power to appropriate public revenues
for anything but a public purpose. * * * It is the essential
character of the direct object of the expenditure which must
determine its validity as justifying a tax and not the magnitude
of the interests to be affected nor the degree to which the
general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion.
Incidental advantage to the public or to the state, which results
from the promotion of private interests, and the prosperity of
private enterprises or business, does not justify their aid by the
use of public money." (23 R. L. C. pp. 398-450).
ID.; ID.; ID.; UNDERLYING REASON FOR THE RULE.—
Generally, under the express or implied provisions of the
constitution, public funds may be used only for a public
purpose. The right of the legislature to appropriate public
funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one
purpose and the devotion thereof to another purpose, no
appropriation of state funds can be made for other than a
public purpose. (81 C. J. S. p. 1147).
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ID.; ID.; ID.; TEST OF CONSTITUTIONALITY.—The test
of the constitutionality of a statute requiring the use of public
funds is whether the statute is designed to promote the public
interests, as opposed to the furtherance of the advantage of
individuals, although such advantage to individuals might
incidentally serve the public. (81 C. J. S. p. 1147). [Pascual vs.
Secretary of Public Works, 110 Phil. 331(1960)]
2. Lutz v. Araneta, 98 Phil. 148
CONSTITUTIONAL LAW; TAXATION; POWER OF
STATE TO LEVY TAX IN AID AND SUPPORT OF
SUGAR INDUSTRY.—As the protection and promotion of
the sugar industry is a matter of public concern, the
Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion.
Here, the legislative discretion must be allowed full play,
subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of
Commonwealth Act No. 567 bear no relation to the objective
pursued or are oppressive in character. If objective and
methods arealike constitutionally valid, no reason is seen why
the state may not levy taxes to raise funds for their prosecution
and attainment. Taxation may be made the implement of the
state’s police power (Great Atl. & Pac. Tea Co. vs. Grosjean,
301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80
L. Ed. 477; M’Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed.
579).
POWER OF STATE TO SELECT SUBJECT OF
TAXATION.—It is inherent in the power to tax that a state be
free to select the subjects of taxation, and it has been
repeatedly held that “inequalities which result from a singling
out of one particular class for taxation or exemption infringe
110 constitutional limitation (Carmichael vs. Southern Coal &
Coke Co., 301 U.S. 495, 81 L. Ed. 1245, citing numerous
authorities, at 1251). [Lutz vs. Araneta, 98 Phil. 148(1955)]
3. City of Baguio v. De La Rosa, 97 Phil 994
The City of Baguio has the power to enact an ordinance
levying a tax on any business undertaken within the city such
as theaters or theatrical performance for purposes of revenue.
The manner the tax may be levied or collected is incidental for
it may take the form of a fixed amount or it may be fixed on
percentage basis. The essence of the tax lies in that what is
burdened is the business itself. Such is the character of the
ordinance in question, The tax is levied on the moviehouses
themselves only that they are allowed to charge the increase in
the price which would represent the tax to the public. It is
therefore incorrect to contend that said ordinance levy a poll
or capitation tax.
4. Gomez v. Palomar, 25 SCRA 827
Constitutional law; Statutory construction; Anti-TB Stamp
Law; Not violative of equal protection clause of the
Constitution.—It is claimed that Republic Act 1635, as
amended, otherwise known as the Anti-TB Stamp Law, is
violative of the equal protection clause of the Constitution
because it constitutes mail users into a class f or the purpose of
the tax while leaving untaxed the rest of the population and
that even among postal patrons the statute discriminatorily
grants exemptions. Held: It is settled that the legislature has
the inherent power to select the subjects of taxation and to
grant exemptions. The classification of mail users is based on
the ability to pay, the enjoyment of a privilege and on
administrative convenience. Tax exemptions have never been
thought of as raising issues under the equal protection clause.
Passed for a public purpose.—The eradication of a dreaded
disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he
pays, then it is sufficient answer to say that the only benefit to
which the taxpayer is constitutionally entitled is that derived
from his enjoyment of the privileges of living in an organized
society, established and safeguarded by the devotion of taxes
to public purposes.
Imposition of flat rate does not violate rule of uniformity and
equality of taxation.—The imposition of a flat rate rather than
a graduated tax does not infringe the rule of uniformity and
equality of taxation. A tax need not be measured by the weight
of the mail or the extent of the service rendered.
Considerations of administrative convenience and cost afford
an adequate ground for classification. The same considerations
may induce the legislature to impose a flat tax which in effect
is a charge for the transaction, operating equally on all persons
with the class regardless of the amount involved. [Gomez vs.
Palomar, 25 SCRA 827(1968)]
5. Valentin v. Tiu v. Videogram Regulatory Board, 151
SCRA 208
Tax imposed under the Decree is not harsh; oppressive,
confiscatory and in restraint of trade but regulatory and a
revenue measure; The levy is for a public purpose.—Petitioner
also submits that the thirty percent (30%) tax imposed is harsh
and oppressive, confiscatory, and in restraint of trade.
However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or
even definitely deters the activities taxed. The power to
impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. In imposing a
tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and oppressive
taxation. The tax imposed by the DECREE is not only a
regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of
around P600 million per annum have not been subjected to
tax, thereby depriving the Government of an additional source
of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing, It is
similar to the 30% amusement tax imposed or borne by the
movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or
the viewing public. It is a tax that is imposed uniformly on all
videogram operators. The levy of the 30% tax is for a public
purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual
property rights, and the proliferation of pornographic video
tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.
[Tio vs. Videogram Regulatory Board, 151 SCRA 208(1987)]
Taxation is inherently legislative
1. Luzon v. Stevedoring v. CTA, 163 SCRA 647
Taxation; Tax Exemption, interpretation.—Any claim for
exemption from the tax statute should be strictly construed
against the taxpayer. Where a provision of law speaks
categorically, the need for interpretation is obviated, no
plausible pretense being entertained to justify non-compliance.
All that has to be done is to apply it in every case that falls
within its terms. Statutes are to be construed in the light of
purposes to be achieved and the evils sought to be remedied.
The legislature, in amending Section 190 of the Tax Code of
Republic Act 3176, intended to provide incentives and
inducements to bolster the shipping industry and not the
business of stevedoring. This Court will not set aside the
conclusion reached by an agency such as the Court of Tax
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Appeals which is by the very nature of its function; dedicated
exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject unless
there has been an abuse or improvident exercise of authority.
[Luzon Stevedoring Corporation vs. Court of Tax Appeals,
163 SCRA 647(1988)]
2. NPC v. Province of Albay, 186 SCRA 198
Executive Order No. 93 validly restored NAPOCOR’S tax
exemption.—Does Executive Order No. 93 constitute an
unlawful delegation of legislative power? It is to be stressed
that the provincial government of Albay admits that as of
March 10, 1987 (the date Resolution No. 17-87 was affirmed
by the Memorandum of the Office of the President, dated
October 5, 1987), NAPOCOR’s tax exemption had been
validly restored. What it questions is NAPOCOR’s liability in
the interregnum between June 11, 1984, the date its tax
privileges were withdrawn, and March 10, 1987, the date they
were purportedly restored. To be sure, it objects to
Executive.Order No. 93 as alledgedly a delegation of
legislative power, but only insofar as its (NAPOCOR’s) June
11, 1984 to March 10, 1987 tax accumulation is concerned.
We therefore leave the issue of “delegation” to the future and
its constitutionality when the proper case arises. For the nonce,
we leave Executive Order No. 93 alone, and so also, its
validity as far as it grants tax exemptions (through the FIRB)
beginning December 17, 1986, the date of its promulgation.
[National Power Corporation vs. Province of Albay, 186
SCRA 198(1990)]
3. Maceda v. Energy Regulatory Board, 192 SCRA 363
When revenue is earned by the government from the
consuming public (except when only licenses are concerned),
there is an exercise of the taxing power.—Anent the
unconstitutional use of the taxing power, the decision of the
majority says that "the Board Order authorizing the proceeds
generated by the increases" is "authorized by Presidential
Decree No. 1456, as amended by Executive Order No. 137"
(See Decision, pp. 7-8). Assuming that such is authorized by
law, still a law, no matter how imperative, cannot prevail over
the Constitution which grants only to Congress the power to
tax. And indeed, there can be no denying the fact that when
revenue is earned by the government from the consuming
public (except when only licenses are concerned) there is an
exercise of the taxing power. [Maceda vs. Energy Regulatory
Board, 192 SCRA 363(1990)]
4. Petron v. Pililla, 198 SCRA 82
The exercise by local governments of the power to tax is
ordained by the present constitution, only guidelines and
limitations that may be established by Congress can define and
limit such power of local governments.––The exercise by local
governments of the power to tax is ordained by the present
Constitution. To allow the continuous effectivity of the
prohibition set forth in PC No. 26-73 (1) would be tantamount
to restricting their power to tax by mere administrative
issuances. Under Section 5, Article X of the 1987
Constitution, only guidelines and limitations that may be
established by Congress can define and limit such power of
local governments [Philippine Petroleum Corp. vs.
Municipality of Pililla, Rizal, 198 SCRA 82(1991)]
5. Maceda v. ERB, 199 SCRA 455
The ERB has no power to tax which is solely the prerogative
of Congress.—I dissent. As I have long previously indicated,
the ERB has absolutely no power to tax which is solely the
prerogative of Congress. This is what the ERB is precisely
doing by getting money from the people to ultimately
subsidize the ravenous oil companies. Additionally, the
stubborn refusal of the ERB to effectively rollback oil prices is
a continuing bestial insult to the intelligence of our
countrymen, and a gross abandonment of the people in their
hour of economic misery. I therefore vote for a complete and
effective rollback of all oil prices. [Maceda vs. Energy
Regulatory Board, 199 SCRA 454(1991)]
6. Victorias Milling v. Philippine Ports Authority, 153
SCRA 317
The 10% government share of earnings of arrastre and
stevedoring operators under PD 857 is in the nature of
contractual compensation.—As to the requirement to remit
10% of the handling charges, Section 6b-(ix) of the
Presidential Decree No. 857 authorized the PPA "To levy
dues, rates, or charges for the use of the premises, works,
appliances, facilities, or for services provided by or belonging
to the Authority, or any organization concerned with port
operations." This 10% government share of earnings of
arrastre and stevedoring operators is in the nature of
contractual compensation to which a person desiring to
operate arrastre service must agree as a condition to the grant
of the permit to operate. [Victorias Milling Co., Inc. vs. Office
of the Presidential Assistant for Legal Affairs, 153 SCRA
317(1987)]
7. Cu Unjieng v. Patstine, 42 Phil 818
For Revenue.—License fees for revenue rest upon the taxing
power as distinguished from the police power, and the power
of the municipality to exact such fees must be ex-pressly
granted by charter or statute and is not to be implied from the
conferred power to license and regulate merely. [Cuunjieng
vs. Patstone, 42 Phil., 818(1922)]
8. Cervantes v. Auditor General, 91 Phil 359
CONSTITUTIONAL LAW; DELEGATION OF
LEGISLATIVE POWER.—The rule is that so long as the
Legislature "lays down a policy and a standard is established
by the statute" there is no undue delegation. (11 Am. Jur. 957).
Republic Act No. 51, in authorizing the President of the
Philippines to make reforms and changes in government-
controlled corporations, lays down a standard and policy that
the purpose shall be to meet the exigencies attendant upon the
establishment of the free and independent Government of the
Philippines and to promote simplicity, economy and efficiency
in their operations. The standard was set and the policy fixed.
The President had to carry out the mandate, and this he did by
promulgating Executive Order (No. 93) in accordance with
Republic Act No. 51, which, tested by the said rule, does not
constitute an undue delegation of legislative power.
[Cervantes vs. Auditor General, 91 Phil. 359(1952)]
9. Maceda v. Macaraig 197 SCRA 771
CRUZ, J., Dissenting:
Constitutional Law; Delegation of Powers; An Administrative
body can apply tax exemption under existing law, but it cannot
itself create such exemptions.—It is remarkable that the
respondents could seriously argue that a mere administrative
body like the FIRB can exercise the legislative power to grant
tax exemptions. I am not aware that any other such agency,
including the Bureau of Internal Revenue and the Bureau of
Customs, has this authority. An administrative body can apply
tax exemptions under existing law but it cannot itself create
such exemptions. This is a prerogative of the Congress that
cannot be usurped by or even delegated to a mere
administrative body. In fact, the decrees clearly provided that
it was the President and/or the Minister of Finance who could
restore the exemption, subject only to the recommendation of
the FIRB. The FIRB was not empowered to directly restore
the exemption. And even if it be accepted that the FIRB
merely recommended the exemption, which was approved by
the Finance Minister, there would still be the curious anomaly
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of Minister Virata upholding his very own act as chairman of
the FIRB. [Maceda vs. Macaraig, Jr., 197 SCRA 771(1991)]
Taxation is territorial
1. Wells Fargo Bank & Union Trust Co. v. Collector, 70
Phil 325
Right of Philippine Government to Impose Inheritance Tax.—
In the instant case, the actual situs of the shares of stock is in
the Philippines, the corporation being domiciled therein. And
besides, the certificates of stock have remained in this country
up to the time when the deceased died in California, and they
were in possession of one S. McK, secretary of the Benguet
Consolidated Mining Company, to whom they have been
deli-vered and indorsed in blank. This indorsement gave S.
McK. the right to vote the certificates at the general meetings
of the stockholders, to collect dividends thereon, and dispose
of the shares in the manner she may deem fit, without
prejudice to her liability to the owner for violation of
instructions. For all practical purposes, then, S. McK. had the
legal title to the certificates of stock held in trust for the true
owner thereof. In other words, the owner residing in California
has extended here her activities with respect to her intangibles
so as to avail herself of the protection and benefit of the
Philippine laws. Accordingly, the jurisdiction of the Philippine
Govern-ment to tax must be upheld. [Wells Fargo Bank Et al.
vs. Internal Revenue, 70 Phil., 325(1940)]
2. Meralco v. Yatco, 69 Phil. 89
TAXATION; INSURANCE; VALIDITY OF TAX OF ONE
PER CENTUM UPON INSURANCE PREMIUMS PAID BY
DOMESTIC CORPORATION TO FOREIGN
CORPORATIONS.—Where the insured is within the
Philippines, the risk insured against also within the
Philippines, and certain incidents of the contract are to be
attended to in the Philippines, such as, payment of dividends
when received in cash, sending of an adjuster into the
Philippines in case of dispute, or making of proof of loss, the
Commonwealth of the Philippines has the power to impose the
tax upon the insured, regardless of whether the contract is
executed in a foreign country and with a foreign corporation.
Under such circumstances, substantial elements of the contract
may be said to be so situated in the Philippines as to give its
government the power to tax. And, even if it be assumed that
the tax imposed upon the insured will ultimately be passed on
to the insurer, thus constituting an indirect tax upon the
foreign corporation, it would still be valid, because the foreign
corporation, by the stipulation of its contract, has subjected
itself to the taxing jurisdiction of the Philippines. After all. the
Gommonwealth of the Philippines, by protecting the
properties insured, benefits the foreign corporation, and it is
but reasonable that the latter should pay a just contribution
therefor. It would certainly be a discrimination against
domestic corporations to hold the tax valid when the policy is
given by them and invalid when issued by foreign
corporations. [Manila Electric Co. vs. Yatco, 69 Phil.
89(1939)]
3. CIR v. Marubeni Corp. GR No. 137377, Dec. 18, 2001
Same; Same; Same; A contractor’s tax is a tax imposed upon
the privilege of engaging in business—it is generally in the
nature of an excise tax on the exercise of a privilege of selling
services or labor rather than a sale on products, and is directly
collectible from the person exercising the privilege.—A
contractor’s tax is a tax imposed upon the privilege of
engaging in business. It is generally in the nature of an excise
tax on the exercise of a privilege of selling services or labor
rather than a sale on products; and is directly collectible from
the person exercising the privilege. Being an excise tax, it can
be levied by the taxing authority only when the acts, privileges
or business are done or performed within the jurisdiction of
said authority. Like property taxes, it cannot be imposed on an
occupation or privilege outside the taxing district.
[Commissioner of Internal Revenue vs. Marubeni
Corporation, 372 SCRA 576(2001)]
Taxation is subject to international comity
1. Pepsi-Cola v. Municipality of Tanauan, 69 SCRA 460
Delegation of powers; Delegation of taxing power to local
governments may not be assailed on the ground of double
taxation.—There is no validity to the assertion that the
delegated authority can be declared unconstitutional on the
theory of double taxation. It must be observed that the
delegating authority specifies the limitations and enumerates
the taxes over which local taxation may not be exercised. x x x
Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof
the injunction against double taxation found in the
Constitution of the United States and some states of the Union.
Double taxation becomes obnoxious only where the taxpayer
is taxed twice for the benefit of the same governmental entity
or by the same jurisdiction for the same purpose, but not in a
case where one tax is imposed by the State and the other by
the city of municipality. [Pepsi-Cola Bottling Co. of the
Philippines, Inc. vs. Municipality of Tanauan, Leyte, 69
SCRA 460(1976)]
Constitutional Limitations
Provisions Directly Affecting Taxation
1. Juan Luna Subdivision v. Sarmiento, 91 Phil 371
CONSTITUTIONAL LAW; REMISSION OF TAXES DUE
AND PAYABLE NOT UNFAIR DISCRIMINATION.—The
remission of taxes due and payable to the exclusion of taxes
already collected does not constitute unfair discrimination.
Each set of taxes is a class by itself, and the law would be
open to attack as class legislation only if all taxpayers
belonging to one class were not treated alike. [Juan Luna
Subdivision Inc. vs. Sarmiento, et al., 91 Phil. 371(1952)]
2. City of Baguio v. De Leon, 25 SCRA 938
Same; Rule on equality and uniformity in taxation.—Equality
and uniformity in taxation means that all taxable articles or
kind or property of the same class shall be taxed at the same
rate. A tax is considered uniform when it operates with the
same force and effect in every place where the subject may be
found. Where the statute or ordinance in question applies
equally to all persons, firms and corporations placed in similar
situation there is no infringement of the rule on equality.
Inequalities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional
limitation. [City of Baguio vs. De Leon, 25 SCRA 938(1968)]
3. CIR v. Lingayen Gulf Electric 164 SCRA 27
On the question as to whether or not Section 4 of R.A. No.
3843 is unconstitutional for being violative of the "uniformity
and equality of taxation" clause of the Constitution, and, if
adjudged valid, whether or not it should be given retroactive
effect, the petitioner submits that the said law is
unconstitutional insofar as it provides for the payment by the
private respondent of a franchise tax of 2% of its gross
receipts, while other taxpayers similarly situated were subject
to the 5% franchise tax imposed in Section 259 of the Tax
Code, thereby discriminatory and violative of the rule on
uniformity and equality of taxation.
TON – FAYE TAX 1 CASE DOCTRINES
A tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.
Uniformity means that all property belonging to the same class
shall be taxed alike The Legislature has the inherent power not
only to select the subjects of taxation but to grant exemptions.
Tax exemptions have never been deemed violative of the
equal protection clause.
It is true that the private respondents municipal franchises
were obtained under Act No. 667 2 of the Philippine
Commission, but these original franchises have been replaced
by a new legislative franchise, i.e. R.A. No. 3843. As correctly
held by the respondent court, the latter was granted subject to
the terms and conditions established in Act No. 3636, 3 as
amended by C.A. No. 132. These conditions Identify the
private respondent's power plant as falling within that class of
power plants created by Act No. 3636, as amended. The
benefits of the tax reduction provided by law (Act No. 3636 as
amended by C.A. No. 132 and R.A. No. 3843) apply to the
respondent's power plant and others circumscribed within this
class. R.A-No. 3843 merely transferred the petitioner's power
plant from that class provided for in Act No. 667, as amended,
to which it belonged until the approval of R.A- No. 3843, and
placed it within the class falling under Act No. 3636, as
amended. Thus, it only effected the transfer of a taxable
property from one class to another.
4. Pepsi-Cola v. Butuan, 24 SCRA 789
Same; Tax of "P O.lO per case of 24 bottles" of soft drinks or
carbonated drinks is not oppressive or confiscatory.—The tax
of "P0.10 per case of 24 bottles" of soft drinks or carbonated
drinks—in the production and sale of which the Pepsi-Cola
Bottling Company is engaged—or less than F0.0042 per
bottle, is manifestly too small to be excessive, oppressive, or
confiscatory.
Same; Conditions for a valid classification of the objects of
taxation; Municipal Ordinance No. 122 of the City of Butuan
is null and void; Case at bar.—In the present case the tax
prescribed in section 3 of Ordinance No. 110 of the City of
Butuan, as originally approved, was imposed upon dealers
"engaged in selling" soft drinks or carbonated drinks. Thus, it
would seem that the intent was then to levy of tax upon the
sale of said merchandise. As amended by Ordinance No. 122,
the tax is, however, imposed only upon "any agent and/or
consignee of any person, association, partnership, company or
corporation engaged in selling x x x soft drinks or carbonated
drinks."
