G.R. No.
L-24756            October 31, 1968 now the power to tax, to license and to regulate provided that the
CITY OF BAGUIO, plaintiff-appellee,
vs.
FORTUNATO DE LEON, defendant-appellant.
FERNANDO, J.:
In this appeal, a lower court decision upholding the validity of an
ordinance1 of the City of Baguio imposing a license fee on any
person, firm, entity or corporation doing business in the City of
Baguio is assailed by defendant-appellant Fortunato de Leon. He
was held liable as a real estate dealer with a property therein worth
more than P10,000, but not in excess of P50,000, and therefore
obligated to pay under such ordinance the P50 annual fee. That is
the principal question. In addition, there has been a firm and
unyielding insistence by defendant-appellant of the lack of
jurisdiction of the City Court of Baguio, where the suit originated, a
complaint having been filed against him by the City Attorney of
Baguio for his failure to pay the amount of P300 as license fee
covering the period from the first quarter of 1958 to the fourth quarter
of 1962, allegedly, inspite of repeated demands. Nor was defendant-
appellant agreeable to such a suit being instituted by the City
Treasurer without the consent of the Mayor, which for him was
indispensable. The lower court was of a different mind.
In its decision of December 19, 1964, it declared the above
ordinance as amended, valid and subsisting, and held defendant-
appellant liable for the fees therein prescribed as a real estate
dealer. Hence, this appeal. Assume the validity of such ordinance,
and there would be no question about the liability of defendant-
appellant for the above license fee, it being shown in the partial
stipulation of facts, that he was "engaged in the rental of his property
in Baguio" deriving income therefrom during the period covered by
the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by
Republic Act No. 329, amending the city charter of
Baguio2 empowering it to fix the license fee and regulate
"businesses, trades and occupations as may be established or
practiced in the City."
Unless it can be shown then that such a grant of authority is not
broad enough to justify the enactment of the ordinance now assailed,
the decision appealed from must be affirmed. The task confronting
defendant-appellant, therefore, was far from easy. Why he failed is
understandable, considering that even a cursory reading of the
above amendment readily discloses that the enactment of the
ordinance in question finds support in the power thus conferred.
Nor is the question raised by him as to the validity thereof novel in
character. In Medina v. City of Baguio,3 the effect of the amendatory
section insofar as it would expand the previous power vested by the
city charter was clarified in these terms: "Appellants apparently have
in mind section 2553, paragraph (c) of the Revised Administrative
Code, which empowers the City of Baguio merely to impose a
license fee for the purpose of rating the business that may be
established in the city. The power as thus conferred is indeed
limited, as it does not include the power to levy a tax. But on July 15,
1948, Republic Act No. 329 was enacted amending the charter of
said city and adding to its power to license the power to tax and to
regulate. And it is precisely having in view this amendment that
Ordinance No. 99 was approved in order to increase the revenues of
the city. In our opinion, the amendment above adverted to empowers
the city council not only to impose a license fee but also to levy a tax
for purposes of revenue, more so when in amending section 2553
(b), the phrase 'as provided by law' has been removed by section 2
of Republic Act No. 329. The city council of Baguio, therefore, has
subjects affected be one of those included in the charter. In this
sense, the ordinance under consideration cannot be considered ultra
vires whether its purpose be to levy a tax or impose a license fee.
The terminology used is of no consequence."
It would be an undue and unwarranted emasculation of the above
power thus granted if defendant-appellant were to be sustained in
his contention that no such statutory authority for the enactment of
the challenged ordinance could be discerned from the language
used in the amendatory act. That is about all that needs to be said in
upholding the lower court, considering that the City of Baguio was
not devoid of authority in enacting this particular ordinance. As
mentioned at the outset, however, defendant-appellant likewise
alleged procedural missteps and asserted that the challenged
ordinance suffered from certain constitutional infirmities. To such
points raised by him, we shall now turn.
1. Defendant-appellant makes much of the alleged lack of jurisdiction
of the City Court of Baguio in the suit for the collection of the real
estate dealer's fee from him in the amount of P300. He contended
before the lower court, and it is his contention now, that while the
amount of P300 sought was within the jurisdiction of the City Court of
Baguio where this action originated, since the principal issue was the
legality and constitutionality of the challenged ordinance, it is not
such City Court but the Court of First Instance that has original
jurisdiction.
There is here a misapprehension of the Judiciary Act. The City Court
has jurisdiction. Only recently, on September 7, 1968 to be exact, we
rejected a contention similar in character in Nemenzo v.
Sabillano.4 The plaintiff in that case filed a claim for the payment of
his salary before the Justice of the Peace Court of Pagadian,
Zamboanga del Sur. The question of jurisdiction was raised; the
defendant Mayor asserted that what was in issue was the
enforcement of the decision of the Commission of Civil Service; the
Justice of the Peace Court was thus without jurisdiction to try the
case. The above plea was curtly dismissed by Us, as what was
involved was "an ordinary money claim" and therefore "within the
original jurisdiction of the Justice of the Peace Court where it was
filed, considering the amount involved." Such is likewise the situation
here.
Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect
from a defendant this license fee corresponding to the years 1951
and 1952 was filed with the Municipal Court of Manila, in view of the
amount involved. The thought that the municipal court lacked
jurisdiction apparently was not even in the minds of the parties and
did not receive any consideration by this Court.
Evidently, the fear is entertained by defendant-appellant that
whenever a constitutional question is raised, it is the Court of First
Instance that should have original jurisdiction on the matter. It does
not admit of doubt, however, that what confers jurisdiction is the
amount set forth in the complaint. Here, the sum sought to be
recovered was clearly within the jurisdiction of the City Court of
Baguio.
Nor could it be plausibly maintained that the validity of such
ordinance being open to question as a defense against its
enforcement from one adversely affected, the matter should be
elevated to the Court of First Instance. For the City Court could rely
on the presumption of the validity of such ordinance, 6 and the mere
fact, however, that in the answer to such a complaint a constitutional
question was raised did not suffice to oust the City Court of its
jurisdiction. The suit remains one for collection, the lack of validity
being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that
the judicial power embraces the ascertainment of facts and the
1
application of the law, the Constitution as the highest law
superseding any statute or ordinance in conflict therewith, it cannot
be said that a City Court is bereft of competence to proceed on the
matter. In the exercise of such delicate power, however, the
admonition of Cooley on inferior tribunals is well worth remembering.
Thus: "It must be evident to any one that the power to declare a
legislative enactment void is one which the judge, conscious of the
fallibility of the human judgment, will shrink from exercising in any
case where he can conscientiously and with due regard to duty and
official oath decline the responsibility."7 While it remains undoubted
that such a power to pass on the validity of an ordinance alleged to
infringe certain constitutional rights of a litigant exists, still it should
be exercised with due care and circumspection, considering not only
the presumption of validity but also the relatively modest rank of a
city court in the judicial hierarchy.
2. To repeat the challenged ordinance cannot be considered ultra
vires as there is more than ample statutory authority for the
enactment thereof. Nonetheless, its validity on constitutional grounds
is challenged because of the allegation that it imposed double
taxation, which is repugnant to the due process clause, and that it
violated the requirement of uniformity. We do not view the matter
thus.
As to why double taxation is not violative of due process, Justice
Holmes made clear in this language: "The objection to the taxation
as double may be laid down on one side. ... The 14th Amendment
[the due process clause] no more forbids double taxation than it
does doubling the amount of a tax, short of confiscation or
proceedings unconstitutional on other grounds."8With that decision
rendered at a time when American sovereignty in the Philippines
was recognized, it possesses more than just a persuasive effect. To
some, it delivered the coup de grace to the bogey of double taxation
as a constitutional bar to the exercise of the taxing power. It would
seem though that in the United States, as with us, its ghost as noted
by an eminent critic, still stalks the juridical state. In a 1947 decision,
however,9 we quoted with approval this excerpt from a leading
American decision:10 "Where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though
double taxation results."
At any rate, it has been expressly affirmed by us that such an
"argument against double taxation may not be invoked where one
tax is imposed by the state and the other is imposed by the city ..., it
being widely recognized that there is nothing inherently obnoxious in
the requirement that license fees or taxes be exacted with respect to
the same occupation, calling or activity by both the state and the
political subdivisions thereof."11
The above would clearly indicate how lacking in merit is this
argument based on double taxation.
Now, as to the claim that there was a violation of the rule of
uniformity established by the constitution. According to the
challenged ordinance, a real estate dealer who leases property
worth P50,000 or above must pay an annual fee of P100. If the
property is worth P10,000 but not over P50,000, then he pays P50
and P24 if the value is less than P10,000. On its face, therefore, the
above ordinance cannot be assailed as violative of the constitutional
requirement of uniformity. In Philippine Trust Company v.
Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is
considered uniform when it operates with the same force and effect
in every place where the subject may be found."
There was no occasion in that case to consider the possible effect
on such a constitutional requirement where there is a classification.
The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus:
"Equality and uniformity in taxation means that all taxable articles or
kinds of property of the same class shall be taxed at the same rate.
