Nitafan vs. CIR, G.R. No.

78780, July 23, 1987

FACTS:

Petitioners are qualified judges of the Regional Trial Court. They sought to prohibit the Commissioner of Internal
Revenue and the Financial Officer of the Supreme Court from making deductions of withholding taxes from their
salaries.

According to the petitioners, the tax withheld from their compensation as judicial officers is a violation of Section
10, Article VIII of the 1987 Constitution which states that:

“The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of judges of lower courts
shall be fixed by law. During their continuance in office, their salary shall not be decreased”.

In other words, by deducting withholding taxes, the judges asserted that their salaries are being decreased, citing
Perfecto vs. Meer and Dencia vs. David as their legal basis.

In particular, since the 1987 Constitution does not contain a provision similar to Section 6, Article XV of the 1973
Constitution, petitioners claimed that the intent of the framers was to revert to the original concept of “non-
diminution” of salaries.

The Chief Justice had actually dealt with this matter previously in response to representations that the Court direct
its Finance Officer to discontinue the withholding of taxes from salaries of members of the Bench. While the
question has been resolved, the Court decided to settle the legal issues through a judicial pronouncement.

ISSUE/HELD:

Whether members of the judiciary are subject to payment of income tax – YES

RATIO:

Members of the judiciary are subject to payment of income tax

This payment of income tax does not fall within the constitutional protection against decrease of their salaries during
their continuance in office. Further, the deletion of the grant of exemption from payment of income tax to members
of the Judiciary was a way of ensuring the equality of the three branches of government.

Based on jurisprudence, it was concluded that the true intent of the framers was to make the salaries of members of
the Judiciary taxable, as is applicable to all income earners.

The course of deliberations, debates, and amendments on the draft proposal of Section 10, Article VIII further
clarified the issue:

Commissioner Cirilo Rigos’s proposal, that the term “diminished” be changed to “decreased” and that the word “nor
subjected to income tax” be deleted, was accepted.
Commissioner Joaquin G. Bernas announced that by putting a period after “decreased”, it is with the understanding
that the salaries of justices are subject to tax. He cited that this is based on the understanding that there will be a
provision in the Constitution similar to Section 6 of Article XV, the General Provisions of the 1973 Constitution,
which states that no salary of any public officer shall be exempt from payment of income tax.

Due to these issues, Fr. Bernas stated that the ruling in Perfecto vs Meer and Dencia vs David were not applicable
anymore.

Mactan Cebu International Airport Authority vs Marcos, et al.,

GR No 120082, S eptember 11, 1996

Facts:
Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958,
mandated to “principally undertake the economical, efficient and effective control, management and supervision of
the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, and such other
airports as may be established in the Province of Cebu. Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter:

"Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government
or any of its political subdivisions, agencies and instrumentalities."

On October 11, 1994, however, the Office of the Treasurer of the City of Cebu, demanded payment for realty taxes
on several parcels of land belonging to the petitioner located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu
City, in the total amount of P2,229,078.79. Petitioner objected to such demand for payment as baseless and
unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempts it from payment of realty
taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing
Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local
government units:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
a) x x x
xxx
o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units"

Respondent City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a
government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193
and 234 of the Local Government Code that took effect on January 1, 1992:

"Section 193. Withdrawal of Tax Exemption Privilege.— Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned
or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.
Section 234. Exemptions from Real Property Taxes. — x x x
(a) xxx
xxx
(e) xxx
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations are
hereby withdrawn upon the effectivity of this Code."
Issues:
Whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been
granted to the petitioner, and

Whether the petitioner is a “taxable person.”

Ruling:

Section 15 of the petitioner’s Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities, runways, lands,
buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and
all assets, powers, rights, interests and privileges relating on airport works or air operations, including all
equipment which are necessary for the operations of air navigation, aerodrome control towers, crash, fire, and
rescue facilities are hereby transferred to the Authority: Provided, however, that the operations control of all
equipment necessary for the operation of radio aids to air navigation, airways communication, the approach control
office, and the area control center shall be retained by the Air Transportation Office. No equipment, however, shall
be removed by the Air Transportation Office from Mactan without the concurrence of the Authority. The Authority
may assist in the maintenance of the Air Transportation Office equipment.
It may be reasonable to assume that the term “lands” refer to “lands” in Cebu City then administered by the Lahug
Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This
section involves a “transfer” of the “lands,” among other things, to the petitioner and not just the transfer of the
beneficial use thereof, with the ownership being retained by the Republic of the Philippines.

This “transfer” is actually an absolute conveyance of the ownership thereof because the petitioner’s authorized
capital stock consists of, inter alia, “the value of such real estate owned and/or administered by the airports.” Hence,
the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is
inapplicable.

Moreover, the petitioner cannot claim that it was never a “taxable person” under its Charter. It was only exempted
from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of
the legislative intent to make it a taxable person subject to all taxes, except real property tax.

Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the
foregoing disquisitions, it had already become, even if it be conceded to be an “agency” or “instrumentality” of the
Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

Meralco vs. Vera | G.R. No. L-29987

Facts: Meralco is the holder of a franchise to construct, maintain, and operate an electric light, heat, and power
system in the City of Manila and its suburbs. In 1962 and 1963, Meralco imported and received from abroad copper
wires, transformers, and insulators for use in the operation of its business. The Collector of Customs, as deputy of
the Commissioner of Internal Revenue, levied and collected a compensating tax. Meralco claimed for refund for the
said years, but such claims were either not acted upon or denied by the Commissioner.

Issue: Whether or not Meralco is exempt from payment of a compensating tax on poles, wires, transformers and
insulators imported by it for use in the operation of its electric light, heat, and power system.

Held: Meralco is not exempt from paying the compensation tax provided for in Section 190 of the Tax Code, the
purpose of which is to “place casual importers, who are not merchants on equal footing with established merchants
who pay sales tax on articles imported by them.” Meralco’s claim for exemption from payment of the compensating
tax is not clear or expressed, contrary to the rule that “exemptions from taxation are highly disfavored in law, and
he who claims exemption must be able to justify his claim by the clearest grant of organic or statute law.” Tax
exemption are strictly construed against the taxpayer, they being highly disfavored and may almost be said to be
“odious to the law.” When exemption is claimed, it must be shown indubitably to exist, for every presumption is
against it, and a well-founded doubt is fatal to the claim.

G.R. No. L-20942 September 22, 1967

COMMISIONER OF INTERNAL REVENUE, petitioner,

vs.
A. D. GUERRERO, Special Administrator, in substitution of NATHANIEL I. GUNN, as Administrator of the
Estate of the late PAUL I. GUNN, respondent.

Office of the Solicitor General for petitioner.

A. E. Dacanay for respondent.

FERNANDO, J.:

A novel question, one of importance and significance, is before this Court in this petition for the review of a
decision of the Court of Tax Appeals. For the first time, the Ordinance appended to the Constitution calls for
interpretation, having been invoked to justify a claim for refund of taxes by the estate of an American national, who
in his life-time was engaged in the air transportation business. More specifically, the issue is whether or not Section
142 of the National Internal Revenue Code allowing Filipinos a refund of 50 percentum of the specific tax paid on
aviation oil, could be availed of by citizens of the United States and all forms of business enterprises owned or
controlled directly by them in view of the privilege under the Ordinance to operate public utilities "in the same
manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or
associations owned or controlled by citizens of the Philippines." 1

The Commissioner of Internal Revenue, now petitioner before this Court, denied the claim for refund in the sum of
P2,441.93 filed by the administrator of the estate of Paul I. Gunn, thereafter substituted by the present respondent A.
D. Guerrero as special administrator under the above section of the National Internal Revenue Code.2 The deceased
operated an air transportation business under the business name and style of Philippine Aviation Development; his
estate, it was claimed, "was entitled to the same rights and privileges as Filipino citizens operating public utilities
including privileges in the matter of taxation." The Commissioner of Internal Revenue disagreed, ruling that such
partial exemption from the gasoline tax was not included under the terms of the Ordinance and that in accordance
with the statute, to be entitled to its benefits, there must be a showing that the United States of which the deceased
was a citizen granted a similar exemption to Filipinos. The refund as already noted was denied. The matter was
brought to the Court of Tax Appeals on a stipulation of facts, no additional evidence being introduced. Viewing the
Ordinance differently, it "ordered the petitioner to refund to the respondent the sum of P2,441.93 representing 50%
of the specific taxes paid on 61,048.19 liters of gasoline actually used in aviation during the period from October 3,
1956 up to May 31, 1957." Not satisfied with the above decision, petitioner appealed.

We sustain the Commissioner of Internal Revenue; accordingly, the Court of Tax Appeals is reversed. To the extent
that a refund is allowable, there is in reality a tax exemption. The rule applied with undeviating rigidity in the
Philippines is that for a tax exemption to exist, it must be so categorically declared in words that admit of no doubt.
No such language may be found in the Ordinance. It furnishes no support, whether express or implied, to the claim
of respondent Administrator for a refund.

