ABAKADA Guro Party List vs Executive Secretary

This entry was posted in Bills must originate exclusively from CongressConstitutional Law 1Equal
Protection ClauseLegislative Branch undue delegation of legislative power doctrine and
tagged Political Law 1 on November 3, 2014 by Morrie26

ABAKADA Guro Party List vs Executive Secretary

Bills Must Originate EXCLUSIVELY from the House of Representatives; Undue Delegation
of Legislative Power; Equal Protection Clause

ABAKADA GURO PARTY LIST VS EXECUTIVE SECRETARY

G.R. No. 168056 September 1, 2005

ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and
ED VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY
OF THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER
OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.

Facts:
Petitioners ABAKADA GURO Party List challenged the constitutionality of R.A. No. 9337
particularly Sections 4, 5 and 6, amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC). These questioned provisions contain a uniform proviso authorizing
the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after any of the following conditions have been satisfied, to wit:

. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 ½%).

Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress

of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine
Constitution. They further argue that VAT is a tax levied on the sale or exchange of goods and
services and cannot be included within the purview of tariffs under the exemption delegation since
this refers to customs duties, tolls or tribute payable upon merchandise to the government and
usually imposed on imported/exported goods. They also said that the President has powers to
cause, influence or create the conditions provided by law to bring about the conditions precedent.
Moreover, they allege that no guiding standards are made by law as to how the Secretary of Finance
will make the recommendation. They claim, nonetheless, that any recommendation of the Secretary
of Finance can easily be brushed aside by the President since the former is a mere alter ego of the
latter, such that, ultimately, it is the President who decides whether to impose the increased tax rate
or not.

Issues:
1. Whether or not R.A. No. 9337 has violated the provisions in Article VI, Section 24, and Article
VI, Section 26 (2) of the Constitution.
2. Whether or not there was an undue delegation of legislative power in violation of Article VI Sec
28 Par 1 and 2 of the Constitution.
3. Whether or not there was a violation of the due process and equal protection under Article III
Sec. 1 of the Constitution.
Discussions:

1. Basing from the ruling of Tolentino case, it is not the law, but the revenue bill which is required
by the Constitution to “originate exclusively” in the House of Representatives, but Senate has
the power not only to propose amendments, but also to propose its own version even with
respect to bills which are required by the Constitution to originate in the House. The Constitution
simply means, that the initiative for filing revenue, tariff, or tax bills, bills authorizing an increase
of the public debt, private bills, and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the members of the
House can be expected to be more sensitive to the local needs and problems. On the other
hand, the senators, who are elected at large, are expected to approach the same problems from
the national perspective. Both views are thereby
2. made to bear on the enactment of such laws.

3. In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all its terms and provisions when it left the hands
of the legislature so that nothing was left to the judgment of any other appointee or delegate of
the legislature.

4. The equal protection clause under the Constitution means that “no person or class of persons
shall be deprived of the same protection of laws which is enjoyed by other persons or other
classes in the same place and in like circumstances.”

Rulings:

1. R.A. No. 9337 has not violated the provisions. The revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of
the Constitution does not contain any prohibition or limitation on the extent of the amendments
that may be introduced by the Senate to the House revenue bill.

2. There is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it, and what is the scope
of his authority; in our complex economy that is frequently the only way in which the legislative
process can go forward.

3. Supreme Court held no decision on this matter. The power of the State to make reasonable and
natural classifications for the purposes of taxation has long been established. Whether it relates
to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised,
the methods of assessment, valuation and collection, the State’s power is entitled to presumption
of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
Tax Case Digest: Planters Product V. Fertiphil Corp. (2008)

Planters Product v. Fertiphil Corp.

G.R. No. 166006 March 14, 2008
REYES, R.T., J.

Lessons Applicable: Between private and public suit, easier to file public suit. Apply real party in
interest test for private suit and direct injury test for public suit. Validity test varies depending on
which inherent power

Laws Applicable:

FACTS:
 President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which
provided, among others, for the imposition of a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers which resulted in having Fertiphil paying P 10/bag sold
to the Fertilizer and Perticide Authority (FPA).
 FPA remits its collection to Far East Bank and Trust Company who applies to the payment of
corporate debts of Planters Products Inc. (PPI)
 After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon return
of democracy, Fertiphil demanded a refund but PPI refused. Fertiphil filed a complaint for
collection and damages against FPA and PPI with the RTC on the ground that LOI No. 1465 is
unjust, unreaonable oppressive, invalid and unlawful resulting to denial of due process of law.
 FPA answered that it is a valid exercise of the police power of the state in ensuring the stability
of the fertilizing industry in the country and that Fertiphil did NOT sustain damages since the
burden imposed fell on the ultimate consumers.
 RTC and CA favored Fertiphil holding that it is an exercise of the power of taxation ad is as such
because it is NOT for public purpose as PPI is a private corporation.

