Alman-Najar Namla Cases

1. Davao Gulf Lumber Corp. vs. Commissioner of Internal Revenue (July 23, 1998)
Doctrine: A tax cannot be imposed unless it is supported by the clear and express language of a
statute; Once the tax is unquestionably imposed, a claim of exemption from tax payments must
be clearly shown and based on language in the law too plain to be mistaken.
Facts: Petitioner is a licensed forest concessionaire possessing a timber license agreement
granted by DENR. From July 1, 1980 to January 31, 1982 petitioner purchased from oil
companies which it used exclusively for the exploitation and exploration of its forest concession.
Said companies paid taxes imposed under NIRC on the sale of said products. Being included in
the purchase price of the oil products, the specific taxes paid by the oil companies were
eventually passed on to the user, the petitioner in this case.
On December 13, 1982, petitioner filed before Respondent CIR a claim for refund of P 120,825
representing 25% of the specific taxes actually paid this claim was based on RA 1435 that allows
refunds for such transactions from the CIR. Whenever any oils mentioned fuels and oils that were
used by miners or forest concessionaires in their operation, 25% of the specific tax paid thereon
shall be refunded. Petitioner complied with the refund procedure. Petitioner filed at the CTA a
petition to review, CTA renedered that petitioner is entitled to a partial refund of specific taxes it
paid in the reduced amount of P 2,923.15. CTA granted the claim but computed the refund based
on rates deemed paid under RA 1435 and not under NIRC. Insisting that the basis for computing
the refund should be the increased rates under NIRC, petitioner elevated the matter to the CA
with affired CTAs decision, hence this petition.
Issue: Whether the petitioner is entitled to the refund under RA 1435 of tax paid under Sec 154
and 156 of NIRC.
Held: No. Petitioner is entitled only to a partial refund under Sec. 5 of RA 1435, which was
enacted to provide means for increasing Highway Special Fund. The rationale of partia refun of
specific taxes paid on purchase of manufactured diesel and fuel oils rests on the character of the
Highway Special Fund. The specific taxes collected accrue to the fund, which is to be used for the
construction and maintenance of the highway system. But because the gasoline and fuel
purchased by mining and logging concessionaires are used within their own compounds and
roads, and their vehicles seldom use national highways they do not directly benefit from the fund
and its use; hence the tax refund gives mining and logging concessionaires a measure of relief in
light of their peculiar situation. Petitioner argues that the statutory grant of the refund privilege is
clear and unambiguous enough to require construction or qualification thereof.
Tax exemptions must be strictly construed against the taxpayer and liberally in favor of the state.
2. Commissioner of Internal Revenue vs. Court of Appeals and Ateneo de Manila University
(April 18, 1997)

Doctrine: It is error to apply the principles of tax exemption without first applying the well-settled
doctrine of strict interpretation in the imposition of taxes it is obviously both illogical and
impractical to determine who are exempted without first determining who are covered by the
NIRC.
Contractors Tax; To impose the three percent contractors tax on Ateneo Institute of
Philippine Culture, it should be proven that is indeed selling its services for a fee in
pursuit of an independent business.
Facts: ADMU Institute of Philippine Culture is engaged in social science studies of Philippine
society and culture. Occasionally, it accepts sponsorships for its research activities from
international organizations, private foundations and government agencies.
On July 1983, CIR sent a demand letter assessing the sum of P174,043.97 for alleged deficiency
contractors tax. Accdg to CIR, ADMU falls under the purview of independent contractor pursuant
to Sec 205 of Tax Code and is also subject to 3% contractors tax under Sec 205 of the same
code. (Independent Contractor means any person whose activity consists essentially of the sale
of all kinds of services for a fee regardless of whether or not the performance of the service calls
for the exercise or use of the physical or mental faculties of such contractors or their employees.)
Issues: 1) WON ADMU is an independent contractor hence liable for tax? NO.
2) WON the acceptance of research projects by the IPC of ADMU a contract of sale or a contract
for a piece of work? NEITHER.
Held: 1) Hence, to impose the three percent contractors tax on Ateneos Institute of Philippine
Culture, it should be sufficiently proven that the private respondent is indeed selling its services
for a fee in pursuit of an independent business.
2) Records do not show that Ateneos IPC in fact contracted to sell its research services for a fee.
In the first place, the petitioner has presented no evidence to prove its bare contention that,
indeed, contracts for sale of services were ever entered into by the private respondent. Funds
received by the Ateneo de Manila University are technically not a fee. They may however fall as
gifts or donations which are tax-exempt. Another fact that supports this contention is that for
about 30 years, IPC had continuously operated at a loss, which means that sponsored funds are
less than actual expenses for its research projects.
In fact, private respondent is mandated by law to undertake research activities to maintain its
university status. In fact, the research activities being carried out by the IPC is focused not on
business or profit but on social sciences studies of Philippine society and culture. Since it can
only finance a limited number of IPCs research projects, private respondent occasionally accepts
sponsorship for unfunded IPC research projects from international organizations, private
foundations and governmental agencies. However, such sponsorships are subject to private
respondents terms and conditions, among which are, that the research is confined to topics
consistent with the private respondents academic agenda; that no proprietary or commercial
purpose research is done; and that private respondent retains not only the absolute right to
publish but also the ownership of the results of the research conducted by the IPC.