From 1906, in Catholic Church vs. Hastings3 to 1966, in Esso Standard Eastern, Inc. vs. Acting Commissioner of
Customs,4 it has been the constant and uniform holding that exemption from taxation is not favored and is never
presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on
exemption from taxation, hence, an exempting provision should be construed strictissimi juris.5 The state of the law
on the subject was aptly summarized in the Esso Standard Eastern, Inc. case by Justice Sanchez thus: "The drive of
petitioner's argument is that marketing of its gasoline product 'is corollary to or incidental to its industrial
operations.' But this contention runs smack against the familiar rules that exemption from taxation is not favored,
and that exemptions in tax statutes are never presumed. Which are but statements in adherence to the ancient rule
that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority. Tested by this precept, we cannot indulge in expansive construction and write into the law an
exemption not therein set forth. Rather, we go by the reasonable assumption that where the State has granted in
express terms certain exemptions, those are the exemptions to be considered, and no more . . . ."

In addition to Justice Tracey, who first spoke for this Court in the Hastings case in announcing "the cardinal rule of
American jurisprudence that exemption from taxation not being favored," and therefore "must be strictly construed"
against the taxpayer, two other noted American jurists, Moreland and Street, who likewise served this Court with
distinction, reiterated the doctrine in terms even more emphatic. According to Justice Moreland: "Even though the
complaint in this regard were well founded, it would have little bearing on the result of the litigation when we take
into consideration the universal rule that he who claims an exemption from his share of the common burden of
taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be
mistaken."6From Justice Street: "Exemptions from taxation are highly disfavored, so much so that they 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 vague implication such as is supposed to arise in this case
from the omission from Act No. 1654 of any reference to liability for tax. The books are full of very strong
expressions on this point."7

At the time then when the Ordinance took effect in April, 1947, the strict rule against tax exemption was undisputed
and indisputable. Such being the case, it would be a plain departure from the terms of the Ordinance to predicate a
tax exemption where none was intended. Well settled is the principle " . . . that a constitutional provision must be
presumed to have been framed and adopted in the light and understanding of prior and existing laws and with
reference to them. 'Courts are bound to presume that the people adopting a constitution are familiar with the
previous and existing laws upon the subjects to which its provisions relate, and upon which they express their
judgment and opinion in its adoption'." 8

Respect for and deference to doctrines of such undeniable force and cogency preclude an affirmance of the decision
of the Court of Tax Appeals. This is not to say that the scope of the Ordinance is to be restricted or confined. What it
promises must be fulfilled. There must be recognition of the right of the "citizens of the United States and to all
forms of business enterprise owned or controlled, directly or indirectly, by citizens of the United States" to operate
public utilities "in the same manner as to, and under the same conditions imposed upon, citizens of the Philippines
or corporations or associations owned or controlled by citizens of the Philippines."

If the language of the Ordinance applies to tax refund or exemption, then the Court of Tax Appeals should be
sustained. It does not, however. Its terms are clear. Standing alone, without any franchise to supply that omission, it
affords no warrant for the claim here made. While good faith, no less than adherence to the categorical wording of
the Ordinance, requires that all the rights and privileges thus granted to Americans and business enterprises owned
and controlled by them be respected, anything further would not be warranted. Nothing less will suffice, but
anything more is not justified.1awphîl.nèt

This conclusion has reinforcement that comes to it from another avenue of approach, the historical background of
the Ordinance. In public law questions, history many a time holds the key that unlocks the door to understanding.
Justice Tuason would thus have courts "look to the history of the times, examine the state of things existing when
the Constitution was framed and adopted, . . . and interpret it in the light of the law then in operation." 9 Justice
Laurel earlier noted that while historical discussion is not decisive, it is valuable. 10 A brief resume then of the events
that led to its being appended, to the Constitution will not be inappropriate.

Early in 1945, liberation primarily through the efforts of the American forces under General MacArthur, assisted by
Filipino guerrillas, heralded the dawn, awaited so long and so anxiously, ending the dark night of the Japanese
Occupation, which was only partly mitigated by a show of cooperation on the part of some Filipino leaders of
stature and eminence. All throughout those years, the Japanese Army in the Philippines enforced repressive
measures, severe in character. What was even more regrettable, in the last few weeks, the few remaining Japanese
troops in Manila and suburbs made a suicidal stand. The scorched earth policy was followed. Guerrilla suspects paid
dearly for their imaginary sins. There were recorded cases, not few in number, or the old and infirm, even those of
tender years, not being spared. The Americans shelled Japanese positions, unfortunately not always with precision,
as would have been unavoidable perhaps in any case. The lot of the helpless civilians, already suffering from acts
born out of desperation of a cornered prey, became even more unenviable. They were caught in the cross-fire.

The toll in the destruction of the property and the loss of lives was heavy; the price the Filipinos paid was high. The
feeling then, and even now for that matter, was that it was worth it. For life during the period of the Japanese
Occupation had become unbearable. There was an intolerable burden on the spirit and the kind of man with all civil
liberties wantonly disregarded. There was likewise a well-nigh insupportable affliction on his health and physical
well-being, with food, what there was of it, difficult to locate and beyond the means of even the middle-income
groups. Medicine was equally scarce, what was available commanding prices unusually high. A considerable portion
of the population were dressed in rags and lived under the most pitiable conditions in houses that had seen much
better days. Moreover in a garrison state with the Japanese kempetai,11 and the contemptible spies and informers,
there was ever present that fear of the morrow, the sense of living at the edge of an impending doom.

It was fortunate that the Japanese Occupation ended when it did. Liberation was hailed by all, but the problems
faced by the legitimate government were awesome in their immensity. The Philippine treasury was bankrupt and her
economy prostrate. There were no dollar-earning export crops to speak of; commercial operations were paralyzed;
and her industries were unable to produce with mills, factories and plants either destroyed or their machineries
obsolete or dismantled. It was a desolate and tragic sight that greeted the victorious American and Filipino troops.
Manila, particularly that portion south of the Pasig, lay in ruins, its public edifices and business buildings lying in a
heap of rubble and numberless houses razed to the ground. It was in fact, next to Warsaw, the most devastated city
in the expert opinion of the then General Eisenhower. There was thus a clear need of help from the United States.
American aid was forthcoming but on terms proposed by her government and later on accepted by the Philippines.

One such condition expressly set forth in the Philippine Trade Act of 1946 passed by the Congress of the United
States was that: "The disposition, exploitation, development, and utilization of all agricultural, timber, and mineral
lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces and sources of
potential energy, and other natural resources of the Philippines, and the operation of public utilities, shall, if open to
any person, be open to citizens of the United States and to all forms of business enterprises owned or controlled
directly or indirectly, by United States citizens."12

The above was embodied in an Executive Agreement concluded on July 4, 1946, the agreement being signed by the
President of the Republic of the Philippines and the plenipotentiary of the President of the United States. The
Constitution being in the way, both the exploitation of natural resources and the operation of public utilities having
been reserved for Filipinos, there was a need for an amendment. Such an amendment was only forthcoming. It took
the form of the Ordinance now under consideration, which took effect on April 9, 1947.

The Ordinance thus came into being at a time when the liberation of the Philippines had elicited a vast reservoir of
goodwill for the United States, one that has lasted to this day notwithstanding irritants that mar ever so often the
relationship even among the most friendly of nations. Her prestige was never so high. The Philippines after hearing
opposing views on the matter conceded parity rights. She adopted the Ordinance. To that grant, she is committed. Its
terms are to be respected. In view of the equally fundamental postulate that legal concepts imperatively calling for
application cannot be ignored, however, it follows that tax exemption to Americans or to business owned or
controlled directly or indirectly by American citizens, based solely on the language of the Ordinance, cannot be
allowed. There is nothing in its history that calls for a different view. Had the parties been of a different mind, they
would have employed words indicative of such intention. What was not there included, whether by purpose or
inadvertence, cannot be judicially supplied.

One final consideration. The Ordinance is designed for a limited period to allow what the Constitution prohibits;
Americans may operate public utilities. During its effectivity, there should be no thought of whittling down the grant
thus freely made. Nonetheless, being of a limited duration, it should not be given an interpretation that would trench
further on the plain constitutional mandate to limit the operation of public utilities to Filipino hands. That is to show
fealty to the fundamental law, which, in the language of Story "was not intended to provide merely for the
exigencies of a few years" unlike the Ordinance "but was to endure through a long lapse of ages, the events of which
were locked up in the inscrutable purposes of Providence." 13This is merely to emphasize that the Constitution unlike
an ordinance appended to it, to borrow from Cardozo "states or ought to state not rules for the passing hour, but
principles for an expanding future." 14 What is transitory in character then should not be given an interpretation at
war with the plain and explicit command of what is to continue far into the future, unless there be some other
principle of acknowledged primacy that compels the contrary.15

It would seem to follow from all the foregoing that the decision of the Court of Tax Appeals enlarged the scope and
operation of the Ordinance. It failed unfortunately to abide by what the controlling precedents require, namely, that
tax exemption is not to be presumed and that if granted, it is to be most strictly construed. No such grant was
apparent on the face of the Ordinance. No such grant could be implied from its history, much less from its transitory
character. The Court of Tax Appeals went too far. That cannot be done.