ISSUES:
1. W/N Fertiphil has locus standi
2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather the police power

Held:
1. Yes. In private suits, locus standi requires a litigant to be a "real party in interest" or party who
stands to be benefited or injured by the judgment in the suit. In public suits, there is the right of the
ordinary citizen to petition the courts to be freed from unlawful government intrusion and illegal
official action subject to the direct injury test or where there must be personal and substantial
interest in the case such that he has sustained or will sustain direct injury as a result. Being a mere
procedural technicality, it has also been held that locus standi may be waived in the public interest
such as cases of transcendental importance or with far-reaching implications whether private or
public suit, Fertiphil has locus standi.

2. As a seller, it bore the ultimate burden of paying the levy which made its products more expensive
and harm its business. It is also of paramount public importance since it involves the constitutionality
of a tax law and use of taxes for public purpose.
3. Yes. Police power and the power of taxation are inherent powers of the state but distinct and have
different tests for validity. Police power is the power of the state to enact the legislation that may
interfere with personal liberty on property in order to promote general welfare. While, the power of
taxation is the power to levy taxes as to be used for public purpose. The main purpose of police
power is the regulation of a behavior or conduct, while taxation is revenue generation. The lawful
subjects and lawful means tests are used to determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is circumscribed by inherent and constitutional
limitations.

In this case, it is for purpose of revenue. But it is a robbery for the State to tax the citizen and use
the funds generation for a private purpose. Public purpose does NOT only pertain to those purpose
which are traditionally viewed as essentially governmental function such as building roads and
delivery of basic services, but also includes those purposes designed to promote social justice.
Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and
urban or agrarian reform.

Labels: 2008, direct injury test, G.R. No. 166006 March 14, planters product v. fertiphil corp, private
suit, public suit, real party in interest, tax case digest
2006 Taxation Case Digests
PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL

vs.
COMMISSIONER OF INTERNAL REVENUE
GR. No. 155541. January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two
days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent
had died. The BIR conducted an administrative investigation of the decedent’s tax liability and
found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November
18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the
decedent “c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax
return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of
distraint and levy to enforce the collection of decedent’s deficiency income tax liability and serve
the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion
to allow his claim with probate court for the deficiency tax. The Court denied BIR’s claim against
the estate on the ground that no proper notice of the tax assessment was made on the proper
party. On appeal, the CA held that BIR’s service on PhilTrust of the notice of assessment was
binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedent’s
death. Consequently, as the estate failed to question the assessment within the statutory period of
thirty days, the assessment became final, executory, and incontestable.

Issues:
(1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana
through PhilTrust was a valid service as to bind the estate.
(2) Whether or not the CA erred in holding that the tax assessment had become final, executory,
and incontestable.

Held:
(1) Since the relationship between PhilTrust and the decedent was automatically severed the
moment of the taxpayer’s death, none of the PhilTrust’s acts or omissions could bind the estate of
the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation
to inform respondent of the decedent’s death, the consequence thereof merely refer to the
imposition of certain penal sanction on the administrator. These do not include the indefinite tolling
of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement
for such assessment.

(2) The assessment was served not even on an heir or the estate but on a completely
disinterested party. This improper service was clearly not binding on the petitioner. The most
crucial point to be remembered is that PhilTust had absolutely no legal relationship with the
deceased or to her Estate. There was therefore no assessment served on the estate as to the
alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for
collection of said tax; therefore, it could not have become final, executory and incontestable.
Respondent’s claim for collection filed with the court only on November 22, 1984 was barred for
having been made beyond the five-year prescriptive period set by law.
TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES OF ELECTRIC COOPERATIVES BY
THE LOCAL GOVERNMENT CODE

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al.

vs.
THE SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT
GR. No. 143076. June 10, 2003

Facts:
On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other
electric cooperatives organized and existing under PD 269 which are members of petitioner
Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric
cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-
stock, non-profit electric cooperatives organized and existing under PD 269, as amended, and
registered with the National Electrification Administration (NEA).

Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National
Government, local government, and municipal taxes and fee, including franchise, fling recordation,
license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative
proceedings in which it may be party.

From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended,
the Philippine Government, acting through the National Economic council (now National Economic
Development Authority) and the NEA, entered into six loan agreements with the government of the
United States of America, through the United States Agency for International Development (USAID)
with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions
on the tax application of the loan and any property or commodity acquired through the proceeds of
the loan.
Petitioners allege that with the passage of the Local Government Code their tax exemptions have
been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said
code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to all persons,
whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234
exempts the same cooperatives from payment of real property tax.

Issues:
(1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection
clause since the provisions unduly discriminate against petitioners who are duly registered
cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the
Philippines?
(2) Is there an impairment of the obligations of contract under the loan entered into between the
Philippine and the US Governments?