3. Caltex Philippines, Inc. vs. Commission on Audit (May 8, 1992)

Doctrine: LOI 1416 has no binding force or effect as it was never published in the OG after its
issuance or at anytime after the decision in the above mentioned cases.
Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor
of the taxing authority.
Facts: The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as amended
by EO 137 for the purpose of minimizing frequent price changes brought about by exchange rate
adjustments. It will be used to reimburse the oil companies for cost increase and possible cost
under recovery incurred due to reduction of domestic prices.
COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex
requested COA for an early release of its reimbursement certificates which the latter denied.
COA disallowed recover of financing charges, inventory losses and sales to marcopper and atlas
but allowed the recovery of product sale or those arising from export sales.
Petitioner avers that Department of Finance issued Circular No. 4-88 allowing reimbursement.
Denial of claim for reimbursement would be inequitable. NCC (compensation) and Sec. 21, Book
V, Title I-B of the Revised Administrative Code (Retention of Money for Satisfaction of
Indebtedness to Government) allows offsetting.
Amounts due do not arise as a result of taxation since PD 1956 did not create a source of
taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions
distinguishes it from tax.
Respondent contends that based on Francia v. IAC, theres no offsetting of taxes against the the
claims that a taxpayer may have against the government, as taxes do not arise from contracts or
depend upon the will of the taxpayer, but are imposed by law.
Issues: Can Caltex offset?
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be subject of compensation because the government and taxpayer
are not mutually creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off. Technically, the oil companies merely
act as agents for the Government in the latters collection since the taxes are, in reality, passed
unto the end-users the consuming public. Their primary obligation is to account for and remit
the taxes collection to the administrator of the OPSF.
There is not merit in Caltexs contention that the OPSF contributions are not for a public purpose
because they go to a special fund of the government. Taxation is no longer envisioned as a
measure merely to raise revenue to support the existence of the government; taxes may be
levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be within the police power of the
State.
The oil industry is greatly imbued with public interest as it vitally affects the general welfare. PD
1956, as amended by EO No. 137 explicitly provides that the source of OPSF is taxation.

4. National Development Company vs. Commissioner of Internal Revenue (June 30, 1987)
Doctrine: Income from sources within the Philippines; Residence of obligor who pays the interest
rather than the physical location of the securities bonds or notes or the place of payment is the
determining factor of the source of interest income.
Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed.
Facts: The National Development Co. (NDC) entered into contracts in Tokyo with several
Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments
were made in cash and through irrevocable letters of credit. When the vessels were completed
and delivered to the NDC in Tokyo, the latter remitted to the shipbilders the amount of US$
4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The
Commissioner then held NDC liable on such tax in the total amount of P5,115,234.74. The
Bureau of Internal Revenue served upon the NDC a warrant of distraint and levy afternegotiations
failed.
Issues: Whether the NDC is liable for deficiency tax.
Held: The Japanese shipbuilders were liable on the interest remitted to them under Section 37 of
the Tax Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS
is a penalty for its failure to withhold the same from the Japanese shipbuilders. Such liability is
imposed by Section 53(c) of the Tax Code. NDC was remiss in the discharge of its obligation of
its obligation as the withholding agent of the government and so should be liable for its omission.