As a consequence, merchants engaged in the sale of soft
drinks or carbonated drinks, are not subject to the tax, unless
they are agents and/or consignees of another dealer, who, in
the very nature of things, must be one engaged in business
outside the City. Besides, the tax would not be applicable to
such agent and/or consignee, if less than 1,000 cases of soft
drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from
the cargo manifest or bill of lading x x x showing the number
of cases"—not sold—but "received" by the taxpayer, the
intention to limit the application of the ordinance to soft drinks
and carbonated drinks brought into the City from outside
thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond
defendant's authority to impose by express provision of law
(Sec. 2[1], Rep. Act 2264; Panaligan v. City of Tacloban, L-
9319, Sept. 27, 1957, 102 Phil. 1162; East Asiatic Co. v. City
of Davao, L-16253, Aug. 21, 1962).
Even, however, if the burden in question were regarded as a
tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required
by the Constitution and the law therefor, since only sales by
"agents or consignees" of outside dealers would be subject to
the tax. Sales by local dealers, not acting for or on behalf of
other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the
City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of
the power of taxation does not require identity or equality
under all circumstances, or negate the authority to classify the
objects of taxation. The classification made in the exercise of
this authority, to be valid, must, however, be reasonable and
this requirement is not deemed satisfied unless: (1) it is based
upon substantial distinctions which make the real differences;
(2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present
conditions, but, also, to future conditions substantially
identical to those of the present; and (4) the classification
applies equally to all those who belong to the same class.
These conditions are not fully met by the ordinance in
question. Indeed, if its purpose were merely to levy a burden
upon the sale of soft drinks or carbonated beverages, there is
no reason why sales thereof by dealers other than agents or
consignees of producers or merchants established outside the
City of Butuan should be exempt from the tax [Pepsi-Cola
Bottling Co. of the Phil., Inc. vs. City of Butuan, 24 SCRA
789(1968)]
5. Eastern Theatrical Co. v. Alfonso, 83 Phil 852
Constitutional Law; Equality and Uniformity of Taxation;
Validity of Ordinance No. 2958.—Appellants point out to the
fact that the ordinance in question does not tax "many more
kinds of amusements" than those therein specified, such as
"race tracks, cockpits, cabarets, concert halls, circuses, and
other places of amusement." The argument has absolutely no
merit.
The fact that some places of amusement are not taxed while
others, such as cinematographs, theaters, vaudeville
companies, theatri-cal shows, and boxing exhibitions and
other kinds of amuse-ments or places of amusement are taxed,
is no argument at all against the equality and uniformity of the
tax imposition. Equality and uniformity in taxation means that
all taxable arti-cles or kinds of property of the same class shall
be taxed at the same rate.
The taxing power has the authority to make reason-able and
natural classifications for purposes of taxation; and the
appellants cannot point out what places of amusement taxed
by the ordinance do not constitute a class by themselves and
which can be confused with those not included in the
ordinance [Eastern Theatrical Co. vs. Alfonso, 83 Phil.,
852(1949)]
6. Basco v. PAGCOR, 197 SCRA 771
Petitioners next contend that P.D. 1869 violates the equal
protection clause of the Constitution, because "it legalized
PAGCOR — conducted gambling, while most gambling are
outlawed together with prostitution, drug trafficking and other
vices" (p. 82, Rollo).
We, likewise, find no valid ground to sustain this contention.
The petitioners' posture ignores the well-accepted meaning of
the clause "equal protection of the laws." The clause does not
preclude classification of individuals who may be accorded
different treatment under the law as long as the classification
is not unreasonable or arbitrary (Itchong v. Hernandez, 101
Phil. 1155). A law does not have to operate in equal force on
all persons or things to be conformable to Article III, Section 1
of the Constitution (DECS v. San Diego, G.R. No. 89572,
December 21, 1989).
TON – FAYE TAX 1 CASE DOCTRINES
The "equal protection clause" does not prohibit the Legislature
from establishing classes of individuals or objects upon which
different rules shall operate (Laurel v. Misa, 43 O.G. 2847).
The Constitution does not require situations which are
different in fact or opinion to be treated in law as though they
were the same (Gomez v. Palomar, 25 SCRA 827).
Just how P.D. 1869 in legalizing gambling conducted by
PAGCOR is violative of the equal protection is not clearly
explained in the petition. The mere fact that some gambling
activities like cockfighting (P.D 449) horse racing (R.A. 306
as amended by RA 983), sweepstakes, lotteries and races (RA
1169 as amended by B.P. 42) are legalized under certain
conditions, while others are prohibited, does not render the
applicable laws, P.D. 1869 for one, unconstitutional.
7. Ass. Of Customs Broker v. Mun. of Manila, et al, 93 Phil
107
Uniformity of Taxation.—The said ordinance in-fringes also
the rule of uniformity of taxation ordained by our
Constitution. It exacts the tax upon all motor vehicles
operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for
private use.
Neither does it distinguish between a motor vehicle registered
in the City of Manila and one registered in another place but
occasionally comes to Manila and uses its streets and public
highways. There is no pretense that the ordinance equally
applies to motor vehicles which come to Manila for a
temporary stay or for short errands, and it cannot be denied
that they contribute in no small degree to the deterioration of
the streets and public highways. As they are benefited by their
use they should also be made to share the corresponding
burden. This is an inequality which is found in the ordinance
in question and which renders it offensive to the Constitution.
[Association of Costom Brokers, Inc. vs. Municipal Board,
Clity of Manila, et al., 93 Phil., 107(1953)]
8. Shell Company v. Vano, 94 Phil 389
INSTALLATION MANAGER NOT EXEMPT FROM TAX;
ORDINANCE IMPOSING TAX ON THE EXERCISE OF
PRIVILEGE OF INSTALLATION MANAGER, NOT
DISCRIMINATORY AND HOSTILE.—Even if an
installation manager is a salaried employee, still his
employment is an occupation, and one occupation or line of
business does not become exempt by being conducted with
some other occupation or business for which taxes have been
paid and the occupation tax must be paid by each individual
engaged in a calling subject thereto.
The mere fact that there is no other person in the locality who
exercises the privilege of installation manager does not make
the ordinance discriminatory and hostile inasmuch as it is and
will be applicable to any person or firm who exercises such
calling or occupation named or designated as "installation
manager." [Shell Co. of P. I. Ltd. vs. Vaño, 94 Phil.,
389(1954)]
9. Phil. Trust Co. v. Yatco, 69 Phil 420
TAXATION; UNIFORMITY; EXEMPTION OF FEDERAL
INSTRUMENTALITY; CONSTITUTIONALITY OF
SECTION 1499 OF REVISED ADMINISTRATIVE
CODE.—A tax is considered uniform when it operates with
the same force and effect in every place where the subject may
be found. (State vs. Railroad Tax Cases, 92 U. S., 575, 595,
612; 23 Law. ed., 363, 373.) Section 1499 of the Revised
Administrative Code, as amended, applies uniformly to, and
operates on, all banks in the Philippines without distinction
and discrimination, and if the National City Bank of New
York is exempted from its operation because it is a federal
instrumentality subject only to the authority of Congress, that
alone could not have the effect of rendering it violative of the
rule of uniformity.
In every well-regulated and enlightened state or government,
certain descriptions of property and also certain institutions
are exempt from taxation, but these exemptions have never
been regarded as disturbing the rules of taxation, even where
the fundamental law had ordained that it should be uniform.
(Des Moines Bank vs. Fairweather, 263 U. S., 103, 118.) The
rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable. [Philippine
Trust Co. et al. vs. Yatco, 69 Phil. 420(1940)]
Art. VI, Sec. 28, par. 2
Sec. 401, Tariff & Customs Code
Art. VI, Sec. 28, par. 3
1. Hodges v. Mun. Bd. Of Iloilo City, 19 SCRA 28
Municipal corporations; Taxation; Power to impose sales
tax.—The grant of power to tax to chartered cities under
Section 2 of the Local Autonomy Act is sufficiently plenary to
cover everything, excepting those which are mentioned
therein, subject only to the limitation that the tax so levied is
for public purposes, just and uniform. (Nin Bay Mining Co.
vs. Municipality of Roxas, Palawan, L-20125, July 20, 1965).
Where there is no showing that the real property sales tax in
question comes within the exception, it must be regarded as
coming within the purview of the general rule (Exceptio firmat
regulam in casibus non exceptis). Since its public purpose,
justness and uniformity of application are not disputed, the tax
so levied must be sustained as valid. [C.N. Hodges vs.
Municipal Board, Iloilo City, et al., 19 SCRA 28(1967)]
2. Apostolic Prefect v. City Treasurer of Baguio, 71 Phil.
547
"While the word 'tax' in its broad meaning, includes both
general taxes and special assessments, and in a general sense a
tax is an assessment, and an assessment is a tax, yet there is a
recognized distinction between them in that assessment is
confined to local impositions upon property for the payment of
the cost of public improvements in its immediate vicinity and
levied with reference to special benefits to the property
assessed. The differences between a special assessment and a
tax are that (1) a special assessment can be levied only on
land; (2) a special assessment cannot (at least in most states)
be made a personal liability of the person assessed; (3) a
special assessment is based wholly on benefits; and (4) a
special assessment is exceptional both, as to time and locality.
The imposition of a charge on all property, real and personal,
in a prescribed area, is a tax and not an assessment, although
the purpose is to make a local improvement on a street or
highway. A charge imposed only on property owners
benefited is a special assessment rather than a tax
notwithstanding the statute calls it a tax." [Apostolic Prefect
etc. vs. El Tesorero etc., 71 Phil. 547(1941)]
3. Herrera v. Q.C Bd. Of Assessment Appeals, 3 SCRA 186
Taxation; Real estate taxes; Charitable hospitals and
educational institutions; When benevolent character of
hospitals not detracted by admission of pay patients.—The
admission of paypatients does not detract from the charitable
character of a hospital, if all of its funds are devoted
“exclusively to the maintenance of the institution” as a “public
charity” (84 C.J.S., 617; see, also, 51 Am. Jur. 607; Cooley on
Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492).
In other words, “where rendering charity is its primary object,
and the funds derived from payments made by patients able to
TON – FAYE TAX 1 CASE DOCTRINES
pay are devoted to the benevolent purposes of the institution,
the mere fact that a profit has been made will not deprive the
hospital of its benevolent character” (Prairie Du Chian
Sanitarium Co. vs. City of Prairie Du Chian, 242 Wis. 262, 7
NW [2d] 832, 144 A.L.R. 1480). The fact, therefore, that in
the case at bar, St. Catherine’s Hospital, which is a charitable
institution, admits pay-patients, does not bar it from claiming
that it is devoted exclusively to benevolent purposes, it being
admitted that the income derived from paypatients is devoted
to the improvement of the charity wards, which represent
almost two-thirds (2/3) of the bed capacity of the hospital,
aside from “out-charity patients” who come only for
consultation.
Same; Extent of exemption.—The exemption in favor of
property used exclusively for charitable or educational
purposes is “not limited to property actually indispensable”
therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to
facilities which are “incidental to and reasonably necessary
for” the accomplishment of said purposes, such as, in the case
of hospitals, “a school for training nurses, a nurses’ home,
property used to provide housing facilities for interns, resident
doctors, superintendents, and other members of the hospital
staff, and re-creational facilities for student nurses, interns and
residents” (84 C.J.S., 621), such as “athletic fields”, including
“a farm used for the inmates of the institution” (Cooley on
Taxation, Vol. 2, p. 1430).
Same; Same; Lands, buildings and improvements beyond the
taxing power irrespective of profits.—The existence of “St.
Catherine’s School of Midwifery”, with an enrollment of
about 200 students, who practice partly in St. Catherine’s
Hospital and partly in St. Mary’s Hospital, which, likewise,
belongs to petitioners, does not, and cannot affect the
exemption to which St. Catherine’s Hospital is entitled under
the Constitution.
The fact that the size of the enrollment and the students, aside
from the amount they paid for board and lodging, warrant the
belief that a substantial profit is derived from the operation of
the said school, is immaterial to the issue of whether or not
real estate taxes should be paid, because “all lands, buildings
and improvements used exclusively for religious, charitable or
educational purposes shall be exempt from taxation”, pursuant
to the Constitution, regardless of whether or not material
profits are derived from the operation of the institutions in
question. In other words, Congress may, if it deems fit to do
so, impose taxes upon such “profits”, but said “lands,
buildings and improvements” are beyond its taxing power.
[Herrera vs. Quezon City Board of Assessment Appeals, 3
SCRA 186(1961)]
4. Praire Du Chian Sanitarium Co. v. City of Praire Du
Chian, 242 Wis. 262, 7 NW (2d) 832, 144 A.L.R, 1480
Appellant contends that under the provisions of see 70.11(4),
Stats., its real and personal property is exempt from taxation.
This statute provides exemption for —
"Personal property owned by any . . . benevolent association . .
. which is used exclusively for the purposes of such
association, and the real property necessary for the location
and convenience of the buildings of such . . . association and
embracing the same, not exceeding ten acres; provided, such
real or personal property is not leased or otherwise used for
pecuniary profit. . . ."
In order for appellant's contention to be sustained it must
appear that, (1) appellant is a benevolent association; (2) the
personal property is used exclusively for the purposes of such
association; (3) the real and personal property is not used for
pecuniary profit.
What constitutes a hospital a benevolent association within the
meaning of this statute has been considered in several cases
and the tests to be applied have been discussed. Order
*265265 of the Sisters of St. Joseph v. Plover, 239 Wis. 278,1
N.W.2d 73; Rogers Memorial Sanitarium v. Summit,228 Wis.
507, 279 N.W. 623; St. Joseph's Hospital Asso. v. Ashland
County, 96 Wis. 636, 72 N.W. 43. It is clear that the fact that
the articles of incorporation say that the institution is a
benevolent and charitable one is not controlling. The actual
financial setup of the hospital is important. If the books of the
corporation show a substantial profit, as they did in the Rogers
Case, this is a circumstance tending to negative the idea of a
benevolent institution. The fact the hospital receives and is
dependent on donations indicates a benevolent character, as
does the fact that it takes all patients who apply, regardless of
their ability to pay, or at least that it does take a fair number of
charity patients. A final and most important test is whether the
members of the corporation render services without
compensation. In the case of Order of the Sisters of St. Joseph
v. Plover, supra, the court said (p. 284):
"The instant corporation is a benevolent institution because the
members who operate it are in the work of benevolence and
receive and can receive no remuneration or compensation
whatever for their services."
Obviously neither a single test nor isolated answers to each of
the questions posed above will automatically determine when
a hospital is a benevolent association. The facts of each case
must be regarded as a whole and the substance of the scheme
of operation as it exists must be examined.
The Prairie du Chien Sanitarium Company, Inc., for the fiscal
year ending March 31, 1941, operated with a deficit of about
$388, although respondent alleges this apparent deficit is due
to improper bookkeeping. It received donations from the
members only. That such donations from the doctors do not
make a hospital a benevolent association was decided in the
Rogers Case, supra at page 512.
Here during this period the individual doctors were making
from $7,500 to $10,000 a *266266 year. The manager was
paid a salary of $140 per month.
Appellant alleges that it takes all patients who apply, but so far
as the record shows, the ten per cent of the patients whose
accounts were not collected and who were classified as neither
private nor county patients were billed for regular charges and
everything was done to collect these bills.
It was said in Order of the Sisters of St. Joseph v. Plover,
supra, that municipal patients were charitable patients, but the
idea underlying that classification was that the benevolent
character of an institution as established by its being operated
by a religious order and taking all who applied for admission
would not be affected by the fact that municipalities paid the
costs of the care of certain patients. This leaves open the
question of whether a private hospital contracting with a
municipality for the care of indigents is engaged in a
charitable undertaking within the meaning of the tax statutes
under other circumstances.
The chief point relied on to establish the benevolent character
of appellant is that the doctors in charge of the hospital were
not paid any salaries for their services as medical directors of
the hospital or for the operations they performed on county
patients and those patients who came to the hospital without
their own doctors. Whether it is exact to say that these doctors
received no compensation for their services is doubtful. They
got their offices in the hospital rent free as well as the use of
the hospital facilities and one meal a day. Whether or not the
compensation was of value equivalent to the services
rendered, it is clear that there is not a complete absence of
remuneration such as is found in the cases where all the work
TON – FAYE TAX 1 CASE DOCTRINES
in the hospital except medical services is performed by the
members of a religious order.
This leads us to the second and third points of whether the
property is used exclusively for the purposes of the association
and whether it is used for pecuniary profit.
An association or corporation claiming to be benevolent, in
order to qualify its property for exemption from taxation, must
use it so free *267267 from connection with profits accruing
to those owning it as clearly to be a charitable institution.
Hence the personal property, grounds, and buildings of a
hospital are not exempt when members of the owner
association are using the hospital as an adjunct to their private
business in such a way that it becomes a source of substantial
help in the matter of earnings to be derived from the practice
of their profession.
On this point it seems clear that even if we assume that the
hospital is a benevolent association, the property is used as
much to advance the individual fortunes of the surgeons who
manage it as it is for charitable purposes. There can be little
doubt that the hospital is maintained primarily for the greater
convenience and profit of the managing doctors in the practice
of their profession. The doctors may, and under their
management and control of the hospital did, give without
recovering pay therefor of their time and skill in caring for
people who did not pay for such care, but by reason of the use
of the hospital in relation to their private practice the benefits
extended were those of the doctors and not a contribution to
public welfare by a benevolent association.
While cases from other jurisdictions are of dubious value
because of the difference in the statutes involved, it can be
observed that under similar circumstances other courts have
refused to allow freedom from taxation by incorporating
hospitals as "benevolent institutions."
5. Abra Valley College, Inc. v. Aquion, 162 SCRA 106
Constitutional Law; Taxation; Test of exemption from
taxation.—The test of exemption from taxation is the use of
the property for purposes mentioned in the Constitution. [Abra
Valley College, Inc. vs. Aquino, 162 SCRA 106(1988)]
Same; Same; Same; Phrase “exclusively used for educational
purposes” clarified.—The phrase “exclusively used for
educational purposes” was further clarified by this Court in the
cases of Herrera vs. Quezon City Board of Assessment
Appeals, 3 SCRA 186 [1961] and Commissioner of Internal
Revenue vs. Bishop of the Missionary District, 14 SCRA 991
[1965], thus““Moreover, the exemption in favor of property
used exclusively for charitable or educational purposes is ‘not
limited to property actually indispensable’ therefor (Cooley on
Taxation, Vol. 2, p. 1430), but extends to facilities which are
incidental to and reasonably necessary for the accomplishment
of said purposes, such as in the case of hospitals, ‘a school for
training nurses, a nurses’ home, property use to provide
housing facilities for interns, resident doctors, superintendents,
and other members of the hospital staff, and recreational
facilities for student nurses, interns, and residents’ (84 CJS
6621), such as ‘athletic fields’ including ‘a firm used for the
inmates of the institution. [Abra Valley College, Inc. vs.
Aquino, 162 SCRA 106(1988)]
Same; Same; Same; Same; The exemption extends to facilities
which are incidental to and reasonably necessary for the
accomplishment of the main purpose the lease of the first floor
to the Northern Marketing Corporation cannot by any stretch
of the imagination be considered incidental to the purposes of
education; Case at bar.—It must be stressed however, that
while this Court allows a more liberal and non-restrictive
interpretation of the phrase “exclusively used for educational
purposes” as provided for in Article VI, Section 22, paragraph
3 of the 1935 Philippine Constitution, reasonable emphasis has
always been made that exemption extends to facilities which
are incidental to and reasonably necessary for the
accomplishment of the main purposes. Otherwise stated, the
use of the school building or lot for commercial purposes is
neither contemplated by law, nor by jurisprudence. Thus,
while the use of the second floor of the main building in the
case at bar for residential purposes of the Director and his
family, may find justification under the concept of incidental
use, which is complimentary to the main or primary pur-
pose—educational, the lease of the first floor thereof to the
Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purposes of
education. [Abra Valley College, Inc. vs. Aquino, 162 SCRA
106(1988)]
6. Roman Catholic Church v. Hastings, 5 Phil. 701
STATUTORY CONSTRUCTION; EXEMPTION
STATUTES.—Statutes exempting charitable and religious
property from taxation should be construed fairly though
strictly and in such manner as to give effect to the main intent
of the lawmakers.
LEGISLATIVE INTENT.—In enacting its exemption laws
the Commission had in view not only the conditions peculiar
to and inherent in Roman Catholic parishes in the Islands, but
their intent was to extend the exemption to the parsonages
appurtenant to all churches of every denomination alike.
PARSONAGE.—The residence of an archbishop is exempt
from taxation as the parsonage adjacent to the cathedral, with
which it communicates by an open street, although separated
from it by an intervening block, the ownership of which is not
shown, and although a parsonage appurtenant to the church of
the parish is already exempt.
(dissenting)
TAXATION; EXEMPTION.—It being the theory of the
Government that all property shall contribute equally, in
proportion to its value, to the support of the Government, a
law exempting property from taxation must be strictly
construed.
5.ID.; ID.—In order that property which is adjacent shall be
exempt from taxation because of that fact, the word "adjacent"
should be construed to mean adjoining- or contiguous property
only. [Catholic Church vs. Hastings, 5 Phil. 701(1906)]
7. Bishop of Nueva Segovia v. Provincial Board, 51 Phil.
352
LAND TAX; EXEMPTION; CONVENT; VEGETABLE
GARDEN.—The exemption from the payment of the land tax
in favor of the convent includes not only the land actually
occupied by the building, but also the adjacent ground or
vegetable garden destined to the incidental use of the parish
priest in his ordinary life.