Held:
(1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable
classification. Classification, to be reasonable must (a) rest on substantial classifications; (b)
germane to the purpose of the law; (c) not limited to the existing conditions only; and (d) apply
equally to all members of the same class. We hold that there is reasonable classification under the
Local Government Code to justify the different tax treatment between electric cooperatives covered
by PD 269 and electric cooperatives under RA 6938.
First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938.
In the former, the government is the one that funds those so-called electric cooperatives, while in
the latter the members make equitable contribution as source of funds.
a. Capital Contributions by Members – Nowhere in PD 269 doe sit require cooperatives to make
equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an
electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which
is even refundable the moment the member is no longer interested in getting electric service from
the cooperative or will transfer to another place outside the area covered by the cooperative.
However, under the Cooperative Code, the articles of cooperation of a cooperative applying for
registration must be accompanied with the bonds of the accountable officers and a sworn statement
of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital
has been subscribed and at least 25% of the total subscription has been paid and in no case shall
the paid-up share capital be less than P2,000.00.

b. Extent of Government Control over Cooperatives – The extent of government control over electric
cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of
funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources
to finance the development and operations of these electric cooperatives. Consequently,
amendments were primarily geared to expand the powers of NEA over the electric cooperatives o
ensure that loans granted to them would be repaid to the government. In contrast, cooperatives
under RA 6938 are envisioned to be self-sufficient and independent organizations with minimal
government intervention or regulation.

Second, the classification of tax-exempt entities in the Local Government Code is germane to the
purpose of the law. The Constitutional mandate that “every local government unit shall enjoy local
autonomy,” does not mean that the exercise of the power by the local governments is beyond the
regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing
powers upon the local government units and to limit exemptions from local taxation to entities
specifically provided therein.

Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not
limited to existing conditions and apply equally to all members of the same class.

(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the
obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition,
the change must not only impair the obligation of the existing contract, but the impairment must be
substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the
parties with reference to each other and not with respect to non-parties.

The quoted provision under the loan agreement does not purport to grant any tax exemption in favor
of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax
burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of
the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax
exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the
lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein.
TARIFF AND CUSTOMS LAWS; PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE
CASES

Chief State Prosecutor JOVENCITO R. ZUÑO, ATTY. CLEMENTE P. HERALDO, Chief of the
Internal Inquiry and Prosecution Division-customs Intelligence and Investigation Service (IIPD-CIIS),
and LEONITO A. SANTIAGO, Special Investigator of the IIPD-CIIS vs. JUDGE ARNULFO G.
CABREDO, Regional Trial Court, Branch 15, Tabaco City, Albay
AM. No. RTJ-03-1779, April 30, 2003

Facts: Atty. Winston Florin, the Deputy Collector of Customs of the Sub-Port of Tabaco, Albay,
issued on September 3, 2001 Warrant of Seizure and Detention (WSD) No. 06-2001against a
shipment of 35, 000 bags of rice aboard the vessel M/V Criston for violation of Sec. 2530 of the
Tariff and Customs Code of the Philippines (TCCP).
A few days, after the issuance of the warrant of seizure and detention, Antonio Chua, Jr. and Carlos
Carillo, claiming to be consignees of the subject goods, filed before the Regional Trial Court of
Tabaco City, Albay a Petition with Prayer for the Issuance of Preliminary Injunction and Temporary
Restraining Order (TRO). The said petition sought to enjoin the Bureau of Customs and its officials
from detaining the subject shipment.
By virtue of said TRO, the 35,000 bags of rice were released from customs to Antonio Chua, Jr. and
Carlos Carillo.
In his complaint, Chief State Prosecutor Zuño alleged that respondent Judge violated Administrative
Circular No. 7-99, which cautions trial court judges in their issuance of TROs and writs of preliminary
injunctions. Said circular reminds judges of the principle, enunciated in Mison vs. Natividad, that the
Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular
courts cannot interfere with his exercise thereof or stifle or put it to naught.

Issue: Whether or not the issuance of the TRO was illegal and beyond the jurisdiction of the RTC.

Held: The collection of duties and taxes due on the seized goods is not the only reason why trial
courts are enjoined from issuing orders releasing imported articles under seizure and forfeiture
proceedings by the Bureau of Customs. Administrative Circular No. 7-99 takes into account the fact
that the issuance of TROs and the granting of writs of preliminary injunction in seizure and forfeiture
proceedings before the Bureau of Customs may arouse suspicion that the issuance or grant was fro
considerations other than the strict merits of the case. Furthermore, respondent Judge’s actuation
goes against settled jurisprudence that the Collector of Customs has exclusive jurisdiction over
seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or
stifle and put it to naught.
Respondent Judge cannot claim that he issued the questioned TRO because he honestly believed
tat the Bureau of Customs was effectively divested of its jurisdiction over the seized shipment.
Even if it be assumed that in the exercise of the Collector of Customs of its exclusive jurisdiction
over seizure and forfeiture cases, a taint of illegality is correctly imputed, the most that can be said
is that under these circumstance, grave abuse of discretion may oust it of its jurisdiction. This does
mean, however, that the trial court is vested with competence to acquire jurisdiction over these
seizure and forfeiture cases. The proceedings before the Collector of Customs are not final. An
appeal lies to the Commissioner of Customs and, thereafter, to the Court of Tax Appeals. It may
even reach this Court through an appropriate petition for review. Certainly, the RTC is not included
therein. Hence, it is devoid of jurisdiction.
Clearly, therefore, respondent Judge had no jurisdiction to take cognizance of the petition and issue
the questioned TRO.
It is a basic principle that the Collector of Customs has exclusive jurisdiction over seizure and
forfeiture proceedings of dutiable goods. A studious and conscientious judge can easily be
conversant with such an elementary rule.