5. Smart Communications, Inc. vs. The City of Davao (September 16, 2008)
Doctrine: Public Utilities; Franchises; RA 7294, its grant of tax exemption is not to be interpreted
froma consideration of a single portion or of isolated words or clauses, but from a general view of
the act as a whole.
Words and phrases; The uncertainty in lieu of all taxes clause in RA 7294 on whethere Smart is
exempted from both local and national franchise tax must be construed strictly against Smart
which claims the exemptionin the instant case, the clause applies only to national internal
revenue taxes and not to local taxes.
Facts: On March 27, 1992, Smart obtained its legislative franchise under R.A. No. 7294. Sec. 9
of said law provides that The grantee, its successors or assigns shall be liable to pay the same
taxes on their real estate buildings and personal property, exclusive of' this franchise, as other
persons or corporations which are now or hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three
percent (3%) of all gross receipts of the business transacted under this franchise by the grantee,
its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable
for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section

2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case
the amendment or repeal shall be applicable thereto.
The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal
Revenue or his duly authorized representative in accordance with the National Internal Revenue
Code.
On January 1, 1992, the Local Government Code (R.A. No. 7160) took effect. Section 137, in
relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the local
government units.
R.A. No. 7716 or the VAT Law was enacted which specifically expressed under Section 20,
repealing provisions of all special laws (that includes the legislative franchise R.A. No. 7294, a
special law) relative to the rate of franchise taxes. It also repealed, amended, or modified all other
laws, orders, issuances, rules and regulations, or parts thereof which are inconsistent with it. It is
in effect, rendered ineffective the in lieu of all taxes clause in R.A. No. 7294.
Tax Code of the City of Davao, Section 1, Article 10 thereof, provides: Notwithstanding any
exemption granted by any law or other special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of seventy-five percent (75%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the income or receipts realized within
the territorial jurisdiction of Davao City.

Smart filed a special civil action for declaratory relief for the ascertainment of its rights and
obligations under the Tax Code of the City of Davao and contends that its telecenter in Davao
City is exempt from payment of franchise tax to the City, on the following grounds:
the issuance of its franchise under Republic Act (R.A.) No. 7294, subsequent to R.A. No. 7160
shows the clear legislative intent to exempt it from the provisions of R.A. 7160
that the in lieu of all taxes clause in Section 9 of its franchise exempts it from all taxes, both
local and national, except the national franchise tax (now VAT), income tax, and real property tax
Section 137 of R.A. No. 7160 can only apply to exemptions already existing at the time of its
effectivity and not to future exemptions;
not covered because The franchise was granted after the effectivity of the LGC
the power of the City of Davao to impose a franchise tax is subject to statutory limitations such as
the in lieu of all taxes clause found in Section 9 of R.A. No. 7294; and
only taxes it may be made to bear under its franchise are the national franchise tax (now VAT),
income tax, and real property tax
exempt from the local franchise tax because the in lieu of taxes clause in its franchise does not
distinguish between national and local taxes.
the imposition of franchise tax by the City of Davao would amount to a violation of the
constitutional provision against impairment of contracts.
franchise is in the nature of a contract between the government and Smart.
Respondent invoked its power granted by the Constitution to local government units to create
their own sources of revenue.

RTC denied the petition on the ground that petitioner failed to prove that it is exempt from tax
applying strictissimi juris against the taxpayer and liberally in favor of the taxing authority. On the
issue of violation of the non-impairment clause of the Constitution, it cited Mactan Cebu
International Airport Authority v. Marcos and declared that the citys power to tax is based not
merely on a valid delegation of legislative power but on the direct authority granted to it by the
fundamental law. That while such power may be subject to restrictions or conditions imposed by
Congress, any such legislated limitation must be consistent with the basic policy of local
autonomy.
Issues: 1.) Exemption from Franchise Tax under Section 9, RA 7294 which contains in
lieu of taxes clause
2.) In lieu of taxes clause applies to national taxes or local taxes or both?
Held: 1.) On In lieu of all taxes Clause in RA 7294:
R.A. No. 7294 is not definite in granting exemption to Smart from local taxation. Section 9 of R.A.
No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts
of the business transacted under the franchise and the said percentage shall be in lieu of all taxes
on the franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes
Smart is exempted from. It is not clear whether the in lieu of all taxes provision in the franchise
of Smart would include exemption from local or national taxation. What is clear is that Smart shall
pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted
under its franchise. But whether the franchise tax exemption would include exemption from
exactions by both the local and the national government is not unequivocal.
2.) In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all
taxes clause applies only to national internal revenue taxes and not to local taxes. It is
clear that the in lieu of all taxes clause apply only to taxes under the NIRC and not to local
taxes. It is not even applied to income tax, as shown in the provision itself, to wit:
proviso in the first paragraph of Section 9, Smart's franchise states that the grantee shall
"continue to be liable for income taxes payable under Title II of the National Internal Revenue
Code."
second paragraph of Section 9, speaks of tax returns filed and taxes paid to the
"Commissioner of Internal Revenue or his duly authorized representative in accordance with
the National Internal Revenue Code."
same paragraph, declares that the tax returns "shall be subject to audit by the Bureau of
Internal Revenue."
If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local
taxes, Congress would have expressly mentioned the exemption from municipal and provincial
taxes.
It should be noted that the in lieu of all taxes clause in R.A. No. 7294 has become functus
officio with the abolition of the franchise tax on telecommunications companies. Currently, Smart
along with other telecommunications companies pays the uniform 10% value-added tax. The VAT
on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived

from the sale or exchange of services, as provided in R.A. No. 7716, as amended by
the Expanded Value Added Tax Law (R.A. No. 8241).