CEMETERY NOT USED AS SUCH.—The lot which was
formerly a cemetery and which is no longer used as such, but
is not used for commercial purposes, serving solely as a sort of
lodging place for those who participate in the religious
festivities, is also exempt from the land tax, because this
constitutes an incidental use in religious functions. [Bishop of
Nueva, Segovia, vs. Prov. Board of Ilocos Norte, 51 Phil.
352(1927)]
Art. VI, Sec. 28 par. 4
Art. VI, Sec. 29, par. 3
1. Gaston v. Republic Planters Bank 158 SCRA 626
TON – FAYE TAX 1 CASE DOCTRINES
The stabilization fees collected are in the nature of a tax which
is within the power of the state to impose for the promotion of
the sugar industry; The levy is primarily in the exercise of the
police power of the state.—The stabilization fees collected are
in the nature of a tax, which is within the power of the State to
impose for the promotion of the sugar industry (Lutz vs.
Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b],
P.D, No. 388). The collections made accrue to a "Special
Fund," a "Development and Stabilization Fund," almost
identical to the "Sugar Adjustment and Stabilization Fund"
created under Section 6 of Commonwealth Act 567, The tax
collected is not in a pure exercise of the taxing power. It is
levied with a regulatory purpose, to provide means for the
stabilization of the sugar industry. The levy is primarily in the
exercise of the police power of the State (Lutz vs. Araneta,
supra).
The stabilization fees are levied by the state for the special
purpose of financing the growth and development of the sugar
industry and all its components, stabilization of the domestic
market including the foreign market; Revenues collected
treated as special fund to be administered in trust for the
purpose intended.—The stabilization fees in question are
levied by the State upon sugar millers, planters and producers
for a special purpose—that of "financing the growth and
development of the sugar industry and all its components,
stabilization of the domestic market including the foreign
market." The fact that the State has taken possession of
moneys pursuant to law is sufficient to constitute them state
funds, even though they are held for a special purpose
(Lawrence vs. American Surety Co,, 263 Mich 586, 249 ALR
535, cited in 42 Am. Jur. Sec. 2, p. 718), Having been levied
for a special purpose, the revenues collected are to be treated
as a special fund, to be, in the language of the statute,
"administered in trust" for the purpose intended. Once the
purpose has been fulfilled or abandoned, the balance, if any, is
to be transferred to the general funds of the Government. That
is the essence of the trust intended.
Same; Same; Same; Revenues derived from tax cannot be
used for purely private purposes or for the exclusive benefit of
private persons.—To rule in petitioners' favor would
contravene the general principle that revenues derived from
taxes cannot be used for purely private purposes or for the
exclusive benefit of private persons. The Stabilization Fund is
to be utilized for the benefit of the entire sugar industry, "and
all its components, stabilization of the domestic market
including the foreign market," the industry being of vital
importance to the country's economy and to national interest.
[Gaston vs. Republic Planters Bank, 158 SCRA 626(1988)]
Art. VI, Sec. 27, second par.
Art. VIII, Sec. 5, par. 2 (b)
Art. X, sec. 6
Art. XIV, Sec. 4 (3)
Provisions indirectly affecting Taxation
Police Power and Eminent Domain
1. Garces v. Estenzo, L-53487, May 25, 1981
Constitutional Law; Barangays; Churches; A resolution of the
Barangay Council for soliciting contributions to buy a statue
of the barangay’s patron saint and the use of such fund for said
purpose does not violate the Constitution’s provision
prohibiting use of public funds for religious purposes.—The
questioned resolutions do not directly or indirectly establish
any religion, nor abridge religious liberty, nor appropriate
public money or property for the benefit of any sect, priest or
clergyman. The image was purchased with private funds, not
with tax money. The construction of a waiting shed is entirely
a secular matter.
Same; Same; Same; Same.—Manifestly puerile and flimsy is
petitioners’ argument that the barangay council favored the
Catholic religion by using the funds raised by solicitations and
donations for the purchase of the patron saint’s wooden image
and making the image available to the Catholic church.
Same; Same; Same; Same.—The wooden image was
purchased in connection with the celebration of the barrio
fiesta honoring the patron saint, San Vicente Ferrer, and not
for the purpose of favoring any religion nor interfering with
religious matters or the religious beliefs of the barrio residents.
One of the highlights of the fiesta was the mass.
Consequently, the image of the patron saint had to be placed
in the church when the mass was celebrated.
Same; Same; Same; There is nothing unconstitutional in
holding fiesta.—If there is nothing unconstitutional or illegal
in holding a fiesta and having a patron saint for the barrio,
then any activity intended to facilitate the worship of the
patron saint (such as the acquisition and display of his image)
cannot be branded as illegal. As noted in the first resolution,
the barrio fiesta is a socio-religious affair. Its celebration is an
ingrained tradition in rural communities. The fiesta relieves
the monotony and drudgery of the lives of the masses.
Same; Same; Same; Property; The statue having been
purchased with the use of barangay funds belongs to the
barangay council not to the parish church.—There can be no
question that the image in question belongs to the barangay
council. Father Osmeña’s claim that it belongs to his church is
wrong. The barangay council, as owner of the image, has the
right to determine who should have custody thereof.
Same; Same; Same; There will be nothing unconstitutional for
the barangay council to give the image of St. Ferrer to the
Catholic Church.—If it chooses to change its mind and
decides to give the image to the Catholic church, that action
would not violate the Constitution because the image was
acquired with private funds and is its private property.
Same; Same; Same; Not every governmental activity which
involves the use of public funds and which has some religious
tint is unconstitutional.—Not every governmental activity
which involves the expenditure of public funds and which has
some religious tint is violative of the constitutional provisions
regarding separation of church and state, freedom of worship
and banning the use of public money or property.
Same; Same; Same; Same.—Monsignor Gregorio Aglipay, the
founder and head of the Philippine Independent Church,
sought to enjoin the sale of those commemorative postage
stamps. It was held that the issuance of the stamps, while
linked inseparably with an event of a religious character, was
not designed as a propaganda for the Catholic Church.
Aglipay’s prohibition suit was dismissed. [Garces vs. Estenzo,
104 SCRA 510(1981)]
2. American Bible Society v. City of Manila, 101 Phil. 386
MUNICIPAL TAX; RETAIL DEALERS IN GENERAL
MERCHANDISE; ORDINANCE PRESCRIBING TAX
NEED NOT BE APPROVED BY THE' PRESIDENT TO BE
EFFECTIVE.—The business of "retail dealers in general
merchandise" is expressly enumerated in subsection (o),
section 18 of Republic Act No. 409: hence. an ordinance
prescribing a municipal tax on said business does not have to
be approved by the President to be effective, as it is not among
those businesses referred to in subsection (ii) Section 18 of the
same Act subject to the approval of the President.
CONSTITUTIONAL LAW; RELIGIOUS FREEDOM;
DlSSEMINATION OF RELIGIOUS INFORMATION,
WHEN MAY BE RESTRAINED; PAYMENT OF LlCENSE
FEE, IMPAIRS FREE EXERCISE OF RELIGION.—The
TON – FAYE TAX 1 CASE DOCTRINES
consti-tutional guaranty of the free exercise and enjoyment of
religious profession and worship carries with it the right to
disseminate religious information. Any restraint of such right
can only be justified like other restraints of freedom of
expression on the grounds that there is a clear and present
danger of any substantive evil which the State has the right to
prevent." (Tañada and Fernando on the Constitution of the
Philippines, Vol. I, 4th ed., p. 297). In the case at bar, plaintiff
is engaged in the distribution and sales of bibles and religious
articles. The City Treasurer of Manila informed the plaintiff
that it was conducting the business of general merchandise
without providing itself with the necessary Mayor's permit and
municipal license, in violation of Ordinance No. 3000, as
amended, and Ordinance No. 2529, as amended, and required
plaintiff to secure the corresponding permit and license.
Plaintiff protested against this requirement and claimed that it
never made any profit from the sale of its bibles.
Held: It is true the price asked for the religious articles was in
some instances a little bit higher than the actual cost of the
same, but this cannot mean that plaintiff was engaged in the
business or occupation of selling said "merchandise" for
profit. For this reasons, the provisions of City Ordinance No.
2529, as amended, which requires the payment of license fee
for conducting the business of general merchandise, cannot be
applied to plaintiff society, for in doing so, it would impair its
free exercise and enjoyment of its religious profession and
worship, as well as its rights of dissemination of religious
beliefs. Upon the other hand, City Ordinance No. 3000, as
amended, which requires the obtention of the Mayor's permit
before any person can engage in any of the businesses, trades
or occupations enumerated therein, does not impose any
charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices. Hence,
it cannot be considered unconstitutional, even if applied to
plaintiff Society. But as Ordinance No. 2529 is not applicable
to plaintiff and the City of Manila is powerless to license or
tax the business of plaintiff society involved herein, for the
reasons above stated, Ordinance No. 3000 is also inapplicable
to said business, trade or occupation of the plaintiff [American
Bible Society vs. City of Manila,, 101 Phil. 386(1957)]
3. Grosjean American Press Co., 287 US 233
A State license tax imposed on the owners of newspapers for
the privilege of selling or charging for the advertising therein,
and measured by a percent. Of the gross receipts from such
advertisements, but applicable only to newspapers enjoying a
circulation of more than 20,000 copies per week, held
unconstitutional.
From the history of the subject, it is plain that the English rule
restricting freedom of the press to immunity from censorship
before publication was not accepted by the American
colonists, and that the First Amendment was aimed at any
form of previous restraint upon printed publications or their
circulation, including restraint by taxation of newspapers and
their advertising, which were well known and odious methods
still used in England when the First Amendment was adopted.
The predominant purpose of the grant of immunity was to
preserve an untrammeled press as a vital source of public
information.
Construction of a constitutional provision phrased in terms of
the common law is not determined by rules of the common
law which had been rejected in this country as unsuited to
local civil or political conditions.
It is not intended in this case to suggest that the owners of
newspapers are immune from any of the ordinary forms of
taxation for support of Government. The tax in question is not
an ordinary form of tax, but one single in kind, with a long
history of hostile misuse against the freedom of the press. The
manner of its use in this case is, in itself, suspicious; it is not
measured or limited by the volume of advertisements, but by
the extent of the circulation of the publication in which the
advertisements are carried, with the plain purpose of
penalizing the publishers and curtailing the circulation of a
selected group of newspapers.
Mandatory Character of Constitutional Provisions
1. Marcelino v. Cruz, 121 SCRA 57
Statutes; Rules of statutory interpretation apply to the
Constitution.—Such construction applies equally to the
constitutional provision under consideration. In Mikell v.
School Dis. of Philadelphia, it was ruled that “the legal
distinction between directory and mandatory laws is
applicable to fundamental as it is to statutory laws.”
Constitutional Law; The constitutional provision requiring that
trial judges shall decide a case within 90 days from
submission is merely a procedural rule and is not mandatory,
but only directory.—To Our mind, the phraseology of the
provision in question indicates that it falls within the exception
rather than the general rule. By the phrase “unless reduced by
the Supreme Court,” it is evident that the period prescribed
therein is subject to modification by this Court in accordance
with its prerogative under Section 5[5] of Article X of the
New Constitution to “promulgate rules concerning pleading,
practice and procedure in all courts x x x.” And there can be
no doubt that said provision, having been incorporated for
reasons of expediency, relates merely to matters of procedure.
Albermarle Oil & Gas Co. v. Morris, declares that
constitutional provisions are directory, and not mandatory,
where they refer to matters merely procedural.
Same; Same; Same; Same; Same.—In practice, We have
assumed a liberal stand with respect to this provision. This
Court had at various times, upon proper application and for
meritorious reasons, allowed judges of inferior courts
additional time beyond the three-month period within which to
decide cases submitted to them. The reason is that a departure
from said provision would result in less injury to the general
public than would its strict application. To hold that non-
compliance by the courts with the aforesaid provision would
result in loss of jurisdiction, would make the courts, through
which conflicts are resolved, the very instruments to foster
unresolved causes by reason merely of having failed to render
a decision within the alloted term. Such an absurd situation
could not have been intended by the framers of our
fundamental law. [Marcelino vs. Cruz, Jr., 121 SCRA
51(1983)]
Aspects of Taxation
1. Levy
2. Assessment
3. Payment
1. CIR v. Botelbo Shipping Corp., 20 SCRA 487
Reparations Law; Taxation; Compensating tax.—Under
Republic Act No. 1789 reparations goods obtained by private
parties are subject to compensating tax since section 14 of said
law exempts them only from customs duties, consular fees and
the special import tax.
Same; Nature of tax exemption.—Every tax exemption
implies a waiver of the right to collect what otherwise would
be due to the government. In this sense, it is prejudicial
thereto.
Same; Rationale of tax exemption.—The avowed purpose of a
tax exemption is some public benefit or interest, which the
TON – FAYE TAX 1 CASE DOCTRINES
lawmaking body considers sufficient to offset the monetary
loss entailed in the grant of the exemption.
Same; Constitutional Law; Constitution does not bar tax
exemptions.—There is no constitutional injunction against
granting tax exemptions to particular persons. It is not unusual
to grant to specific individuals or entities legislative franchise
with tax exemptions. What the fundamental law forbids is the
denial of equal protection, such as through unreasonable
discrimination or classification.
Same; Grant of tax exemptions to end-users.—From the
viewpoint of constitutional law, especially the equal protection
clause, there is no difference between the grant of tax
exemption to end-users who, after the approval of Republic
Act No. 3079 on June 17, 1961 purchased reparations goods
procured by the Commission and the extension of the grant to
those whose contracts of purchase and sale were made before
said date, or under the original Reparations Law.
Same; Tax exemption for end-users who purchased
reparations goods before June 17, 1961; Retroactive effect of
favorable provisions of section 20 of Republic Act No.
3079.—The exemption from compensating tax, provided for
in Republic Act No. 3079, which took effect on June 17, 1961,
may be availed of by end-users who voluntarily assume all the
new obligations provided for in said law. To enjoy the
exemption, the end-users, who acquired reparations goods
before June 17, 1961, should apply for the renovation of their
utilization contracts. Said end-users, on complying with that
requirement would be treated in like manner and to the same
extent as an end-user filing his application after June 17, 1961.
The favorable provisions of Republic Act No. 3079 would
retroactively apply to them. The purpose of the new law is to
place persons who acquired reparations goods before the
enactment of the amendatory law on the same footing as those
who acquired reparations goods after its enactment.
Where two vessels were acquired as reparations goods before
June 17, 1961 and later their purchasers applied for the
renovation of their utilization contracts and the Reparations
Commission granted their applications, said vessels are not
subject to compensating tax, although they were taxable
before the passage of the amendatory act. [Commissioner of
Internal Revenue vs. Botelho Shipping Corp., 20 SCRA
487(1967)]
Classification of Taxes
According to Subject Matter or Object
(a) Personal, capitation or poll taxes
(b) Property taxes
(c) Excise or license taxes
According to Burden or Incidence
(a) Direct
(b) Indirect
1. Maceda v. Macaraig, 223 SCRA 217
Taxation; Oil and Gas; Oil companies shall pay for fuel oil
taxes on oil supplied to the National Power Corporation.—In
view of all the foregoing, the Court rules and declares that the
oil companies which supply bunker fuel oil to NPC have to
pay the taxes imposed upon said bunker fuel oil sold to NPC.
By the very nature of indirect taxation, the economic burden
of such taxation is expected to be passed on through the
channels of commerce to the user or consumer of the goods
sold.
Because, however, the NPC has been exempted from both
direct and indirect taxation, the NPC must be held exempted
from absorbing the economic burden of indirect taxation. This
means, on the one hand, that the oil companies which wish to
sell to NPC must absorb all or part of the economic burden of
the taxes previously paid to BIR, which they could shift to
NPC if NPC did not enjoy exemption from indirect taxes.
This means also, on the other hand, that the NPC may refuse
to pay that part of the “normal” purchase price of bunker fuel
oil which represents all or part of the taxes previously paid by
the oil companies to BIR. If NPC nonetheless purchases such
oil from the oil companies—because to do so may be more
convenient and ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from overseas—
NPC is entitled to be reimbursed by the BIR for that part of
the buying price of NPC which verifiably represents the tax
already paid by the oil company-vendor to the BIR.
Ad valorem taxes on fuel oil was reduced to zero by E.O. 195,
S. 87.—It should be noted at this point in time that the whole
issue of who WILL pay these indirect taxes HAS BEEN
RENDERED moot and academic by E.O. No. 195 issued on
June 16, 1987 by virtue of which the ad valorem tax rate on
bunker fuel oil was reduced to ZERO (0%) PER CENTUM.
[Maceda vs. Macaraig, Jr., 223 SCRA 217(1993)]
According to Determination of Amount (Tax Rates):
(a) Specific taxes
1. Tan v. Mun. of Pagbilao, 7 SCRA 887
Municipal corporations; Ordinances; Municipal councils
without power to impose specific tax.—Ordinance No. 11,
series of 1956 of the Municipality of Pagbilao, Quezon, which
imposes certain charges and/or fees on articles or merchandise
landed upon, or loaded from a certain wharf and on the strip of
shoreline adjacent thereto, measuring 300 meters, is ultra
vires, and, hence, null and void, because the said ordinance
charges a specific sum, ranging from one centavo and up, by
the head or number, and requires assessment beyond a listing
and classification of the objects to be charged. Being a specific
tax, the municipality has nor right to impose the same, for
taxation is an attribute of sovereignty which municipal
corporations do not enjoy (Santo Lumber Co., et al. vs. City of
Cebu, et al., L-10196, Jan. 22, 1958; 54 O.G. 5327; Saldaña v.
City of Iloilo, L-10470, June 26, 1958). [Tan vs. Municipality
of Pagbilao, Quezon, 7 SCRA 887(1963)]
(b) Ad valorem taxes
1. According to Purpose
(a) General or Fiscal
(b) Special, Regulatory or Sumptuary
1. Calalang v. Lorenzo, 97 Phil. 212
MOTOR VEHICLE LAW; CHARGES FOR
REGISTRATION OF VEHICLES ARE TAXES PAYABLE
WITH BACKPAY CERTIFICATE.—The charges prescribed
by the Revised Motor Vehicle Law for the registration of
motor vehicles are taxes and may, therefore, be paid with a
backpay certificate of indebtedness. [Calalang vs. Lorenzo and
Villar, 97 Phil. 212(1955)]
2. PAL v. Edu et., al., 164 SCRA 320
Taxation; Registration fees of motor vehicles; Motor vehicle
registration fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended
for additional revenue of government.—If the purpose is
primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax
(Umali, ed.)
TON – FAYE TAX 1 CASE DOCTRINES
Such is the case of motor vehicle registration fees. The
conclusions become inescapable in view of Section 70(b) of
Rep. Act 587 quoted in the Calalang case. The same provision
appears as Section 59(b) in the Land Transportation Code. It is
patent therefrom that the legislators had in mind a regulatory
tax as the law refers to the imposition on the registration,
operation or ownership of a motor vehicle as a “tax or fee.”
Though nowhere in Rep. Act 4136 does the law specifically
state that the imposition is a tax, Section 59(b) speaks of
“taxes or fees x x x for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the
profession of chauffeur x x x” making the intent to impose a
tax more apparent. Thus, even Rep. Act 5448 cited by the
respondents, speaks of an “additional tax,” where the law
could have referred to an original tax and not one in addition
to the tax already imposed on the registration, operation, or
ownership of a motor vehicle under Rep. Act 4136. Simply
put, if the exaction under Rep. Act 4136 were merely a
regulatory fee, the imposition in Rep. Act 5448 need not be an
“additional” tax. x x x
In view of the foregoing, we rule that motor vehicle
registration fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended
for additional revenues of government even if one fifth or less
of the amount collected is set aside for the operating expenses
of the agency administering the program.
The purpose behind the law requiring owners of vehicles to
pay their registration is mainly to raise revenue for the
construction and maintenance of highways.—Presently, Sec.
61 of the Land Transportation and Traffic Code provides:
“Sec. 61. Disposal of Monies Collected.—Monies collected
under the provisions of this Act shall be deposited in a special
trust account in the National Treasury to constitute the
Highway Special Fund, which shall be apportioned and
expended in accordance with the provisions of the ‘Philippine
Highway Act of 1935.’ Provided, however, That the amount
necessary to maintain and equip the Land Transportation
Commission but not to exceed twenty per cent of the total
collection during one year, shall be set aside for the purpose.
(As amended by RA 6374, approved August 6, 1971).”
It appears clear from the above provisions that the legislative
intent and purpose behind the law requiring owners of vehicles
to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much
lesser degree, pay for the operating expenses of the
administering agency.
Taxes; The nature of an exaction is to be determined by the
purpose for which it is being exacted e.g. if the purpose is
primarily revenue, or if revenue is at least one of the
substantial purposes, then the exaction is properly called a
tax.—Fees may be properly regarded as taxes even though
they also serve as an instrument of regulation. As stated by a
former presiding judge of the Court of Tax Appeals and writer
on various aspects of taxes: “It is possible for an exaction to
be both tax and regulation. License fees are often looked to as
a source of revenue as well as a means of regulation.
(Sonzinsky v. U.S., 300 U.S. 506) This is true, for example, of
automobile license fees. In such case, the fees may properly be
regarded as taxes even though they also serve as an instrument
of regulation. If the purpose is primarily revenue, or if revenue
is at least one of the real and substantial purposes, then the
exaction is properly called a tax. (1955 CCH Fed. Tax Course,
Par. 3101, citing Cooley on Taxation (2nd Ed.) 592, 593;
Calalang v. Lorenzo, 97 Phil. 212; Lutz v. Araneta, 98 Phil.