NATURE OF FRANCHISE TAX; TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES BY THE

LOCAL GOVERNMENT CODE
NATIONAL POWER CORPORATION vs. CITY OF CABANATUAN
GR. No. 149110, April 9, 2003

Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created under
Commonwealth Act 120. It is tasked to undertake the “development of hydroelectric generations of
power and the production of electricity from nuclear, geothermal, and other sources, as well as, the
transmission of electric power on a nationwide basis.”
For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the former’s gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government,
refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on
government entities. Petitioner also contend that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395,
as amended.
The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay
the assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly interest.
Respondent alleged that petitioner’s exemption from local taxes has been repealed by Sec. 193 of
RA 7160 (Local Government Code). The trial court issued an order dismissing the case. On appeal,
the Court of Appeals reversed the decision of the RTC and ordered the petitioner to pay the city
government the tax assessment.

Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its
stocks are wholly owned by the National Government and its charter characterized is as a ‘non-profit
organization’?
(2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the provisions of the Local
Government Code (LGC)?

Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise
by the corporation of a privilege to do business. The taxable entity is the corporation which exercises
the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as
a separate and distinct entity from the National Government. It can sue and be sued under its own
name, and can exercise all the powers of a corporation under the Corporation Code.
To be sure, the ownership by the National Government of its entire capital stock does not necessarily
imply that petitioner is no engage din business.
(2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the National Government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific
provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned
entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is
clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such
exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to
attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the
LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used.

TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF ALL TAXES” PROVISION

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT) vs. CITY OF DAVAO and
ADELAIDA B. BARCELONA, in her capacity as City Treasurer of Davao
GR. No. 143867, March 25, 2003
Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax
was paid “in lieu of all taxes on this franchise or earnings thereof” pursuant to RA 7082. The
exemption from “all taxes on this franchise or earnings thereof” was subsequently withdrawn by RA
7160 (LGC), which at the same time gave local government units the power to tax businesses
enjoying a franchise on the basis of income received or earned by them within their territorial
jurisdiction. The LGC took effect on January 1, 1992.
The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides:
Notwithstanding any exemption granted by law or other special laws, there is hereby imposed a tax
on businesses enjoying a franchise, 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 receipts realized within
the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe)
and Smart Information Technologies, Inc. (Smart) franchises which contained “in leiu of all taxes”
provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of
which provides that 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 franchises and shall be accorded immediately and unconditionally to the
grantees of such franchises. The law took effect on March 16, 1995.
In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro exchange, it
was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT
challenged the power of the city government to collect the local franchise tax and demanded a refund
of what had been paid as a local franchise tax for the year 1997 and for the first to the third quarters
of 1998.

Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from
payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart.

Held: Petitioner contends that because their existing franchises contain “in lieu of all taxes” clauses,
the same grant of tax exemption must be deemed to have become ipso facto part of its previously
granted telecommunications franchise. But the rule is that tax exemptions should be granted only
by a clear and unequivocal provision of law “expressed in a language too plain to be mistaken” and
assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this
runabout way of granting tax exemption to PLDT is not a direct, “clear and unequivocal” way of
communicating the legislative intent.
Nor does the term “exemption” in Sec. 23 of RA 7925 mean tax exemption. The term refers to
exemption from regulations and requirements imposed by the National Telecommunications
Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any
specific telecommunications service from its rate or tariff regulations if the service has sufficient
competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in
line with its policy of deregulation is the exemption from the requirement of securing permits from
the NTC every time a telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of
language too plain to be mistaken.