WHEREFORE, the decision of the Court of Tax Appeals is reversed and the case is remanded to it, to grant
respondent Administrator the opportunity of proving whether the estate could claim the benefits of Section 142 of
the National Internal Revenue Code, allowing refund to citizens of foreign countries on a showing of reciprocity.
With costs.

CASE DIGEST: COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SOLIDBANK

CORPORATION, respondent. (G.R. No. 148191; November 25, 2003)

FACTS:
In 1995, Solidbank filed its Quarterly Percentage Tax Returns (QPTR) reflecting gross receipts of more than 1.4
billion pesos. Hence, it wanted to pay gross receipts tax at more than 73 million pesos.

Using ABC v. CIR, Solidbank alleged that the total gross receipts in the amount of P1,474,691,693.44 included the
sum of P350,807,875.15 representing gross receipts from passive income which was already subjected to 20% final
withholding tax. So, it wants to get tax refund or tax credit certification for more than 3.5 million pesos. Without
waiting for an action from the CIR, Solidbank filed a petition for review with the CTA to toll the 2-year prescriptive
period for judicial refund claims for overpaid internal revenue tax.

CTA ordered CIR to refund. Appeal to CA was unsuccessful.

ISSUE:
[1] Is the 20% FWT a part of the taxable gross receipts?
[2] Should accrued income form part of the GRT computation?
[3] Is earmarking the same as withholding?
[4] Is Solidbank entitled to tax refund or tax credit certification?
[5] Is there double taxation in this case?
HELD:
[1] Yes, the amount of interest income withheld in payment of the 20% FWT forms part of gross receipts in
computing for the GRT on banks.

Under the Tax Code, the earnings of banks from passive income are subject to a twenty percent final withholding
tax (20% FWT). This tax is withheld at source and is thus not actually and physically received by the banks, because
it is paid directly to the government by the entities from which the banks derived the income. Apart from the 20%
FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed by the Tax Code on
their gross receipts, including the passive income.

Since the 20% FWT is constructively received by the banks and forms part of their gross receipts or earnings, it
follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the government on their behalf, in
satisfaction of their withholding taxes. That they do not actually receive the amount does not alter the fact that it is
remitted for their benefit in satisfaction of their tax obligations.

Stated otherwise, the fact is that if there were no withholding tax system in place in this country, this 20 percent
portion of the passive income of banks would actually be paid to the banks and then remitted by them to the
government in payment of their income tax. The institution of the withholding tax system does not alter the fact that
the 20 percent portion of their passive income constitutes part of their actual earnings, except that it is paid directly
to the government on their behalf in satisfaction of the 20 percent final income tax due on their passive incomes.

[2] Accrual should not be confused with the concept of constructive possession or receipt as earlier discussed.
Petitioner correctly points out that income that is merely accrued -- earned, but not yet received -- does not form part
of the taxable gross receipts; income that has been received, albeit constructively, does

[3] Earmarking is not the same as withholding. Amounts earmarked do not form part of gross receipts, because,
although delivered or received, these are by law or regulation reserved for some person other than the taxpayer. On
the contrary, amounts withheld form part of gross receipts, because these are in constructive possession and not
subject to any reservation, the withholding agent being merely a conduit in the collection process.

[4] No, Solidbank is not entitled to tax refund or tax credit certification. Exemptions are the exception in
taxation. No exemptions are normally allowed when a GRT is imposed. It is precisely designed to maintain
simplicity in the tax collection effort of the government and to assure its steady source of revenue even during an
economic slump.

[5] No, there is no double taxation here. The subject matter of the FWT is the passive income generated in the form
of interest on deposits and yield on deposit substitutes, while the subject matter of the GRT is the privilege of
engaging in the business of banking. Also, although both taxes are national in scope because they are imposed by the
same taxing authority -- the national government under the Tax Code -- and operate within the same Philippine
jurisdiction for the same purpose of raising revenues, the taxing periods they affect are different. The FWT is
deducted and withheld as soon as the income is earned, and is paid after every calendar quarter in which it is earned.
On the other hand, the GRT is neither deducted nor withheld, but is paid only after every taxable quarter in which it
is earned.

Smart Communications v. The City of Davao

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Smart Communications, Inc.
(Smart) against the City of Davao, represented by its Mayor, Hon. Rodrigo R. Duterte, and the Sangguniang
Panlungsod of Davao City, to annul the Decision1 dated July 19, 2002 of the Regional Trial Court (RTC) and its
Order2dated September 26, 2002 in Sp. Civil Case No. 28,976-2002.

The Facts

On February 18, 2002, Smart filed a special civil action for declaratory relief 3 under Rule 63 of the Rules of Court,
for the ascertainment of its rights and obligations under the Tax Code of the City of Davao, 4 particularly Section 1,
Article 10 thereof, the pertinent portion of which reads:

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.

Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City, on the
following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No. 7294 5 subsequent to R.A. No.
7160 shows the clear legislative intent to exempt it from the provisions of R.A. 7160; 6 (b) Section 137 of R.A. No.
7160 can only apply to exemptions already existing at the time of its effectivity and not to future exemptions; (c) the
power of the City of Davao to impose a franchise tax is subject to statutory limitations such as the "in lieu of all
taxes" clause found in Section 9 of R.A. No. 7294; and (d) the imposition of franchise tax by the City of Davao
would amount to a violation of the constitutional provision against impairment of contracts. 7
On March 2, 2002, respondents filed their Answer 8 in which they contested the tax exemption claimed by Smart.
They invoked the power granted by the Constitution to local government units to create their own sources of
revenue.9

On May 17, 2002, a pre-trial conference was held. Inasmuch as only legal issues were involved in the case, the RTC
issued an order requiring the parties to submit their respective memoranda and, thereafter, the case would be deemed
submitted for resolution.10

On July 19, 2002, the RTC rendered its Decision11 denying the petition. The trial court noted that the ambiguity of
the "in lieu of all taxes" provision in R.A. No. 7294, on whether it covers both national and local taxes, must be
resolved against the taxpayer.12 The RTC ratiocinated that tax exemptions are construed in strictissimi juris against
the taxpayer and liberally in favor of the taxing authority and, thus, those who assert a tax exemption must justify it
with words too plain to be mistaken and too categorical not to be misinterpreted.13 On the issue of violation of the
non-impairment clause of the Constitution, the trial court cited Mactan Cebu International Airport Authority v.
Marcos,14and declared that the city’s power to tax is based not merely on a valid delegation of legislative power but
on the direct authority granted to it by the fundamental law. It added that while such power may be subject to
restrictions or conditions imposed by Congress, any such legislated limitation must be consistent with the basic
policy of local autonomy.15

Smart filed a motion for reconsideration which was denied by the trial court in an Order 16 dated September 26, 2002.

Thus, the instant case.

Smart assigns the following errors:

[a.] THE LOWER COURT ERRED IN NOT HOLDING THAT UNDER PETITIONER’S FRANCHISE
(REPUBLIC ACT NO. 7294), WHICH CONTAINS THE "IN LIEU OF ALL TAXES" CLAUSE, AND WHICH IS
A SPECIAL LAW ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, NO FRANCHISE
TAX MAY BE IMPOSED ON PETITIONER BY RESPONDENT CITY.

[b.] THE LOWER COURT ERRED IN HOLDING THAT PETITIONER’S FRANCHISE IS A GENERAL LAW
AND DID NOT REPEAL RELEVANT PROVISIONS REGARDING FRANCHISE TAX OF THE LOCAL
GOVERNMENT CODE, WHICH ACCORDING TO THE COURT IS A SPECIAL LAW.

[c.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTION 137 OF THE LOCAL GOVERNMENT
CODE, WHICH, IN RELATION TO SECTION 151 THEREOF, ALLOWS RESPONDENT CITY TO IMPOSE
THE FRANCHISE TAX, AND SECTION 193 OF THE CODE, WHICH PROVIDES FOR WITHDRAWAL OF
TAX EXEMPTION PRIVILEGES, ARE NOT APPLICABLE TO THIS CASE.

[d.] THE LOWER COURT ERRED IN NOT HOLDING THAT SECTIONS 137 AND 193 OF THE LOCAL
GOVERNMENT CODE REFER ONLY TO EXEMPTIONS ALREADY EXISTING AT THE TIME OF ITS
ENACTMENT BUT NOT TO FUTURE EXEMPTIONS.

[e.] THE LOWER COURT ERRED IN APPLYING THE RULE OF STATUTORY CONSTRUCTION THAT
TAX EXEMPTIONS ARE CONSTRUED STRICTLY AGAINST THE TAXPAYER.