198.)
These exactions are sometimes called regulatory taxes. (See
Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S.
Internal Revenue Code of 1954, which classify taxes on
tobacco and alcohol as regulatory taxes.)” (Umali, Reviewer
in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd
Edition, 591-593). [Philippine Airlines, Inc. vs. Edu, 164
SCRA 320(1988)]
3. Villegas v. Hsiu, 86 SCRA 270
Local Governments; Taxation; A city ordinance of Manila
which imposes a fee of P50.00 to enable aliens generally to be
employed in the City is a revenue measure.—The contention
that Ordinance No. 6537 is not a purely tax or revenue
measure because its principal purpose is regulatory in nature
has no merit. While it is true that the first part which requires
that the alien shall secure an employment permit from the
Mayor involves the exercise of discretion and judgment in the
processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character,
the second part which requires the payment of P50.00 as
employee’s fee is not regulatory but a revenue measure. There
is no logic or justification in exacting P50.00 from aliens who
have been cleared for employment. It is obvious that the
purpose of the ordinance is to raise money under the guise of
regulation. [Villegas vs. Hiu Chiong Tsai Pao Ho, 86 SCRA
270(1978)]
4. Esso Standard Eastern, Inc. v. CIR, 175 SCRA 149
Margin fees are not expenses in connection with the business
of the petitioners; Reasons.—There is thus no hard and fast
rule on the matter. The right to a deduction depends in each
case on the particular facts and the relation of the payment to
the type of business in which the taxpayer is engaged. The
intention of the taxpayer often may be the controlling fact in
making the determination. Assuming that the expenditure is
ordinary and necessary in the operation of the taxpayer’s
business, the answer to the question as to whether the
expenditure is an allowable deduction as a business expense
must be determined from the nature of the expenditure itself,
which in turn depends on the extent and permanency of the
work accomplished by the expenditure. [Esso Standard
Eastern, Inc. vs. Comm'r. of Internal Revenue, 175 SCRA
149(1989)]
5. Lozano v. ERB, 192 SCRA 363
Oil Price Stabilization Fund; The OPSF must not be
understood to be a funding designed to guarantee oil firms'
profits; It is established precisely to protect the consuming
public from the erratic movement of oil prices and to preclude
oil companies from taking advantage of fluctuations occurring
every so often.—The OPSF, as the Court held in the aforecited
CACP cases, must not be understood to be a funding designed
to guarantee oil firms' profits although as a subsidy, or a trust
account, the Court has no doubt that oil firms make money
from it.
As we held there, however, the OPSF was established
precisely to protect the consuming public from the erratic
movement of oil prices and to preclude oil companies from
taking advantage of fluctuations occurring every so often. As a
buffer mechanism, it stabilizes domestic prices by bringing
about a uniform rate rather than leaving pricing to the caprices
of the market. [Maceda vs. Energy Regulatory Board, 192
SCRA 363(1990)]
According to Scope or Authority Imposing the Tax
(a) National
1. Meralco Securities v. Central Board of Assessment
Appeals, 114 SCRA 260
TON – FAYE TAX 1 CASE DOCTRINES
Petroleum Law does not exempt Meralco Securities from
payment of realty taxes; Realty tax distinguished from local
tax.—Meralco Securities argues that the realty tax is a local
tax or levy and not a tax of general application. This argument
is untenable because the realty tax has always been imposed
by the lawmaking body and later by the President of the
Philippines in the exercise of his lawmaking powers, as shown
in sections 342 et seq. of the Revised Administrative Code,
Act No. 3995, Commonwealth Act No. 470 and Presidential
Decree No. 464. The realty tax is enforced throughout the
Philippines and not merely in a particular municipality or city
but the proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is situated (Sec.
86, P.D. No. 464). In contrast, a local tax is imposed by
municipal or city council by virtue of the Local Tax Code,
Presidential Decree No. 231, which took effect on July 1, 1973
(69 O.G. 6197). [Meralco Securities Industrial Corporation vs.
Central Board of Assessment Appeals, 114 SCRA 260(1982)]
(b) Municipal or Local
According to Graduation (Tax Base and Tax Rate)
(a) Progressive
(b) Regressive
(c) Mixed
(d) Proportionate
Distinguished from Certain Exactions
From License Fee
1. City of Ozamis v. Lumapos and Hon. Morave, 65 SCRA
33
Municipality may charge “parking fees” on vehicles that stop
and load or unload on public streets.—It is not pretended that
the public utility vehicles are subject to the payment, if they
pass without stopping thru the aforesaid sections of Zulueta
Street. Considering that the public utility vehicles are only
charged the fee when said vehicles stop on “any portion of the
existing parking areas for the purpose of loading or unloading
passengers or cargoes,” the fees collected are actually in the
nature of parking fees and not toll fees for the use of Zulueta
Street.
This is clear from the Stipulation of Facts which shows that
fees were not exacted for mere passage thru the street but for
stopping in the designated parking areas therein to unload or
load passengers or cargoes. It was not, therefore, a toll fee for
the use of public roads, within the context of Section 59[b] of
Republic Act No. 4136, which requires the authorization of
the President of the Philippines. [City of Ozamis vs. Lumapas,
65 SCRA 33(1975)]
2. Proctor & Gamble v. Mun. of Jagna, 94 SCRA 894
Taxation; License fees; Municipal corporations; 3 kinds of
licenses a municipality is authorized to impose.—A
municipality is authorized to impose three kinds of licenses:
(1) a license for regulation of useful occupation or enterprises;
(2) license for restriction or regulation of non-useful
occupations or enterprises; and (3) license for revenue.
Municipality of Jagna, Bohol authorized to impose a license
fee and to tax for revenue purposes.—It is thus unnecessary,
as plaintiff would have us do, to determine whether the subject
storage fee is a tax for revenue purposes or a license fee to
reimburse defendant Municipality for service of supervision
because defendant Municipality is authorized not only to
impose a license fee but also to tax for revenue purposes.
Storage fees; License tax; Storage fees imposed by a
municipality is actually a municipal license tax or fee on
persons, firms or corporations storing copra in a bodega in the
municipality; License tax, meaning of.—The storage fee
imposed under the questioned Ordinance is actually a
municipal license tax or fee on persons, firms and
corporations, like plaintiff, exercising the privilege of storing
copra in a bodega within the Municipality’s territorial
jurisdiction. For the term “license tax” has not acquired a fixed
meaning. It is often used indiscriminately to designate
impositions exacted for the exercise of various privileges. In
many instances, it refers to “revenue-raising exactions on
privileges or activities.” [Procter & Gamble Philippine
Manufacturing Corp. vs. Municipality of Jagna, 94 SCRA
894(1979)]
3. Morcon v. City of Manila, 1 SCRA 310
Amount of license fees.—The amount of license fees that may
be imposed upon juke box machines and other coin operated
contrivances cannot be prohibitive, extortionate, confiscatory
or in unlawful restraint of trade, but should be approximately
commensurate with and sufficient to cover all the necessary or
probable expenses for issuing the license and of such
inspection, regulation and supervision as may be lawful.
Same; Void ordinance.—Any ordinance which imposes a
license fee, which is substantially in excess of the reasonable
expense of issuing the license and regulating the occupation to
which it pertains, is invalid. An ordinance imposing an annual
license fee of P300 for the installation of juke box machines is
void because the fee is unreasonable, prohibitory and
suppressive and far exceeds the expenses of issuing the license
and of regulating their operation. [Morcoin Co., Ltd. vs. City
of Manila, 1 SCRA 310(1961)]
4. Golden Ribbon Lumber v. City of Butuan, 12 SCRA 611
Character of tax determined not by title of act but by its
operation.—Appellant’s claim that the questioned tax is one
on business or a privilege tax for the operation of a lumber
mill or a lumber yard is without merit. The character or nature
of a tax is determined not by the title of the act or ordinance
imposing it but by its operation, practical results and incidents.
Neither the original ordinance in question nor the amendatory
ones show that the tax provided for therein is imposed by
reason of the enjoyment of the privilege to engage in a
particular trade or business. Neither do they provide that
payment thereof is a condition precedent to the enjoyment of
such privilege or that its non-payment would result in the
cancellation of any previous license granted. The only
consequence of its non-payment appears to be the imposition
of a surcharge or liability to suffer the penal sanctions
prescribed in Section 3 of the original ordinance.
These circumstances lead to the conclusion that the questioned
tax cannot be considered as one imposed upon a party for
engaging in the business of operating a lumber mill or a
lumber yard. [Golden Ribbon Lumber Co., Inc. vs. City of
Butuan, 12 SCRA 611(1964)]
From Toll
1. Victorias Milling v. Phil. Ports Authority, 153 SCRA 317
The 10% government share of earnings of arrastre and
stevedoring operators under PD 857 is in the nature of
contractual compensation.—As to the requirement to remit
10% of the handling charges, Section 6b-(ix) of the
Presidential Decree No. 857 authorized the PPA "To levy
dues, rates, or charges for the use of the premises, works,
appliances, facilities, or for services provided by or belonging
to the Authority, or any organization concerned with port
operations." This 10% government share of earnings of
arrastre and stevedoring operators is in the nature of
TON – FAYE TAX 1 CASE DOCTRINES
contractual compensation to which a person desiring to
operate arrastre service must agree as a condition to the grant
of the permit to operate. [Victorias Milling Co., Inc. vs. Office
of the Presidential Assistant for Legal Affairs, 153 SCRA
317(1987)]
2. Sambrano v. CTA 101 Phil. 1
TAXATION ; TAXES DUE, IN A BROAD SENSE, ARE
DEBTS.—Although taxes already due have not, strictly
speaking, the same concept as debts, they are, however,
obligations that may be considered as such. [Sambrano vs. Ct.
of Tax Appeals and Coll. of Int. Rev., 101 Phil. 1(1957)]
3. Republic v. Far East American Co. 7 SCRA 399
Taxation; Sales taxes; Action to recover taxes embodied in a
compromise agreement, one predicated on contract;
Prescripttive period provided in civil code.—An action to
recover deficiency sales taxes, surcharges and penalty on gross
sales, which was the subject matter of a compromise
agreement en-tered into by and between the Commissioner of
Internal Revenue and a taxpayer and payment thereof being
guaranteed a bond, is one arising from contract and not a tax
collection (Republic of the Philippines v. J. Amado Araneta,
L-14142, 30 May 1961).
Consequently, the prescriptive period that would bar the action
is not that provided or prescribed by the National Internal
Rev-enue Code but the Civil Code [Republic vs. Far East
American Commercial Co., Inc, 7 SCRA 339(1963)]
4. CIR v. Prieto, 109 Phil. 592
TAX AS AN INDEBTEDNESS; INTEREST PAID FOR
LATE PAYMENT OF DONOR'S TAX DEDUCTIBLE—The
term "indebtedness" as used in the Tax Code of the United
States containing similar provisions as in section 30 (b) (1) of
our Tax Code, has been defined as an unconditional and
legally enforceable obligation for the payment of money.
Within the meaning of that definition a tax may be considered
an indebtedness.
Hence, interest paid for late payment of donor's tax is
deductible f rom gross income under said "section. [The
Commissioner of Internal Revenue vs. Vda. de Prieto, 109
Phil. 592(1960)]
Interpretation and Construction of Tax Statutes
1. CIR v. Firemen’s Insurance Co., 148 SCRA 315
Statutes; In case of doubt, a statute levying a tax should be
interpreted in favor of the taxpayer.—It is a general rule in the
interpretation of statutes levying taxes or duties, that in case of
doubt, such statutes are to be construed most strongly against
the government and in favor of the subjects or citizens,
because burdens are not to be imposed, nor presumed to be
imposed beyond what statutes expressly and clearly import
(Manila Railroad Co. v. Collector of Customs, 52 Phil. 950
[1929]). [Comm'r. of Internal Revenue vs. Fireman's Fund Ins.
Co., 148 SCRA 315(1987)]
2. CIR v. CA, Central Vegetable Mftg. Co., Inc. & CTA,
GR No. 122161, Feb. 23, 1999
Taxation; Tax Refunds; Statutory Construction; A partial
refund under Section 5, Republic Act 1435 is in the nature of a
tax exemption, and therefore, must be construed strictissimi
juris against the grantee.—A partial refund under Section 5,
R.A. 1435 is in the nature of a tax exemption, and therefore,
must be construed strictissimi juris against the grantee.
As correctly argued by the Commissioner, there is nothing in
Section 5 of R.A. 1435 which authorizes a tax refund based on
the higher rates under Sections 153 and 156 of the 1977 Tax
Code. It should be noted that Sections 1 and 2 of R.A. 1435
simply amended Sections 142 and 145 of the Tax Code.
Section 5 was not incorporated in the Tax Code. It is no
different when Section 1 of P.D. 1672 amended the re-
numbered Section 153 of the Tax Code.
When the law itself does not explicitly provide that a refund
under Republic Act 1435 may be based on higher rates which
were non-existent at the time of its enactment, the Court
cannot presume otherwise—a legislative lacuna cannot be
filled by judicial fiat.—The issue raised herein had already
been settled by the Court en banc’s ruling laid down in the
recent case of Davao Gulf Lumber Corporation v. CIR and
CA, where the Court said that there is no “expression of a
legislative will (in R.A. 1435) authorizing a refund based on
the higher rates claimed by petitioner.” Although that case was
not cited by the parties, it being newly promulgated at the time
of the submission of their respective memorandum, yet a
scrutiny of the relevant jurisprudence discussed therein and
those cited by the parties in this case are the same. Said cases
include: Insular Lumber, Co. v. CTA; CIR v. Rio Tuba Nickel
Mining Corporation and CTA and the resolution modifying it;
the two Atlas cases of CIR v. Atlas Consolidated Mining and
Development Corp., et al., and CIR v. CA and Atlas
Consolidated Mining and Development Corp., et al.
Applicable herein is the pronouncement in said Davao Gulf, to
wit: “When the law itself does not explicitly provide that a
refund under RA 1435 may be based on higher rates which
were non-existent at the time of its enactment, this Court
cannot presume otherwise. A legislative lacuna cannot be
filled by judicial fiat.” [Commissioner of Internal Revenue vs.
Court of Appeals, 302 SCRA 442(1999)]
3. Floro Cement v. Gorospe, 200 SCRA 480
Taxation; Exemptions.—On the exemption claimed by
petitioner, this Court has laid down the rule that as the power
of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or
diminution thereof with respect to its mode or its rate, must be
strictly construed, and the same must be coached in clear and
unmistakable terms in order that it may be applied. More
specifically stated, the general rule is that any claim for
exemption from the tax statute should be strictly construed
against the taxpayer (Luzon Stevedoring Corporation vs.
Court of Appeals, 163 SCRA 647 [1988]).
He who claims an exemption must be able to point out some
provision of law creating the right; it cannot be allowed to
exist upon a mere vague implication or inference. It must be
shown indubitably to exist, for every presumption is against it,
and a wellfounded doubt is fatal to the claim (Manila Electric
Company vs. Ver, 67 SCRA 351 [1975]). [Floro Cement
Corporation vs. Gorospe, 200 SCRA 480(1991)]
4. Luzon Stevedoring Co., v. CTA, 163 SCRA 647
Taxation; Tax Exemption, interpretation.—Any claim for
exemption from the tax statute should be strictly construed
against the taxpayer. Where a provision of law speaks
categorically, the need for interpretation is obviated, no
plausible pretense being entertained to justify non-compliance.
All that has to be done is to apply it in every case that falls
within its terms. Statutes are to be construed in the light of
purposes to be achieved and the evils sought to be remedied.
The legislature, in amending Section 190 of the Tax Code of
Republic Act 3176, intended to provide incentives and
inducements to bolster the shipping industry and not the
business of stevedoring. This Court will not set aside the
conclusion reached by an agency such as the Court of Tax
TON – FAYE TAX 1 CASE DOCTRINES
Appeals which is by the very nature of its function; dedicated
exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject unless
there has been an abuse or improvident exercise of authority.
[Luzon Stevedoring Corporation vs. Court of Tax Appeals,
163 SCRA 647(1988)]
5. People v. Castaneda, 165 SCRA 327
Statutory Construction; Tax amnesty is never favored nor
presumed in law; if granted by statute, it is to be construed
strictly against the taxpayer.—Still further, a tax amnesty,
much like a tax exemption, is never favored nor presumed in
law and if granted by statute, the terms of the amnesty like that
of a tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing authority.
Valencia’s payment of the special fifteen percent (15%) tax
must be regarded as legally ineffective [People vs. Castañeda,
Jr., 165 SCRA 327(1988)]
6. CIR v. Mitsubishi, 181 SCRA 214
Taxation; Rule is settled that laws granting exemption from
tax are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power.—It is too settled a rule
in this jurisdiction, as to dispense with the need for citations,
that laws granting exemption from tax are construed
strictissimi juris against the taxpayer and liberally in favor of
the taxing power. Taxation is the rule and exemption is the
exception. The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption
so claimed, which onus petitioners have failed to discharge.
Significantly, private respondents are not even among the
entities which, under Section 29 (b) (7) (A) of the tax code,
are entitled to exemption and which should indispensably be
the party in interest in this case. [Commissioner of Internal
Revenue vs. Mitsubishi Metal Corp., 181 SCRA 214(1990)]
7. Republic v. IAC, 196 SCRA 335
Statutes; In case of doubt, tax statutes are to be construed
strictly against the government; Reason.—In case of doubt,
tax statutes are to be construed strictly against the Government
and liberally in favor of the taxpayer, for taxes, being burdens,
are not to be presumed beyond what the applicable statute (in
this case P.D. 213) expressly and clearly declares
(Commission of Internal Revenue vs. La Tondeña, Inc. and
CTA, 5 SCRA 665, citing Manila Railroad Company vs.
Collector of Customs, 52 Phil. 950). [Republic vs.
Intermediate Appellate Court, 196 SCRA 335(1991)]
8. CIR v. Guerrero, 21 SCRA 180
Taxation; Tax exemption rule; Rule applied to Ordinance.—
Exemption, being obnoxious to taxation, is not favored and
never presumed; if granted, it must be categorically and
unmistakably expressed in terms that admit of no doubt, yet
such exempting provision must be interpreted in strictissimi
juris against the taxpayer and liberally in favor of the taxing
authority. No such grant is apparent from the face of the
Ordinance. No such grant could be implied from its history,
much less from its transitory character. [Commissioner of
Internal Revenue vs. Guerrero, 21 SCRA 180(1967)]
9. Manila Electric Co. v. Vera, 67 SCRA 351
Taxation; Tax exemptions are strictly construed against the
taxpayer.—One who claims to be exempt from the payment of
a particular tax must do so under clear and unmistakable terms
found in the statute. Tax exemptions are strictly construed
against the taxpayer, they being highly disfavored and may
almost be said “to be odious to the law.” He who claims an
exemption must be able to point to some positive provision of
law creating the right; it cannot be allowed to exist upon a
mere vague implication or inference.
Provision in franchise of MERALCO that the percentage tax
imposed on it shall be in lieu of “all taxes and assessments of
whatsoever nature and by whatsoever authority” cannot be
said to have granted it exemption from payment of
compensating tax.—The phrase “all taxes and assessments of
whatsoever nature and by whatsoever authority” is not so
broad and sweeping, as petitioner would have Us think, as to
include the tax in question because there is an immediately
succeeding phrase which limits the scope of exemption to
taxes and assessments “upon the privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the
grantee.” The last clause of paragraph 9 merely reaffirms, with
regard to poles, wires, transformers, and insulators, what has
been expressed in the first sentence of the same paragraph,
namely, exemption of petitioner from payment of property tax.
It is a principle of statutory construction that general terms
may be restricted by specific words, with the result that the
general language will be limited by the specific language
which indicates the statute’s object and purpose. [Manila
Electric Company vs. Vera, 67 SCRA 351(1975)]
10. CIR v. J. Kiener Co., Ltd., 65 SCRA 143
Statutory construction; Tax exemption provisions are strictly
construed.—Nor could the ambiguity that thus sprang from the
tax-exemption provision in the Military Bases Agreement and
in the “Aide Memoire” in accordance with which the contract
in question was entered into be interpreted in favor of the
American Government or, for that matter, any party claiming
under it, like private respondents. Lauterpacht says that “if two
meanings of a stipulation are admissible, that which is least to
the advantage of the party for whose benefit the stipulation
was inserted in the treaty should be preferred.” Especially
when it is considered that for the Philippine Government, “the
exception contained in the tax statutes must be strictly
construed against the one claiming the exemption” because the
law “does not look with favor on tax exemptions and that he
who would seek to be thus privileged must justify it by words
too plain to be mistaken and too categorical to be
misinterpreted.” [Commissioner of Internal Revenue vs. P. J.
Kiener Co., Ltd. , 65 SCRA 142(1975)]
11. Wonder Mechanical Engineering Corp. v. CTA, et al, 64
SCRA 555
Exemption from tax highly disfavored in law.—There is no
way to dispute the cardinal rule in taxation that exemptions
therefrom are highly disfavored in law and he who claims tax
exemption must be able to justify his claim or right.