REMEDIES OF A TAXPAYER UNDER THE NIRC; POWER OF THE CTA TO REVIEW RULINGS
OR OPINIONS OF COMMISSIONER

COMMISSIONER OF INTERNAL REVENUE vs. LEAL

GR. No. 113459, November 18, 2002

Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on dealers in securities
and lending investors, the Commissioner of Internal Revenue issued Memorandum Order (RMO)
No. 15-91 dated March 11, 1991, imposing five percent (5%) lending investor’s tax on pawnshops
based on their gross income and requiring all investigating units of the Bureau to investigate and
assess the lending investor’s tax due from them. The issuance of RMO No. 15-91 was an offshoot
of petitioner’s evaluation that the nature of pawnshop business is akin to that of lending investors.
Subsequently, petitioner issued Revenue Memorandum Circular No. 43-91 dated May 27, 1992,
subjecting the pawn ticket to the documentary stamp tax as prescribed in Title VII of the Tax Code.
Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator
of Josefina Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and
RMC No. 43-91 but the same was denied with finality by petitioner in October 30, 1991.
Consequently, on March 18, 1992, respondent filed with the RTC a petition for prohibition seeking
to prohibit petitioner from implementing the revenue orders.
Petitioner, through the Office of the Solicitor-General, filed a motion to dismiss the petition on the
ground that the RTC has no jurisdiction to review the questioned revenue orders and to enjoin their
implementation. Petitioner contends that the subject revenue orders were issued pursuant to his
power “to make rulings or opinions in connection with the Implementation of the provisions of internal
revenue laws.” Thus, the case falls within the exclusive appellate jurisdiction of the Court of Tax
Appeals, citing Sec. 7(1) of RA 1125.
The RTC issued an order denying the motion to dismiss holding that the revenue orders are not
assessments to implement a Tax Code provision, but are “in effect new taxes (against pawnshops)
which are not provided for under the Code,” and which only Congress is empowered to impose. The
Court of Appeals affirmed the order issued by the RTC.

Issue: Whether or not the Court of Tax Appeals has jurisdiction to review rulings of the
Commissioner implementing the Tax Code.

Held: The jurisdiction to review rulings of the Commissioner pertains to the Court of Tax Appeals
and NOT to the RTC. The questioned RMO and RMC are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of the Pawnshops.
Under RA 1125, An Act Creating the Court of Tax Appeals, such rulings of the Commissioner of
Internal Revenue are appealable to that court:
Sec. 7 Jurisdiction – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to
review by appeal, as herein provided—
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or
other matters arising under the National Revenue Code or other laws or part of law administered by
the Bureau of Internal Revenue.
xxxxxx

tax remedies; section 220; who should institute appeal in tax cases

COMMISSIONER OF INTERNAL REVENUE vs. LA SUERTE CIGAR AND CIGARETTE FACTORY

GR. No. 144942, July 4, 2002

Facts: In its resolution, dated 15 November 2000, the Supreme Court denied the Petition for Review
on Certiorari submitted by the Commissioner of Internal Revenue for non-compliance with the
procedural requirement of verification explicit in Sec. 4, Rule 7 of the 1997 Rules of Civil Procedure
and, furthermore, because the appeal was not pursued by the Solicitor-General. When the motion
for reconsideration filed by the petitioner was likewise denied, petitioner filed the instant motion
seeking an elucidation on the supposed discrepancy between the pronouncement of this Court, on
the one hand that would require the participation of the Office of the Solicitor-General and pertinent
provisions of the Tax Code, on the other hand, that allow legal officers of the Bureau of Internal
Revenue (BIR) to institute and conduct judicial action in behalf of the Government under Sec, 220
of the Tax Reform Act of 1997.

Issue: Are the legal officer of the BIR authorized to institute appeal proceedings (as distinguished
from commencement of proceeding) without the participation of the Solicitor-General?
Held: NO. The institution or commencement before a proper court of civil and criminal actions and
proceedings arising under the Tax Reform Act which “shall be conducted y legal officers of the
Bureau of Internal Revenue” is not in dispute. An appeal from such court, however, is not a matter
of right. Sec. 220 of the Tax Reform Act must not be understood as overturning the long-established
procedure before this Court in requiring the Solicitor-General to represent the interest of the
Republic. This court continues to maintain that it is the Solicitor-General who has the primary
responsibility to appear for the government in appellate proceedings. This pronouncement finds
justification in the various laws defining the Office of the Solicitor-General, beginning with Act No.
135, which took effect on 16 June 1901, up to the present Administrative Code of 1987. Sec. 35,
Chapter 12, Title III, Book IV of the said code outlines the powers and functions of the Office of the
Solicitor General which includes, but not limited to, its duty to—
1. Represent the Government in the Supreme Court and the Court of Appeals in all criminal
proceedings; represent the Government and its officers in the Supreme Court, the Court of Appeals,
and all other courts or tribunals in all civil actions and special proceedings in which the Government
or any officer thereof in his official capacity is a party.
2. Appear in any court in any action involving the validity of any treaty, law, executive order, or
proclamation, rule or regulation when in his judgment his intervention is necessary or when
requested by the Court.

TAX EXEMPTIONS; EXECUTIVE LEGISLATION

COCONUT OIL REFINERS ASSOCIATION, INC. et al vs. RUBEN TORRES, as Executive

Secretary, et al
G.R. No. 132527. July 29, 2005

Facts: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the sound
and balanced conversion of the Clark and Subic military reservations and their extensions into
alternative productive uses in the form of special economic zones in order to promote the economic
and social development of Central Luzon in particular and the country in general. The law contains
provisions on tax exemptions for importations of raw materials, capital and equipment. After which
the President issued several Executive Orders as mandated by the law for the implementation of
RA 7227. Herein petitioners contend the validity of the tax exemption provided for in the law.

Issue: Whether or not the Executive Orders issued by President for the implementation of the tax
exemptions constitutes executive legislation.