The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation; ..." About two years later,
Justice Tuason, speaking for this Court in Manila Race Horses
Trainers Assn. v. De la Fuente 14 incorporated the above excerpt in
his opinion and continued: "Taking everything into account, the
differentiation against which the plaintiffs complain conforms to the
practical dictates of justice and equity and is not discriminatory within
the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another
case decided two years later, 15 is that the statute or ordinance in
question "applies equally to all persons, firms and corporations
placed in similar situation." This Court is on record as accepting the
view in a leading American case16 that "inequalities which result from
a singling out of one particular class for taxation or exemption
infringe no constitutional limitation."17
It is thus apparent from the above that in much the same way that
the plea of double taxation is unavailing, the allegation that there
was a violation of the principle of uniformity is inherently lacking in
persuasiveness. There is no need to pass upon the other allegations
to assail the validity of the above ordinance, it being maintained that
the license fees therein imposed "is excessive, unreasonable and
oppressive" and that there is a failure to observe the mandate of
equal protection. A reading of the ordinance will readily disclose their
inherent lack of plausibility.
3. That would dispose of all the errors assigned, except the last two,
which would predicate a grievance on the complaint having been
started by the City Treasurer rather than the City Mayor of Baguio.
These alleged errors, as was the case with the others assigned, lack
merit.
In much the same way that an act of a department head of the
national government, performed within the limits of his authority, is
presumptively the act of the President unless reprobated or
disapproved,18 similarly the act of the City Treasurer, whose position
is roughly analogous, may be assumed to carry the seal of approval
of the City Mayor unless repudiated or set aside. This should be the
case considering that such city official is called upon to see to it that
revenues due the City are collected. When administrative steps are
futile and unavailing, given the stubbornness and obduracy of a
taxpayer, convinced in good faith that no tax was due, judicial
remedy may be resorted to by him. It would be a reflection on the
state of the law if such fidelity to duty would be met by condemnation
rather than commendation.
So, much for the analytical approach. The conclusion thus reached
has a reinforcement that comes to it from the functional and
pragmatic test. If a city treasurer has to await the nod from the city
mayor before a municipal ordinance is enforced, then opportunity
exists for favoritism and undue discrimination to come into play.
Whatever valid reason may exist as to why one taxpayer is to be
accorded a treatment denied another, the suspicion is unavoidable
that such a manifestation of official favor could have been induced
by unnamed but not unknown consideration. It would not be going
too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal
doctrine therefore, on the assumption that a choice exists, is one that
would do away with such temptation on the part of both taxpayer and
public official alike.
WHEREFORE, the lower court decision of December 19, 1964, is
hereby affirmed. Costs against defendant-appellant.
2
Sison vs. Ancheta L-59431, July 25, 1984 (130 SCRA 654) (supra to
Scope and Limitations of Taxation)

3
 [G.R. No. L-15270. September 30, 1961.]
JOSE V. HERRERA and ESTER OCHANGCO
HERRERA, Petitioners, v. THE QUEZON CITY BOARD OF
ASSESSMENT APPEALS, Respondent.
SYLLABUS
1. TAXATION; REAL ESTATE TAXES; CHARITABLE HOSPITALS
AND EDUCATIONAL INSTITUTIONS; WHEN BENEVOLENT
CHARACTER OF HOSPITAL NOT DETRACTED BY ADMISSION
OF PAY PATIENTS. — The admission of pay-patients does not
detract from the charitable character of a hospital, if all of its funds
are devoted "exclusively to the maintenance of the institution as a
public charity" (84 C.J.S., 617; see also, 51 Am. Jur., 607; Cooley on
Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). In other words,
"where rendering charity is its primary object, and the funds derived
from payments made by patients able to pay are devoted to the
benevolent purposes of the institution, the mere fact that a profit has
been made will not deprive the hospital of its benevolent character"
(Prairie Du Chian Sanitarium Co. v. City of Prairie Du Chian, 242
Wis. 262, 7 NW [2d] 832, 144 A.L.R., 1480). The fact, therefore, that
in the case at bar, St. Catherine’s Hospital, which is a charitable
institution, admits pay-patients, does not bar it from claiming that it is
devoted exclusively to benevolent purposes, it being admitted that
the income derived from pay-patients is devoted to the improvement
of the charity wards, which represent almost two-thirds (2/3) of the
bed capacity of the hospital, aside from "out-charity patients" who
come only for consultation.
2. ID.; ID.; ID.; EXTENT OF EXEMPTION. — The exemption in favor
of property used exclusively for charitable or educational purposes is
"not limited to property actually indispensable" therefor (Cooley on
Taxation, Vol. 2, p. 1430), but extends to facilities which are
"incidental to and reasonably necessary for" the accomplishment of
said purposes, such as in the case of hospitals, "a school for training
nurses, a nurses’ home, property used to provide housing facilities
for interns, resident doctors, superintendents, and other members of
the hospital staff, and recreational facilities for student nurses,
interns and residents" (84 C.J.S., 621), such as "athletic fields,"
including "a farm used for the inmates of the institution" (Cooley on
Taxation, Vol. 2, p. 1430).
3. ID.; ID.; ID.; ID.; LANDS BUILDING AND IMPROVEMENTS
BEYOND THE TAXING POWER IRRESPECTIVE OF PROFITS. —
The existence of "St. Catherine’s School of Midwifery," with an
enrollment of about 200 students, who practice partly in St.
Catherine’s Hospital and partly in St. Mary’s Hospital, which,
likewise, belongs to petitioners, does not, and cannot, effect the
exemption to which St. Catherine’s Hospital is entitled under the
Constitution. The fact that the size of the enrollment and the
students, aside from the amount they paid for board and lodging,
warrant the belief that a substantial profit is derived from the
operation of the said school, is immaterial to the issue of whether or
not real estate taxes should be paid, because "all lands, buildings
and improvements used exclusively for religious, charitable or
educational purposes shall be exempt from taxation," pursuant to the
Constitution, regardless of whether or not material profit are derived
from the operation of the institutions in question. In other words,
Congress may, if it deems fit to do so, impose taxes upon such
"profits," but said "lands, building and improvements" are beyond its
taxing power.
4. ID.; ID.; ID.; ID.; FACTORS THAT DO NOT AFFECT THE
CHARITABLE CHARACTER OF A HOSPITAL. — The fact that a
garage located in the hospital was being used in the operation of the
school of midwifery because the students enrolled therein were
entitled to transportation, and that the hospital directress, who
received no compensation, and her family, resided in the building,
were incidental to the operation of the hospital, and, accordingly, did
not affect the charitable character of the hospital and the educational
nature of the school.
DECISION
CONCEPCION, J.:
Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera,
from a decision of the Court of Tax Appeals affirming that of the
Board of Assessment Appeals of Quezon City, which held that
certain properties of said petitioners are subject to assessment for
purposes of real estate tax.
The facts and the issue are set forth in the aforementioned decision
of the Court of Tax Appeals, from which we
quote:jgc:chanrobles.com.ph
"On July 24, 1952, the Director of the Bureau of Hospitals authorized
the petitioners to establish and operate the ‘St. Catherine’s Hospital,’
located at 58 D. Tuazon, Sta. Mesa Heights. Quezon City (Exhibit ‘F-
1’, p. 7, BIR rec.) . On or about January 3, 1953, the petitioners sent
a letter to the Quezon City Assessor requesting exemption from
payment of real estate tax on the lot, building and other
improvements comprising the hospital stating that the same was
established for charitable and humanitarian purposes and not for
commercial gain (Exhibit ‘F-2’, pp. 8-9, BIR rec.) . After an inspection
of the premises in question and after a careful study of the case, the
exemption from real property taxes was granted effective the years
1953, 1954 and 1955.
"Subsequently, however, in a letter dated August 10, 1955 (Exhibit
‘E’, p. 65, CTA rec.) the Quezon City Assessor notified the
petitioners that the aforesaid properties were re-classified from
‘exempt’ to ‘taxable’ and thus assessed for real property taxes
effective 1956, enclosing therewith copies of Tax Declaration Nos.
19321 to 19322 covering the said properties. The petitioners
appealed the assessment to the Quezon City Board of Assessment
Appeals, which, in a decision dated March 31, 1956 and received by
the former on May 17, 1956, affirmed the decision of the City
Assessor. A motion for reconsideration thereof was denied on March
8, 1957. From this decision, the petitioners instituted the instant
appeal.
"The building involved in this case is principally used as a hospital. It
is mainly a surgical and orthopedic hospital with emphasis on
obstetrical cases, the latter constituting 90% of the total number of
cases registered therein. The hospital has thirty-two (32) beds, of
which twenty (20) are for charity-patients and twelve (12) for pay-
patients. From the evidence presented by petitioners, it is made to
appear that there are two kinds of charity-patients — (a) those who
come for consultation only (’out-charity patients’); and (b) those who
remain in the hospital for treatment (’lying-in-patients’). The out-
charity patients are given free consultation and prescription, although
sometimes they are furnished with free medicines which are not
costly like aspirin, sulfatiazole, etc. The charity lying-in-patients are
given free medical service and medicine although the food served to
the pay-patients is very much better than that given to the former.