Tax exemption cannot be established by implication.—Tax
exemption must be clearly expressed and cannot be
established by implication. Exemption from a common burden
cannot be permitted to exist upon vague implication. [Wonder
Mechanical Engineering Corporation vs. Court of Tax
Appeals, 64 SCRA 555(1975)]
12. CIR v. Gotamco & Sons, 148 SCRA 36
Taxation.—The 3% contractor's tax which is payable by the
contractor but in the last analysis, it is the owner of the
building that shoulders the burden of the tax, constitutes an
indirect tax to which the World Health Organization is exempt
under the Host Agreement entered into between the Republic
of the Philippines and the said Organization on July 22,
1951—"In context, direct taxes are those that are demanded
from the very person who, it is intended or desired, should pay
them; while indirect taxes are those that are demanded in the
first instance from one person in the expectation and intention
that he can shift the burden to someone else. (Pollock vs.
TON – FAYE TAX 1 CASE DOCTRINES
Farmers, L & T Co., 1957 US 429,15 S. Ct. 673, 39 Law. Ed.
759.)
The contractor's tax is of course payable by the contractor but
in the last analysis it is the owner of the building that
shoulders the burden of the tax because the same is shifted by
the contractor to the owner as a matter of self-preservation.
Thus, it is an indirect tax. And it is an indirect tax on the
WHO because, although it is payable by the petitioner, the
latter can shift its burden on the WHO. In the last analysis it is
the WHO that will pay the tax indirectly through the
contractor and it certainly cannot be said that 'this tax has no
bearing upon the World Health Organization.' " [Comm'r. of
lnternal Revenue vs. John Gotamco & Sons, Inc., 148 SCRA
36(1987)]
13. CIR v. CA, CTA & Ateneo de Manila, 271 SCRA 605
Taxation; Statutory Construction; It is error to apply the
principles of tax exemption without first applying the well-
settled doctrine of strict interpretation in the imposition of
taxes—it is obviously both illogical and impractical to
determine who are exempted without first determining who
are covered by a provision of the National Internal Revenue
Code.—Petitioner Commissioner of Internal Revenue erred in
applying the principles of tax exemption without first applying
the well-settled doctrine of strict interpretation in the
imposition of taxes.
It is obviously both illogical and impractical to determine who
are exempted without first determining who are covered by the
aforesaid provision. The Commissioner should have
determined first if private respondent was covered by Section
205, applying the rule of strict interpretation of laws imposing
taxes and other burdens on the populace, before asking Ateneo
to prove its exemption therefrom.
The Court takes this occasion to reiterate the hornbook
doctrine in the interpretation of tax laws that “(a) statute will
not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. x x x (A) tax cannot be
imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the
letter in construing statutes applies with peculiar strictness to
tax laws and the provisions of a taxing act are not to be
extended by implication.”
Parenthetically, in answering the question of who is subject to
tax statutes, it is basic that “in case of doubt, such statutes are
to be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes
expressly and clearly import.”
Schools and Universities; Contractor’s Tax; To impose the
three percent contractor’s tax on Ateneo’s Institute of
Philippine Culture, it should be sufficiently proven that it is
indeed selling its services for a fee in pursuit of an
independent business.—To fall under its coverage, Section
205 of the National Internal Revenue Code requires that the
independent contractor be engaged in the business of selling
its services.
Hence, to impose the three percent contractor’s tax on
Ateneo’s Institute of Philippine Culture, it should be
sufficiently proven that the private respondent is indeed
selling its services for a fee in pursuit of an independent
business.
And it is only after private respondent has been found clearly
to be subject to the provisions of Sec. 205 that the question of
exemption therefrom would arise. Only after such coverage is
shown does the rule of construction—that tax exemptions are
to be strictly construed against the taxpayer—come into play,
contrary to petitioner’s position. This is the main line of
reasoning of the Court of Tax Appeals in its decision, which
was affirmed by the CA. [Commissioner of Internal Revenue
vs. Court of Appeals, 271 SCRA 605(1997)]
Classification of Tax Exemptions
a. Express
1. NPC v. RIC, 190 SCRA 477
Tax Exemptions; The grant of tax privileges to any
government-owned or controlled corporation and all other
units of government has been expressly repealed by Pres.
Decree No. 1177.—Petitioner alleges that what has been
withdrawn is its exemption from taxes, duties, and fees which
are payable to the national government while its exemption
from taxes, duties and fees payable to government branches,
agencies and instrumentalities remains unaffected.
Considering that real property taxes are payable to the local
government, NAPOCOR maintains that it is exempt
therefrom. We find the above argument untenable.
It reads into the law a distinction that is not there. It is contrary
to the clear intent of the law to withdraw from all units of
government; including government-owned or controlled
corporations their exemptions from all kinds of taxes. Had it
been otherwise, then the law would have said so. Not having
distinguished as to the kinds of tax exemptions withdrawn, the
plain meaning is that all tax exemptions are covered. Where
the law does not distinguish, neither must we. x x x
Moreover, Presidential Decree No. 1931 entitled
"DIRECTING THE RATIONALIZATION OF DUTY AND
TAX EXEMPTION PRIVILEGES GRANTED TO
GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS AND ALL OTHER UNITS OF
GOVERNMENT" which was passed on June 11, 1984,
categorically states: 'WHEREAS, Presidential Decree No.
1177 has already expressly repealed the grant of tax privileges
to any govern-ment-owned or controlled corporation and all
other units of government." (Italics supplied) Thus, any
dubiety on NAPOCOR'S liability to pay taxes, duties and fees
should be considered unequivocably resolved by the above
provision. [Nat'l. Power Corp. vs. Presiding Judge, RTC, Br.
XXV, 190 SCRA 477(1990)]
Implied or By Omission
1. SSS v. Bacolod City, 115 SCRA 412
Taxation; Real estate taxes; SSS exempted from realty
taxation.—What is decisive is that the properties possessed by
the SSS, albeit devoted to private or proprietary purpose, are
in fact owned by the government of the Philippines. As such
they are exempt from realty taxes. It is axiomatic that when
public property is involved, exemption is the rule and taxation,
the exception. In connection with the issue at hand, it would
not be amiss to state that Presidential Decree No. 24, which
amended the Social Security Act of 1954, has already
removed all doubts as to the exemption of the SSS from
taxation. [Social Security System vs. City of Bacolod, 115
SCRA 412(1982)]
Bisaya Land Transportation v. CIR, 105 Phil. 1338
Under its second assignment of error, the company maintains
that the equipment and materials it purchased from agencies of
the U. S. Government are not subject to compensating tax
because they were acquired, not for business purposes but "in
furtherance of the war efforts".
TON – FAYE TAX 1 CASE DOCTRINES
Suffice it to note that the acquisition of said effects took place
between June, 1945 and January, 1947 while the hostilities in
Japan and Europe ended in 1945. Besides, the company was
engaged in business as a public utility operation and such
services as it may have rendered to the armed forces were
merely incidental to said business.
Neither is it exempt from common carrier's percentage tax by
reason of such service to the armed forces, because the party
being taxed is not said organization, but the company. This tax
is based upon the gross receipts of carriers, independently of
the source of such receipts. [Bisaya Land Transportaton Co.,
Inc. vs. Collector of Internal Revenue, 105 Phil. 1338(1959)]
Contractual
1. Cagayan Electric Co. v. CIR, 138 SCRA 629
Taxation; Statutes; Where income tax exemption of a fran-
chiseholder was withdrawn by the legislature in January, 1968
but was restored in August, 1969, the franchiseholder is liable
for income tax from January, 1968 to August, 1969.—The Tax
Court acted correctly in holding that the exemption was
restored by the subsequent enactment on August 4, 1969 of
Republic Act No. 6020 which reenacted the said tax
exemption. Hence, the petitioner is liable only for the income
tax for the period from January 1 to August 3, 1969 when its
tax exemption was modified by Republic Act No. 5431.
[Cagayan Electric Power & Light Co., Inc. vs. Commissioner
of Internal Revenue, 138 SCRA 629(1985)]
2. Prov. of Misamis Oriental v. Cagayan Electric, 181
SCRA 38
The franchise tax provided in the Local Tax Code (PD No.
231, Sec. 9) may only be imposed on companies with
franchises that do not contain the exempting clause.—Local
Tax Regulation No. 3-75 issued by the Secretary of Finance
on June 26, 1976, has made it crystal clear that the franchise
tax provided in the Local Tax Code (P.D. No. 231, Sec. 9)
may only be imposed on companies with franchises that do
not contain the exempting clause. Thus it provides: “The
franchise tax imposed under local tax ordinance pursuant to
Section 9 of the Local Tax Code, as amended, shall be
collected from businesses holding franchise but not from
business establishments whose franchise contain the ‘in-lieu-
of-all-taxes-proviso.’ ” [Province of Misamis Oriental vs.
Cagayan Electric Power and Light Company, Inc., 181 SCRA
38(1990)]
3. Casanova v. Hord, 8 Phil. 125
TAXATION; CIVIL LAW BY GOVERNMENT.—A
government may make a valid contract with an individual in
respect to taxation, which contract can be enforced against it.
[Casanovas vs. Hord., 8 Phil. 125(1907)]
4. CIR v. CTA, 195 SCRA 445
Constitutional Law; Corporations; Legislative Franchise; A
legislative franchise partakes of the nature of a contract.—A
legislative franchise partakes of the nature of a contract. In the
case of the Province of Misamis Oriental v. Cagayan Electric
Power and Light Company, Inc., (G.R. No. L-45355, January
12, 1990, 181 SCRA 38), We stated: “So was the exemption
upheld in favor of the Carcar Electric and Ice Plant Company
when it was required to pay the corporate franchise tax under
Section 259 of the Internal Revenue Code, as amended by
R.A. No. 39 (Carcar Electric and Ice Plant v. Collector v.
Internal Revenue, 53 O.G. [No. 4] 1068).
This court pointed out that such exemption is part of the
inducement for the acceptance of the franchise and the
rendition of public service by the grantee. As a charter is in the
nature of a private contract, the imposition of another
franchise tax on the corporation by the local authority would
constitute an impairment of the contract between the
government and the Corporation (Italics supplied) Franchises
spring from contracts between the sovereign power and
private citizens made upon valuable considerations, for
purposes of individual advantage as well as public benefit. It is
generally considered that the obligation resting upon the
grantee to comply with the terms and conditions of the grant
constitutes a sufficient consideration. It can also be said that
the benefit to the community may constitute the sole
consideration for the grant of a franchise by the state. Such
being the case, the franchise is the law between the parties and
they are bound by the terms thereof. [Commissioner of
Internal Revenue vs. Court of Tax Appeals, 195 SCRA
444(1991)]
5. Carcar Electric & Ice Plant v. CIR, 53 O.G (No. 4) 1068
INCREASED FRANCHISE TAX NOT INCOMPATIBLE
WITH TAX EXEMPTIONS.—The tax exempting provision
of section 10 of the model franchise could not have been
repealed by section 259 of the Tax Code, as amended, since
the latter is silent on any tax exemptions. There is nothing
incompatible or conflicting between the increased franchise
tax under section 259 of the Tax Code, and the exemption
from any and all other taxes under Act 3636.
As petitioner’s charter expressly provides that its franchise is
subject to the terms and conditions established in said Act, as
amended, all the provisions of said Act, including the
unrepealed portions of said section 10 of the model franchise,
should be considered part of petitioner’s charter by reference.
In fact, such exemption is part of the inducement for the
acceptance of the franchise and the rendition of public service
by the grantee. [Carcar Electric & Ice Plant Co., Inc. vs. Coll.
of Internal Revenue, 100 Phil. 50(1956)]
6. Penid v. Virata, 121 SCRA 1-6
Same; Same; Same; Informers entitled to a 25% share of the
revenue collected on the year the information on the violation
was furnished the BIR but the period during which the delay
in collection of deficiency taxes due to the pendency of a
protest case is excluded.—The next question to be resolved is
whether or not petitioners are entitled to a share in the taxes
which accrued after 1962. It is Our considered view that to
allow petitioners 25% of such revenue would be stretching the
law too far.
Note must be taken of the fact that the direct consequence of
petitioner’s information was the assessment against the
various shipping companies sometime in December 1962.
Thereafter until 1965, the shipping agents and companies
continued to remit to the BIR their common carrier taxes on
the basis of the parity rate of P2.00 to US$1.00. But this was
done to maintain the status quo pending resolution of the
protest filed with the Court of Tax Appeals by the Royal Inter-
ocean Lines, Inc., and not because of the wilful desire on the
part of these shipping companies to violate the law. The delay
in the collection of deficiency taxes for the period from 1963
to 1965, therefore, was due to the pendency of the said protest
case. [Penid vs. Virata, 121 SCRA 166(1983)]
Tax Amnesties
1. CIR v. CA, ROH Auto Products and CTA, 240 SCRA
368
Taxation; Tax Amnesty; Administrative Law; Administrative
issuances must not override but must remain consistent and in
harmony with the law they seek to apply and implement.—
The authority of the Minister of Finance (now the Secretary of
Finance), in conjunction with the Commissioner of Internal
TON – FAYE TAX 1 CASE DOCTRINES
Revenue, to promulgate all needful rules and regulations for
the effective enforcement of internal revenue laws cannot be
controverted. Neither can it be disputed that such rules and
regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts.
Much more fundamental than either of the above, however, is
that all such issuances must not override, but must remain
consistent and in harmony with, the law they seek to apply and
implement. Administrative rules and regulations are intended
to carry out, neither to supplant nor to modify, the law;
Statutes; E.O. 41; Executive Order No. 41 has been designed
to be in the nature of a general grant of tax amnesty subject
only to the cases specifically excepted by it.—We agree with
both the Court of Appeals and Court of Tax Appeals that
Executive Order No. 41 is quite explicit and requires hardly
anything beyond a simple application of its provisions. If, as
the Commissioner argues, Executive Order No. 41 had not
been intended to include 1981–1985 tax liabilities already
assessed (administratively) prior to 22 August 1986, the law
could have simply so provided in its exclusionary clauses. lt
did not. The conclusion is unavoidable, and it is that the
executive order has been designed to be in the nature of a
general grant of tax amnesty subject only to the cases
specifically excepted by it. [Commissioner of lnternal
Revenue vs. Court of Appeals, 240 SCRA 368(1995)]
2. Banez, Jr. v. CTA, T. Larin, R. Tuazon and P. Talon, GR
No. 102967, Feb. 10, 2000
Taxation; Tax Amnesty; The mere filing of tax amnesty return
under Presidential Decrees 1740 and 1840 does not ipso facto
shield the taxpayer from immunity against prosecution—to
avail of a tax amnesty granted by the government, and to be
immune from suit on its delinquencies, the taxpayer must have
voluntarily disclosed his previously untaxed income and must
have paid the corresponding tax on such previously untaxed
income.—On July 2, 1981, two weeks after the filing of the
tax evasion complaint against him by respondent Larin on
June 17, 1981, petitioner availed of the tax amnesty under
P.D. No. 1740. His amended tax return for the years 1974-
1979 was filed with the BIR office of Valenzuela, Bulacan,
instead of Manila where the petitioner’s principal office was
located. He again availed of the tax amnesty under P.D. No.
1840. His disclosure, however, did not include the income
from his sale of land to AYALA on cash basis. Instead he
insisted that such sale was on installment. He did not amend
his income tax return. He did not pay the tax which was
considerably increased by the income derived from the
discounting. He did not meet the twin requirements of P.D.
1740 and 1840, declaration of his untaxed income and full
payment of tax due thereon.
Clearly, the petitioner is not entitled to the benefits of P.D.
Nos. 1740 and 1840. The mere filing of tax amnesty return
under P.D. 1740 and 1840 does not ipso facto shield him from
immunity against prosecution.
Tax amnesty is a general pardon to taxpayers who want to
start a clean tax slate. It also gives the government a chance to
collect uncollected tax from tax evaders without having to go
through the tedious process of a tax case. To avail of a tax
amnesty granted by the government, and to be immune from
suit on its delinquencies, the taxpayer must have voluntarily
disclosed his previously untaxed income and must have paid
the corresponding tax on such previously untaxed income.
Same; Same; Statutory Construction; A tax amnesty, much
like a tax exemption, is never favored nor presumed in law
and if granted by statute, the terms of the amnesty like that of
a tax exemption must be construed strictly against the taxpayer
and liberally in favor of the taxing authority.—It also bears
noting that a tax amnesty much like a tax exemption, is never
favored nor presumed in law and if granted by statute, the
terms of the amnesty like that of a tax exemption must be
construed strictly against the taxpayer and liberally in favor of
the taxing authority. Hence, on this matter, it is our view that
petitioner’s claim of immunity from prosecution under the
shield of availing tax amnesty is untenable. [Bañas, Jr. vs.
Court of Appeals, 325 SCRA 259(2000)]
3. People v. Castaneda, Jr., 165 SCRA 327
Taxation; Tax Amnesty under PD No. 370; Compliance with
all requirements for availment of tax amnesty under PD No.
370 would have the effect of condoning not only the income
tax liabilities but also all internal revenue taxes, including
increments or penalties on account of non-payment as well as
all criminal, civil or administrative liabilities.—The first point
that should be made in respect of P.D. No. 370 is that
compliance with all the requirements of availment of tax
amnesty under P.D. No. 370 would have the effect of
condoning not just income tax liabilities but also “all internal
revenue taxes including the increments or penalties on account
of non-payment as well as all civil, criminal or administrative
liabilities, under the Internal Revenue Code, the Revised Penal
Code, the Anti-Graft and Corrupt Practices Act, the Revised
Administrative Code, the Civil Service Laws and Regulations,
laws and regulations on Immigration and Deportation, or any
other applicable law or proclamation.”
Thus, entitlement to benefits of P.D. No. 370 would have the
effect of condoning or extinguishing the liabilities consequent
upon possession of false and counterfeit internal revenue
labels; the manufacture of alcoholic products subject to
specific tax without having paid the annual privilege tax
therefor, and the possession, custody and control of locally
manufactured articles subject to specific tax on which the
taxes had not been paid in accordance with law, in other
words, the criminal liabilities sought to be imposed upon the
accused respondents by the several informations quoted
above. [People vs. Castañeda, Jr., 165 SCRA 327(1988)]
Statutory Construction; Tax amnesty is never favored nor
presumed in law; if granted by statute, it is to be construed
strictly against the taxpayer.—Still further, a tax amnesty,
much like a tax exemption, is never favored nor presumed in
law and if granted by statute, the terms of the amnesty like that
of a tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing authority.
Valencia’s payment of the special fifteen percent (15%) tax
must be regarded as legally ineffective.
Criminal Procedure; Defenses; Personal Defenses; The
defense of tax amnesty under PD 370 is a personal defense, it
refers to the circumstances of a particular accused and not to
the character of the acts charged in the information.—The fact
that conspiracy had been alleged in each of the criminal
informations here involved certainly could not result in an
automatic exemption of Lee Teng and Priscilla Castillo de
Cura from compliance with the requirements of the tax
amnesty statute. In the second place, assuming, for present
purposes only, that accused Francisco Valencia was (and he
was not) legally entitled to the benefits of P.D. No. 370, the
defense of amnesty which (hypothetically) became available
to Valencia was personal to him.
Once more, the allegation of conspiracy made in the several
criminal informations here involved, did not have the effect of
making a defense available to one co-conspirator
automatically available to the other co-conspirators.
The defense of the tax amnesty under P.D. No. 370 is, like
insanity, a personal defense; for that defense relates to the
circumstances of a particular accused and not to the character
of the acts charged in the criminal information. The statute
makes the defense of extinguishment of liability available only
under very specific circumstances and on the basis of
TON – FAYE TAX 1 CASE DOCTRINES
reciprocity, as it were: the claimant must disclose his
previously untaxed income or wealth (which then may be
effectively subjected to future taxation) and surrender to the
Government fifteen percent (15%) of such income or wealth;
then, and only then, would the claimant’s liability be
extinguished. Lee Teng and Priscilla Castillo de Cura never
pretended that they had complied with the requirements of
P.D. No. 370, including that of reciprocity [People vs.
Castañeda, Jr., 165 SCRA 327(1988)]
4. Asia International Auctioners, Inc. v. CIR, GR No.
179115, Sept. 26, 2012
Taxation; Tax Amnesty; A tax amnesty is a general pardon or
the intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of violating a tax
law.―A tax amnesty is a general pardon or the intentional
overlooking by the State of its authority to impose penalties on
persons otherwise guilty of violating a tax law. It partakes of
an absolute waiver by the government of its right to collect
what is due it and to give tax evaders who wish to relent a
chance to start with a clean slate.
Tax Amnesty Program (R.A. No. 9480); The Tax Amnesty
Program under RA 9480 may be availed of by any person
except those who are disqualified under Section 8
thereof.―The Tax Amnesty Program under RA 9480 may be
availed of by any person except those who are disqualified
under Section 8 thereof, to wit:
Section 8. Exceptions.―The tax amnesty provided in Section
5 hereof shall not extend to the following persons or cases
existing as of the effectivity of this Act: (a) Withholding
agents with respect to their withholding tax liabilities; (b)
Those with pending cases falling under the jurisdiction of the
Presidential Commission on Good Government; (c) Those
with pending cases involving unexplained or unlawfully
acquired wealth or under the Anti-Graft and Corrupt Practices
Act; (d) Those with pending cases filed in court involving
violation of the Anti-Money Laundering Law; (e) Those with
pending criminal cases for tax evasion and other criminal
offenses under Chapter II of Title X of the National Internal
Revenue Code of 1997, as amended, and the felonies of
frauds, illegal exactions and transactions, and malversation of
public funds and property under Chapters III and IV of Title
VII of the Revised Penal Code; and (f) Tax cases subject of
final and executory judgment by the courts. [Asia International
Auctioneers, Inc. vs. Commissioner of Internal Revenue, 682
SCRA 49(2012)]
Certain Doctrines in Taxation
Prospectivity of Tax Laws
1. Hydro Resources vs. CA
Taxation; Import Duties; Ad Valorem Tax; The importation in
question which arrived in 1977 and 1978 are not subject to the
3% additional ad valorem duty, the same being imposed only
on those whose letter of credit were opened after the
effectivity of Executive Order 860.—It is a cardinal rule that
laws shall have no retroactive effect, unless the contrary is
provided. (Art. 4, Civil Code) Except for a statement
providing for its immediate execution, Executive Order No.