[f.] THE LOWER COURT ERRED IN NOT HOLDING THAT PETITIONER’S FRANCHISE (REPUBLIC ACT
NO. 7294) HAS BEEN AMENDED AND EXPANDED BY SECTION 23 OF REPUBLIC ACT NO. 7925, "THE
PUBLIC TELECOMMUNICATIONS POLICY ACT," TAKING INTO ACCOUNT THE FRANCHISE OF
GLOBE TELECOM, INC. (GLOBE) (REPUBLIC ACT NO. 7229), WHICH ARE SPECIAL PROVISIONS AND
WERE ENACTED SUBSEQUENT TO THE LOCAL GOVERNMENT CODE, THEREBY PROVIDING AN
ADDITIONAL GROUND WHY NO FRANCHISE TAX MAY BE IMPOSED ON PETITIONER BY
RESPONDENT CITY.
[g.] THE LOWER COURT ERRED IN DISREGARDING THE RULING OF THE DEPARTMENT OF
FINANCE, THROUGH ITS BUREAU OF LOCAL GOVERNMENT FINANCE, THAT PETITIONER IS
EXEMPT FROM THE PAYMENT OF THE FRANCHISE TAX IMPOSABLE BY LOCAL GOVERNMENT
UNITS UNDER THE LOCAL GOVERNMENT CODE.

[h.] THE LOWER COURT ERRED IN NOT HOLDING THAT THE IMPOSITION OF THE LOCAL
FRANCHISE TAX ON PETITIONER WOULD VIOLATE THE CONSTITUTIONAL PROHIBITION AGAINST
IMPAIRMENT OF CONTRACTS.

[i.] THE LOWER COURT ERRED IN DENYING THE PETITION BELOW. 17

The Issue

In sum, the pivotal issue in this case is whether Smart is liable to pay the franchise tax imposed by the City of
Davao.

The Ruling of the Court

We rule in the affirmative.

I. Prospective Effect of R.A. No. 7160

On March 27, 1992, Smart’s legislative franchise (R.A. No. 7294) took effect. Section 9 thereof, quoted hereunder,
is at the heart of the present controversy:

Section 9. Tax provisions. — The grantee, its successors or assigns shall be liable to pay the same taxes on their real
estate buildings and personal property, exclusive of' this franchise, as other persons or corporations which are now
or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by
the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings
thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable
under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the
latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.

The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or his
duly authorized representative in accordance with the National Internal Revenue Code and the return shall be subject
to audit by the Bureau of Internal Revenue. (Emphasis supplied.)

Smart alleges that the "in lieu of all taxes" clause in Section 9 of its franchise exempts it from all taxes, both local
and national, except the national franchise tax (now VAT), income tax, and real property tax. 18

On January 1, 1992, two months ahead of Smart’s franchise, the Local Government Code (R.A. No. 7160) took
effect. Section 137, in relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the local
government units; while Section 193 thereof provided for the withdrawal of tax exemption privileges granted prior
to the issuance of R.A. No. 7160 except for those expressly mentioned therein, viz.:

Section 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the
province may impose a tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the
capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall
be based on the gross receipts for the preceding calendar year, or any fraction thereon, as provided herein.

Section 151. Scope of Taxing Powers. — Except as otherwise provided in this Code, the city may levy the taxes,
fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by
not more than fifty percent (50%) except the rates of professional and amusement taxes.

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

Smart argues that it is not covered by Section 137, in relation to Section 151 of R.A. No. 7160, because its franchise
was granted after the effectivity of the said law. We agree with Smart’s contention on this matter. The withdrawal of
tax exemptions or incentives provided in R.A. No. 7160 can only affect those franchises granted prior to the
effectivity of the law. The intention of the legislature to remove all tax exemptions or incentives granted prior to the
said law is evident in the language of Section 193 of R.A. No. 7160. No interpretation is necessary.

II. The "in lieu of all taxes" Clause in R.A. No. 7294

The "in lieu of all taxes" clause in Smart’s franchise is put in issue before the Court. In order to ascertain its
meaning, consistent with fundamentals of statutory construction, all the words in the statute must be considered. The
grant of tax exemption by R.A. No. 7294 is not to be interpreted from a consideration of a single portion or of
isolated words or clauses, but from a general view of the act as a whole. Every part of the statute must be construed
with reference to the context.19

Smart is of the view that the only taxes it may be made to bear under its franchise are the national franchise tax (now
VAT), income tax, and real property tax.20 It claims exemption from the local franchise tax because the "in lieu of
taxes" clause in its franchise does not distinguish between national and local taxes. 21

We pay heed that R.A. No. 7294 is not definite in granting exemption to Smart from local taxation. Section 9 of
R.A. No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of the business
transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise or earnings
thereof. R.A. No 7294 does not expressly provide what kind of taxes Smart is exempted from. It is not clear whether
the "in lieu of all taxes" provision in the franchise of Smart would include exemption from local or national taxation.
What is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the
business transacted under its franchise. But whether the franchise tax exemption would include exemption from
exactions by both the local and the national government is not unequivocal.

The uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether Smart is exempted from both local
and national franchise tax must be construed strictly against Smart which claims the exemption. Smart has the
burden of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt from all kinds
of franchise taxes – whether local or national. However, Smart failed in this regard.

Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the
taxing authority.22 They can only be given force when the grant is clear and categorical. 23 The surrender of the
power to tax, when claimed, must be clearly shown by a language that will admit of no reasonable construction
consistent with the reservation of the power. If the intention of the legislature is open to doubt, then the intention of
the legislature must be resolved in favor of the State.24

In this case, the doubt must be resolved in favor of the City of Davao. The "in lieu of all taxes" clause applies only
to national internal revenue taxes and not to local taxes. As appropriately pointed out in the separate opinion of
Justice Antonio T. Carpio in a similar case25 involving a demand for exemption from local franchise taxes:

[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than income tax, imposed under the
National Internal Revenue Code. The "in lieu of all taxes" clause does not apply to local taxes. The proviso in the
first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code." Also, the second paragraph of Section 9 speaks of tax
returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code." Moreover, the same paragraph declares that the tax returns
"shall be subject to audit by the Bureau of Internal Revenue." Nothing is mentioned in Section 9 about local taxes.
The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue
Code and not to local taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes" clause
does not apply to income tax.

If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would
have expressly mentioned the exemption from municipal and provincial taxes. Congress could have used the
language in Section 9(b) of Clavecilla's old franchise, as follows:

x x x in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority
whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, x x x.
(Emphasis supplied).

However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu of all taxes" clause
only in reference to national internal revenue taxes. The only interpretation, under the rule on strict construction of
tax exemptions, is that the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to local
taxes.

It should be noted that the "in lieu of all taxes" clause in R.A. No. 7294 has become functus officio with the
abolition of the franchise tax on telecommunications companies.26As admitted by Smart in its pleadings, it is no
longer paying the 3% franchise tax mandated in its franchise. Currently, Smart along with other telecommunications
companies pays the uniform 10% value-added tax.27

The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the
sale or exchange of services.28 R.A. No. 7716, as amended by the Expanded Value Added Tax Law (R.A. No.
8241), the pertinent portion of which is hereunder quoted, amended Section 9 of R.A. No. 7294:

SEC. 102. Value-added tax on sale of services and use or lease of properties. — (a) Rate and base of tax. — There
shall be levied assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived
from the sale or exchange of services, including the use or lease of properties.

The phrase "sale or exchange of services" means the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal
or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, rest
houses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic
common carriers by land, air, and water relative to their transport of goods or cargoes; services of franchise grantees
of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under
Section 117 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life
insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies;
and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical
or mental faculties. x x x.29

R.A. No. 7716, specifically Section 20 thereof, expressly repealed the provisions of all special laws relative to the
rate of franchise taxes. It also repealed, amended, or modified all other laws, orders, issuances, rules and regulations,
or parts thereof which are inconsistent with it.30 In effect, the "in lieu of all taxes" clause in R.A. No. 7294 was
rendered ineffective by the advent of the VAT Law.31

However, the franchise tax that the City of Davao may impose must comply with Sections 137 and 151 of R.A. No.
7160. Thus, the local franchise tax that may be imposed by the City must not exceed 50% of 1% of the gross annual
receipts for the preceding calendar year based on the income on receipts realized within the territorial jurisdiction of
Davao.

III. Opinion of the Bureau of Local Government Finance (BLGF)

In support of its argument that the "in lieu of all taxes" clause is to be construed as an exemption from local
franchise taxes, Smart submits the opinion of the Department of Finance, through the BLGF, dated August 13, 1998
and February 24, 1998, regarding the franchises of Smart and Globe, respectively. 32 Smart presents the same
arguments as the Philippine Long Distance Telephone Company in the previous cases already decided by this
Court.33 As previously held by the Court, the findings of the BLGF are not conclusive on the courts:

[T]he BLGF opined that §23 of R.A. No. 7925 amended the franchise of petitioner and in effect restored its
exemptions from local taxes. Petitioner contends that courts should not set aside conclusions reached by the BLGF
because its function is precisely the study of local tax problems and it has necessarily developed an expertise on the
subject.

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and
deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized
court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was
created merely to provide consultative services and technical assistance to local governments and the general public
on local taxation, real property assessment, and other related matters, among others. The question raised by
petitioner is a legal question, to wit, the interpretation of §23 of R.A. No. 7925. There is, therefore, no basis for
claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.