6. Nitafan vs. Commissioner of Internal Revenue (July 23, 1987)

Doctrine: Salaries of Justices and Judges subject to income taxation; Ruling in Perfecto v Meer
and Endencia v David, Discarded.
Facts: The Chief Justice has previously issued a directive to the Fiscal Management and Budget
Office to continue the deduction of withholding taxes from salaries of the Justices of the Supreme
Court and other members of the judiciary. This was affirmed by the Supreme Court en banc on 4
December 1987.
Petitioners are the duly appointed and qualified Judges presiding over Branches 52, 19 and 53,
respectively, of the RTC, National Capital Judicial Region, all with stations in Manila. They seek
to prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial
Officer of the Supreme Court, from making any deduction of withholding taxes from their salaries.
With the filing of the petition, the Court deemed it best to settle the issue through judicial
pronouncement, even if it had dealt with the matter administratively.
Issue: Whether or not members of the Judiciary are exempt from income taxes.
Held: NO. Intent to delete express grant of exemption of income taxes to members of Judiciary
The salaries of members of the Judiciary are subject to the general income tax applied to all
taxpayers. This intent was somehow and inadvertently not clearly set forth in the final text of the
Constitution as approved and ratified in February, 1987 (infra, pp. 7-8). Although the intent may
have been obscured by the failure to include in the General Provisions a proscription against
exemption of any public officer or employee, including constitutional officers, from payment of
income tax, the Court since then has authorized the continuation of the deduction of the
withholding tax from the salaries of the members of the Supreme Court, as well as from the
salaries of all other members of the Judiciary. The Court hereby makes of record that it had then
discarded the ruling in Perfecto vs. Meer and Endencia vs. David.
The 1973 Constitution has provided that no salary or any form of emolument of any public officer
or employee, including constitutional officers, shall be exempt from payment of income tax
(Section 6, Article XV) which was not present in the 1987 Constitution. The deliberations of the
1986 Constitutional Commission relevant to Section 10, Article VIII (The salary of the Chief
Justice and of the Associate Justices of the Supreme Court, and of judges of lower courts shall
be fixed by law. During their continuance in office, their salary shall not be decreased), negate the
contention that the intent of the framers is to revert to the original concept of non-diminution of
salaries of judicial officers.
Equality of branches of government effected by modifications in provision.

The term diminished be changed to decreased and that the words nor subjected to income
tax be deleted so as to give substance to equality among the three branches in the government.
A period (.) after decreased was made on the understanding that the salary of justices is subject
to tax. With the period, the doctrine in Perfecto vs. Meer and Endencia vs. David is understood
not to apply anymore. Justices and judges are not only the citizens whose income have been
reduced in accepting service in government and yet subjected to income tax. Such is true also of
Cabinet members and all other employees.
Constitutional construction adopts the intent of the framers and people adopting the law.
The ascertainment of the intent is but in keeping with the fundamental principle of constitutional
construction that the intent of the framers of the organic law and of the people adopting it should
be given effect. The primary task in constitutional construction is to ascertain and thereafter
assure the realization of the purpose of the framers and of the people in the adoption of the
Constitution. It may also be safely assumed that the people in ratifying the Constitution were
guided mainly by the explanation offered by the framers. In the case at bar, Section 10, Article
VIII is plain that the Constitution authorizes Congress to pass a law fixing another rate of
compensation of Justices and Judges but such rate must be higher than that which they are
receiving at the time of enactment, or if lower, it would be applicable only to those appointed after
its approval. It would be a strained construction to read into the provision an exemption from
taxation in the light of the discussion in the Constitutional Commission.
7. Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation (January 22, 1990)
Doctrine: Taxation; Rule is settled that laws granting exemption from tax are construed
strictissimi juris against the taxpayer and liberally in favor of the taxing power.It is too settled a
rule in this jurisdiction, as to dispense with the need for citations, that laws granting exemption
from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the
party claiming exemption to prove that it is in fact covered by the exemption so claimed, which
onus petitioners have failed to discharge. Significantly, private respondents are not even among
the entities which, under Section 29 (b) (7) (A) of the tax code, are entitled to exemption and
which should indispensably be the party in interest in this case.
Facts: The records reflect that on April 17, 1970, Atlas Consolidated Mining and Development
Corporation (hereinafter, Atlas) entered into a Loan and Sales Contract with Mitsubishi Metal
Corporation (Mitsubishi, for brevity), a Japanese corporation licensed to engage in business in
the Philippines, for purposes of the projected expansion of the productive capacity of the former's
mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to extend a loan to Atlas 'in the
amount of $20,000,000.00, United States currency, for the installation of a new concentrator for
copper production. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates
produced from said machine for a period of fifteen (15) years. It was contemplated that
$9,000,000.00 of said loan was to be used for the purchase of the concentrator machinery from
Japan.

Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank for short)
obviously for purposes of its obligation under said contract. Its loan application was approved on
May 26, 1970 in the sum of 4,320,000,000.00, at about the same time as the approval of its loan
for 2,880,000,000.00 from a consortium of Japanese banks. The total amount of both loans is
equivalent to $20,000,000.00 in United States currency at the then prevailing exchange rate. The
records in the Bureau of Internal Revenue show that the approval of the loan by Eximbank to
Mitsubishi was subject to the condition that Mitsubishi would use the amount as a loan to Atlas
and as a consideration for importing copper concentrates from Atlas, and that Mitsubishi had to
pay back the total amount of loan by September 30, 1981.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the
former to the latter totalling P13,143,966.79 for the years 1974 and 1975. The corresponding 15%
tax thereon in the amount of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and
Section 53 (b) (2) of the National Internal Revenue Code, as amended by Presidential Decree
No. 131, and duly remitted to the Government.
On March 5, 1976, private respondents filed a claim for tax credit requesting that the sum of
P1,971,595.01 be applied against their existing and future tax liabilities. Parenthetically, it was
later noted by respondent Court of Tax Appeals in its decision that on August 27, 1976, Mitsubishi
executed a waiver and disclaimer of its interest in the claim for tax credit in favor of Atlas.
Issues: whether or not the interest income from the loans extended to Atlas by Mitsubishi is
excludible from gross income taxation pursuant to Section 29 b) (7) (A) of the tax code and,
therefore, exempt from withholding tax.
whether or not Mitsubishi is a mere conduit of Eximbank which will then be considered as the
creditor whose investments in the Philippines on loans are exempt from taxes under the code.
Held: The loan and sales contract between Mitsubishi and Atlas does not contain any direct or
inferential reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as
creditor in the contract of loan and Atlas as the seller of the copper concentrates. From the
categorical language used in the document, one prestation was in consideration of the other. The
specific terms and the reciprocal nature of their obligations make it implausible, if not vacuous to
give credit to the cavalier assertion that Mitsubishi was a mere agent in said transaction.
The contract between Eximbank and Mitsubishi is entirely different. It is complete in itself, does
not appear to be suppletory or collateral to another contract and is, therefore, not to be distorted
by other considerations aliunde. The application for the loan was approved on May 20, 1970, or
more than a month after the contract between Mitsubishi and Atlas was entered into on April 17,
1970. It is true that under the contract of loan with Eximbank, Mitsubishi agreed to use the
amount as a loan to and in consideration for importing copper concentrates from Atlas, but all that
this proves is the justification for the loan as represented by Mitsubishi, a standard banking
practice for evaluating the prospects of due repayment. There is nothing wrong with such
stipulation as the parties in a contract are free to agree on such lawful terms and conditions as
they see fit. Limiting the disbursement of the amount borrowed to a certain person or to a certain
purpose is not unusual, especially in the case of Eximbank which, aside from protecting its
financial exposure, must see to it that the same are in line with the provisions and objectives of its
charter.