860 does not provide for its retroactivity. Moreover, the
Deputy Minister of Finance in his 1st Indorsement to the
Central Bank dated March 26, 1983 which was reproduced by
the Central Bank Governor in a circular letter to all authorized
agent banks, clarified that letters of credit opened prior to the
effectivity of E.O. 860 are not subject to the provisions
thereof. Consequently, the importations in question which
arrived in 1977 and 1978 are not subject to the 3% additional
ad valorem duty, the same being imposed only on those whose
letter of credit were opened after the promulgation of
Executive Order 860. [Hydro Resources Contractors Corp. vs.
Court of Tax Appeals, 192 SCRA 604(1990)]
2. Hilado vs. Collector
INTERNATIONAL LAW; NATURE OF INTERNAL
REVENUE LAWS; ENFORCEABLE DURING ENEMY
OCCUPATION.—Internal revenue laws are not political in
nature and as such were continued in force during- the period
of enemy occupation and in effect were actually enforced by
the occupation government. As a matter of fact, income tax
returns were filed during that period and income tax payments
were effected and considered valid and legal. Such tax laws
are deemed to be the laws of the occupied territory and not of
the occupying enemy. [Hilado vs. Coll. of Internal Rev. and
Ct. of Tax Appeals, 100 Phil. 288(1956)]
3. Central Azucarera de Don Pedro vs. CTA
Same; Constitutional Law; Prohibition against ex post facto
law is not applicable to interest which is not penal in
character.—The collection of interest in tax cases is not penal
in nature. It is but a just compensation to the State for the
delay in the payment of the tax and for the concomitant use by
the taxpayer of funds that rightfully should be in the
government's hands. The constitutional prohibition against ex
post facto laws is not applicable to the collection of interest on
back taxes, nor to laws, which concern civil matters or
proceedings generally, or which affect or regulate civil or
private rights. [Central Azucarera Don Pedro vs. Court of Tax
Appeals, 20 SCRA 344(1967)]
4. Fernandez vs. Fernandez
CONSTITUTIONAL L.AW; WAR PROFIT TAX LAW;
RETROACTIVITY, VAUDITY OF.—Appellant's contention
that the law is invalid or unconstitutional because it acts
retroactively, thus violating the due process of law clause, is
not supported by reason or authority. Property taxes and
benefits assessments on real estate, retroactively applied, are
not open to the objection that they infringe upon the due
process of law clause of the Constitution; that taxes on income
are not subject to the constitutional objection because of their
retroactivity. The universal practice has been to increase taxes
on income already earned; yet notwithstanding this retroactive
operation, income taxes have not been successfully assailed as
invalid. The uniform ruling of the courts in the United State
has been to reject the contention that the retroactive
application of revenue acts is a denial of the due process
guaranteed by the Fifth Amendment. In order to declare a tax
as transgressing the constitutional limitation, it must be so
harsh and oppressive in its retroactive application. Far from
being unjust or harsh and oppressive our war profit tax is both
wise and just. [Republic vs. Oasan Vda. de Fernandez, et al.,
99 Phil. 934(1956)]
5. Lorenzo vs. Posadas
ID.; RETROACTIVE LEGISLATION.—It is well-settled that
inheritance taxation is governed by the statute in force at the
time of the death of the decedent (26 R. C. L., p. 206; 4
Cooley on Taxation, 4th ed., p. 3461). The taxpayer cannot
foresee and ought not to be required to guess the outcome of
pending measures. Of course, a tax statute may be made
retroactive in its operation. Liability for taxes under
retroactive legislation has been "one of the incidents of social
life." (Seattle vs. Kelleher, 195 U. S., 351, 360; 49 Law. ed.,
232; 25 Sup. Ct. Rep., 44.) [Lorenzo vs. Posadas, 64 Phil.
353(1937)]
Imprescriptibility of Taxes
1. CIR vs Ayala Securities Corporation.
TON – FAYE TAX 1 CASE DOCTRINES
Taxation; Prescription; Collection of surtax on excess profits
does not prescribe there being no law providing a prescriptive
period therefor.—The Court is persuaded by the fundamental
principle invoked by petitioner that limitations upon the right
of the government to assess and collect taxes will not be
presumed in the absence of clear legislation to the contrary
and that where the government has not by express statutory
provision provided a limitation upon its right to assess unpaid
taxes, such right is imprescriptible. [Commissioner of Internal
Revenue vs. Ayala Securities Corporation, 101 SCRA
231(1980)]
2. Collector vs. Bisaya Land Transporation
Held: Petitioner's pretense that the period of prescription, in
relation to the first assignment of error, should be computed
from the filing of its income tax returns, is without merit. To
begin with, said income tax returns have not been introduced
in evidence and therefore, there was no means to determine
what data were included in said return to apprise the Bureau of
Internal Revenue that the company should pay the
compensating tax. Secondly, income tax returns contain a
statement of the taxpayer's income for a given year. The
taxpayer is not supposed to declare in said returns that he has
purchased or received "from without the Philippines",
commodities or merchandise that are subject to the
compensating tax. Generally, such purchases are not
"income," and, hence, have no place in income tax returns. (2)
Under its second assignment of error, the company maintains
that the equipment and materials it purchased from agencies of
the U. S. Government are not subject to compensating tax
because they were acquired, not for business purposes but "in
furtherance of the war efforts". Suffice it to note that the
acquisition of said effects took place between June, 1945 and
January, 1947 while the hostilities in Japan and Europe ended
in 1945. [Bisaya Land Transportaton Co., Inc. vs. Collector of
Internal Revenue, 105 Phil. 1338(1959)]
3. CIR vs. CA
Taxation; Tax Refunds; Prescription; In the context of §230 of
the National Internal Revenue Code, which provides for a
two-year period of prescription counted “from the date of
payment of the tax” for actions for refund of corporate income
tax, the two-year period should be computed from the time of
actual filing of the Adjustment Return or Annual Income Tax
Return.—It can be deduced from the foregoing that, in the
context of §230, which provides for a two-year period of
prescription counted “from the date of payment of the tax” for
actions for refund of corporate income tax, the two-year
period should be computed from the time of actual filing of
the Adjustment Return or Annual Income Tax Return. This is
so because at that point, it can already be determined whether
there has been an overpayment by the taxpayer. Moreover,
under §49(a) of the NIRC, payment is made at the time the
return is filed. In the case at bar, Paramount filed its corporate
annual income tax return on April 2, 1986. However, private
respondent BPI, as liquidator of Paramount, filed a written
claim for refund only on April 14, 1988 and a petition for
refund only on April 15, 1988. Both claim and action for
refund were thus barred by prescription. [Commissioner of
Internal Revenue vs. Court of Appeals, 301 SCRA 435(1999)]
Double Taxation
1. Villanueva vs. City of Iloilo
Same; Double taxation; When permissible and when
prohibited; Equality and uniformity of taxation.—In order to
constitute double taxation in the objectionable or prohibited
sense the same property must be taxed twice when it should be
taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same
State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period,
and they must be the same kind or character of tax (84 C.J.S.
131-132). It has been shown that a real estate tax and the
tenement tax imposed by the ordinance, although imposed by
the same taxing authority, are not of the same kind or
character.
At all events, there is no constitutional prohibition against
double taxation in the Philippines (Manufacturers' Life Ins.
Co. v. Meer, L-2910, June 29, 1951; City of Manila v.
Interisland Gas Service, L-8799, Aug. 31, 1956;
Commissioner of Internal Revenue v. Hawaiian-Philippine
Co., L-16315, May 30, 1964; Pepsi-Cola Bottling Co. of the
Philippines v. City of Butuan, et al., L-22814, Aug. 28, 1968).
Taxes are uniform and equal when imposed upon all property
of the same class or character within the taxing authority (51
Am. Jur. 203). The fact that the owners of other classes of
buildings in the City do not pay the taxes imposed by the
ordinance in question is no argument at all against uniformity
and equality of the tax imposition. [Villanueva vs. City of
Iloilo, 26 SCRA 578(1968)]
2. Procter & Gamble Philippines vs. Municipality of Jagna
Same; Same; Same; Ordinance; Double taxation not a case of;
Concept and nature of double taxation; Tax imposed by a
municipality on soap and other similar products of petitioner
company different from the tax imposed on privilege of
storing copra in a bodega within the municipality.—Thus, it
can be said that plaintiff’s payment of storage fees imposed by
the Ordinance in question does not amount to double taxation.
For double taxation to exist, the same property must be taxed
twice, when it should be taxed but once. Double taxation has
also been defined as taxing the same person twice by the same
jurisdiction for the same thing. Surely, a tax on plaintiff’s
products is different from a tax on the privilege of storing
copra in a bodega situated within the territorial boundary of
defendant municipality. [Procter & Gamble Philippine
Manufacturing Corp. vs. Municipality of Jagna, 94 SCRA
894(1979)]
3. CIR vs. Lednicky
Same; Same; Double taxation; Not obnoxious where taxes
paid to different jurisdictions; Case at bar.—Double taxation
becomes obnoxious only where the taxpayer is taxed twice for
the benefit of the same governmental entity. In the present
case, although the taxpayer would have to pay two taxes on
the same income but the Philippine government only receives
the proceeds of one tax, there is no obnoxious double taxation.
[Commissioner of Internal Revenue vs. Lednicky, 11 SCRA
603(1964)]
4. Pepsi-Cola vs. Tanauan
Same; Same; Delegation of powers; Delegation of taxing
power to local governments may not be assailed on the ground
of double taxation.—There is no validity to the assertion that
the delegated authority can be declared unconstitutional on the
theory of double taxation. It must be observed that the
delegating authority specifies the limitations and enumerates
the taxes over which local taxation may not be exercised. x x x
Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof
the injunction against double taxation found in the
Constitution of the United States and some states of the Union.
Double taxation becomes obnoxious only where the taxpayer
is taxed twice for the benefit of the same governmental entity
or by the same jurisdiction for the same purpose, but not in a
case where one tax is imposed by the State and the other by
the city of municipality. [Pepsi-Cola Bottling Co. of the
Philippines, Inc. vs. Municipality of Tanauan, Leyte, 69
SCRA 460(1976)]
TON – FAYE TAX 1 CASE DOCTRINES
Power to Tax Involves the Power to Destroy
1. Sison vs Ancheta
Taxation; Constitutional Law; The Constitution sets forth the
restrictions to the power to tax.—The power to tax moreover,
to borrow from Justice Malcolm, “is an attribute of
sovereignty. It is the strongest of all the powers of
government.” It is, of course, to be ad mitted that for all its
plenitude, the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits. Adversely
affecting as it does property rights, both the due process and
equal protection clauses may properly be invoked, as
petitioner does, to invalidate in appropriate cases a revenue
measure. If it were otherwise, there would be truth to the 1803
dictum of Chief Justice Marshall that “the power to tax
involves the power to destroy.” In a separate opinion in
Graves v. New York, Justice Frankfurter, after referring to it
as an “unfortunate remark,” characterized it as “a flourish of
rhetoric [attributable to] the intellectual fashion of the times
[allowing] a free use of absolutes.” This is merely to
emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully
conclude: “The web of unreality spun from Marshall’s famous
dictum was brushed away by one stroke of Mr. Justice
Holmes’s pen: ‘The power to tax is not the power to destroy
while this Court sits.’ ” So it is in the Philippines. [Sison, Jr.
vs. Ancheta, 130 SCRA 654(1984)]
Same; Same; Uniformity in taxation quite similar to the
standard of equal protection.—Petitioner likewise invoked the
kindred concept of uniformity. According to the Constitution:
“The rule of taxation shall be uniform and equitable.” This
requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco, decided in 1940, when the tax
“operates with the same force and effect in every place where
the subject may be found.” He likewise added: “The rule of
uniformity does not call for perfect uniformity or perfect
equality, because this is hardly attainable.” The problem of
classification did not present itself in that case. It did not arise
until nine years later, when the Supreme Court held: “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 [Sison, Jr. vs. Ancheta,
130 SCRA 654(1984)]
Same; Same; Taxpayers may be classified into different
categories where it rests on real differences.—Apparently,
what misled petitioner is his failure to take into consideration
the distinction between a tax rate and a tax base. There is no
legal objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time reducing
the applicable tax rate. Taxpayers may be classified into
different categories. To repeat, it is enough that the
classification must rest upon substantial distinctions that make
real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, the discernible basis of
classification is the susceptibility of the income to the
application of generalized rules removing all deductible items
for all taxpayers within the class and fixing a set of reduced
tax rates to be applied to all of them. Taxpayers who are
recipients of compensation income are set apart as a class. As
there is practically no overhead expense, these taxpayers are
not entitled to make deductions for income tax purposes
because they are in the same situation more or less. On the
other hand, in the case of professionals in the practice of their
calling and businessmen, there is no uniformity in the costs or
expenses necessary to produce their income. It would not be
just then to disregard the disparities by giving all of them zero
deduction and indiscriminately impose on all alike the same
tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa 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. [Sison, Jr. vs. Ancheta, 130
SCRA 654(1984)]
2. Roxas vs CTA
Taxation; Power of taxation to be exercised with caution.—
The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must
be exercised fairly, equally and uniformly, lest the tax
collector kill the “hen that lays the golden egg”. [Roxas vs.
Court of Tax Appeals, 23 SCRA 276(1968)]
3. CIR vs Tokyo Shipping
Taxation; A claim for refund is in the nature of a claim for
exemption and should be construed in strictissimi juris against
the taxpayer.—We agree with petitioner that a claim for
refund is in the nature of a claim for exemption and should be
construed in strictissimi juris against the taxpayer. Likewise,
there can be no disagreement with petitioner’s stance that
private respondent has the burden of proof to establish the
factual basis of its claim for tax refund. [Commissioner of
Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA
332(1995)]
4. Standard Oil vs. Posadas
1.CONSTITUTIONAL LAW; TAXATION; UNITED
STATES ARMY AND UNITED STATES NAVY;
WHETHER PHILIPPINE TAX ON SALES OF
MERCHANDISE MADE IN THE PHILIPPINES TO THE
UNITED STATES ARMY AND THE UNITED STATES
NAVY is LEGAL.—The decision in the case of the Tfiirty-
First Infantry Post Exchange and First Lieutenant David L.
Hardee, Thirty-First Infantry, United States Army, plaintiffs,
vs. Juan Posadas, jr., Collector of Internal Revenue, Philippine
Islands, defendant ([1930], 54 Phil., 866), followed and
distinguished.
2.ID.; ID.; ID.; ID.—Sales made in the Philippines to the
United States Army and the United States Navy are made to
instrumentalities of the United States Government and,
therefore, are not subject to tax by the Philippine Government.
[Standard Oil Co. of New York vs. Posadas, 55 Phil.,
715(1931)]
5. Board of Assessments Appeals vs CTA
National Waterworks and Sewerage Authority; Exemption of
assets from taxation; Exemption never ruled by Supreme
Court—The Supreme Court never ruled in the case of City of
Cebu vs. NAWASA, L-12892, decided on April 30, 1960, that
the assets of the water system of the City of Cebu which the
NAWASA had sought to take over, were subject to taxation.
In that case, the doctrine laid down in the case of City of
Baguio vs. NAWASA, L-12032, decided on August 31, 1959,
that municipal corporations held in their proprietary character
the assets of their respective waterworks, which, accordingly,
cannot be taken or appropriated by the National Government
and placed under the NAWASA without payment of just
compensation, was merely reiterated.
Same; Same; No distinction in the law exempting government
from taxation, between property held in governmental
capacity and those held in proprietary character.—In
TON – FAYE TAX 1 CASE DOCTRINES
exempting from taxation "property owned by the Republic of
the Philippines, any province, city, municipality or municipal
district x x x", section 3(c) of Republic Act No. 470 makes no
distinction between property held in a sovereign,
governmental or political capacity and those possessed in a
private, proprietary or patrimonial character. The noun
"property" and the verb "owned" used in said section strongly
suggests that the object of exemption is considered more from
from the viewpoint of dominion that from that of domain.
[Board of Assessment Appeals, Laguna, vs. Court of Tax
Appeals, 8 SCRA 225(1963)]
Escape From Taxation
1. Norton and Harrison vs CIR
Taxation; Corporate fiction may not be used to evade taxes.—
The revenue officers, in proper cases, may disregard the
separate corporate entity where it serves but as a shield for tax
evasion. [Commissioner of Internal Revenue vs. Norton &
Harrison Company, 11 SCRA 714(1964)]
2. CIR vs. Rufino
Same; Same; Same; The merger however, must be undertaken
for a bona fide business purpose and not solely for the purpose
of escaping the burden of taxation.—The basic consideration,
of course, is the purpose of the merger, as this would
determine whether the exchange of properties involved therein
shall be subject or not to the capital gains tax. The criterion
laid down by the law is that the merger "must be undertaken
for a bona fide business purpose and not solely for the purpose
of escaping the burden of taxation." We must therefore seek
and ascertain the intention of the parties in the light of their
conduct contemporaneously with, and especially after, the
questioned merger pursuant to the Deed of Assignment of
January 9, 1959. It has been suggested that one certain
indication of a scheme to evade the capital gains tax is the
subsequent dissolution of the new corporation after the
transfer to it of the properties of the old corporation and the
liquidation of the former soon thereafter. This highly suspect
development is likely to be a mere subterfuge aimed at
circumventing the requirements of Section 35 of the Tax Code
while seeming to be a valid corporate combination.
[Commissioner of Internal Revenue vs. Rufino, 148 SCRA
42(1987)]
3. Delpher Traders Corporation vs IAC
Same; Taxation; Tax Avoidance; The legal right of a taxpayer
to decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits,
cannot be doubted.—The records do not point to anything
wrong or objectionable about this “estate planning” scheme
resorted to by the Pachecos. “The legal right of a taxpayer to
decrease the amount of what otherwise could be his taxes or
altogether avoid them, by means which the law permits,
cannot be doubted.” (Liddell & Co., Inc. v. The Collector of
Internal Revenue, 2 SCRA 632 citing Gregory v. Halvering,
293 U.S. 465, 7 L. ed. 596) [Delpher Trades Corp. vs.
Intermediate Appellate Court, 157 SCRA 349(1988)]
Doctrine of Equitable Recoupment
1. Collector vs. UST
Two appeals separately interposed by the parties from the
decision of the Court of Tax Appeals in C T. A. Case No. 10,
entitled “The University of Sto. Tomas (U. S. T.) vs. The
Collector of Internal Revenue (COLLECTOR), modifying1
the decision of respondent in the sense that petitioner’s! (U. S.
T.) claim for refund’in the sum of P5,842.27 is denied, the
same being: barred by prescription. The deficiency tax
assessment of P2,451.04 for percentage taxes and surcharges
is recognized, but the amount is deemed paid by way of
recoupment to the extent of P2,451.04 which petitioner paid
erroneously for the period from Jan. 1, 1948 to June 30, 1950
and respondent Collector is ordered to desist from further
collecting said deficiency assessment. [Collector of Internal
Revenue vs. Univer-sity of Santo Tomas, 104 Phil.
1062(1958)]
Set-Off Taxes
1. Republic vs. Mambulao Lumber
Obligations and contracts; Compensation when parties are not
creditor or debtor of each other.—Where appellant and
appellee are not mutually creditors and debtors of each other,
the law on compensation is inapplicable.
Same; Same; Internal Revenue Taxes.—Internal Revenue
Taxes, such as forest charges, cannot be the subject of set-off
or compensation. It is because taxes are not in the nature of
contracts between the parties but grow out of a duty to, and are
positive acts of, the Government, to the making and enforcing
of which, the personal consent of the individual taxpayer is not
required. [Republic vs. Mambulao Lumber Company, 4 SCRA
622(1962)]
2. Domingo vs. Garlitos
Same; Same; Compensation between taxes and claims of
intestate recognized and appropriated for by law.—The fact
that the court having jurisdiction of the estate had found that
the claim of the estate against the Government has been
appropriated for the purpose by a corresponding law (Rep. Act
No. 2700) shows that both the claim of the Government for
inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as
well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of
Articles 1279 and 1290 of the Civil Code, and both debts are
extinguished to the concurrent amount. [Domingo vs. Garlitos,
8 SCRA 443(1963)]
3. Francia vs. IAC
Taxation; Obligations; Requisites of Legal Compensation
under Arts. 1278 and 1279 of Civil Code; Case at bar.—
Francia contends that his tax delinquency of P2,400.00 has
been extinguished by legal compensation. He claims that the
government owed him P4,116.00 when a portion of his land
was expropriated on October 15, 1977. Hence, his tax
obligation had been set-off by operation of law as of October
15, 1977. There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right
are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The circumstances of
the case do not satisfy the requirements provided by Article
1279, to wit: “(1) that each one of the obligors be bound
principally and that he be at the same time a principal creditor
of the other; xxx xxx xxx “(3) that the two debts be due. xxx
xxx xxx.