Although no condition is imposed by the hospital on the admission of
charity lying-in-patients, they however, usually give donations to the
hospital. On the other hand, the pay-patients are required to pay for
hospital services ranging from the minimum charge of P5.00 to the
maximum of P40.00 for each day of stay in the hospital. The income
realized from pay-patients is spent for the improvement of the charity
wards. The hospital personnel is composed of three nurses, two
graduate midwives, a resident physician receiving a salary of
P170.00 a month and the petitioner, Dr. Ester Ochangco Herrera, as
directress. As such directress, the latter does not receive any salary.
"Petitioners also operate within the premises of the hospital the ‘St.
Catherine’s School of Midwifery’ which was granted government
recognition by the Secretary of Education on February 1, 1955
(Exhibit ‘F-3’, p. 10, BIR rec.) . This school has an enrollment of
about two hundred students. The students are charge a matriculation
fee of P300.00 for 1-1/2 years, plus P50.00 a month for board and
lodging, which includes transportation to the St. Mary Hospital. The
students practice in the St. Catherine’s Hospital, as well as in the St.
Mary’s Hospital, which is also owned by the petitioners. A separate
4
set of accounting books is maintained by the school for midwifery
distinct from that kept by the hospital. The petitioners alleged that the
accounts of the school are not included in Exhibits ‘A’, ‘A-1’, ‘A-2’,
‘B’, ‘B-1’, ‘B’-2’, ‘C’, ‘C-1’ and ‘C-2’ which relate to the hospital only.
However, the petitioners have refused to submit a separate
statement of accounts of the school. A brief tabulation indicating the
amount of income of the hospital for the years 1954, 1955 and 1956,
and its operational expenses, is as follows:chanrob1es virtual 1aw
library
1954
Income Expenses Deficit
Charity Ward P5,280.04 P1,303.80
Pay Ward P14,779.50 10,803.26
—————
P16,083.30
(Exhibits ‘A’, ‘A-1’ and ‘A-2’)
1955
Income Expenses Deficit
Charity Ward P6,859.32
Pay Ward P17,433.30 14,038.92 P3,464.94
—————
P20,898.24
(Exhibits ‘B’, ‘B-1’ and ‘B-2’)
1956
Income Expenses Deficit
Charity Ward P5,559.89 P341.53
Pay Ward P21,467.40 16,249.04
—————
P21,808.93
(Exhibits ‘C’, ‘C-1’ and ‘C-2)
"Aside from the St. Catherine and St. Mary hospitals, the petitioners
declared that they also own lands and coconut plantations in Quezon
Province, and other real estate in the City of Manila consisting of
apartments for rent. The petitioner, Jose V. Herrera, is an architect,
actively engaged in the practice of his profession, with office at
Tuason Building, Escolta, Manila. He was formerly Chairman, Board
of Examiners for Architects and Chairman, Board of Architects
connected with the United Nations. He was also connected with the
Allied Technologists which constructed the Veterans Hospital in
Quezon City.
"The only issue raised, is whether or not the lot, building and other
improvements occupied by the St. Catherine Hospital are exempt
from the real property tax. The resolution of this question boils down
to the corollary issue as to whether or not the said properties are
used exclusively for charitable or educational purposes." (Petitioners’
brief, pp. 24-29).
The Court of Tax Appeals decided the issue in the negative, upon
the ground that the St. Catherine’s Hospital "has a pay ward for . . .
pay-patients, who are charged for the use of the private rooms,
operating room, laboratory room, delivery room, etc., like other
hospitals operated for profit" and that "petitioners and their family
occupy a portion of the building for their residence." With respect to
petitioners’ claim for exemption based upon the operation of the
school of midwifery, the Court conceded that "the proposition might
be proper if the property used for the school of midwifery were
separate and distinct from the hospital." It added, however, that, "in
the instant case, the portions of the building used for classrooms of
the school of midwifery have not been shown to be exclusively for
school purposes" ; that said portions "rather . . . have a dual use, i.e.,
for classroom and for hospital use, the latter not being a purpose that
renders the property tax exempt," that part of the building and lot in
question "is used as hospital, part as residence of the petitioners,
part as garage, part as dormitory and part as school" ; and that "the
portion dedicated to educational and charitable purposes can not be
identified from those destined to other uses; and the building is itself
an indivisible unit of property."cralaw virtua1aw library
It should be noted, however, that, according to the very statement of
facts made in the decision appealed from, of the thirty- two (32) beds
in the hospital, twenty (20) are for charity-patients; that "the income
realized from pay-patients is spent for improvement of the charity
wards" ; and that "petitioner, Dr. Ester Ochangco Herrera, as
directress" of said hospital, "does not receive any salary," although
its resident physician gets a monthly salary of P170.00. It is well
settled, in this connection, that the admission of pay-patients does
not detract from the charitable character of a hospital, if all of its
funds are devoted "exclusively to the maintenance of the institution"
as a "public charity" (84 C.J.S., 617; see, also, 51 Am. Jur. 607;
Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). In other
words, "where rendering charity is its primary object, and the funds
derived from payments made by patients able to pay are devoted to
the benevolent purposes of the institution, the mere fact that a profit
has been made will not deprive the hospital of its benevolent
character" (Prairie Du Chien Sanitarium Co. v. City of Prairie Du
Chien, 242 Wis. 262, 7 NW [2d] 832, 144 A.L.R. 1480).
Thus, we have held that the U.S.T. Hospital was not established for
profit-making purposes, although it had 140 paying beds maintained
only to partly finance the expenses of the free wards, containing 203
beds for charity patients (U.S.T. Hospital Employees Association v.
Sto. Tomas University Hospital, L-6988, May 24, 1954), that the St.
Paul’s Hospital of Iloilo, a corporation organized for "charitable
educational and religious purposes" can not be considered as
engaged in business merely because its pharmacy department
charges paying patients the cost of their medicine, plus 10% thereof,
to partly offset the cost of medicines supplied free of charge to
charity patients (Collector of Internal Revenue v. St. Paul’s Hospital
of Iloilo, L-12127, May 25, 1959), and that the amendment of the
original articles of incorporation of the University of Visayas to
convert it from a non-stock to a stock corporation and the increase of
its assets from P9,000 to P50,000, distributed among the members
of the original non-stock corporation in terms of shares of stock, as
well as the subsequent move of its board of trustees to double the
stock dividends of the corporation, in view of a gain of P200,000.00
in property, besides good-will, which was not carried out, does not
justify the inference that the corporation has become one for
business and profit, none of its profits having inured to the benefit of
any stockholder or individual (Collector of Internal Revenue v.
University of Visayas, L-13554, February 28, 1961).
Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is "not limited to property actually
indispensable" therefore (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are "incidental to and reasonably
necessary for" the accomplishment of said purposes, such as, in the
case of hospitals, "a school for training nurses, a nurses’ home,
property use to provide housing facilities for interns, resident doctors,
superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns and residents" (84
C.J.S., 621), such as "athletic fields," including "a farm used for the
5
inmates of the institution" (Cooley on Taxation, Vol. 2, p. 1430).
Within the purview of the Constitutional exemption from taxation, the
St. Catherine’s Hospital is, therefore, a charitable institution, and the
fact that it admits pay-patients does not bar it from claiming that it is
devoted exclusively to benevolent purposes, it being admitted that
the income derived from pay-patients is devoted to the improvement
of the charity wards, which represent almost two-thirds (2/3) of the
bed capacity of the hospital, aside from "out-charity patients" who
come only for consultation.
Again, the existence of "St. Catherine’s School of Midwifery", with an
enrollment of about 200 students, who practice partly in St.
Catherine’s Hospital and partly in St. Mary’s Hospital, which,
likewise, belongs to petitioners herein, does not, and cannot, affect
the exemption to which St. Catherine’s Hospital is entitled under our
fundamental law. On the contrary, it furnishes another ground for
exemption. Seemingly, the Court of Tax Appeals was impressed by
the fact that the size of said enrollment and the matriculation fee
charged from the students of midwifery, aside from the amount they
paid for board and lodging, including transportation to St. Mary’s
Hospital, warrants the belief that petitioners derive a substantial
profit from the operation of the school aforementioned. Such factor
is, however, immaterial to the issue in the case at bar, for "all lands,
building and improvements used exclusively for religious, charitable
or educational purposes shall be exempt from taxation," pursuant to
the Constitution, regardless of whether or not material profits are
derived from the operation of the institutions in question. In other
words, Congress may, if it deems fit to do so, impose taxes upon
such "profits", but said "lands, buildings and improvements" are
beyond its taxing power.
Similarly, the garage in the building above referred to — which was
obviously essential to the operation of the school of midwifery, for
the students therein enrolled practiced, not only in St. Catherine’s
Hospital, but, also, in St. Mary’s Hospital, and were entitled to
transportation thereto — for Mrs. Herrera received no compensation
as directress of St. Catherine’s Hospital — were incidental to the
operation of the latter and of said school, and, accordingly, did not
affect the charitable character of said hospital and the educational
nature of said school.
WHEREFORE, the decision of the Court of Tax Appeals, as well as
that of the Assessment Board of Appeals of Quezon City, are hereby
reversed and set aside, and another one shall be entered declaring
that the lot, building and improvements constituting the St.
Catherine’s Hospital are exempt from taxation under the provisions
of the Constitution, without special pronouncement as to cost. It is so
ordered.
G.R. No. L-39086 June 15, 1988
ABRA VALLEY COLLEGE, INC., represented by PEDRO V.
BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra;
ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V.
BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF
PATERNO MILLARE, respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision * of the
defunct Court of First Instance of Abra, Branch I, dated June 14,
1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior
College, Inc., represented by Pedro V. Borgonia, plaintiff vs. Armin
M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as
Municipal Treasurer of Bangued, Abra and Paterno Millare,
defendants," the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the Court hereby declares:
That the distraint seizure and sale by the Municipal Treasurer of
Bangued, Abra, the Provincial Treasurer of said province against the
lot and building of the Abra Valley Junior College, Inc., represented
by Director Pedro Borgonia located at Bangued, Abra, is valid;
That since the school is not exempt from paying taxes, it should
therefore pay all back taxes in the amount of P5,140.31 and back
taxes and penalties from the promulgation of this decision;
That the amount deposited by the plaintaff him the sum of
P60,000.00 before the trial, be confiscated to apply for the payment
of the back taxes and for the redemption of the property in question,
if the amount is less than P6,000.00, the remainder must be returned
to the Director of Pedro Borgonia, who represents the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of
P6,000.00 also before the trial must be returned to said Municipal
Treasurer of Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against
the plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher
learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint (Annex "1" of Answer by the
respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10,
1972 in the court a quo to annul and declare void the "Notice of
Seizure' and the "Notice of Sale" of its lot and building located at
Bangued, Abra, for non-payment of real estate taxes and penalties
amounting to P5,140.31. Said "Notice of Seizure" of the college lot
and building covered by Original Certificate of Title No. Q-83 duly
registered in the name of petitioner, plaintiff below, on July 6, 1972,
by respondents Municipal Treasurer and Provincial Treasurer,
defendants below, was issued for the satisfaction of the said taxes
thereon. The "Notice of Sale" was caused to be served upon the
petitioner by the respondent treasurers on July 8, 1972 for the sale
at public auction of said college lot and building, which sale was held
on the same date. Dr. Paterno Millare, then Municipal Mayor of
Bangued, Abra, offered the highest bid of P6,000.00 which was duly
accepted. The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased)
filed through counstel a motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and
Municipal Treasurer, through then Provincial Fiscal Loreto C.
Roldan, filed their answer (Annex "2" of Answer by the respondents
Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This
was followed by an amended answer (Annex "3," ibid, Rollo, pp.
101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his
answer (Annex "5," ibid; Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises
at public auction, the respondent Judge, Hon. Juan P. Aquino of the
Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid;
Rollo, pp. 109-110) the respondents provincial and municipal
treasurers to deliver to the Clerk of Court the proceeds of the auction
sale. Hence, on December 14, 1972, petitioner, through Director
Borgonia, deposited with the trial court the sum of P6,000.00
evidenced by PNB Check No. 904369.
6
On April 12, 1973, the parties entered into a stipulation of facts
adopted and embodied by the trial court in its questioned decision.
Said Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this Honorable
Court respectfully enter into the following agreed stipulation of facts:
1. That the personal circumstances of the parties as stated in
paragraph 1 of the complaint is admitted; but the particular person of
Mr. Armin M. Cariaga is to be substituted, however, by anyone who
is actually holding the position of Provincial Treasurer of the
Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of
the lot and buildings thereon located in Bangued, Abra under
Original Certificate of Title No. 0-83;
3. That the defendant Gaspar V. Bosque, as Municipal treasurer of
Bangued, Abra caused to be served upon the Abra Valley Junior
College, Inc. a Notice of Seizure on the property of said school under
Original Certificate of Title No. 0-83 for the satisfaction of real
property taxes thereon, amounting to P5,140.31; the Notice of
Seizure being the one attached to the complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley
Junior College, Inc. was sold at public auction for the satisfaction of
the unpaid real property taxes thereon and the same was sold to
defendant Paterno Millare who offered the highest bid of P6,000.00
and a Certificate of Sale in his favor was issued by the defendant
Municipal Treasurer.
5. That all other matters not particularly and specially covered by this
stipulation of facts will be the subject of evidence by the parties.
WHEREFORE, it is respectfully prayed of the Honorable Court to
consider and admit this stipulation of facts on the point agreed upon
by the parties.
Bangued, Abra, April 12, 1973.
Sgd. Agripino Brillantes
Typ AGRIPINO BRILLANTES
Attorney for Plaintiff
Sgd. Loreto Roldan
Typ LORETO ROLDAN
Provincial Fiscal
Counsel for Defendants
Provincial Treasurer of
Abra and the Municipal
Treasurer of Bangued, Abra
Sgd. Demetrio V. Pre
Typ. DEMETRIO V. PRE
Attorney for Defendant
Paterno Millare (Rollo, pp. 17-18)
Aside from the Stipulation of Facts, the trial court among others,
found the following: (a) that the school is recognized by the
government and is offering Primary, High School and College
Courses, and has a school population of more than one thousand
students all in all; (b) that it is located right in the heart of the town of
Bangued, a few meters from the plaza and about 120 meters from
the Court of First Instance building; (c) that the elementary pupils are
housed in a two-storey building across the street; (d) that the high
school and college students are housed in the main building; (e) that
the Director with his family is in the second floor of the main building;
and (f) that the annual gross income of the school reaches more
than one hundred thousand pesos.
From all the foregoing, the only issue left for the Court to determine
and as agreed by the parties, is whether or not the lot and building in
question are used exclusively for educational purposes. (Rollo, p.
20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his
Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the
Government on March 25, 1974, and a Supplemental Memorandum
on May 7, 1974, wherein they opined "that based on the evidence,
the laws applicable, court decisions and jurisprudence, the school
building and school lot used for educational purposes of the Abra
Valley College, Inc., are exempted from the payment of taxes."
(Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).
Nonetheless, the trial court disagreed because of the use of the
second floor by the Director of petitioner school for residential
purposes. He thus ruled for the government and rendered the
assailed decision.
After having been granted by the trial court ten (10) days from
August 6, 1974 within which to perfect its appeal (Per Order dated
August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead
availed of the instant petition for review on certiorari with prayer for
preliminary injunction before this Court, which petition was filed on
August 17, 1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court resolved to give
DUE COURSE to the petition (Rollo, p. 58). Respondents were
required to answer said petition (Rollo, p. 74).
Petitioner raised the following assignments of error:
I
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE
SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING
USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT
USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY
BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM
OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE
COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT
EXEMPT FROM PROPERTY TAXES AND IN ORDERING
PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION
OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY
PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES.
(See Brief for the Petitioner, pp. 1-2)
7
The main issue in this case is the proper interpretation of the phrase
"used exclusively for educational purposes."
Petitioner contends that the primary use of the lot and building for
educational purposes, and not the incidental use thereof, determines
and exemption from property taxes under Section 22 (3), Article VI of
the 1935 Constitution. Hence, the seizure and sale of subject college
lot and building, which are contrary thereto as well as to the
provision of Commonwealth Act No. 470, otherwise known as the
Assessment Law, are without legal basis and therefore void.
On the other hand, private respondents maintain that the college lot
and building in question which were subjected to seizure and sale to
answer for the unpaid tax are used: (1) for the educational purposes
of the college; (2) as the permanent residence of the President and
Director thereof, Mr. Pedro V. Borgonia, and his family including the
in-laws and grandchildren; and (3) for commercial purposes because
the ground floor of the college building is being used and rented by a
commercial establishment, the Northern Marketing Corporation (See
photograph attached as Annex "8" (Comment; Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds
application in the case at bar is Section 22, paragraph 3, Article VI,
of the then 1935 Philippine Constitution, which expressly grants
exemption from realty taxes for "Cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious,
charitable or educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No.
470 as amended by Republic Act No. 409, otherwise known as the
Assessment Law, provides:
The following are exempted from real property tax under the
Assessment Law:
xxx xxx xxx
(c) churches and parsonages or convents appurtenant thereto, and
all lands, buildings, and improvements used exclusively for religious,
charitable, scientific or educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot
and building is the basic and controlling guide, norm and standard to
determine tax exemption, and not the mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal
Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be
true that the YMCA keeps a lodging and a boarding house and
maintains a restaurant for its members, still these do not constitute
business in the ordinary acceptance of the word, but an institution
used exclusively for religious, charitable and educational purposes,
and as such, it is entitled to be exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos
Norte, 51 Phil. 352 [1972], this Court included in the exemption a
vegetable garden in an adjacent lot and another lot formerly used as
a cemetery. It was clarified that the term "used exclusively"
considers incidental use also. Thus, the exemption from payment of
land tax in favor of the convent includes, not only the land actually
occupied by the building but also the adjacent garden devoted to the
incidental use of the parish priest. The lot which is not used for
commercial purposes but serves solely as a sort of lodging place,
also qualifies for exemption because this constitutes incidental use in
religious functions.
The phrase "exclusively used for educational purposes" was further
clarified by this Court in the cases of Herrera vs. Quezon City Board
of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of
Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991
[1965], thus —
Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is 'not limited to property actually
indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such as in the
case of hospitals, "a school for training nurses, a nurses' home,
property use to provide housing facilities for interns, resident doctors,
superintendents, and other members of the hospital staff, and
recreational facilities for student nurses, interns, and residents' (84
CJS 6621), such as "Athletic fields" including "a firm used for the
inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430).