Petitioner likewise argues that the BLGF enjoys the presumption of regularity in the performance of its duty. It does
enjoy this presumption, but this has nothing to do with the question in this case. This case does not concern the
regularity of performance of the BLGF in the exercise of its duties, but the correctness of its interpretation of a
provision of law.34

IV. Tax Exclusion/Tax Exemption

Smart gives another perspective of the "in lieu of all taxes" clause in Section 9 of R.A. No. 7294 in order to avoid
the payment of local franchise tax. It says that, viewed from another angle, the "in lieu of all taxes" clause partakes
of the nature of a tax exclusion and not a tax exemption. A tax exemption means that the taxpayer does not pay any
tax at all. Smart pays VAT, income tax, and real property tax. Thus, what it enjoys is more accurately a tax
exclusion.35

However, as previously held by the Court, both in their nature and effect, there is no essential difference between a
tax exemption and a tax exclusion. An exemption is an immunity or a privilege; it is the freedom from a charge or
burden to which others are subjected. An exclusion, on the other hand, is the removal of otherwise taxable items
from the reach of taxation, e.g., exclusions from gross income and allowable deductions. An exclusion is, thus, also
an immunity or privilege which frees a taxpayer from a charge to which others are subjected. Consequently, the rule
that a tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions.36

V. Section 23 of R.A. No. 7925

To further its claim, Smart invokes Section 23 of the Public Telecommunications Policy Act (R.A. No. 7925):

SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part
of previously granted telecommunications franchise and shall be accorded immediately and unconditionally to the
grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of
telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the
type of service authorized by the franchise. (Emphasis supplied.)

In sum, Smart wants us to interpret anew Section 23 of R.A. No. 7925, in connection with the franchise of Globe
(R.A. No. 7227),37 which was enacted on March 19, 1992.

Allegedly, by virtue of Section 23 of R.A. No. 7925, otherwise known as the "most favored treatment clause" or the
"equality clause," the provision in the franchise of Globe exempting it from local taxes is automatically incorporated
in the franchise of Smart.38 Smart posits that, since the franchise of Globe contains a provision exempting it from
municipal or local franchise tax, this provision should also benefit Smart by virtue of Section 23 of R.A. No. 7925.
The provision in Globe’s franchise invoked by Smart reads:

(b) The grantee shall further pay to the Treasurer of the Philippines each year after the audit and approval of the
accounts as prescribed in this Act, one and one-half per centum of all gross receipts from business transacted under
this franchise by the said grantee in the Philippines, in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the
grantee is hereby expressly exempted, effective from the date of the approval of Republic Act Numbered Sixteen
hundred eighteen.39

We find no reason to disturb the previous pronouncements of this Court regarding the interpretation of Section 23 of
R.A. No. 7925. As aptly explained in the en banc decision of this Court in Philippine Long Distance Telephone
Company, Inc. v. City of Davao,40 and recently in Digital Telecommunications Philippines, Inc. (Digitel) v.
Province of Pangasinan,41 Congress, in approving Section 23 of R.A. No. 7925, did not intend it to operate as a
blanket tax exemption to all telecommunications entities.42 The language of Section 23 of R.A. No. 7925 and the
proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been withdrawn by R.A. No. 7160. 43 The term
"exemption" in Section 23 of R.A. No. 7925 does not mean tax exemption. The term refers to exemption from
certain regulations and requirements imposed by the National Telecommunications Commission. 44

Furthermore, in the franchise of Globe (R.A. No. 7229), the legislature incontrovertibly stated that it will be liable
for one and one-half per centum of all gross receipts from business transacted under the franchise, in lieu of any and
all taxes of any kind, nature, or description levied, established, or collected by any authority whatsoever, municipal,
provincial, or national, from which the grantee is hereby expressly exempted. 45 The grant of exemption from
municipal, provincial, or national is clear and categorical – that aside from the franchise tax collected by virtue of
R.A. No. 7229, no other franchise tax may be collected from Globe regardless of who the taxing power is. No such
provision is found in the franchise of Smart; the kind of tax from which it is exempted is not clearly specified.

As previously explained by the Court, the stance of Smart would lead to absurd consequences.

The acceptance of petitioner's theory would result in absurd consequences. To illustrate: In its franchise, Globe is
required to pay a franchise tax of only one and one-half percentum (1½%) of all gross receipts from its transactions
while Smart is required to pay a tax of three percent (3%) on all gross receipts from business transacted. Petitioner's
theory would require that, to level the playing field, any "advantage, favor, privilege, exemption, or immunity"
granted to Globe must be extended to all telecommunications companies, including Smart. If, later, Congress again
grants a franchise to another telecommunications company imposing, say, one percent (1%) franchise tax, then all
other telecommunications franchises will have to be adjusted to "level the playing field" so to speak. This could not
have been the intent of Congress in enacting §23 of Rep. Act 7925. Petitioner's theory will leave the Government
with the burden of having to keep track of all granted telecommunications franchises, lest some companies be
treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege,
exemption, or immunity to all telecommunications entities.46

VI. Non-impairment Clause of the Constitution

Another argument of Smart is that the imposition of the local franchise tax by the City of Davao would violate the
constitutional prohibition against impairment of contracts. The franchise, according to petitioner, is in the nature of a
contract between the government and Smart.47

However, we find that there is no violation of Article III, Section 10 of the 1987 Philippine Constitution. As
previously discussed, the franchise of Smart does not expressly provide for exemption from local taxes. Absent the
express provision on such exemption under the franchise, we are constrained to rule against it. The "in lieu of all
taxes" clause in Section 9 of R.A. No. 7294 leaves much room for interpretation. Due to this ambiguity in the law,
the doubt must be resolved against the grant of tax exemption.

Moreover, Smart’s franchise was granted with the express condition that it is subject to amendment, alteration, or
repeal.48 As held in Tolentino v. Secretary of Finance: 49

It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations
as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic
postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a
government which retains adequate authority to secure the peace and good order of society.

In truth, the Contract Clause has never been thought as a limitation on the exercise of the State’s power of taxation
save only where a tax exemption has been granted for a valid consideration. x x x.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

COMMISSIONER OF INTERNAL REVENUE, Petitioner VS ST. LUKE’S MEDICAL CENTER INC.,

Respondent
G.R. No. 203514
February 13, 2017

FACTS:

The respondent St. Luke’s Medical Center, Inc. (SLMC) received a tax payment assessment from the Large
Taxpayers Service-Documents Processing and Quality Assurance Division of the Bureau of Internal Revenue Audit
Result/Assessment Notice on December 14, 2007. Based on the assessment the respondent SLMC has a deficiency
income tax under Section 27 (B) of the 1997 National Internal Revenue Code (NIRC), as amended for the taxable
year 2005 in the amount of P78, 617,434.54 and for taxable year 2006 in the amount of P57, 119,867.33.

In response to the received assessment from NIRC on January 14, 2008, SLMC filed with the petitioner Commission
on Internal Revenue (CIR) an administrative protest assailing the assessments. The SLMC alleged that they are
exempted from paying the income tax since SLMC is a non-stock, non-profit, charitable and social welfare
organization under Section 30 (E) and (G) of the 1997 NIRC as amended.
However, on April 25, 2008, SLMC received the petitioner CIR’s Final Decision on the Disputed Assessment dated
April 9, 2008 increasing the deficiency income from P78, 617, 434.54 to P82,419,522.21 for taxable year 2005 and
from P57,119,867.33 to P60, 259,885.94 for taxable year 2006.

The aggrieved SLMC elevated the matter to Court of Tax Appeal (CTA) finding the decision that SLMC is not
liable for the deficiency income tax under Section 27 (B) of the 1997 NIRC, as amended and exempt from paying
the income under Section 30 (E) and (G) of the same code.

Consequently, the CIR moved for reconsideration but the CTA Division denied which the CIR prompted to file a
petition for review before the CTA En Banc which eventually denied and affirmed the first decision of the CTA
Division.

Moreover, the CIR filed an instant petition contending that the CTA erred in exempting SLMC from payment of
income tax, where the CIR petition is partly granted. SLMC ordered to pay the deficiency income tax in 1998 based
on the 10% preferential income tax. The CIR argues that under the doctrine of Stare Decisis SLMC is subject to
10% income tax under Section 27 (B) of the 1997 NIRC, and liable to pay the compromise penalty. SLMC argues
that the income derives from operating a hospital is not income from activities conducted for profit. And the case
should be dismissed since payment to BIR for the basic taxes due for taxable years 1998, 2000-2002 and 2004-2007
has been made.