Respondents postulate that Mitsubishi had to be a conduit because Eximbank's charter prevents
it from making loans except to Japanese individuals and corporations. We are not impressed.
The allegation that the interest paid by Atlas was remitted in full by Mitsubishi to Eximbank,
assuming the truth thereof, is too tenuous and conjectural to support the proposition that
Mitsubishi is a mere conduit. Furthermore, the remittance of the interest payments may also be
logically viewed as an arrangement in paying Mitsubishi's obligation to Eximbank. Whatever
arrangement was agreed upon by Eximbank and Mitsubishi as to the manner or procedure for the
payment of the latter's obligation is their own concern. It should also be noted that Eximbank's
loan to Mitsubishi imposes interest at the rate of 75% per annum, while Mitsubishis contract with
Atlas merely states that the "interest on the amount of the loan shall be the actual cost beginning
from and including other dates of releases against loan."
It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that laws
granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in
favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of
proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption
so claimed, which onus petitioners have failed to discharge.
WHEREFORE, the decisions of the Court of Tax Appeals in CTA Cases Nos. 2801 and 3015,
dated April 18, 1980 and January 15, 1981, respectively, are hereby REVERSED and SET
ASIDE.
8. PLDT vs. City of Davao (Aug.22,2001)
Doctrine: Taxation; Tax Code; The Tax Code provision withdrawing the tax exemption was not
construed as prohibiting future grants of exemptions from all taxes.The trial court held that,
under these provisions, all exemptions granted to all persons, whether natural and juridical,
including those which in the future might be granted, are withdrawn unless the law granting the
exemption expressly states that the exemption also applies to local taxes. We disagree. Sec. 137
does not state that it covers future exemptions. In Philippine Airlines, Inc. v. Edu, where a
provision of the Tax Code enacted on June 27, 1968 (R.A. 5431) withdrew the exemption enjoyed
by PAL, it was held that a subsequent amendment of PALs franchise, exempting it from all other
taxes except that imposed by its franchise, again entitled PAL to exemption from the date of the
enactment of such amendment. The Tax Code provision withdrawing the tax exemption was not
construed as prohibiting future grants of exemptions from all taxes.
Same; Same; The grant of taxing powers to local government units under the Constitution and
the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant
to a declared national policy.Indeed, the grant of taxing powers to local government units under
the Constitution and the LGC does not affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant
to local governments simply means that in interpreting statutory provisions on municipal taxing
powers, doubts must be resolved in favor of municipal corporations.
Same; Same; Tax exemption must be expressed in the statute in clear language; The exemption
must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.The tax exemption must be expressed in the statute in clear language that leaves no
doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the

exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority.
Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise
tax was paid in lieu of all taxes on this franchise or earnings thereof pursuant to RA 7082. The
exemption from all taxes on this franchise or earnings thereof was subsequently withdrawn by
RA 7160 (LGC), which at the same time gave local government units the power to tax businesses
enjoying a franchise on the basis of income received or earned by them within their territorial
jurisdiction. The LGC took effect on January 1, 1992. The City of Davao enacted Ordinance No.
519, Series of 1992, which in pertinent part provides: Notwithstanding any exemption granted by
law or other special laws, there is hereby imposed a tax on businesses enjoying a franchise, a
rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the income receipts realized within the territorial jurisdiction of
Davao City. Subsequently, Congress granted in favor of Globe Mackay Cable and Radio
Corporation (Globe) and Smart Information Technologies, Inc. (Smart) franchises which
contained in leiu of all taxes provisos. In 1995, it enacted RA 7925, or the Public
Telecommunication Policy of the Philippines, Sec. 23 of which provides that any advantage,
favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be
granted, shall ipso facto become part of previously granted telecommunications franchises and
shall be accorded immediately and unconditionally to the grantees of such franchises. The law
took effect on March 16, 1995. In January 1999, when PLDT applied for a mayors permit to
operate its Davao Metro exchange, it was required to pay the local franchise tax which then had
amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the
local franchise tax and demanded a refund of what had been paid as a local franchise tax for the
year 1997 and for the first to the third quarters of 1998.
Issues: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption
from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart.
Held: Petitioner contends that because their existing franchises contain in lieu of all taxes
clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its
previously granted telecommunications franchise. But the rule is that tax exemptions should be
granted only by a clear and unequivocal provision of law expressed in a language too plain to be
mistaken and assuming for the nonce that the charters of Globe and of Smart grant tax
exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, clear and
unequivocal way of communicating the legislative intent.
Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers to
exemption from regulations and requirements imposed by the National Telecommunications
Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any
specific telecommunications service from its rate or tariff regulations if the service has sufficient
competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in
line with its policy of deregulation is the exemption from the requirement of securing permits from
the NTC every time a telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of
language too plain to be mistaken.