The test of exemption from taxation is the use of the property for
purposes mentioned in the Constitution (Apostolic Prefect v. City
Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more
liberal and non-restrictive interpretation of the phrase "exclusively
used for educational purposes" as provided for in Article VI, Section
22, paragraph 3 of the 1935 Philippine Constitution, reasonable
emphasis has always been made that exemption extends to facilities
which are incidental to and reasonably necessary for the
accomplishment of the main purposes. Otherwise stated, the use of
the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. Thus, while the use of
the second floor of the main building in the case at bar for residential
purposes of the Director and his family, may find justification under
the concept of incidental use, which is complimentary to the main or
primary purpose—educational, the lease of the first floor thereof to
the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of education.
It will be noted however that the aforementioned lease appears to
have been raised for the first time in this Court. That the matter was
not taken up in the to court is really apparent in the decision of
respondent Judge. No mention thereof was made in the stipulation of
facts, not even in the description of the school building by the trial
judge, both embodied in the decision nor as one of the issues to
resolve in order to determine whether or not said properly may be
exempted from payment of real estate taxes (Rollo, pp. 17-23). On
the other hand, it is noteworthy that such fact was not disputed even
after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower court cannot
be taken up for the first time on appeal. Nonetheless, as an
exception to the rule, this Court has held that although a factual
issue is not squarely raised below, still in the interest of substantial
justice, this Court is not prevented from considering a pivotal factual
matter. "The Supreme Court is clothed with ample authority to review
palpable errors not assigned as such if it finds that their
consideration is necessary in arriving at a just decision." (Perez vs.
Court of Appeals, 127 SCRA 645 [1984]).
Under the 1935 Constitution, the trial court correctly arrived at the
conclusion that the school building as well as the lot where it is built,
should be taxed, not because the second floor of the same is being
used by the Director and his family for residential purposes, but
because the first floor thereof is being used for commercial
purposes. However, since only a portion is used for purposes of
commerce, it is only fair that half of the assessed tax be returned to
the school involved.
8
PREMISES CONSIDERED, the decision of the Court of First
Instance of Abra, Branch I, is hereby AFFIRMED subject to the
modification that half of the assessed tax be returned to the
petitioner.
SO ORDERED.
Lutz vs. Araneta, L-7859 December 22, 1955 (98 Phil 148) (supra to
Inherent Limitation, Public Purpose)
[G.R. No. L-30644. March 9, 1987.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v.
FIREMAN’S FUND INSURANCE COMPANY and the COURT OF
TAX APPEALS, Respondents.
DECISION
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
contracts 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, respondent company discovered that its
monthly statements of business and policy register were lost. The
loss was reported to the Building Administration 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 investigation of said loss,
petitioner’s examiner’s examiner ascertained that respondent
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 the years 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:chanrob1es virtual 1aw library
YEAR AMOUNT
1952 P6,500.00
1953 9,977.72
1954 10,908.89
1955 14,204.52
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:chanrob1es virtual 1aw library
1957 1,218.35
1958 3,264.39
————
Total P82,320.41
Less: Stamp taxes paid per voucher shown:chanrob1es virtual 1aw
library
1957 P 416.82
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
dated March 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 tantamount 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 policies
9
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 Petitioner’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, respondent cannot enforce it except
through a criminal action. (See Comm. of Int. Rev. v. 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, instruments, 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 levied, collected and
paid, for and in respect of the transaction so had or accomplished,
the corresponding documentary stamp taxes prescribed in the
following sections of this Title, by the person making, signing,
issuing, accepting, or transferring 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 amended.)
"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, including 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. 250.).
"SEC. 237. Payment of documentary stamp tax. — Documentary
stamp taxes shall be paid by the purchase 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
recepient of the stamp, and by the subsequent cancellation of same,
such cancellation to be accomplished by writing, stamping, or
perforating 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 cancellation 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 pesos or more than three hundred pesos.
(Emphasis 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 verification 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
buys 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.
10
"The taxpayer was found to be negligent in the preservation and
keeping of its records. Although 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 violated 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.; Emphasis 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, 1962 to 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 insurance 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 verification 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 corresponding 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 evident 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 justification 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.
G.R. No. L-46787               August 12, 1991
FLORO CEMENT CORPORATION, petitioner,
vs.
HON. BENJAMIN K. GOROSPE, Judge, CFI of Misamis Oriental,
Branch I, and the MUNICIPALITY OF LUGAIT, respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking to set aside and
reverse the decision* of the then Court of First Instance of Misamis
Oriental in Civil Case No. 4867, entitled "Municipality of Lugait,
Misamis Oriental, (represented) by the Municipal Treasurer and
Provincial Treasurer vs. Floro Cement Corporation", ordering
defendant to pay unto plaintiff the amount of P161,875.00 as
manufacturer's and exporter's taxes plus surcharges for the period
from January 1, 1974 to September 30, 1975 and that herein
petitioner Floro Cement Corporation be declared exempted from the
coverage of Ordinances Nos. 5 and 10 of the Municipality of Lugait
and that the taxes and fees it has paid pursuant to said ordinances
be refunded.
The facts of the case, as summarized in the decision of the trial
court, are as follows:
The municipality of Lugait, province of Misamis Oriental, represented
jointly in this action by its Municipal Treasurer and the Provincial
Treasurer of the said province, filed with this Court a verified
complaint for collection of taxes against the defendant Floro Cement
Corporation, a domestic corporation duly organized and existing
under the laws of the Republic of the Philippines with business
establishment and office address at its compound in the
aforementioned municipality of Lugait. The taxes sought to be
collected by the plaintiff specifically refers to "manufacturers" and'
exporter's "taxes for the period from January 1, 1974 to September
30, 1975, inclusive, in the total amount of P161,875.00 plus 25%
thereof as surcharge. Plaintiff alleged that the imposition and
collection of these taxes" is based on its Municipal Ordinance No. 5,
otherwise known as the Municipal Revenue Code of 1974, which
was passed pursuant to Presidential Decree No. 231 dated June 28,
1973 and also Municipal Ordinance No. 10 passed on June 11, 1974
pursuant to Presidential Decree No. 426 dated March 30,1974,
amending Presidential Decree No. 231.
11
In its answer to the complaint, the defendant set up the defense that
it is not liable to pay manufacturer's and exporter's taxes alleging
among others that the plaintiffs power to levy and collect taxes, fees,
rentals, royalties or charges of any kind whatsoever on defendant
has been limited or withdrawn by Section 52 of Presidential Decree
No. 463 which provides:
Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and
Mineral Products.—Any law to the contrary notwithstanding, no
province, city, municipality, barrio or municipal district shall levy and
collect taxes, fees, rentals, royalties or charges of any kind
whatsoever on mines, mining claims, mineral products, or on any
operation, process or activity connected therewith.
Defendant also set up several special/affirmative defenses, namely:
(1) that plaintiff has no legal capacity to sue; (2) that the complaint
states no cause; (3) that plaintiff has absolutely no cause of action
against defendant; (4) that defendant was granted by the Secretary
of Agriculture and Natural Resources a Certificate of Qualification for
Tax Exemption, CQTE No. 22, dated July 7, 1960, entitling
defendant to exemption for a period of five (5) years from April
30,1969 to April 29, 1974 from payment of all taxes, except income
tax, and which Certificate was amended on November 5, 1974
CQTE P.D. 463-22), entitling defendant to exemption from all taxes,
duties and fees except income tax, for five (5) years from the first
date of actual commercial production of saleable mineral products
that is from May 17, 1974 to January 1, 1978; and (5) that Republic
Act No. 3823, as implemented by Mines Administrative Order No. V-
25, and P.D. No. 463 which are the basis for the exemption granted
to defendant are special laws whereas, the municipal ordinance
mentioned in the complaint which are based on P.D. No. 231 and
P.D No. 426, respectively, are general laws; and that it is axiomatic
that a special law can not be amended and/or repealed by a general
law unless there is an express intent to repeal or abrogate the
provisions of the special law.