Taxation; Same; Internal Revenue Taxes can not be subject of
setoff or compensation.—This principal contention of the
petitioner has no merit. We have consistently ruled that there
can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot
refuse to pay a tax on the ground that the government owes
him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit
against the government. In the case of Republic v. Mambulao
Lumber Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes can not be the subject of set-off or
compensation. We stated that: “A claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off
TON – FAYE TAX 1 CASE DOCTRINES
under the statutes of set-off, which are construed uniformly, in
the light of public policy, to exclude the remedy in an action
or any indebtedness of the state or municipality to one who is
liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the
contract or transaction sued on. x x x (80 C.J.S., 73-74). ‘The
general rule based on grounds of public policy is well-settled
that no set-off is admissible against demands for taxes levied
for general or local governmental purposes. The reason on
which the general rule is based, is that taxes are not in the
nature of contracts between the party and party but grow out
of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of
individual taxpayer is not required. x x x’ ” [Francia vs.
Intermediate Appellate Court, 162 SCRA 753(1988)]
4. Philex Mining Corporation vs CIR
Taxation; Obligations; Compensation; Words and Phrases;
Taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and
debtors of each other; Debts are due to the Government in its
corporate capacity, while taxes are due to the Government in
its sovereign capacity.—In several instances prior to the
instant case, we have already made the pronouncement that
taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and
debtors of each other. There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its
sovereign capacity. We find no cogent reason to deviate from
the aforementioned distinction. Prescinding from this premise,
in Francia v. Intermediate Appellate Court, we categorically
held that taxes cannot be subject to set-off or compensation,
thus: “We have consistently ruled that there can be no off-
setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax
on the ground that the government owes him an amount equal
to or greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the
government.” [Philex Mining Corporation vs. Commissioner
of Internal Revenue, 294 SCRA 687(1998)]
5. Republic vs Ericta
Civil Law; Obligations and Contracts; Demandability of
Obligations; It is useless to argue as to when the 10-year
period is to be counted for purposes of determining the
demandability of the obligation, when such 10-year period had
long expired.—–What has just been said confutes the
petitioner’s second argument that redemption of the
certificates of indebtedness was not yet demandable of it
because “there is no certainty when the certificates are actually
redeemable, within the meaning of the law.” It is true that, as
the Solicitor General contends, “the law does not say that they
are redeemable from its approval on June 18, 1958 but ‘within
ten years from the date of issuance’ of the certificates,” the
ineludible, ineluctable fact is that more than ten (10) years
have already elapsed since their issuance and demand for
payment had been made within said 10-year period. It is
useless to quibble about the precise time “within ten years”
when an obligation becomes demandable, when that period of
ten years has already expired. Whatever inexactitude might
inhere in the phrase, “within ten years,” as fixing the time of
exibility of the obligation in question, there can be no debate
about the proposition that the obligation became due and
demandable after ten years. It would be absurd and unfair to
sanction the theory subsumed in the Republic’s petition that its
obligation was not demandable within ten years because of
inexactitude, yet became time-barred upon the lapse of that
selfsame period. [Republic vs. Ericta, 172 SCRA 623(1989)]
6. CIR vs Esso Standard Eastern
Civil Law; Obligations and Contracts; The obligation to pay
money mistakenly paid arises from the moment said payment
was made, and not from the time that the payee admits the
obligation to reimburse.–––The fact is that, as respondent
Court of Tax Appeals has stressed, as early as July 15, 1960,
the Government already had in its hands the sum of
P221,033.00 representing excess payment. Having been paid
and received by mistake, as petitioner Commissioner
subsequently acknowledged, that sum unquestionably
belonged to ESSO, and the Government had the obligation to
return it to ESSO. That acknowledgment of the erroneous
payment came some four (4) years afterwards in nowise
negates or detracts from its actuality. The obligation to return
money mistakenly paid arises from the moment that payment
is made, and not from the time that the payee admits the
obligation to reimburse. The obligation of the payee to
reimburse an amount paid to him results from the mistake, not
from the payee’s confession of the mistake or recognition of
the obligation to reimburse. In other words, since the amount
of P221,033.00 belonging to ESSO was already in the hands
of the Government as of July, 1960, although the latter had no
right whatever to the amount and indeed was bound to return it
to ESSO, it was neither legally nor logically possible for
ESSO thereafter to be considered a debtor of the Government
in that amount of P221,033.00; and whatever other obligation
ESSO might subsequently incur in favor of the Government
would have to be reduced by that sum, in respect of which no
interest could be charged. [Commissioner of Internal Revenue
vs. EssoStandard Eastern, Inc., 172 SCRA 364(1989)]
Tax Payer's Suit
1. Pascual vs Secretary of Public Works
1.CONSTITUTIONAL LAW; LEGISLATIVE POWERS;
APPROPRIATION OF PUBLIC REVENUES ONLY FOR
PUBLIC PURPOSES; WHAT DETERMINES VALIDITY
OF A PUBLIC EXPENDITURE.—"It is a general rule that
the legislature is without power to appropriate public revenues
for anything but a public purpose. * * * It is the essential
character of the direct object of the expenditure which must
determine its validity as justifying a tax and not the
magnitude of the interests to be affected nor the degree to
which the general advantage of the community, and thus the
public welfare, may be ultimately benefited by their
promotion. Incidental advantage to the public or to the state,
which results from the promotion of private interests, and the
prosperity of private enterprises or business, does not justify
their aid by the use of public money." (23 R. L. C. pp. 398-
450).
2.ID.; ID.; ID.; UNDERLYING REASON FOR THE
RULE.—Generally, under the express or implied provisions of
the constitution, public funds may be used only for a public
purpose. The right of the legislature to appropriate public
funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public
purposes and prohibiting the collection of a tax for one
purpose and the devotion thereof to another purpose, no
appropriation of state funds can be made for other than a
public purpose. (81 C. J. S. p. 1147).
3.ID.; ID.; ID.; TEST OF CONSTITUTIONALITY.—The test
of the constitutionality of a statute requiring the use of public
funds is whether the statute is designed to promote the public
interests, as opposed to the furtherance of the advantage of
individuals, although such advantage to individuals might
incidentally serve the public. (81 C. J. S. p. 1147). [Pascual vs.
Secretary of Public Works, 110 Phil. 331(1960)]
2. Lozada vs Comelec
Constitutional Law; Election Law; Action; Mandamus; A
taxpayer has no personality to sue the COMELEC to compel
TON – FAYE TAX 1 CASE DOCTRINES
the latter to hold a special election for the Interim Batasang
Pambansa.—As taxpayers, petitioners may not file the instant
petition, for nowhere therein is it alleged that tax money is
being illegally spent. The act complained of is the inaction of
the COMELEC to call a special election, as is allegedly its
ministerial duty under the constitutional provision abovecited,
and therefore, involves no expenditure of public funds. It is
only when an act complained of, which may include a
legislative enactment or statute, involves the illegal
expenditure of public money that the so-called taxpayer suit
may be allowed. What the case at bar seeks is one that entails
expenditure of public funds which may be illegal because it
would be spent for a purpose—that of calling a special
election—which, as will be shown, has no authority either in
the Constitution or a statute. [Lozada vs. Commission on
Elections, 120 SCRA 337(1983)]
3. Dumlao vs Comelec
Same; Same; Same; The Supreme Court will not rule on
constitutionality of a provision of the Election Code
disqualifying from running for a public office persons found
disloyal to the State where said issue is raised merely by a
taxpayer who is not affected by said prohibition.—In the case
of petitioners Igot and Salapantan, it was only during the
hearing, not in their Petition, that Igot is said to be a candidate
for Councilor. Even then, it cannot be denied that neither one
has been convicted nor charged with acts of disloyalty to the
State, nor disqualified from being candidates for local elective
positions. Neither one of them has been alleged to have been
adversely affected by the operation of the statutory provisions
they assail as unconstitutional. Their is a generalized
grievance. They have no personal nor substantial interest at
stake. In the absence of any litigable interest, they can claim
no locus standi in seeking judicial redress.
Same; Same; Same; Same.—However, the statutory
provisions questioned in this case, namely, sec. 7, BP Blg. 51,
and sections 4, 1, and 6, BP Blg. 52, do not directly involve
the disbursement of public funds. While, concededly, the
elections to be held involve the expenditure of public moneys,
nowhere in their Petition do said petitioners allege that their
tax money is “being extracted and spent in violation of
specific constitutional protections against abuses of legislative
power” (Flast v. Cohen, 392 U.S., 83 [1960]), or that there is a
misapplication of such funds by respondent COMELEC (see
Pascual vs. Secretary of Public Works, 110 Phil. 331 [1960]),
or that public money is being deflected to any improper
purpose. Neither do petitioners seek to restrain respondent
from wasting public funds through the enforcement of an
invalid or unconstitutional law. [Dumlao vs. COMELEC, 95
SCRA 392(1980)]
4. Gonzales vs Marcos
Constitutional law; Action; Taxpayer has no legal standing to
question executive acts that do not involve the use of public
funds.—It may not be amiss though to consider briefly both
the procedural and substantive grounds that led to the lower
court’s order of dismissal. It was therein pointed out as “one
more valid reason” why such an outcome was unavoidable
that “the funds administered by the President of the
Philippines came from donations [and] contributions [not] by
taxation.” Accordingly, there was that absence of the
“requisite pecuniary or monetary interest.” The stand of the
lower court finds support in judicial precedents. This is not to
retreat from the liberal approach followed in Pascual vs.
Secretary of Public Works, foreshadowed by People v. Vera,
where the doctrine of standing was first fully ‘discussed. It is
only to make clear that petitioner, judged by orthodox legal
learning, has not satisfied the elemental requisite for a
taxpayer’s suit. [Gonzales vs. Marcos, 65 SCRA 624(1975)]
5. Maceda vs Macaraig

Parties; Taxpayer’s Suit; Petitioner, as a taxpayer, has the
personality to file the instant petition, as the issue involved
herein, pertains to illegal expenditure of public money.—In
the petition it is alleged that petitioner is “instituting this suit
in his capacity as a taxpayer and a duly-elected Senator of the
Philippines.” Public respondent argues that petitioner must
show he has sustained direct injury as a result of the action
and that it is not sufficient for him to have a mere general
interest common to all members of the public. The Court
however agrees with the petitioner that as a taxpayer he may
file the instant petition following the ruling in Lozada when it
involves illegal expenditure of public money. The petition
questions the legality of the tax refund to NPC by way of tax
credit certificates and the use of said assigned tax credits by
respondent oil companies to pay for their tax and duty
liabilities to the BIR and Bureau of Customs. [Maceda vs.
Macaraig, Jr., 197 SCRA 771(1991)]
National Taxation
Powers and Duties of the BIR
1. Sy Po vs CTA
Same; Same; Tax assessments; Presumption in favor of the
correctness of tax assessments.—Tax assessments by tax
examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. In the absence of
proof of any irregularities in the performance of duties, an
assessment duly made by a Bureau of Internal Revenue
examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of
tax assessments. [Sy Po vs. Court of Tax Appeals, 164 SCRA
524(1988)]
2. Central Azucarera de Don Pedro vs. CTA
Taxation; Income tax; Time for payment of tax.—Under the
old section 51 (a) of the Tax Code, the Collector of Internal
Revenue was required to assess the income tax due, based on
the taxpayer's return, and to notify the taxpayer of said
assessment. However, the time for payment was fixed,
whether or not a notice of the assessment was given to the
taxpayer. Under the amended section 51, the time for payment
is also fixed and predetermined (usually coinciding with the
filing of the return) without the necessity of giving notification
of the assessment to the taxpayer by the Commissioner of
Internal Revenue. [Central Azucarera Don Pedro vs. Court of
Tax Appeals, 20 SCRA 344(1967)]
3. Benipayo vs. Collector of Internal Revenue
Taxation; Amusement taxes; Fraud should be supported by
clear and convincing proof.—To s ust ain the de fic assessed
against respondent would amount to a finding that he had, for
a considerable period of time, cheated and defrauded the
government by selling to each adult patron two children's tax-
free tickets instead of one ticket subject to the amusement tax
provided for in Section 260 of the National Internal Revenue
Code. Fraud is a serious charge and, to be sustained, must be
supported by clear and convincing proof which, in this case, is
lacking. [Collector of Internal Revenue vs. Benipayo, 4 SCRA
182(1962)]
4. Collector of Invernal Revenue vs. Bohol Land
Transporation
Taxation; Jurisdiction; Matters involving failure or refusal of
the Commissioner of Internal Revenue to make a tax
assessment belongs to the jurisdiction of the Court of Tax
Appeals, not the CFI.—Respondent judge has no jurisdiction
to take cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now exclusively
TON – FAYE TAX 1 CASE DOCTRINES
within the jurisdiction of the Court of Tax Appeals. Section 7
of Republic Act No. 1125, enacted June 16, 1954, granted to
the Court of Tax Appeals exclusive appellate jurisdiction to
review by appeal, among others, decisions of the
Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law
or part of law administered by the Bureau of Internal Revenue.
The law transferred to the Court of Tax Appeals jurisdiction
over all cases involving said assessments previously
cognizable by courts of first instance, and even those already
pending in said courts. The question of whether or not to
impose a deficiency tax assessment on Meralco Securities
Corporation undoubtedly comes within the purview of the
words "disputed assessments" or of "other matters arising
under the National Internal Revenue Code . . . ." [Meralco
Securities Corporation vs. Savellano, 117 SCRA 804(1982)]
5. Meralco Securities vs. Savellano
Same; Mandamus; Mandamus does not lie to compel the
Commissioner of Internal Revenue to impose a tax assessment
not found by him to be proper.—Moreover, since the office of
the Commissioner of Internal Revenue is charged with the
administration of revenue laws, which is the primary
responsibility of the executive branch of the government,
mandamus may not lie against the Commissioner to compel
him to impose a tax assessment not found by him to be due or
proper for that would be tantamount to a usurpation of
executive functions. As we held in the case of Commissioner
of Immigration vs. Arca anent this principle, "the
administration of immigration laws is the primary
responsibility of the executive branch of the government.
Extensions of stay of aliens are discretionary on the part of
immigration authorities, and neither a petition for mandamus
nor one for certiorari can compel the Commissioner of
Immigration to extend the stay of an alien whose period to
stay has expired. [Meralco Securities Corporation vs.
Savellano, 117 SCRA 804(1982)]
6. Samson vs. Barrios
1.MANDAMUS; ONLY SPECIFIC LEGAL RIGHTS ARE
ENFORCEABLE BY THE WRIT; WILL NOT ISSUE IN
CASES WHERE THE RIGHT is DOUBTFUL.—It is well
established that only specific legal rights are enforceable by
mandamus, that the right sought to be enforced must be certain
and clear, and that the writ will not issue in cases where the
right is doubtful. [Sanson vs. Barrios, 63 Phil. 198(1936)]
2.ID.; ID.; ID.; DUTIES TO BE PERFORMED MUST BE
ENJOINED BY LAW OR BY REASON OF OFFICIAL
STATION.—It is also a fundamental principle governing the
issuance of mandamus that the duties to be performed must be
such as are clearly and peremptorily enjoined by law or by
reason of official station. (Tabigue vs. Duvall, 16 Phil., 324;
Gonzalez vs. Board of Pharmacy, supra; Montalbo vs.
Santamaria, supra.) The record does not show that the right the
petitioner seeks to enforce and the duty claimed to devolve
upon the respondent judge are of such character. [Sanson vs.
Barrios, 63 Phil. 198(1936)]
7. Lemi vs. Valencia
Special civil action; Mandamus; Essential requisites for its
issuance; Meaning of discretion; Case at bar.—It is essential
for a writ of mandamus to issue, that the plaintiff has a legal
right to the thing demanded and that it is the imperative duty
of the defendant to perform the act required (Gonzales v.
Board of Pharmacy, 20 Phil. 367, 375). The legal right of the
plaintiff to the thing demanded must be well-defined clear and
certain (Villamor, et al. v. Lacson, et al., L-15845, Nov. 28.
1964). The corresponding duty of the defendant to perform the
required act must also be clear and specific (Llanto v.
Mohamad Ali Dimaporo, et al., L-21905, March 31, 1966).
Mandamus will not issue in doubtful cases, as it simply
commands the exercise of a power already possessed or to
perform a duty 31, 1963 (Alzate, etc. v. Aldana, etc., et al, L-
18085, May 31 1963). Mandamus will He to compel action, or
to remedy official inaction
"Discretion", when applied to public functionaries, means a
power or right conferred upon them by law of acting officially,
under certain circumstances, according to the dictates of their
own judgments and consciences, uncontrolled by the
judgments or consciences of others. A purely ministerial act or
duty, in contradistinction to a discretional act, is one which an
officer or tribunal performs in a given state of facts, in a
prescribed manner, in obedience to the mandate of a legal
authority, without regard to or the exercise of his own
judgment upon the propriety or impropriety of the act done. //
the law imposes a duty upon a public officer, and gives him
the right to decide how or when the duty shall be performed,
such duty is discretionary and not ministerial. The duty is
ministerial only when the discharge of the same requires
neither the exercise of official discretion or judgment (Sanson
v. Barrios, supra).
In the case at bar, the respondents Secretary and Chief of the
Radio Control Office patently neglected the discharge of the
duty, under section 3(1) of the Radio Control Law to "approve
or disapprove" the petitioner's applications for renewal of the
radio license. On April 12, 1961 the latter filed the first
application for renewal of license 5931, and paid the
corresponding license fee of P50. The Radio Control Office
which is directly under the "supervision and control" of the
Public Works Secretary took no action on this application. On
May 31, 1962 the petitioner filed another application for
renewal of his radio license and paid the corresponding
renewal license fee. No action was likewise taken on this one.
And despite the continued operation of the radio station since
May 23, 1961, the date license 5931 expired, there was no
interference whatsoever from the office of the respondent
Secretary and the Radio Control Office. In point of fact, such
continued operation was officially tolerated, as can be gleaned
from the letter dated December 7, 1962 sent by the Chief of
the Radio Control Office to the petitioner, at the behest of the
respondent Secretary, requesting the licensee "to feature the
many newly recorded Philippine Christmas songs," as a
special public feature in the radio programs of station DZQR.
Same; Radio Control Law; Disapproval of license with
hearing; Seizure of radio transmitter without hearing; Effect;
Case at bar.—No validity can be accorded to the respondents'
assertion that, in seizing the transmitter, the respondent
Secretary was merely 'exercising his confiscatory power under
section 3(m) of the Radio Control Law. This Court in no
uncertain terms declared in its resolution of February 28, 1963
that the seizure, though made under authority of a search
warrant, cannot obliterate the fact that such seizure violated
section 3(1), supra, which provides that "no application for
renewal shall be disapproved without giving the licensee a
hearing", and section 17 of Department Order 11 which
provides that no "radio station license may be revoked for
willful violations of the radio laws and regulations, local or
international x x x without giving the licensee a hearing"; that
.the application for issuance of the search warrant and the
ultimate seizure of the radio transmitter in effect amounted to
an attempt to evade the requirement of such hearing; and that
the seizure effected made it impossible for the radio station to
continue operating.
The requirement of a hearing as provided by the Radio
Control Law and the rules and regulations promulgated
thereunder, is founded on the fundamental principle that no
person shall be deprived of his property without due process
of law. A franchise, like the one granted by R.A. 1553 to the
petitioner, is property entitled to constitutional protection (2
TON – FAYE TAX 1 CASE DOCTRINES
Tañada & Carreon, Political Law of the Philippines, 1962 ed.,
p. 30, citing Terrace v. Thompson, 263 U.S. 197; Campbell v.
Holt, 115 U.S. 620). A "radio license is an operating authority
of importance involving primarily the interest of the public"
(Ranger v. Federal Commun. Com. [1961], 42 PUR 3d, 297
F2d 782), and "valuable rights and investments made in
reliance on a license x x x should not be destroyed x x x
except for the most compelling reasons" (Churchill Tabernacle
v. Federal Commun. Com[1947], 69 PUR NS 185, 81 US App
DC 411, 160 F2d 255). [Lemi vs. Valencia, 26 SCRA
203(1968)]
8. People vs. Rubio
5.Id.; Id.; Id.; Id.—Books of account, invoices, and records
may be so used as instruments or agencies for perpetrating
frauds upon the government as to give the public an interest in
them which would justify the search for and seizure of them,
under a properly issued search warrant, for the purpose of
preventing further frauds.