9. Commissioner of Internal Revenue vs. Robertson (August 12, 1986)

Doctrine: Taxation; Military Bases Agreement; The income from the U.S. Government of an
American citizen employed as civilian employee in the U.S. Bases here is exempt from Philippine
income tax.The aforegoing facts were the main argument of petitioner in support of his
contentions against respondents. Such contentions do not impress Us as meritorious. The law
and the facts of the case are so clear that there is no room left for Us to doubt the validity of
private respondents defense. In order to avail oneself of the tax exemption under the RP-US
Military Bases Agreement: he must be a national of the United States employed in connection
with the construction, maintenance, operation or defense, of the bases, residing in the Philippines
by reason of such employment, and the income derived is from the U.S. Government (Art. XII par.
2 of PI-US Military Bases Agreement of 1947).
Same; Same; Reagan vs. C.I.R. case (30 SCRA 968) is different from case at bar as Reagan was
an employee of a private contractor in a U.S. base.The circumstances in the case of Reagan
vs. Commissioner of Internal Revenue (30 SCRA 968) relied upon by petitioner in support of the
governments claim are different from the circumstances of the case herein and the ruling
obtained in the former case cannot be invoked or applied in support of petitioners contention. A
cursory reading of said case shows that William Reagan was at one time a civilian employee of
an American corporation providing technical assistance to the U.S. Air Force in the Philippines,
He questioned the payment of the income tax assessed on him by respondent Commissioner of
Internal Revenue on an amount realized by him on a sale of his automobile to a member of the
US Marine Corps., the transaction having taken place at the Clark Field Air Base in Pampanga. It
was his contention that in legal contemplation the sale was made outside Philippine territory and
therefore beyond our jurisdictional power to tax. Clearly, the facts in said case are different from
those obtaining in the present suit.
Facts: Frank and James Robertson (brothers) were American citizens born in the Philippines.
They stayed here in the Philippines until they were repatriated by the US in 1945. Thereafter they
established their domicile in California. Soon after they were employed by the US Federal
Government as workers in the US Navy. They were later assigned at the US Naval Base in
Olongapo City in 1962. They hold American passports and are admitted as special temporary
visitors under the Philippine Immigration Act of 1940. On the other hand, the Commissioner
contends that the respondents are subject to taxation because their residence here in the
Philippines is not by reason of their employment in connection with the construction,
maintenance, operation or defense of the US Bases here as provided by the MBA. The CIR
claims that the respondents have properties here in the Philippines and that James Robertson is
even a retiree and is currently living in Olongapo City with his family. Furthermore, the burden of
proof of such exemption to taxation shall be upon the respondents.
Issues: Whether or not Respondents are exempt from taxation?
Held: The law and the facts of the case are so clear that there is no room left for doubt the validity
of private respondents defense. In order to avail oneself of the tax exemption under the RP-US
Military Bases Agreement: he must be a national of the United States employed in connection

with the construction, maintenance, operation or defense, of the bases, residing in the Philippines
by reason of such employment, and the income derived is from the U.S. Government (Art. XII par.
2 of PI-US Military Bases Agreement of 1947). Said circumstances are all present in the case at
bar.
10. Republic of the Philippines vs. Intermediate Appellate Court (April 26, 1991)
Doctrine: Taxation; Tax Amnesty, defined; Case at bar.Even assuming that the deficiency tax
assessment of P17,117.08 against the Pastor spouses were correct, since the latter have already
paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No.
213, and were granted not merely an exemption, but an amnesty, for their past tax failings, the
Government is estopped from collecting the difference between the deficiency tax assessment
and the amount already paid by them as amnesty tax. A tax amnesty, being a general pardon or
intentional overlooking by the State of its authority to impose penalties on persons otherwise
guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or
waiver by the Government of its right to collect what otherwise would be due it, and in this sense,
prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a
chance to do so and thereby become a part of the new society with a clean slate (Commission of
Internal Revenue vs. Botelho Corp. and Shipping Co., Inc., 20 SCRA 487).
Same; Same; Statutes; In case of doubt, tax statutes are to be construed strictly against the
government; Reason.In case of doubt, tax statutes are to be construed strictly against the
Government and liberally in favor of the taxpayer, for taxes, being burdens, are not to be
presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly
declares (Commission of Internal Revenue vs. La Tondea, Inc. and CTA, 5 SCRA 665, citing
Manila Railroad Company vs. Collector of Customs, 52 Phil. 950).
Facts: Republic of the Philippines, through the Bureau of Internal Revenue, commenced an
action in the Court of First Instance (now Regional Trial Court), to collect from the spouses
Antonio Pastor and Clara Reyes-Pastor deficiency income taxes for the years 1955 to 1959 with
surcharge and monthly interest, and costs. The Pastors filed a motion to dismiss the complaint,
but the motion was denied. They filed an answer admitting there was an assessment against
them for income tax deficiency but denying liability therefor. They contended that they had availed
of the tax amnesty under P.D.s Nos. 23, 213 and 370 and had paid the corresponding amnesty
taxes amounting of their reported untaxed income under P.D. 23, and a final payment on October
26, 1973 under P.D. 370 evidenced by the Governments Official Receipt. The trial court held that
the respondents had settled their income tax deficiency for the years 1955 to 1959, not under
P.D. 23 or P.D. 370, but under P.D. 213.
The Government appealed to the Intermediate Appellant Court, alleging that the private
respondents were not qualified to avail of the tax amnesty under P.D. 213 for the benefits of that
decree are available only to persons who had no pending assessment for unpaid taxes, as
provided in Revenue Regulations Nos. 8-72 and 7-73. Since the Pastors did in fact have a
pending assessment against them, they were precluded from availing of the amnesty granted in
P.D.s Nos. 23 and 213. The Government further argued that tax exemptions should be
interpreted strictissimi juris against the taxpayer. The Intermediate Appellate Court (now Court of