After the issues were joined, the parties submitted a written
stipulation of facts under date of May 21, 1976 the pertinent portion
of which is quoted in full as follows:
PLAINTIFF and DEFENDANT, by and through counsel, most
respectfully submit the following stipulation of facts:
1. That plaintiff is a political subdivision of the Republic of the
Philippines created pursuant to EXECUTIVE ORDER NO. 425,
entitled "CREATING THE MUNICIPALITY OF LUGAIT IN THE
PROVINCE OF MISAMIS ORIENTAL", a xerox copy of said
executive order is attached hereto marked ANNEX "A" and made an
integral part hereof;
2. That defendant is a corporation day organized and existing under
and by virtue of the laws of the Philippines; with plant and office at
Lugait, Misamis Oriental, and is engaged in the manufacture and
selling, including exporting, of cement, one of the essential
ingredients of which is limestone;
3. That defendant, as a mining operator of mineral land lands
situated at Lugait, Misamis Oriental, was granted by the Secretary of
Agriculture and Natural Resources a Certificate of Qualification for
Tax Exemption, CQTE No. 22, dated July 7, 1960, entitling
defendant to exemption for a period of five (5) years from April 30,
1969 to April 29, 1974, from the payment of all taxes, except income
tax, a xerox copy of which is attached marked ANNEX "A" to
defendant's answer and made an integral part hereof;
4. That the Certificate of Qualification for Tax Exemption mentioned
in the next preceding paragraph was amended on November 5,
1974, when the Honorable Secretary of Natural Resources, Mr. Jose
J. Leido Jr., upon recommendation of the Director of Mines, granted
to defendant a Certificate of Qualification for Tax Exemption, CQTE
P.D. 463-22, which entitled defendant to exemption from all taxes,
duties, and fees, except income tax, for five (5) years from May 17,
1974 to January 1, 1978, a xerox copy of which is attached marked
ANNEX "B" to defendant's answer and made an integral part hereof,
and that a copy of the Certificate of Qualification for Tax Exemption,
CQTE P.D. 463-22 was furnished the Municipal Treasurer of plaintiff
on November 12, 1974, as shown by a xerox copy of the letter of the
Assistant Director of the Bureau of Mines, Mr. Francisco A. Comsti, a
copy of which is attached hereto marked ANNEX "B" and made an
integral part hereof;
5. That the Certificate of Qualification for Tax Exemption mentioned
in the next preceding paragraph was issued pursuant to the
provisions of Sec. 52, P.D. No. 463, which reads as follows:
Sec. 52. Power to Levy Taxes on Mines, Mining Operations and
Mineral Products.—Any law to the contrary notwithstanding, no
province, City, municipality, barrio or municipal district shall levy and
collect taxes, fees, rentals, royalties or charges of any kind
whatsoever on mines, mining claims, mineral products, or on any
operation, process, or activity therewith.
6. That on or about July 3, 1974, plaintiff through its Municipal
Mayor, wired the Secretary of Finance, opposing the application of
defendant for the extension of its exemption from all forms of
taxation, including its application for extension of its exemption from
realty taxes, which opposition was not favorably acted upon by the
said Secretary of Finance, as evidenced by a xerox copy of the letter
of the Honorable Secretary of Finance, Mr. Cesar Virata, attached
hereto marked ANNEX "C" and made an integral part hereof;
7. That plaintiff pursuant to P.D.No. 231 promulgated on June 28,
1973, passed Municipal Ordinance No. 5, otherwise known as
Municipal Revenue Code of 1974, effective January 1, 1974, Section
3 of which is quoted in paragraph 2 of the complaint and made
integral part hereof by reference;
8. That plaintiff pursuant to P.D.No. 426 promulgated on March
30,1974, Municipal Revenue Ordinance No. 10, effective fifteen (15)
days after its passage, of which Section 4, Title I is quoted in
paragraph 3 of the complaint and made integral part hereof by
reference;
9. That pursuant(to)Municipal Ordinances Nos. 5 and 10, mentioned
in paragraphs 7 and 8 hereof, respectively, plaintiff demanded of
defendant the payment of the manufacturer's and exporter's taxes
including surcharge for the period covering January 1, 1974 to
September 30, 1975, broken down as shown in paragraph 5 of the
complaint and made integral part hereof by reference; but defendant
refused because of the allegations found in paragraphs 1, 2, 3, 4, 5
and 6 hereof.
WHEREFORE, it is most respectfully prayed that the foregoing
stipulation of facts be made the basis of the judgment of this
Honorable Court, after the parties hereto have submitted their
respective memoranda.
Cagayan de Oro City, May 21,1976.
(CFI Decision, pp. 1-6; Rollo, pp. 54-59),
As aforementioned, the trial court rendered its decision on November
29, 1976, the dispositive portion of which reads, as follows:
12
WHEREFORE, premises considered, judgment is hereby rendered
ordering defendant Floro Cement Corporation to pay unto plaintiff
the amount of P161,875.00 as manufacturer's and exporter's taxes
and surcharges for the period from January 1, 1974 to September
30, 1975, inclusive, and to pay the costs.
SO ORDERED.
Hence, this appeal.
The petition was given due course by the First Division of this Court
on January 6, 1978 and both parties were required to submit their
simultaneous memoranda. Respondent complied on February
17,1978 while petitioner filed its memorandum on March 9,1978.
The principal issue in this case is whether or not Ordinances Nos. 5
and 10 of Lugait, Misamis Oriental apply to petitioner Floro
Corporation notwithstanding the limitation on the taxing power of
local government as provided for in Sec. 52 of P.D. 231 and Sec. 52
of P.D. 463.
Petitioner Floro Cement Corporation holds that since Ordinances
Nos. 5 and 10 were enacted pursuant to P.D. No. 231 and P.D. No.
426, respectively, said ordinances do not apply to its business in
view of the limitation on the taxing power of local government
provided in Sec. 5m of P.D. No. 231, which reads:
Sec. 5. Common Limitations on the Taxing Powers of Local
Governments. The exercise of taxing power of provinces, cities,
municipalities and barrios shall not extend to the imposition of the
following:
x x x           x x x          x x x
(m) Taxes on mines, mining operations and mineral products and
their by-products when sold domestically by the operator.
Floro Cement Corporation likewise contends that cement is a
mineral product, relying on the case of Cebu Portland Cement
Company vs. Commissioner of Internal Revenue, G.R. No. L20563,
October 29, 1968 (25 SCRA 789), and in the case of Philippine
Pipes and Merchandising Corporation vs. Commissioner of Internal
Revenue, CTA Case No. 1858, dated July 29, 1970 decided by the
Court of Tax Appeals (Memorandum for the Petitioner, Rollo, pp. 89-
90).
Petitioner further contends that the partial exemption aforementioned
was rendered absolute by Sec. 52 of P.D. No. 463 promulgated on
May 17, 1974, which expressly prohibits the province, city
municipality, barrio and municipal district from levying and collecting
taxes, fees, rentals, royalties or charges of any kind whatsoever on
mines, mining claims and mineral products, any law to the contrary
notwithstanding. Said prohibition includes any operation, process or
activity connected with its production. The manufacture of cement is
a process inherently connected with the mining operation undertaken
by petitioner Floro Cement Corporation (Ibid., pp. 92-93).
On other hand, while respondent municipality admits that petitioner
Floro Cement Corporation undertakes exploration, development and
exploitation of mineral products, the taxes sought to be collected
were not imposed on these activities in view of the mentioned
prohibition under Sec. 52 of P.D. No. 463. Said taxes were levied on
the corporation's business of manufacturing and exporting cement.
The business of manufacturing and exporting cement does not fall
under exploration, development nor exploitation of mineral resources
as defined in Sec. 2 of P.D. No. 463, hence, it is outside the scope of
application of Sec. 52 of said decree (Memorandum for Respondent,
p. 10; Rollo, p. 85).
The municipality's power to levy taxes on manufacturers and
exporters is provided in Article 2, Sec. 19 of P.D. No. 231, as
amended by P.D. No. 426 which provides that "The municipality may
impose a tax on business except those for which fixed taxes are
provided for in this Code:
(a) On manufacturers, importers, or producers of any article of
commerce of whatever kind or nature, including brewers, distillers,
rectifiers, repackers, and compounders of liquors, distilled spirits
and/ or wines in accordance with the following schedule:
x x x           x x x          x x x
(a-1) On retailers, independent wholesalers and distributors in
accordance with the following schedule:
x x x           x x x          x x x
(Comment of the Respondent, Rollo, p. 72)
The petition is without merit.
On the question of whether or not cement is a mineral product, this
Court has consistently held that it is not a mineral product but rather
a manufactured product (Commissioner of Internal Revenue vs.
Cebu Portland Cement Company, 156 SCRA 535 [1987];
Commissioner of Internal Revenue vs. Philippine Pipes and
Merchandising Corporation, 153 SCRA 113 [1987]; Commissioner of
Internal Revenue vs. Republic Cement Corporation, 149 SCRA 487
[1987]). while cement is composed of 80'7c minerals, it is not merely
an admixture or blending of raw materials, as lime, silica, shale and
others. It is the result of a definite process-the crushing of minerals,
grinding, mixing, calcining adding of retarder or raw gypsum In short,
before cement reaches its saleable form, the minerals had already
undergone a chemical change through manufacturing process
(Commissioner of Internal Revenue vs. Cebu Portland Cement
Company, supra, reiterating the ruling in Commissioner of Internal
Revenue vs. Republic Cement Corporation, 124 SCRA 46 [1983]). It
appears evident that the foregoing cases overruled the case of Cebu
Portland Cement Company vs. Commissioner of Internal Revenue,
25 SCRA 789 [1969] which was cited by petitioner.
On the exemption claimed by petitioner, this Court has laid down the
rule that as the power of taxation is a high prerogative of
sovereignty, the relinquishment is never presumed and any
reduction or diminution thereof with respect to its mode or its rate,
must be strictly construed, and the same must be coached in clear
and unmistakable terms in order that it may be applied. More
specifically stated, the general rule is that any claim for exemption
from the tax statute should be strictly construed against the taxpayer
(Luzon Stevedoring Corporation vs. Court of Appeals, 163 SCRA
647 [1988]). He who claims an exemption must be able to point out
some provision of law creating the right; it cannot be allowed to exist
upon a mere vague implication or inference. It must be shown
indubitably to exist, for every presumption is against it, and a well-
founded doubt is fatal to the claim (Manila Electric Company vs. Ver,
67 SCRA 351 [1975]). The petitioner failed to meet this requirement.
As held by the lower court, the exemption mentioned in Sec. 52 of
P.D. No. 463 refers only to machineries, equipment, tools for
production, etc., as provided in Sec. 53 of the same decree. The
manufacture and the export of cement does not fall under the said
provision for it is not a mineral product (CFI Decision, Rollo, p. 62). It
is not cement that is mined only the mineral products composing the
13
finished product (Commissioner of Internal Revenue vs. Republic
Cement Corporation, supra).1âwphi1
Furthermore, by the parties' own stipulation of facts submitted before
the court a quo, it is admitted that Floro Cement Corporation is
engaged in the manufacturing and selling, including exporting of
cement (CFI Decision, Rollo, p. 57). As such, and since the taxes
sought to be collected were levied on these activities pursuant to
Sec. 19 of P.D. No. 231, Ordinances Nos. 5 and 10, which were
enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively,
properly apply to petitioner Floro Cement Corporation.