Held: To limit the tax-free importation privilege of enterprises located inside the special economic
zone only to raw materials, capital and equipment clearly runs counter to the intention of the
Legislature to create a free port where the “free flow of goods or capital within, into, and out of the
zones” is insured.
The phrase “tax and duty-free importations of raw materials, capital and equipment” was merely
cited as an example of incentives that may be given to entities operating within the zone. Public
respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which
petitioners impliedly rely to support their restrictive interpretation, does not apply when words are
mentioned by way of example. It is obvious from the wording of RA No. 7227, particularly the use of
the phrase “such as,” that the enumeration only meant to illustrate incentives that the SSEZ is
authorized to grant, in line with its being a free port zone.
The Court finds that the setting up of such commercial establishments which are the only ones duly
authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section
12 of RA No. 7227 that “. . .the Subic Special Economic Zone shall be developed into a self-
sustaining, industrial, commercial, financial and investment center to generate employment
opportunities in and around the zone and to attract and promote productive foreign investments.”
However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive
Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited
amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of
RA No. 7227. Said Section clearly provides that “exportation or removal of goods from the territory
of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines.”

TAX EXEMPTIONS; NULLITY OF TAX DECLARATIONS AND TAX ASSESSMENTS

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), vs. PROVINCIAL ASSESOR OF

SOUTH COTABATO, et al.
G.R. No. 144486. April 13, 2005

Facts: RCPI was granted a franchise under RA 2036, the law provides tax exemption for several
properties of the company. Section 14 of RA 2036 reads: “In consideration of the franchise and
rights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall pay
the same taxes as are now or may hereafter be required by law from other individuals, co
partnerships, private, public or quasi-public associations, corporations or joint stock companies, on
real estate, buildings and other personal property except radio equipment, machinery and spare
parts needed in connection with the business of the grantee, which shall be exempt from customs
duties, tariffs and other taxes, as well as those properties declared exempt in this section. In
consideration of the franchise, a tax equal to one and one-half per centum of all gross receipts from
the business transacted under this franchise by the grantee shall be paid to the Treasurer of the
Philippines each year, within ten days after the audit and approval of the accounts as prescribed in
this Act. Said tax shall be 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
taxes the grantee is hereby expressly exempted.” Thereafter, the municipal treasurer of Tupi, South
Cotabato assessed RCPI real property taxes from 1981 to 1985. The municipal treasurer demanded
that RCPI pay P166,810 as real property tax on its radio station building in Barangay Kablon, as
well as on its machinery shed, radio relay station tower and its accessories, and generating sets.
The Local Board of Assessment Appeals affirmed the assessment of the municipal treasurer. When
the case reach the C A, it ruled that, petitioner is exempt from paying the real property taxes
assessed upon its machinery and radio equipment mounted as accessories to its relay tower.
However, the decision assessing taxes upon petitioner’s radio station building, machinery shed, and
relay station tower is valid.

Issue: (1) Whether or not appellate court erred when it excluded RCPI’s tower, relay station building
and machinery shed from tax exemption.
(2) Whether or not appellate court erred when it did not resolve the issue of nullity of the tax
declarations and assessments due to non-inclusion of depreciation allowance.

Held: (1) RCPI’s radio relay station tower, radio station building, and machinery shed are real
properties and are thus subject to the real property tax. Section 14 of RA 2036, as amended by RA
4054, states that “in consideration of the franchise and rights hereby granted and any provision of
law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may
hereafter be required by law from other individuals, co partnerships, private, public or quasi-public
associations, corporations or joint stock companies, on real estate, buildings and other personal
property.” The clear language of Section 14 states that RCPI shall pay the real estate tax.
(2) The court held the assessment valid. The court ruled that, records of the case shows that RCPI
raised before the LBAA and the CBAA the nullity of the assessments due to the non-inclusion of
depreciation allowance. Therefore, RCPI did not raise this issue for the first time. However, even if
we consider this issue, under the Real Property Tax Code depreciation allowance applies only to
machinery and not to real property.

SECRETARY OF FINANCE CANNOT PROMULGATE REGULATIONS FIXING A RATE OF

PENALTY ON DELINQUENT TAXES
The Honorable Secretary of Finance vs. THE HONORABLE RICARDO M. ILARDE, Presiding
Judge, Regional Trial Court, 6th Judicial Region, Branch 26, Iloilo City, and CIPRIANO P.
CABALUNA, JR
G.R. No. 121782. May 9, 2005

Facts: Cabaluna with his wife owns several real property located in Iloilo City. Cabaluana is the
Regional Director of Regional Office No. VI of the Department of Finance in Iloilo City. After his
retirement, there are tax delinquencies on his properties; he paid the amount under protest
contending that the penalties imposed to him are in excess than that provided by law. After
exhausting all administrative remedies, he filed a suit before the RTC which found that Section 4(c)
of Joint Assessment Regulation No. 1-85 and Local Treasury Regulation No. 2-85 issued on August
1, 1985 by respondent Secretary (formerly Minister) of Finance is null and void; (2) declaring that
the penalty that should be imposed for delinquency in the payment of real property taxes should be
two per centum on the amount of the delinquent tax for each month of delinquency or fraction
thereof, until the delinquent tax is fully paid but in no case shall the total penalty exceed twenty-four
per centum of the delinquent tax as provided for in Section 66 of P.D. 464 otherwise known as the
Real Property Tax Code.