Appeals) rendered a decision dismissing the Governments appeal and holding that the payment
of deficiency income taxes by the Pastors under PD. No. 213, and the acceptance thereof by the
Government, operated to divest the latter of its right to further recover deficiency income taxes
from the private respondents pursuant to the existing deficiency tax assessment against them.
Issues: Whether or not the tax amnesty payments made by the private respondents bar an action
for recovery of deficient income taxes under P.D.s Nos. 23, 213 and 370.
Held: Yes. The Government is estopped from collecting the difference between the deficiency tax
assessment and the amount already paid by them as amnesty tax. The finding of the appellate
court that the deficiency income taxes were paid by the Pastors, and accepted by the
Government, under P.D. 213, granting amnesty to persons who are required by law to file income
tax returns but who failed to do so, is entitled to the highest respect and may not be disturbed
except under exceptional circumstances
The rule is that in case of doubt, tax statutes are to be construed strictly against the Government
and liberally in favor of the taxpayer strictisimi juris for taxes, being burdens, are not to be
presumed beyond what the applicable statute (in this case P.D. 213) expressly and clearly
declares.
11. Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue (August 17, 1967)
Doctrine: Taxation; Sales tax; Tax exemption; Percentage tax in section 186 of Tax Code is due
from the manufacturer.The percentage tax on sales of merchandise, imposed in section 186 of
the Tax Code, is due from the manufacturer and not from the buyer. Thus, the manufacturer or
producer of oxygen and acetylene gases sold to the National Power Corporation cannot claim
exemption from the payment of sales tax simply because its buyer, the National Power
Corporation, is exempt from taxation.
Same; Sales to federal agencies.Under the Bases Agreement sales made for exclusive use in
the construction, maintenance, operation or defense of the bases, or sales to the quartermaster,
are exempt from taxation. Sales of goods to any other party, even if it be an agency of the United
States, such as the Voice of America, or even to the quartermaster but for a different purpose,
are not exempt from taxation. Sales made within the base by commissaries and the like are
exempt from sales tax in accordance with the rule that a sales tax is a tax on the seller and not on
the purchaser.
Same; Tax exemption; Strict construction.A tax exemption must be strictly construed. An
exemption will not be considered conferred unless the terms under which it is granted clearly and
distinctly show that such was the intention of the parties.
Same; Void revenue circular.Circular No, V-41 of the Bureau of Internal Revenue, insofar as it
gives the exemptions in the Bases Agreement an expansive construction, is void. [Philippine
Acetylene Co., Inc. vs. Commissioner of Internal Revenue, 20 SCRA 1056(1967)]
Facts: Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and
acetylene gases. It sold its products to the National Power Corporation (Napocor), an agency of

the Philippine Government, and the Voice of America (VOA), an agency of the United States
Government. The Commissioner assessed deficiency sales tax and surcharges against the
company. The company denied liability for the payment of tax on the ground that both Napocor
and VOA are exempt from taxes.
Issues: Whether PA Co. is exempt from tax.
Held: Sales tax are paid by the manufacturer or producer who must make a true and complete
return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value of
output actually removed from the factory or mill, warehouse and to pay the tax due thereon. The
tax imposed by Section 186 of the Tax Code is a tax on the manufacturer or producer and not a
tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly,
its levy on the sales made to tax-exempt entities like the Napocor is permissible. On the other
hand, there is nothing in the language of the Military Bases Agreement to warrant the general
exemption granted by General Circular V-41 (1947). Thus, the expansive construction of the tax
exemption is void; and the sales to the VOA are subject to the payment of percentage taxes
under Section 186 of the Tax Code. Therefore, tax exemption is strictly construed and exemption
will nbot be held to be conferred unless the terms under which it is granted clearly and distinctly
show that such was the intention.