ISSUES:

1. Whether or not SLMC is liable for income tax under Section 27 (B) of the 1997 NIRC.

2. Whether or not SLMC is not liable for compromise penalty.

3. Whether or not the petition is rendered moot by payment made by SLMC on April 30, 2013.

HELD:

1. Yes. Based on Section 27 (B) of the NIRC imposes 10% preferential tax rate on the income of (1) proprietary
non-profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are
they must be proprietary and non-profit. Proprietary means private, following the definition of a proprietary
educational institution, as any other private school maintained and administered by private individuals or groups
with government permit. While non-profit means no net income or asset accrues to or benefits any member or
specific person with all the net income or asset devoted to the institution’s purposes and all its activities conducted
not for profit.

2. Yes. Under Sections 248 and 249 of the 1997 NIRC the imposition of surcharges and interests were deleted on the
basis of good faith and honest belief on the part of SLMC that it is not subject to tax so therefore, SLMC is not liable
to pay the compromise penalty.

3. Yes. The payment of basic taxes made by the SLMC has become moot even the court agrees with the CIR that the
payment confirmation from the BIR is not competent proof as presented by SLMC due to no specific taxable period
for payments that it covers. However, the court finds sufficient proof of payment based on the Certification of
Payment issued by the Large Taxpayers Service of the BIR since CIR never question for its documents authenticity.
The court dismissed the petition and lowered the basic taxes for taxable year 2005 and 2006, in the amounts of P49,
919,496.40 and P41, 525,608.40.

CIR v. PHILIPPINE ALUMINUM WHEELS, GR No. 216161, 2017-08-09

Facts:
Respondent is a corporation organized and existing under Philippine laws which engages in the manufacture,
production, sale, and distribution of automotive parts and accessories.

On 16 December 2003, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN)
against respondent covering deficiency taxes for the taxable year 2001.

the BIR issued a Final Assessment Notice (FAN) against respondent in the amount of P32,100,613.42.

respondent requested for reconsideration of the FAN issued by the BIR.

the BIR issued a Final Decision on Disputed Assessment (FDDA) and demanded full payment of the deficiency tax
assessment from respondent.

July 2007, respondent filed with the BIR an application for the abatement of its tax liabilities under Revenue
Regulations No. 13-2001 for the taxable year 2001.

the BIR denied respondent's application for tax abatement on the ground that the FDDA was already issued by the
BIR and that the FDDA had become final and executory due to the failure of the respondent to appeal the FDDA
with the CTA.

September 2007,[9] respondent informed the BIR that it already paid its tax deficiency on withholding tax
amounting to P736,726.89 through the Electronic Filing and Payment System of the BIR and that it was also in the
process of availing of the Tax Amnesty Program under Republic Act No. 9480 (RA 9480) as implemented by
Revenue Memorandum Circular No. 55-2007 to settle its deficiency tax assessment for the taxable year 2001.

respondent complied with the requirements of RA 9480 which include: the filing of a Notice of Availment, Tax
Amnesty Return and Payment Form, and remitting the tax payment. In a letter dated 29 January 2008, the BIR
denied respondent's request and ordered respondent to pay the deficiency tax assessment amounting to
P29,108,767.63.

BIR reiterated that the FDDA had become final and executory for the failure of the respondent to appeal the FDDA
with the CTA within the prescribed period of thirty (30) days.

CTA granted respondent's Petition for Review and set aside the assessment in view of respondent's availment of a
tax amnesty under RA 9480.

The CTA First Division held that RA 9480 covers all national internal revenue taxes for the taxable year 2005 and
prior years, with or without assessments duly issued, that have remained unpaid as of 31 December 2005.

Having complied with all the requirements of RA 9480, respondent is fully entitled to the immunities and privileges
granted under RA 9480.

The CIR filed a Motion for Reconsideration[14] on 3 December 2012 which the CTA First Division denied on 1
March 2013.

May 2014, the CTA En Banc held that a qualified tax amnesty applicant who has completed the requirements of RA
9480 shall be deemed to have fully complied with the Tax Amnesty Program. Upon compliance with the
requirements of the law, the taxpayer shall, as mandated by law, be immune from the payment of taxes as well as
appurtenant civil, criminal, or administrative penalties under the National Internal Revenue Code. The CTA En
Banc ruled that the finality of a tax assessment did not disqualify respondent from availing of a tax amnesty under
RA 9480.

The CIR filed a Motion for Reconsideration on 11 June 2014 which was denied on 5 January 2015.

Issues:
Whether respondent is entitled to the benefits of the Tax Amnesty Program under RA 9480.

Ruling:

Court denies the petition in view of the respondent's availment of the Tax Amnesty Program under RA 9480.

A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on
persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute forgiveness or
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. A tax amnesty, much like a tax exemption, is never favored nor presumed in law. The grant
of a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of
the taxing authority.

The CIR contends that respondent is disqualified to avail of the tax amnesty under RA 9480. The CIR asserts that
the finality of its assessment, particularly its FDDA is equivalent to a final and executory judgment by the courts,
falling within the exceptions to the Tax Amnesty Program under Section 8 of RA 9480,... The CIR is wrong. Section
8(f) is clear: only persons with "tax cases subject of final and executory judgment by the courts" are disqualified to
avail of the Tax Amnesty Program under RA 9480. There must be a judgment promulgated by a court and the
judgment must have become final and executory. Obviously, there is none in this case. The FDDA issued by the
BIR is not a tax case "subject to a final and executory judgment by the courts" as contemplated by Section 8(f) of
RA 9480.

The determination of the tax liability of respondent has not reached finality and is still not subject to an executory
judgment by the courts as it is the issue pending before this Court.

232 Phil. 292

PARAS, J.:

This is an appeal from the decision of the respondent Court of Tax Appeals dated May 24, 1969, in C.T.A.
Case No. 1629, entitled "FIREMAN'S FUND INSURANCE COMPANY v. COMMISSIONER OF
INTERNAL REVENUE," which reversed the decision of petitioner Commissioner of Internal Revenue
holding private respondent Fireman's Fund Insurance Company liable for the payment of the amount of
P81,406.87 as documentary stamp taxes and compromise penalties for the years 1952 to 1958.

Private respondent is a resident foreign insurance corporation organized under the laws of the United
States, authorized and duly licensed to do business in the Philippines. It is a member of the American
Foreign Insurance Association, through which its business is cleared (Brief for Respondents, pp. 1-2).

The antecedent facts of this case are as follows:

From January, 1952 to December, 1958, herein private respondent Fireman's Fund Insurance
Company entered into various insurance con;tracts involving casualty, fire and marine risks, for which the
corresponding insurance policies were issued. From January, 1952 to 1956, documentary stamps were
bought and affixed to the monthly statements of policies issued; and from 1957 to 1958 documentary
stamps were bought and affixed to the corresponding pages of the policy register, instead of on the
insurance policies issued. On July 3, 1959, respon;dent company discovered that its monthly
statements of business and policy register were lost. The loss was reported to the Building
Admi;nistration of Ayala Building and the National Bureau of Investigation on July 6, 1959. Herein
petitioner was also informed of such loss by respondent company, through the latter's
auditors, Sycip, Gorres and Velayo, in a letter dated July 14, 1959. After conducting an inves;tigation of
said loss, petitioner's examiner ascertained that respond;ent company failed to affix the required
documentary stamps to the insurance policies issued by it and failed to preserve its accounting records
within the time prescribed by Section 337 of the Revenue Code by using loose leaf forms as registers of
documentary stamps without written authority from the Commissioner of Internal Revenue as required
by Section 4 of Revenue Regulations No. V-1. As a consequence of these findings, petitioner, in a letter
dated December 7, 1962, assessed and demanded from petitioner the payment of documentary stamp
taxes for theyears 1952 to 1958 in the total amount of P79,806.87 and plus compromise penalties, a
total of P81,406.87.

A breakdown of the amount of taxes due and collectible are as follows:

YEAR AMOUNT
1952 P6,500.00

1953 9,977.72

1954 10,908.89

1955 P14,204.52

1956 12,108.26

1957 7,880.68

1958 16,257.60
Total stamp taxes due on
policies issued from 1952 to 1958 77,837.67

Add: Stamp taxes on monthly

statements during:
1957 - - - - - - - - - - - - - - - - - - - - - - - - - - -
1,218.35
-----
1958 - - - - - - - - - - - - - - - - - - - - - - - - - - -
3,264.39
-----
Total - - - - - - - - - - - - - - - - - - - - - - - - - - - -
P82,320.41
---

Less: Stamp taxes paid per voucher

shown:
1957 - - - - - - - - - - - - - - - - - P416.82
1958 - - - - - - - - - - - - - - - - - 2,096.72 2,513.54
AMOUNT DUE & COLLECTIBLE - - - - - - - P79,906.87
(CTA Decision, Rollo, pp. 16-17). ========

The compromise penalties consisted of the sum of P1,000.00 as penalty for the alleged failure to affix
documentary stamps and the further sum of P600.00 as penalty for an alleged violation of Revenue
Regulations No. V-1 otherwise known as the Bookkeeping Regulations (Brief for Respondents, p. 4).