Issue: Whether or not the then Ministry of Finance could legally promulgate Regulations prescribing
a rate of penalty on delinquent taxes other than that provided for under Presidential Decree (P.D.)
No. 464, also known as the Real Property Tax Code.

Held: The Ministry of Finance now Secretary of Finance cannot promulgate regulations prescribing
a rate of penalty on delinquent taxes. The Court ruled that despite the promulgation of E.O. No. 73,
P.D. No. 464 in general and Section 66 in particular, remained to be good law. To accept the
Secretary’s premise that E.O. No. 73 had accorded the Ministry of Finance the authority to alter,
increase, or modify the tax structure would be tantamount to saying that E.O. No. 73 has repealed
or amended P.D. No. 464. Repeal of laws should be made clear and expressed. Repeals by
implication are not favored as laws are presumed to be passed with deliberation and full knowledge
of all laws existing on the subject. Such repeals are not favored for a law cannot be deemed repealed
unless it is clearly manifest that the legislature so intended it. Assuming argumenti that E.O. No. 73
has authorized the petitioner to issue the objected Regulations, such conferment of powers is void
for being repugnant to the well-encrusted doctrine in political law that the power of taxation is
generally vested with the legislature. Thus, for purposes of computation of the real property taxes
due from private respondent for the years 1986 to 1991, including the penalties and interests, is still
Section 66 of the Real Property Tax Code of 1974 or P.D. No. 464. The penalty that ought to be
imposed for delinquency in the payment of real property taxes should, therefore, be that provided
for in Section 66 of P.D. No. 464, i.e., two per centum on the amount of the delinquent tax for each
month of delinquency or fraction thereof but “in no case shall the total penalty exceed twenty-four
per centum of the delinquent tax.”

EVIDENCE IN TAX ASSESSMENTS; MACHINE COPIES OF RECORDS/ DOCUMENTS HAVE

NO PROBATIVE VALUE

COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC

G.R. No. 136975. March 31, 2005

Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale
of plastic products, it imports synthetic resin and other chemicals for the manufacture of its products.
For this purpose, it is required to file an Import Entry and Internal Revenue Declaration
(Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs
Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division
of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that
the respondent had imported synthetic resin amounting to P115,599,018.00 but only declared
P45,538,694.57. Thus, Hentex receive a subpoena to present its books of account which it failed to
do. The bureau cannot find any original copies of the products Hentex imported since the originals
were eaten by termites. Thus, the Bureau relied on the certified copies of the respondent’s Profit
and Loss Statement for 1987 and 1988 on file with the SEC, the machine copies of the Consumption
Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by
Tomas and Danganan. The case was submitted to the CTA which ruled that Hentex have tax
deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the income and
sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the
copies of the import entries relied upon in computing the deficiency tax of the respondent were not
duly authenticated by the public officer charged with their custody, nor verified under oath by the
EIIB and the BIR investigators.

Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency
income tax and sales tax for the latter’s 1987 importation of resins and calcium bicarbonate is based
on competent evidence and the law.

Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides
that the Commissioner of Internal Revenue has the power to make assessments and prescribe
additional requirements for tax administration and enforcement. Among such powers are those
provided in paragraph (b), which provides that “Failure to submit required returns, statements,
reports and other documents. – When a report required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or
when there is reason to believe that any such report is false, incomplete or erroneous, the
Commissioner shall assess the proper tax on the best evidence obtainable.” This provision applies
when the Commissioner of Internal Revenue undertakes to perform her administrative duty of
assessing the proper tax against a taxpayer, to make a return in case of a taxpayer’s failure to file
one, or to amend a return already filed in the BIR. The “best evidence” envisaged in Section 16 of
the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is
the subject of the assessment process, the accounting records of other taxpayers engaged in the
same line of business, including their gross profit and net profit sales. Such evidence also includes
data, record, paper, document or any evidence gathered by internal revenue officers from other
taxpayers who had personal transactions or from whom the subject taxpayer received any income;
and record, data, document and information secured from government offices or agencies, such as
the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs
Commission. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as
amended, does not include mere photocopies of records/documents. The petitioner, in making a
preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said
assessment on mere machine copies of records/documents. Mere photocopies of the Consumption
Entries have no probative weight if offered as proof of the contents thereof. The reason for this is
that such copies are mere scraps of paper and are of no probative value as basis for any deficiency
income or business taxes against a taxpayer.

Companies exempt from zero-rate tax

COMMISSIONER OF INTERNAL REVENUE vs. AMERICAN EXPRESS INTERNATIONAL, INC.