WHEREFORE, the petition is DENIED for lack of merit and the
decision dated November 29, 1976 of the then Court of First
Instance of Misamis Oriental is Affirmed.
SO ORDERED.
[G.R. No. L-20942. September 22, 1967.]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. A. D.
GUERRERO, Special Administrator, in substitution of
NATHANIEL I. GUNN, as Administrator of the Estate of the late
PAUL I. GUNN, Respondent.
SYLLABUS
1. CONSTITUTIONAL LAW; ORDINANCE, BACKGROUND OF. —
Upon liberation in 1945 when the ravages of war left thePhilippines
economically prostrate and helpless, the American Congress
enacted, by way of aid, the Philippine Trade Act of1946, providing, in
its Sec. 341, parity rights with respect to "the disposition,
exploitation, development and utilization" of all the natural resources
of the Philippines as well as the operation of public utilities. This was
embodied in an Executive Agreement of July 4, 1946, signed by the
President of the Philippines and the plenipotentiary of the President
of the United States, and later appended to the Philippine
Constitution as Ordinance.
2. ID.; ORDINANCE CONSTRUED. — What it promises must be
fulfilled. There must be recognition of the right of the "citizens of the
United States in the same manner as to, and under the same
conditions imposed upon, citizens of the Philippines, or corporations
or associations owned or controlledby citizens of the Philippines," in
the disposition, exploitation,development and utilization of all the
natural resources of thePhilippines, and the operation of public
utilities. To that grant,the Philippines is committed. Its terms are to
be respected. Anything further than its categorical wording would not
bewarranted. Nothing less would suffice, but anything more would
not be justified. What was not included, whether by purpose
orinadvertence, cannot be judicially supplied.
3. ID.; SCOPE OF ORDINANCE. — The Ordinance, which is
transitory in character providing merely for the exigencies of a few
years, is designed for a limited period to allow what the Constitution
prohibits. During its effectivity there should be no thought of whittling
down the grant thus freely made. Nonetheless, it should not be given
an interpretation at war with the plain and explicit command of what
is to continue far into the future that would trench further on the plain
constitutional mandate to limit the operation of public utilities to
Filipino hands, for the Constitution is intended to endure through a
long lapse of ages and state principles for an expanding future.
4. ID.; TAX EXEMPTION RULE. — Exemption, being obnoxious to
taxation, is not favored and never presumed; if at all, it must be
categorically and unmistakably expressed in terms that admit of no
doubt, yet such exempting provision must be interpreted in
strictissimi juris against the taxpayer and liberally in favor of the
taxing authority. The silence on tax exemption in the Ordinance
being patently evident, without any franchise to supply that omission,
affords no warrant for the claim here made.
5. ID.; TAXATION; INTERNAL REVENUE CODE; TAX
REFUND;COMITY OF NATIONS; CASE AT BAR. — Sec. 142 of the
National Internal Revenue Code allowing Filipinos a refund of 50% of
the specific tax paid on aviation oil, cannot be availed of by aliens in
the absence of showing that their country grants similar exemption to
Filipino citizens; and where no such evidence was presented, the
case should be remanded to the court a quo for further proceedings.
DECISION
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 or indirectly by them in view of their 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 v. Hastings 3 to 1966, in Esso
Standard Eastern, Inc. v. 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. 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
14
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." 6 From 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. Wellsettled 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.
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
15
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." 13 This 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 That 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.
[G.R. No. L-60126. September 25, 1985.]
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., Petitioner, v.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, Respondents.
DECISION
AQUINO, J.:
This is about the liability of petitioner Cagayan Electric Power & Light
Co., Inc. for income tax amounting to P75,149.73 for the more than
seven-month period of the year 1969 in addition to franchise tax.
The petitioner is the holder of a legislative franchise, Republic Act
No. 3247, under which its payment of 3% tax on its gross earnings
from the sale of electric current is "in lieu of all taxes and
assessments of whatever authority upon privileges, earnings,
income, franchise, and poles, wires, transformers, and insulators of
the grantee, from which taxes and assessments the grantee is
hereby expressly exempted" (Sec. 3).
On June 27, 1968, Republic Act No. 5431 amended section 24 of the
Tax Code by making liable for income tax all corporate taxpayers not
specifically exempt under paragraph (c) (1) of said section and
section 27 of the Tax Code notwithstanding the "provisions of
existing special or general laws to the contrary." Thus, franchise
companies were subjected to income tax in addition to franchise tax.
However, in petitioner’s case, its franchise was amended by
Republic Act No. 6020, effective August 4, 1969, by authorizing the
petitioner to furnish electricity to the municipalities of Villanueva and
Jasaan, Misamis Oriental in addition to Cagayan de Oro City and the
municipalities of Tagoloan and Opol. The amendment reenacted the
tax exemption in its original charter or neutralized the modification
made by Republic Act No. 5431 more than a year before.
By reason of the amendment to section 24 of the Tax Code, the
Commissioner of Internal Revenue in a demand letter dated
February 15, 1973 required the petitioner to pay deficiency income
taxes for 1968 to 1971. The petitioner contested the assessments.
The Commissioner cancelled the assessments for 1970 and 1971
but insisted on those for 1968 and 1969.
The petitioner filed a petition for review with the Tax Court, which on
February 26, 1982 held the petitioner liable only for the income tax
for the period from January 1 to August 3, 1969 or before the
passage of Republic Act No. 6020 which reiterated its tax exemption.
The petitioner appealed to this Court.
It contends that the Tax Court erred (1) in not holding that the
franchise tax paid by the petitioner is a commutative tax which
already includes the income tax; (2) in holding that Republic Act No.
5431 as amended, altered or repealed petitioner’s franchise; (3) in
holding that petitioner’s franchise is a contract which can be impaired
by an implied repeal and (4) in not holding that section 24(d) of the
Tax Code should be construed strictly against the Government.
We hold that Congress could impair petitioner’s legislative franchise
by making it liable for income tax from which heretofore it was
exempted by virtue of the exemption provided for in section 3 of its
franchise.
The Constitution provides that a franchise is subject to amendment,
alteration or repeal by the Congress when the public interest so
requires (Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973
Constitution).
Section 1 of petitioner’s franchise, Republic Act No. 3247, provides
that it is subject to the provisions of the Constitution and to the terms
and conditions established in Act No. 3636 whose section 12
provides that the franchise is subject to amendment, alteration or
repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by
subjecting to income tax all corporate taxpayers not expressly
exempted therein and in section 27 of the Code, had the effect of
withdrawing petitioner’s exemption from income tax.
The Tax Court acted correctly in holding that the exemption was
restored by the subsequent enactment on August 4, 1969 of
Republic Act No. 6020 which reenacted the said tax exemption.
Hence, the petitioner is liable only for the income tax for the period
from January 1 to August 3, 1969 when its tax exemption was
16
modified by Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine
Long Distance Telephone Company, have been paying income tax
in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment
appears to be highly controversial. The Commissioner at the outset
was not certain as to petitioner’s income tax liability. It had reason
not to pay income tax because of the tax exemption in its franchise.c
For this reason, it should be liable only for tax proper and should not
be held liable for the surcharge and interest. (Advertising Associates,
Inc. v. Commissioner of Internal Revenue and Court of Tax Appeals,
G. R. No. 59758, December 26, 1984, 133 SCRA 765; Imus Electric
Co., Inc. v. Commissioner of Internal Revenue, 125 Phil. 1024; C.M.
Hoskins & Co., Inc. v. Commissioner of Internal Revenue, L-28383,
June 22, 1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with the
modification that the petitioner is liable only for the tax proper and
that it should not pay the delinquency penalties. No costs.
SO ORDERED.
G.R. No. L-45355               January 12, 1990
THE PROVINCE OF MISAMIS ORIENTAL, represented by its
PROVINCIAL TREASURER, petitioner,
vs.
CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC.
(CEPALCO), respondent.
GRIÑO-AQUINO, J.:
The issue in this case is a legal one: whether or not a corporation
whose franchise expressly provides that the payment of the
"franchise tax of three per centum of the gross earnings shall be in
lieu of all taxes and assessments of whatever authority upon
privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee." (p. 20, Rollo), is exempt
from paying a provincial franchise tax.