In a letter dated January 14, 1963, respondent company contested the assessment. After petitioner denied
the protest in a decision datedMarch 17, 1965, respondent company appealed to the respondent Court of
Tax Appeals on May 8, 1965. After hearing respondent court rendered its decision dated May 24,
1969 (Rollo, pp. 16-21) reversing the decision of the Commissioner of Internal Revenue. The assailed
decision reads in part:

''The affixture of documentary stamps to papers other than those authorized by law is not tanta;mount to
failure to pay the same. It is true that the mode of affixing the stamps as prescribed by law was not
followed, but the fact remains that the documentary stamps corresponding to the various insurance
policies were purchased and paid by petitioner. There is no legal justification for respondent to require
petitioner to pay again the documentary stamp tax which it had already paid. To sustain respondent's
stand would require petitioner to pay the same tax twice. If at all, petitioner should be proceeded against
for failure to comply with the requirement of affixing the documentary stamps to the taxable insurance
poli;cies and not for failure to pay the tax. (See Sec. 239 and 332, Rev. Code).

"It should be observed that the law allows the affixture of documentary stamps 'to such other paper as
may be indicated by law or regulations as the proper recipient of the stamp.' It appears from this
provision that respondent has authority to allow documentary stamps to be affixed to papers other than
the documents or instruments taxed. Although the practice adopted by petitioner in affixing the
documentary stamps to the business statements and policy register was without specific permission from
respondent but only on the strength of his ruling given to Wise & Company (see Peti;tioner's
Memorandum, p. 176, CTA rec.; p. 24, t.s.n.), one of the general agents of petitioner, however, considering
that petitioner actually purchased the documentary stamps, affixed them to the business statements and
policy register and cancelled the stamps by perforating them, we hold that petitioner cannot be held liable
to pay again the same tax.

"With respect to the 'compromise penalties' in the total sum of P1,600.00, suffice it to say that penalties
cannot be imposed in the absence of a showing that petitioner consented thereto. A compromise implies
agreement. If the offer is rejected by the taxpayer, as in this case, respond;ent cannot enforce it except
through a criminal action. (See Comm. of Int. Rev. vs. Abad, L-19627, June 27, 1968.)" (CTA
Decision, Rollo, pp. 20;-21).

Hence, this petition filed on June 26, 1969 (Rollo, pp. 1-8).

The petition is devoid of merit.

The principal issue in this case is whether or not respondent company may be required to pay again the
documentary stamps it has actually purchased, affixed and cancelled.

The relevant provisions of the National Internal Revenue Code provide:

"SEC. 210. Stamp taxes upon documents, instru;ments, and papers. Upon documents, instruments, and
papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property
incident thereto, there shall be le;vied, collected and paid, for and in respect of the transaction so had or
accomplished, the corres;ponding documentary stamp taxes prescribed in the following sections of this
Title, by the person making, signing, issuing, accepting, or transfer;ring the same, and at the same time
such act is done or transaction had." (Now. Sec. 222).

"SEC. 232. Stamp tax on life insurance policies. On all policies of insurance or other instruments by
whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or
lives, there shall be collected a documentary stamp tax of thirty-five centavos on each two hundred pesos
or fractional part thereof, of the amount issued by any such policy. (220) (As amended by PD 1457)

"Insurance policies issued by a Philippine company to persons in other countries are not subject to
documentary stamp tax. (Rev. Regs. No. 26)

"Medical certificate attached to an insurance policy is not a part of the said policy. Insurance policy is
subject to Section 232 of the Tax Code while medical certificate is taxable under Section 237 of the same
Code.

"Insurance policies are issued in the place where delivered to the person insured." (As amend;ed.)

"SEC. 221. Stamp tax on policies of insurance upon property. On all policies of insurance or other
instruments by whatever name the same may be called, by which insurance shall be made or renewed
upon property of any description, in;cluding rents or profits, against peril by sea or on inland waters, or
by fire or lightning, there shall be collected a documentary stamp tax of six centavos on each four persons,
or fractional part thereof, of the amount of premium charged." (Now Sec. 233.)

"SEC. 237. Payment of documentary stamp tax. Documentary stamp taxes shall be paid by the
pur;chase and affixture of documentary stamps to the document or instrument taxed or to such other
paper as may be indicated by law or regulations as the proper recipient of the stamp, and by the
subsequent cancellation of same, such cancellation to be accomplished by writing, stamping, or
per;forating the date of the cancellation across the face of each stamp in such manner that part of the
writing, impression, or perforation shall be on the stamp itself and part on the paper to which it is
attached; Provided, That if the cancel;lation is accomplished by writing or stamping the date of
cancellation, a hole sufficiently large to be visible to the naked eye shall be punched, cut or perforated on
both the stamp and the document either by the use of a hand punch, knife, perforating machine, scissors,
or any other cutting instrument; but if the cancellation is accomplished by perforating the date of
cancellation, no other hole need be made on the stamp." (Now Sec. 249.)

"SEC. 239. Failure to affix or cancel documentary stamps. Any person who fails to affix the correct
amount of documentary stamps to any taxable document, instrument, or paper, or to cancel in the
manner prescribed by section 237 any documentary stamp affixed to any document, instrument, or
paper, shall be subject to a fine of not less than twenty pess or more than three hundred
pesos. (Underscoring supplied.) (Now Sec. 250.)

As correctly pointed out by respondent Court of Tax Appeals, under the above-quoted provisions of law,
documentary tax is deemed paid by: (a) the purchase of documentary stamps; (b) affixture of
documentary stamps to the document or instrument taxed or to such other paper as may be indicated by
law or regulations; and (c) cancellation of the stamps as required by law (Rollo, p. 18).

It will be observed however, that the over-riding purpose of these provisions of law is the collection of
taxes. The three steps above-mentioned are but the means to that end. Thus, the purchase of the stamps
is the form of payment made; the affixture thereof on the document or instrument taxed is to insure that
the corresponding tax has been paid for such document while the cancellation of the stamps is to obviate
the possibility that said stamps will be reused for similar documents for similar purposes.

In the case at bar, there appears to be no dispute on the fact that the documentary stamps corresponding
to the various policies were purchased and paid for by the respondent Company. Neither is there any
argument that the same were cancelled as required by law. In fact such were the findings of petitioner's
examiner Amando B. Melgar who stated as follows:

"Investigation disclosed that the subject insurance company is a duly organized corporation doing
business in the Philippines. It keeps the necessary books of accounts and other accounting records
needed by the business. Further verifica;tion revealed that it has, since July, 1959, been using a 'HASLER'
franking machine, Model F-88, which stamps the documentary stamps on the duplicates of the policies
issued. Prior to the acquisition of the said machine, the company buy its stamps by allowing the
Manager to issue a Manager's check drawn against the National City Bank of New York and payable to
the City Treasurer of Manila. It was also found out that during this period (1952 to 1958), the total
purchases of documentary stamps amounted to P77,837.67, while the value of the used stamps lost
amounted to P65.901.11. Verification with the files revealed that most of the monthly statements of
business and registers of documentary stamps corresponding to insurance policies issued were missing
while some where the punched documentary stamps affixed were small in amount are still intact.

"The taxpayer was found to be negligent in the preservation and keeping of its records. Al;though the loss
was found by the company's private investigator (see attached true copies of his reports) was not an
'Inside Job,' still the company should be held liable for its negligence, it appearing that the said records
were placed in a bodega, where almost all patrons of the coffee shop nearby could see them. The company
also viola;ted the provision of Section 221 of the National Internal Revenue Code which provides that the
documentary stamps should be affixed and cancelled on the duplicates of bonds and policies issued. In
this case, the said stamps were affixed on the register of documentary stamps. (pp. 35-36, BIR rec.;
Underscoring supplied.)" (CTA Decision, Rollo, pp. 18-19.)

Such findings were confirmed by the Memorandum of Acting Commissioner of Internal Revenue Jose
B. Lingad, dated November 7, 1962to the Chief, Business Tax Division, which states:
"The records show that the FIREMAN'S FUND INSURANCE COMPANY allegedly paid P77,837.67 in
documentary stamp taxes for the policies of insu;rance issued by it for the years 1952 to 1958 but could
only present as proof of payment P11,936.56 of said taxes as the rest of the amount of P65,901.11 were lost
due to robbery. Upon veri;fication of this payment however it was found that the FIREMAN'S FUND
INSURANCE COMPANY affixed the documentary stamps not on the individual insurance policies issued
by it but on a monthly statement of business and a register of documentary stamps, the use of which was
not authorized by this Office. It was claimed that the same procedure was used in the case of the lost
documentary stamps aforementioned. As this practice is irregular and the remaining records are not
conclusive proofs of the payment of the corresponding documentary stamp tax on the policies,
the FIREMAN'S FUND AND INSURANCE COMPANY is still liable for the payment of the documentary
stamp taxes on the policies found not affixed with stamps." (Original BIR Record, p. 87).

Later, respondent Court of Tax Appeals correctly observed that the purchase of documentary stamps and
their being affixed to the monthly statements of business and policy registers were also admitted by
counsel for the Government as could clearly be gleaned from his Memorandum submitted to the
respondent Court. (Decision, CTA Rollo, pp. 4-5).