(PHILIPPINE BRANCH),
G.R.No. 152609. June 29, 2005

Facts: American Express international is a foreign corporation operating in the Philippines, it is a

registered taxpayer. On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund
of its 1997 excess input taxes in the amount of P3,751,067.04, which amount was arrived at after
deducting from its total input VAT paid of P3,763,060.43 its applied output VAT liabilities only for the
third and fourth quarters of 1997 amounting to P5,193.66 and P6,799.43, respectively. The CTA
ruled in favor of the herein respondent holding that its services are subject to zero-rate pursuant to
Section 108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue Regulations
5-96. The CA affirmed the decision of the CTA.
Issue: Whether or not the company is subject to zero-rate tax pursuant to the Tax Reform Act of
1997.

Held: Services performed by VAT-registered persons in the Philippines (other than the processing,
manufacturing or repacking of goods for persons doing business outside the Philippines), when paid
in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
BSP, are zero-rated. Respondent is a VAT-registered person that facilitates the collection and
payment of receivables belonging to its non-resident foreign client, for which it gets paid in
acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the Philippines is not in the same category as
“processing, manufacturing or repacking of goods” and should, therefore, be zero-rated. In reply to
a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent earned
from its parent company’s regional operating centers (ROCs) was automatically zero-rated effective
January 1, 1988. Service has been defined as “the art of doing something useful for a person or
company for a fee” or “useful labor or work rendered or to be rendered by one person to another.”
For facilitating in the Philippines the collection and payment of receivables belonging to its Hong
Kong-based foreign client, and getting paid for it in duly accounted acceptable foreign currency,
respondent renders service falling under the category of zero rating. Pursuant to the Tax Code, a
VAT of zero percent should, therefore, be levied upon the supply of that service.
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus,
exports are zero-rated, while imports are taxed. VAT rate for services that are performed in the
Philippines, “paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP.” Thus, for the supply of service to be zero-rated as an exception, the
law merely requires that first, the service be performed in the Philippines; second, the service fall
under any of the However, the law clearly provides for an exception to the destination principle; that
is, for a zero percent categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable
foreign currency accounted for in accordance with BSP rules and regulations. Indeed, these three
requirements for exemption from the destination principle are met by respondent. Its facilitation
service is performed in the Philippines. It falls under the second category found in Section 102(b) of
the Tax Code, because it is a service other than “processing, manufacturing or repacking of goods”
as mentioned in the provision. Undisputed is the fact that such service meets the statutory condition
that it be paid in acceptable foreign currency duly accounted for in accordance with BSP rules. Thus,
it should be zero-rated.
P O ST E D B Y UNC B A R O P E RATI O NS C O MMI S S I O N 20 0 7 AT 3 :2 9 A M
2 COMMENTS:

Toto said...
PLEASE MAKE CLEAR IF COOPERATIVE CREATED UNDER R.A 6938 ARE EXEMPT
FROM FRANCHISE TAX AND OTHER LOCAL TAXES ESPECIALLY THOSE ENGAGE IN
LABOR SERVICES.
Case Digest:
Lung Center of the Philippines
vs.
Quezon City and Constantino Rosas

FACTS:

The Petitioner is a non-stock, non-profit entity which owns a parcel of land in Quezon City. Erected
in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. The
ground floor is being leased to a canteen, medical professionals whom use the same as their private
clinics, as well as to other private parties. The right portion of the lot is being leased for commercial
purposes to the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying
patients. It also renders medical services to out-patients, both paying and non-paying. Aside from
its income from paying patients, the petitioner receives annual subsidies from the government.

Petitioner filed a Claim for Exemption from realty taxes amounting to about Php4.5 million,
predicating its claim as a charitable institution. The city assessor denied the Claim. When appealed
to the QC-Local Board of Assessment, the same was dismissed. The decision of the QC-LBAA was
affirmed by the Central Board of Assessment Appeals, despite the Petitioners claim that 60% of its
hospital beds are used exclusively for charity.

ISSUE:
Whether or not the Petitioner is entitled to exemption from realty taxes notwithstanding the fact that
it admits paying clients and leases out a portion of its property for commercial purposes.

HELD:

The Court held that the petitioner is indeed a charitable institution based on its charter and articles
of incorporation. As a general principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying patients, whether out-
patient or confined in the hospital, or receives subsidies from the government, so long as the money
received is devoted or used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or operating the institution.

Despite this, the Court held that the portions of real property that are leased to private entities are
not exempt from real property taxes as these are not actually, directly and exclusively used for
charitable purposes. (strictissimi juris) Moreover, P.D. No. 1823 only speaks of tax exemptions as
regards to:
 income and gift taxes for all donations, contributions, endowments and equipment and
supplies to be imported by authorized entities or persons and by the Board of Trustees of
the Lung Center of the Philippines for the actual use and benefit of the Lung Center; and
 taxes, charges and fees imposed by the Government or any political subdivision or
instrumentality thereof with respect to equipment purchases (expression unius est exclusion
alterius/expressium facit cessare tacitum).