Cagayan Electric Power and Light Company, Inc. (CEPALCO for
short) was granted a franchise on June 17, 1961 under Republic Act
No. 3247 to install, operate and maintain an electric light, heat and
power system in the City of Cagayan de Oro and its suburbs. Said
franchise was amended on June 21, 1963 by R.A. No. 3570 which
added the municipalities of Tagoloan and Opol to CEPALCO's
sphere of operation, and was further amended on August 4, 1969 by
R.A. No. 6020 which extended its field of operation to the
municipalities of Villanueva and Jasaan.
R.A. Nos. 3247, 3570 and 6020 uniformly provide that:
Sec. 3. In consideration of the franchise and rights hereby granted,
the grantee shall pay a franchise tax equal to three per centum of
the gross earnings for electric current sold under this franchise, of
which two per centum goes into the National Treasury and one per
centum goes into the treasury of the Municipalities of Tagoloan,
Opol, Villanueva and Jasaan and Cagayan de Oro City, as the case
may be: Provided, That the said franchise tax of three per centum of
the gross earnings shall be in lieu of all taxes and assessments of
whatever authority upon privileges earnings, income, franchise, and
poles, wires, transformers, and insulators of the grantee from which
taxes and assessments the grantee is hereby expressly
exempted. (Emphasis supplied.)
On June 28, 1973, the Local Tax Code (P.D. No. 231) was
promulgated, Section 9 of which provides:
Sec. 9. Franchise Tax.—Any provision of special laws to the
contrary notwithstanding, the province may impose a tax on
businesses enjoying franchise, based on the gross receipts realized
within its territorial jurisdiction, at the rate of not exceeding one-half
of one per cent of the gross annual receipts for the preceding
calendar year.
In the case of newly started business, the rate shall not exceed three
thousand pesos per year. Sixty per cent of the proceeds of the tax
shall accrue to the general fund of the province and forty per cent to
the general fund of the municipalities serviced by the business on
the basis of the gross annual receipts derived therefrom by the
franchise holder. In the case of a newly started business, forty per
cent of the proceeds of the tax shall be divided equally among the
municipalities serviced by the business. (Emphasis supplied.)
Pursuant thereto, the Province of Misamis Oriental (herein petitioner)
enacted Provincial Revenue Ordinance No. 19, whose Section 12
reads:
Sec. 12. Franchise Tax.—There shall be levied, collected and paid
on businesses enjoying franchise tax of one-half of one per cent of
their gross annual receipts for the preceding calendar year realized
within the territorial jurisdiction of the province of Misamis Oriental.
(p. 27, Rollo.)
The Provincial Treasurer of Misamis Oriental demanded payment of
the provincial franchise tax from CEPALCO. The company refused to
pay, alleging that it is exempt from all taxes except the franchise tax
required by R.A. No. 6020. Nevertheless, in view of the opinion
rendered by the Provincial Fiscal, upon CEPALCO's request,
upholding the legality of the Revenue Ordinance, CEPALCO
paid under protest on May 27, 1974 the sum of P 4,276.28 and
appealed the fiscal's ruling to the Secretary of Justice who reversed
it and ruled in favor of CEPALCO.
On June 26, 1976, the Secretary of Finance issued Local Tax
Regulation No. 3-75 adopting entirely the opinion of the Secretary of
Justice.
On February 16, 1976, the Province filed in the Court of First
Instance of Misamis Oriental a complaint for declaratory relief
praying, among others, that the Court exercise its power to construe
P.D. No. 231 in relation to the franchise of CEPALCO (R.A. No.
6020), and to declare the franchise as having been amended by P.D.
No. 231. The Court dismissed the complaint and ordered the
Province to return to CEPALCO the sum of P4,276.28 paid under
protest.
The Province has appealed to this Court, alleging that the lower
court erred in holding that:
1) CEPALCO's tax exemption under Section 3 of Republic Act No.
6020 was not amended or repealed by P.D. No. 231;
2) the imposition of the provincial franchise tax on CEPALCO would
subvert the purpose of P.D. No. 231;
3) CEPALCO is exempt from paying the provincial franchise tax; and
17
4) petitioner should refund CEPALCO's tax payment of P4,276.28.
We find no merit in the petition for review.
There is no provision in P.D. No. 231 expressly or impliedly
amending or repealing Section 3 of R.A. No. 6020. The perceived
repugnancy between the two statutes should be very clear before
the Court may hold that the prior one has been repealed by the later,
since there is no express provision to that effect (Manila Railroad Co.
vs. Rafferty, 40 Phil. 224). The rule is that a special and local statute
applicable to a particular case is not repealed by a later statute
which is general in its terms, provisions and application even if the
terms of the general act are broad enough to include the cases in the
special law (id.) unless there is manifest intent to repeal or alter the
special law.
Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable
only to CEPALCO, while P.D. No. 231 is a general tax law. The
presumption is that the special statutes are exceptions to the general
law (P.D. No. 231) because they pertain to a special charter granted
to meet a particular set of conditions and circumstances.
tax equal to 2% per annum of the gross receipts . . . and shall be in
lieu of any and all taxes . . . now or in the future . . . from which taxes
. . . the grantee is hereby expressly exempted and . . . no other tax . .
. other than the franchise tax of 2% on the gross receipts as provided
for in the original franchise shall be collected.
exempts the company from paying the franchise tax under Section
259 of the National Internal Revenue Code (Commissioner of
Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc., G.R.
No. 23771, August 4, 1988).
On the other hand, the Balanga Power Plant Company, Imus Electric
Company, Inc., Guagua Electric Company, Inc. were subjected to
the 5% tax on corporate franchise under Section 259 of the Internal
Revenue Code, as amended, because Act No. 667 of the Philippine
Commission and the ordinance or resolutions granting their
respective franchises did not contain the "in-lieu-of-all-taxes" clause
(Balanga Power Plant Co. vs. Commissioner of Internal Revenue,
G.R. No. L-20499, June 30, 1965; Imus Electric Co. vs. Court of Tax
Appeals, G.R. No. L-22421, March 18, 1967; Guagua Electric Light
vs. Collector of Internal Revenue, G.R. No. L-23611, April 24, 1967).

The franchise of respondent CEPALCO expressly exempts it from
payment of "all taxes of whatever authority" except the three per
centum (3%) tax on its gross earnings.
In an earlier case, the phrase "shall be in lieu of all taxes and at any
time levied, established by, or collected by any authority" found in
the franchise of the Visayan Electric Company was held to exempt
the company from payment of the 5% tax on corporate franchise
provided in Section 259 of the Internal Revenue Code (Visayan
Electric Co. vs. David, 49 O.G. [No. 4] 1385).
Local Tax Regulation No. 3-75 issued by the Secretary of Finance
on June 26, 1976, has made it crystal clear that the franchise tax
provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be
imposed on companies with franchises that do not contain the
exempting clause. Thus it provides:
The franchise tax imposed under local tax ordinance pursuant to
Section 9 of the Local Tax Code, as amended, shall be collected
from businesses holding franchise but not from business
establishments whose franchise contain the "in-lieu-of-all-taxes-
proviso".

Similarly, we ruled that the provision: "shall be in lieu of all taxes of

every name and nature" in the franchise of the Manila Railroad
(Subsection 12, Section 1, Act No. 1510) exempts the Manila
Railroad from payment of internal revenue tax for its importations of
coal and oil under Act No. 2432 and the Amendatory Acts of the
Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
Manila Electric Company vs. Vera, 67 SCRA 351, cited by the
petitioner, is not applicable here because what the Government
sought to impose on Meralco in that case was not a franchise tax but
a compensating tax on the poles, wires, transformers and insulators
which it imported for its use.

The same phrase found in the franchise of the Philippine Railway WHEREFORE, the petition for review is denied, and the decision of
Co. (Sec. 13, Act No. 1497) justified the exemption of the Philippine the Court of First Instance is hereby affirmed in toto. No costs.
Railway Company from payment of the tax on its corporate franchise
under Section 259 of the Internal Revenue Code, as amended by SO ORDERED.
R.A. No. 39 (Philippine Railway Co. vs. Collector of Internal
Revenue, 91 Phil. 35).

Those magic words: "shall be in lieu of all taxes" also excused the
Cotabato Light and Ice Plant Company from the payment of the tax
imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light
and Power Co. vs. City of Cotabato, 32 SCRA 231).

So was the exemption upheld in favor of the Carcar Electric and Ice
Plant Company when it was required to pay the corporate franchise
tax under Section 259 of the Internal Revenue Code, as amended by
R.A. No. 39 (Carcar Electric & Ice Plant vs. Collector of Internal
Revenue, 53 O.G. [No. 4] 1068). This Court pointed out that such
exemption is part of the inducement for the acceptance of the
franchise and the rendition of public service by the grantee. As a
charter is in the nature of a private contract, the imposition of another
franchise tax on the corporation by the local authority would
constitute an impairment of the contract between the government
and the corporation.

Recently, this Court ruled that the franchise (R.A. No. 3843) of the
Lingayen Gulf Electric Power Company which provided that the
company shall pay:

18