Thus, all investigations made by the petitioner show the same factual findings that respondent company
purchased documentary stamps for the various policies it has issued for the period in question although
it has attached the same on documents not authorized by law.

There is no argument to petitioner's contention that the insurance policies with the corresponding
documentary stamps affixed are the best evidence to prove payment of said documentary stamp tax. This
rule however does not preclude the admissibility of other proofs which are uncontradicted and of
considerable weight, such as: copies of the applications for manager's checks, copies of the manager's
check vouchers of the bank showing the purchases of documentary stamps cor;responding to the various
insurance policies issued during the years 1952-1958 duly and properly identified by the witnesses for
respondent company during the hearing and admitted by the respondent Court of Tax Appeals (Brief
for Respondent, p. 15).

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]).

There appears to be no question that the purpose of imposing documentary stamp taxes is to raise
revenue and the corresponding amount has already been paid by respondent and has actually become
part of the revenue of the government. In the same manner, it is evi;dent that the affixture of the stamps
on documents not authorized by law is not attended by bad faith as the practice was adopted from the
authority granted to Wise & Company, one of respondent's general agents (CTA Decision, Rollo, p.
20). Indeed, petitioner argued that such authority was not given to respondent company specifically, but
under the general principle of agency, where the acts of the agents bind the principal, the conclusion is
inescapable that the justifica;tion for the acts of the agents may also be claimed for the acts of the
principal itself (Brief for the Respondents, pp. 12-13).

Be that as it may, there is no justification for the government which has already realized the revenue
which is the object of the imposition of subject stamp tax, to require the payment of the same tax for the
same documents. Enshrined in our basic legal principles is the time honored doctrine that no person
shall unjustly enrich himself at the expense of another. It goes without saying that the government is not
exempted from the application of this doctrine (Ramie Textiles, Inc. v. Mathay Sr., 89 SCRA 587 [1979]).

Under the circumstances, this court RESOLVED to DISMISS this petition and to AFFIRM the assailed
decision of the Court of Tax Appeals.

Hilado vs. Collector of Internal Revenue

GR L-9408, October 31,1956
Facts: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City, claiming a
deductible item of P12,837.65 from his gross income pursuant to General Circular V-123 issued by the
Collector of Internal Revenue. The Secretary of Finance, through the Collector, issued General Circular
V-139 which revoked and declared void Circular V-123; and laid down the rule[s] that losses of property
which occurred in World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or destruction of said property. The deductions
were disallowed.

Issue: Whether Internal Revenue Laws were enforced during the war and whether Hilado can claim
compensation for destruction of his property during the war.

Held: Philippines 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. Such tax laws are deemed to be laws of the occupied territory and not of the occupying
enemy. As of the end of 1945, there was no law which Hilado could claim for the destruction of his
properties during the battle for the liberation of the Philippines. Under the Philippine Rehabilitation Act of
1948, the payment of claims by the War Damage Commission depended upon its discretions non-
payment of which does not give rise to any enforceable right. Assuming that the loss (deductible item)
represents a portion of the 75% of his war damage claim, the amount would be at most a proper
deduction of his 1950 gross income (not on his 1951 gross income) as the last installment and notice of
discontinuation of payment by the War Damage

ACCENTURE v. CIR, GR No. 190102, 2012-07-11

Facts:

This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure, praying for the reversal of the
Decision of the Court of Tax Appeals En Banc (CTA En Banc) dated 22 September 2009 and its
subsequent Resolution dated 23 October

2009.[1]

Accenture, Inc. (Accenture) is a corporation engaged in the business of providing management

consulting, business strategies development, and selling and/or licensing of software.[2] It is duly
registered with the Bureau of Internal Revenue (BIR) as a Value

Added Tax (VAT) taxpayer or enterprise in accordance with Section 236 of the National Internal Revenue
Code (Tax Code).[3]

In resolving the sole issue of whether or not Accenture was entitled to a refund or an issuance of a TCC
in the amount of P35,178,844.21,[14] the Division ruled that Accenture had failed to present evidence to
prove that the foreign clients to which the... former rendered services did business outside the
Philippines.[15] Ruling that Accenture's services would qualify for zero-rating under the 1997 National
Internal Revenue Code of the Philippines (Tax Code) only if the recipient of the services was doing...
business outside of the Philippines,[16] the Division cited Commissioner of Internal Revenue v.
Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (Burmeister)[17] as basis.

Issues:

Should the recipient of the services be "doing business outside the Philippines" for the transaction to be
zero-rated under Section 108(B)(2) of the 1997 Tax Code?

Ruling:
The CTA en banc is of the opinion that Accenture cannot invoke the non-retroactivity of the rulings of the
Supreme Court, whose interpretation of the law is part of that law as of the date of its enactment.

Moreover, even though Accenture's Petition was filed before Burmeister was promulgated, the
pronouncements made in that case may be applied to the present one without violating the rule against
retroactive application. When this Court decides a case, it does not pass a... new law, but merely
interprets a preexisting one.[42] When this Court interpreted Section 102(b) of the 1977 Tax Code in
Burmeister, this interpretation became part of the law from the moment it became effective. It is
elementary that the... interpretation of a law by this Court constitutes part of that law from the date it was
originally passed, since this Court's construction merely establishes the contemporaneous legislative
intent that the interpreted law carried into effect

This Court further finds that Accenture's reliance on Amex is misplaced.

We ruled in Amex that Section 102 of the 1977 Tax Code does not require that the services be consumed
abroad to be zero-rated. However, nowhere in that case did this Court discuss the necessary qualification
of the recipient of the service, as this matter was never put in... question. In fact, the recipient of the
service in Amex is a nonresident foreign client.

In Amex we ruled that the place of performance and/or consumption of the service is immaterial. In
Burmeister, the Court found that, although the place of the consumption of the service does not affect the
entitlement of a transaction to zero-rating, the place... where the recipient conducts its business does.

Amex does not conflict with Burmeister. In fact, to fully understand how Section 102(b)(2) of the 1977 Tax
Code and consequently Section 108(B)(2) of the 1997 Tax Code was intended to operate, the two
aforementioned cases should be taken together. The zero-rating... of the services performed by
respondent in Amex was affirmed by the Court, because although the services rendered were both
performed and consume in the Philippines, the recipient of the service was still an entity doing... business
outside the Philippines as required in Burmeister.

We deny Accenture's Petition for a tax refund.

The evidence presented by Accenture may have established that its clients are foreign. This fact does not
automatically mean, however, that these clients were doing business outside the Philippines. After all, the
Tax Code itself has provisions for a foreign corporation engaged... in business within the Philippines and
vice versa, to wit:

SEC. 22. Definitions - When used in this Title:... x x x xxx xxx

(H) The term "resident foreign corporation" applies to a foreign corporation engaged in trade or business
within the Philippines.

(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in trade or
business within the Philippines. (Emphasis in the original)

Philex Mining Corporation v CIR (1998)

Philex Mining Corporation v CIR GR No 125704, August 28, 1998

FACTS:
BIR sent a letter to Philex asking it to settle its tax liabilities amounting to P124 million. Philex protested the
demand for payment stating that it has pending claims for VAT input credit/refund amounting to P120 million.
Therefore, these claims for tax credit/refund should be applied against the tax liabilities.
In reply the BIR found no merit in Philex’s position. On appeal, the CTA reduced the tax liability of Philex.
ISSUES:

1. Whether legal compensation can properly take place between the VAT input credit/refund and the excise
tax liabilities of
Philex Mining Corp;
2. Whether the BIR has violated the NIRC which requires the refund of input taxes within 60 days
3. Whether the violation by BIR is sufficient to justify non-payment by Philex

RULING:

1. No, legal compensation cannot take place. The government and the taxpayer are not creditors and debtors
of each other.
2. Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim for VAT input credit.
Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
3. No, despite the lethargic manner by which the BIR handled Philex’s tax claim, it is a settled rule that in the
performance of
government function, the State is not bound by the neglect of its agents and officers. It must be stressed that
the same is not a valid reason for the non-payment of its tax liabilities.

Commissioner of Internal Revenue vs Burroughs Limited and the Court of Tax Appeals
GR No L-66653 June 19, 1986

Facts:
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines
through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro
Manila. Claiming that the 15% profit remittance tax should have been computed on the basis of the
amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax
(P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax
credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax.

Issue:
Whether or not Burroughs is entitled to any tax credit.
Whether or not Memorandum Circular No. 8-82 should be given a retroactive effect?

Ruling:
Yes. Respondent concedes at least that in his ruling dated January 21, 1980 he held that under Section
24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually
remitted abroad and not on the total branch profit out of which the remittance is to be made. Based on
such ruling petitioner should have paid only the amount of P974,999.89 in remittance tax computed by
taking the 15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the
United States, instead of Pl,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has
overpaid its branch profit remittance tax in the amount of P172,058.90.

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.
No. 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 which provides-

Sec. 327. 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 shag not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the
taxpayer deliberately misstates or omits material facts from his return or in any document required of him
by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer
acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive application of
Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of
P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited
does not fall under any of them.