6.Id.; Id.; Id.; Id.—Held in this case, as matters of fact, that the
search warrant conformed to constitutional and statutory
pro-visions, and that it has not been shown that the seizure of
the appellant's books, invoices, and records was made solely
for the purpose of securing evidence to be used against him in
a criminal prosecution. [People vs. Rubio, 57 Phil., 384(1932)]
9. Molo vs. Yatco
3.ID.; ID.; SElZURE OF DOCUMENTS AND PAPERS BY
THE COLLECTOR OF INTERNAL REVENUE.—Although
the Collector of Internal Revenue is authorized by section
1434 of the Administrative Code to make seizures for the
violation of any penal law or regulation administered by the
Bureau of Internal Revenue, inasmuch as the documents and
papers in question are in the custody of the Court of First
Instance of Rizal through its agent the Anti-Usury Board, said
Collector of Internal Revenue could not seize said documents
and papers without authority of said court because it would
amount to an undue interference by an administrative official
in the affairs of a court official. Neither could the Anti-Usury
Board retain said documents for itself because, being a mere
agent of said court, it was not authorized by its principal to
dispose of them. [Molo vs. Yatco, 63 Phil. 644(1936)]
10. Bache & Co vs Ruiz
Remedial law; Search warrant; Procedure for the issuance
warrant; Examination of the complainant and witnesses by the
judge himself.—The examination of the complainant and the
witnesses he may produce, required by Art. 111, Sec. 1, par. 3,
of the Constitution, and Secs. 3 and 4, Rule 126 of the Revised
Rules of Court, should be conducted by the judge himself and
net by others. The implementing rule in the Revised Rules of
Court, Sec. 4, Rule 126, is more emphatic and candid, for it
requires the judge, before issuing a search warrant, to
personally examine on oath or affirmation the complainant
and any witnesses he may produce. Personal examination by
the judge of the complainant and his witnesses is necessary to
enable him to determine the existence or non-existence of a
probable cause, pursuant to Art. 111, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of
Court, both of which prohibit the issuance of warrants except
“upon probable cause.” The determination of whether or not a
probable cause exists calls for the exercise of judgment after a
judicial appraisal of facts and should not be allowed to be
delegated in the absence of any rule to the contrary. [Bache &
Co. (Phil.), Inc. vs. Ruiz, 37 SCRA 823(1971)]
11. Stonehill vs. Diokno
Constitutional Law; Search warrants; Corporations; Only
party affected may contest legality of seizure effected by
search warrants.—Officers of certain corporations, from
which documents, papers and things were seized by means of
search warrants, have no cause of action to assail the legality
of the seizures because said corporations have personalities
distinct and separate from those of said officers. The legality
of a seizure can be contested only by the party whose rights
have been impaired thereby. The objection to an unlawful
search is purely personal and cannot be availed of by third
parties. [Stonehill vs. Diokno, 20 SCRA 383(1967)]
12. Medina vs. Collector of Internal Revenue
Same; Right of Government to assail sales between husband
and wife.—The government is always an interested party in all
matters involving taxable transactions. It is competent to
question their validity or legitimacy whenever necessary to
block tax evasion. It can impugn sales between husband and
wife.
Same.—Contracts violative of article 1490 of the New Civil
Code are void.
Taxation; Sales tax; Sales between husband and wife.—Sales
made by the husband to the wife are void. Being void, they
were correctly disregarded by the Commissioner of Internal
Revenue. [Medina vs. Collector of Internal Revenue, 1 SCRA
302(1961)]
13. Uy vs. BIR
Same; Same; Requirements for Issuance of Search
Warrants.—A search warrant must conform strictly to the
requirements of the foregoing constitutional and statutory
provisions. These requirements, in outline form, are: (1) the
warrant must be issued upon probable cause; (2) the probable
cause must be determined by the judge himself and not by the
applicant or any other person; (3) in the determination of
probable cause, the judge must examine, under oath or
affirmation, the complainant and such witnesses as the latter
may produce; and (4) the warrant issued must particularly
describe the place to be searched and persons or things to be
seized. [Uy vs. Bureau of Internal Revenue, 344 SCRA
36(2000)]
14. Vera vs. Cuevas
Same; Same; Same; Enforcement of a provision of the Tax
Code, like requirement on how milk products should be
labelled, which is not connected with any tax purpose, but
promotion of the health of the nation devolves on the Food
and Drug Administration not the Fair Trade Board or
Commission of Internal Revenue.—Petitioner’s contention
that he still has jurisdiction to enforce Section 169 by virtue of
Section 3 of the Tax Code which provides that the Bureau of
Internal Revenue shall also “give effect to and administer the
supervisory and police power conferred to it by this Code or
other laws” is untenable. The Bureau of Internal Revenue may
claim police power only when necessary in the enforcement of
its principal powers and duties consisting of the “collection of
all national internal revenue taxes, fees and charges, and the
enforcement of all forfeitures, penalties and fines connected
therewith.” The enforcement of Section 169 entails the
promotion of the health of the nation and is thus unconnected
with any tax purpose. This is the exclusive function of the
Food and Drug Administration of the Department of Health as
provided for in Republic Act No. 3720.
Same; Same; Same; Same.—The aforequoted provisions of
law clearly show that petitioners, Commissioner of Internal
Revenue and the Fair Trade Board, are without jurisdiction to
investigate and to prosecute alleged misbranding, mislabelling
and/or misleading advertisements of filled milk. The
jurisdiction on the matter cited is vested upon the Board of
Food and Drug Inspection and the Food and Drug
TON – FAYE TAX 1 CASE DOCTRINES
Administrator, with the Secretary of Health and the Secretary
of Justice, also intervening in case criminal prosecution has to
be instituted. To hold that the petitioners have also jurisdiction
as would be the result were their instant petition granted,
would only cause overlapping of powers and functions likely
to produce confusion and conflict of official action which is
neither practical nor desirable. [Vera vs. Cuevas, 90 SCRA
379(1979)]
BIR Rules and Regulations
1. CIR vs CA
Taxation; Tax Amnesty; Administrative Law; Administrative
issuances must not override but must remain consistent and in
harmony with the law they seek to apply and implement.—
The authority of the Minister of Finance (now the Secretary of
Finance), in conjunction with the Commissioner of Internal
Revenue, to promulgate all needful rules and regulations for
the effective enforcement of internal revenue laws cannot be
controverted. Neither can it be disputed that such rules and
regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts.
Much more fundamental than either of the above, however, is
that all such issuances must not override, but must remain
consistent and in harmony with, the law they seek to apply and
implement. Administrative rules and regulations are intended
to carry out, neither to supplant nor to modify, the law;
[Commissioner of lnternal Revenue vs. Court of Appeals, 240
SCRA 368(1995)]
2. Arches vs. Bellosillo
Same; Taxation; Approval of tax suit by Commissioner is not
a jurisdictional requirement.—The approval by the
Commissioner of Internal Revenue of a civil action for the
recovery of taxes (Sec. 308, Tax Code) is not a jurisdictional
requirement. It relates to capacity to sue or it affects the cause
of action only. [Arches vs. Bellosillo, 20 SCRA 32(1967)]
Same; Taxation; Binding force of revenue regulation.—A
revenue regulation whose issuance is authorized by statute,
has the force and effect of law (Art. 7, New Civil Code).
Same; Regional Director's approval of tax suit.—The
verification by the Revenue Regional Director of a complaint
for the collection of uncontested deficiency taxes constitutes a
sufficient approval thereof within the meaning of section 308
of the Tax Code. [Arches vs. Bellosillo, 20 SCRA 32(1967)]
3. CIR vs CA
Taxation; The CIR may not disregard legal requirements or
applicable principles in the exercise of its quasi-legislative
powers.—Petitioner stresses on the wide and ample authority
of the BIR in the issuance of rulings for the effective
implementation of the provisions of the National Internal
Revenue Code. Let it be made clear that such authority of the
Commissioner is not here doubted. Like any other government
agency, however, the CIR may not disregard legal
requirements or applicable principles in the exercise of its
quasi-legislative powers. [Commissioner of lnternal Revenue
vs. Court of Appeals, 261 SCRA 236(1996)]
Same; Uniformity requires that all subjects or objects of
taxation, similarly situated, are to be treated alike or put on
equal footing both in privileges and liabilities.—Article VI,
Section 28, paragraph 1, of the 1987 Constitution mandates
taxation to be uniform and equitable. Uniformity requires that
all subjects or objects of taxation, similarly situated, are to be
treated alike or put on equal footing both in privileges and
liabilities. Thus, all taxable articles or kinds of property of the
same class must be taxed at the same rate and the tax must
operate with the same force and effect in every place where
the subject may be found. [Commissioner of lnternal Revenue
vs. Court of Appeals, 261 SCRA 236(1996)]
4. CIR vs. Burroghs
Taxation; Corporations; The 15% tax on branch profits
remitted abroad applies to the profit actually remitted, not the
amount applied for remittance.—We rule in the affirmative.
The pertinent provision of the National Revenue Code is Sec.
24 (b) (2) (ii) which states: “Sec. 24. Rates of tax on
corporations. x x x (b) Tax on foreign corporations. x x x (2)
(ii) Tax on branch profits remittances.—Any profit remitted
abroad by a branch to its head office shall be subject to a tax
of fifteen per cent (15%) x x x.”
Same; Same; Same.—In a Bureau of Internal Revenue ruling
dated January 21, 1980 by then Acting Commissioner of
Internal Revenue Hon. Efren I. Plana the aforequoted
provision had been interpreted to mean that “the tax base upon
which the 15% branch profit remittance tax x x x shall be
imposed x x x (is) the profit actually remitted abroad and not
on the total branch profits out of which the remittance is to be
made.”
Same; B.I.R rulings cannot, as a rule, be given retroactive
effect-Exceptions.—Petitioner contends that respondent is no
longer entitled to a refund because Memorandum Circular No.
8-82 dated March 17, 1982 had revoked and/or repealed the
BIR ruling of January 21, 1980. The said memorandum
circular states—“Considering that the 15% branch profit
remittance tax is imposed and collected at source, necessarily
the tax base should be the amount actually applied for by the
branch with the Central Bank of the Philippines as profit to be
remitted abroad.” Petitioner’s aforesaid contention is without
merit. What is applicable in the case at bar is still the Revenue
Ruling of January 21, 1980 because private respondent
Burroughs Limited paid the branch profit remittance tax in
question on March 14, 1979. Memorandum Circular No. 8-82
dated March 17, 1982 cannot be given retroactive effect in the
light of Section 327 of the National Internal Revenue Code.
[Commissioner of Internal Revenue vs. Burroughs Limited,
142 SCRA 324(1986)]
5. ABS CBN vs CIR
Taxation; Statutory Construction, Retroactivity; BIR circulars
or rulings have no retroactive effect where their application
would be prejudicial to taxpayers.—It is clear from the
foregoing that rulings or circulars promulgated by the
Commissioner of Internal Revenue have no retroactive
application where to so apply them would be prejudicial to
taxpayers. The prejudice to petitioner of the retroactive
application of Memorandum Circular No. 4-71 is beyond
question. It was issued only in 1971, or three years after 1968,
the last year that petitioner had withheld taxes under General
Circular No. V-334. The assessment and demand on petitioner
to pay deficiency withholding income tax was also made three
years after 1968 for a period of time commencing in 1965.
Petitioner was no longer in a position to withhold taxes due
from foreign corporations because it had already remitted all
film rentals and no longer had any control over them when the
new Circular was issued. And in so far as the enumerated
exceptions are concerned, admittedly, petitioner does not fall
under any of them.
Same; Same; Principle of legislative approval of
administrative interpretation by re-enactment; Case at bar.—
The principle of legislative approval of administrative
interpretation by re-enactment clearly obtains in this case. It
provides that “the re-enactment of a statute substantially
unchanged is persuasive indication of the adoption by
Congress of a prior executive construction.” Note should be
taken of the fact that this case involves not a mere opinion of
the Commissioner or ruling rendered on a mere query, but a
Circular formally issued to “all internal revenue officials” by
TON – FAYE TAX 1 CASE DOCTRINES
the then Commissioner of Internal Revenue. [ABS-CBN
Broadcasting Corp. vs. Court of Tax Appeals, 108 SCRA
142(1981)]
6. CIR vs. Benguet Corporation
Taxation; Rulings, circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue would
have no retroactive application if to so apply them would be
prejudicial to the taxpayers.—In a long line of cases, this
Court has affirmed that the Commissioner of Internal Revenue
vs. Benguet Corporation rulings, circular, rules and
regulations promulgated by the Commissioner of Internal
Revenue would have no retroactive application if to so apply
them would be prejudicial to the taxpayers. In fact, both
petitioner and respondent agree that the retroactive application
of VAT Ruling No. 008-92 is valid only if such application
would not be prejudicial to the respondent—pursuant to the
explicit mandate under Sec. 246 of the NIRC, thus: Sec. 246.
Non-retroactivity of rulings.—Any revocation, modification or
reversal of any of the rules and regulations promulgated in
accordance with the preceding Section or any of the rulings or
circulars promulgated by the Commissioner shall not be given
retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers except in the
following cases: (a) where the taxpayer deliberately misstates
or omits material facts from his return on any document
required of him by the Bureau of Internal Revenue; (b) where
the facts subsequently gathered by the Bureau of Internal
Revenue are materially different form the facts on which the
ruling is based; or (c) where the taxpayer acted in bad faith.
[Commissioner of Internal Revenue vs. Benguet Corporation,
463 SCRA 28(2005)]
7. PBC vs CIR
Taxation; Due Process; Due process of law under the
Constitution does not require judicial proceedings in tax
cases—it is of utmost importance that the modes adopted to
enforce the collection of taxes levied should be summary and
interfered with as little as possible.— Basic is the principle
that “taxes are the lifeblood of the nation.” The primary
purpose is to generate funds for the State to finance the needs
of the citizenry and to advance the common weal. Due process
of law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so because
it is upon taxation that the government chiefly relies to obtain
the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of
taxes levied should be summary and interfered with as little as
possible.
Same; Tax Refunds; Prescription.—Claims for refund or tax
credit should be exercised within the time fixed by law
because the BIR being an administrative body enforced to
collect taxes, its functions should not be unduly delayed or
hampered by incidental matters. [Philippine Bank of
Communications vs. Commissioner of Internal Revenue, 302
SCRA 241(1999)]
Income Taxation
1. Evangelista vs. Collector
1.TAXATION; TAX ON CORPORATIONS INCLUDES
ORGANIZATIONS WHICH ARE NOT NECESSARILY
PARTNERSHIP.—"Corporations" strictly speaking are
distinct and different from "partnerships." When our Internal
Revenue Code includes "partnerships" among the entities
subject to the tax on "corporations", it must allude to
organizations which are not necessarily "partnerships" in the
technical sense of the term.
2.ID.; DULY REGISTERED GENERAL PARTNERSHIPS
ARE EXEMPTED FROM TAX UPON CORPORATIONS.—
Section 24 of the Internal Revenue Code exempts from the tax
imposed upon corporations "duly registered general
partnerships", which constitute precisely one of the most
typical forms of partnerships in this jurisdiction.
3.ID. ; CORPORATION INCLUDES PARTNERSHIPS NO
MATTER HOW ORGANIZED.—As defined in section 84
(b) of the Internal Revenue Code "the term corporation
includes partnerships, no matter how created or organized,"
This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standard forms,
or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations. [Evangelista, et al. vs.
Coll. of Int. Rev., et al., 102 Phil. 140(1957)]
2. Obillos vs CIR
Taxation; The dictum that the power to tax involves the power
to destroy should be obviated.—To regard the petitioners as
having formed a taxable unregistered partnership would result
in oppressive taxation and confirm the dictum that the power
to tax involves the power to destroy. That eventuality should
be obviated.
Same; Partnership; Co-ownership; Where the father sold his
rights over two parcels of land to his four children so they can
build their residence, but the latter after one (1) year sold them
and paid the capital gains, they should not be treated to have
formed an unregistered partnership and taxed corporate
income tax on the sale and dividend income tax on their shares
of the profit's from the sale.—Their original purpose was to
divide the lots for residential purposes. If later on they found it
not feasible to build their residences on the lots because of the
high cost of construction, then they had no choice but to resell
the same to dissolve the coownership. The division of the
profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state.
It had to be terminated sooner or later. [Obillos, Jr. vs.
Commissioner of Internal Revenue, 139 SCRA 436(1985)]
3. Pascual vs. CIR
Taxation; Co-ownership; Unregistered Partnership; Elements
of Partnership; Case at bar.—In the present case, there is no
evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and
that they intended to divide the profits among themselves.
Respondent commissioner and/ or his representative just
assumed these conditions to be present on the basis of the fact
that petitioners purchased certain parcels of land and became
co-owners thereof. In Evangelista, there was a series of
transactions where petitioners purchased twenty-four (24) lots
showing that the purpose was not limited to the conservation
or preservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to
business transactions engaged in for the purpose of gain was
present.
Same; Same; Same; Same; The sharing of returns does not in
itself establish a partnership; Reasons.—“In order to constitute
a partnership inter sese there must be: (a) An intent to form the
same; (b) generally participating in both profits and losses; (c)
and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the
business, and dispose of the whole property.’—(Municipal
Paving Co. vs. Herring, 150 P. 1067, 50 111 470.) The
common ownership of property does not itself create a
partnership between the owners, though they may use it for
purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management and
use of such property and the application of the proceeds
therefrom.’—(Spurlock vs. Wilson, 142 S. W. 363, 160 No.
App. 14.)” The sharing of returns does not in itself establish a
TON – FAYE TAX 1 CASE DOCTRINES
partnership whether or not the persons sharing therein have a
joint or common right of interest in the property. There must
be clear intent to form a partnership, the existence of a
juridical personality different from the individual partners, and
the freedom of each party to transfer or assign the whole
property.
Same; Same; Same; Same; Petitioners, not liable for corporate
income tax since they cannot be considered to have formed an
unregistered partnership but only a co-ownership; Reasons.—
In the present case, there is clear evidence of co-ownership
between the petitioners. There is no adequate basis to support
the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they
purchased properties and sold the same a few years thereafter
did not thereby make them partners. They shared in the gross
profits as co-owners and paid their capital gains taxes on their
net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an
unregistered partnership which is thereby liable for corporate
income tax, as the respondent commissioner proposes.
Same; Same; Same; Same; As petitioners have availed of the
benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax
liability arising therefrom.—And even assuming for the sake
of argument that such unregistered partnership appears to have
been formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets that can
be held liable for said deficiency corporate income tax, then
petitioners can be held individually liable as partners for this
unpaid obligation of the partnership. However, as petitioners
have availed of the benefits of tax amnesty as individual
taxpayers in these transactions, they are thereby relieved of
any further tax liability arising therefrom. [Pascual vs.
Commissioner of Internal Revenue, 166 SCRA 560(1988)]
4. Adisco Insurance Corporation vs. CIR
Taxation; Administrative Law; The opinion or ruling of the
Commission of Internal Revenue, the agency tasked with the
enforcement of tax laws, is accorded much weight and even
finality, when there is no showing that it is patently wrong,
particularly where the findings and conclusions of the internal
revenue commissioner were subsequently affirmed by the
Court of Tax Appeals, a specialized body created for the
exclusive purpose of reviewing tax cases, and the Court of
Appeals.—The Court is not persuaded. The opinion or ruling
of the Commission of Internal Revenue, the agency tasked
with the enforcement of tax laws, is accorded much weight
and even finality, when there is no showing that it is patently
wrong, particularly in this case where the findings and
conclusions of the internal revenue commissioner were
subsequently affirmed by the CTA, a specialized body created
for the exclusive purpose of reviewing tax cases, and the Court
of Appeals. Indeed, “[I]t has been the long standing policy and
practice of this Court to respect the conclusions of quasi-
judicial agencies, such as the Court of Tax Appeals which, by
the nature of its functions, is dedicated exclusively to the study
and consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has been an
abuse or improvident exercise of its authority.” [Afisco
Insurance Corporation vs. Court of Appeals, 302 SCRA
1(1999)]
Same; Same; Partnerships; Associations; Words and Phrases;
A partnership is formed when persons contract “to devote to a
common purpose either money, property, or labor with the
intention of dividing the profits between themselves,” while an
association implies associates who enter into a “joint
enterprise for the transaction of business.”—Article 1767 of
the Civil Code recognizes the creation of a contract of
partnership when “two or more persons bind themselves to
contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.”
Its requisites are: “(1) mutual contribution to a common stock,
and (2) a joint interest in the profits.” In other words, a
partnership is formed when persons contract “to devote to a
common purpose either money, property, or labor with the
intention of dividing the profits between themselves.”
Meanwhile, an association implies associates who enter into a
“joint enterprise x x x for the transaction of business. [Afisco
Insurance Corporation vs. Court of Appeals, 302 SCRA
1(1999)]

Same; Same; Section 24 (b)(1) of the NIRC pertains to tax on

foreign corporations; hence it cannot be claimed by the ceding
companies which are domestic corporations.—Section 24
(b)(1) pertains to tax on foreign corporations; hence, it cannot
be claimed by the ceding companies which are domestic
corporations. Nor can Munich, a foreign corporation, be
granted exemption based solely on this provision of the Tax
Code, because the same subsection specifically taxes
dividends, the type of remittances forwarded to it by the pool.
Although not a signatory to the Pool Agreement, Munich is
patently an associate of the ceding companies in the entity
formed, pursuant to their reinsurance treaties which required
the creation of said pool. Under its pool arrangement with the
ceding companies, Munich shared in their income and loss.
This is manifest from a reading of Articles 3 and 10 of the
Quota-Share Reinsurance Treaty and Articles 3 and 10 of the
Surplus Reinsurance Treaty. The foregoing interpretation of
Section 24 (b)(1) is in line with the doctrine that a tax
exemption must be construed strictissimi juris, and the
statutory exemption claimed must be expressed in a language
too plain to be mistaken. [Afisco Insurance Corporation vs.
Court of Appeals, 302 SCRA 1(1999)]

TON – FAYE TAX 1 CASE DOCTRINES