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GENERAL PRINCIPLES OF TAXATION

01 - CIR v. Manuel Pineda (1967) (income tax liability, liable not more than his share of inheritance, right of
contribution)
Doctrines:

The Bureau of Internal Revenue should be given the necessary discretion to avail itself of the most expeditious
way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because
taxes are the lifeblood of government and their prompt and certain availability is an imperious need.

Facts:
Atanasio Pineda died, survived by his wife and 15 children. One of whom is Manuel Pineda (petitioner), who is a
lawyer. Estate proceedings were held and Manuel Pinedas share amounted to P2,500.
After the estate proceedings were closed, the BIR investigated the income tax liability of the estate for the years
1945-1948 and found out that the corresponding income tax returns were not filed. The BIR sent an assessment to
Manuel but he contested it alleging that he was appealing only that proportionate part or portion pertaining to him as one
of the heirs.
(Note: Prescription part might be asked) Pineda was saying that the right to assess and collect the tax had already
prescribed. For 1945 and 1946 the returns were filed on 1953, assessments for both taxable years were made within five
years from 1957. For taxable year 1947, the return was filed on 1948, assessment was made on 1953, more than five
years from the date return was filed; hence the right to assess income tax for 1947 had prescribed.
The CIR appealed proposed to hold Manuel Pineda liable for the payment of all the taxes found by the Tax Court
to be due from the estate in the total amount of P760.28 instead of only for the amount of taxes corresponding to his
share in the estate.
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the
estate only up to the extent of and in proportion to any share he received.
Issues:
1. W/N the government can compel Pineda to pay the whole P760.28 (tax of whole estate)
Held/Ratio:
1. YES.
Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share he
received from the inheritance. His liability, however, cannot exceed the amount of his share.
As a holder of property belonging to the estate, Pineda is liable for the tax up to the amount of the property in
his possession. The reason is that the Government has a lien on the P2,500 received by him from the estate as
his share in the inheritance, for unpaid income taxes.
By virtue of such lien, the Government has the right to subject the property in Pinedas possession, i.e., the
P2,500, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a
right of contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the
distributable estate.
Government has two ways of collecting tax:
a. Going after ALL heirs and collecting from each one of them the amount to the tax proportionate to the
inheritance received. (Achieves 2 results: payment of the tax and adjustment of shared of each heir in the
distributed estate as lessened by the tax)

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b. Section 315 of Tax Code lien of the govt. The govt places a lien by subjecting the said property of
the estate which is in the hands of an heir or transferee to the payment of the tax due. (This was used in
this case). The BIR should be given the necessary discretion to avail itself of the most expeditious way to
collect the tax because taxes are the lifeblood of the government and their prompt and certain availability
is an imperious need.

02 - Vera v. Fernandez (1979) (Estate of Tongoy, Motion for allowance of claim)

Doctrines:

The reason for the more liberal treatment of claims for taxes against a decedents estate in the form of exception
from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood of the Government
and their prompt and certain availability are imperious need.

Upon taxation depends the Governments ability to serve the people for whose benefit taxes are collected.

Facts:
This case is about the Motion for allowance of claim and for payment of taxes dated May 28, 1969 and filed
June 3, 1969. The claim represents the indebtedness to the Government by the Estate of the late Luis D. Tongoy for
deficiency income taxes amounting to P3,254.80. The Administrator opposed the motion on the ground that the claim was
barred under Sec5, Rule 86 of the Rules of Court. Respondent Judge Fernandez dismissed the motion filed by petitioner,
Regional Director of BIR. Sept 18, 1969, a motion for reconsideration was filed but was denied. Thus, this appeal on
certiorari.
Issues:
1. W/N a claim for taxes against a decedents estate is an exception from the application of the statute of non-claims
(Sec 5, Rule 86 of Rules of Court)?
Held/Ratio:
1. YES
The court recognized the liberal treatment of claims for taxes charged against the estate of the decedent.
Such taxes were exempted from the application of the statute of non-claims, and this is justified by the
necessity of government funding, immortalized in the maxim that taxes are the lifeblood of the government.
Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to
the committee on claims in the ordinary course of administration. In the exercise of its control over the
administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been
assessed against the estate.
Such liberal treatment of internal revenue taxes in the probate proceedings applies even to allowing the
enforcement of tax obligations against the heirs of the decedent, even after distribution of the estates properties.
Claims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs
even after the distribution of the properties of the decedent. They are exempted from the application of the
statute of non-claims. The heirs shall be liable therefor, in proportion to their share in the inheritance

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03 - CIR V. Algue Inc. (1988)

Doctrines:

Taxation is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the
prescribed procedure.

Rationale of taxation:
o

Taxes are what we pay for a civilized society.

Without taxes, the government would be paralyzed for lack of the motive power to activate and operate
it.

The government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values.

Sec. 30 (a) (1): All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on
any trade or business, including a reasonable allowance for salaries or other compensation for personal services
actually rendered

Revenue Regulations No. 2 Sec. 70 (1): The test of deductibility in the case of compensation payments is whether
they are reasonable and are, in fact, payments purely for service.

Facts:
Algue Inc., a domestic corporation engaged in engineering and construction, is claiming a P75,000 deduction
which represented payments for promotional fees to various persons. Apparently, this was incurred when Algue was
appointed as an agent of the Philippine Sugar Estate Development Company (PSEDC) which it was tasked to sell land,
factories, and oil manufacturing processes. Pursuant to such authority, several persons, including its counselAtty.
Guevarra, worked for the formation of the Vegetable Oil Investment Corporation of the Philippines (VOICP) by inducing
other persons to invest in it. Algue received P126,000 as commission and it was from this commission that the P75,000
promotional fees were paid to these several persons who aided Algue.
However, the Commissioner of Internal Revenue (CIR) claimed that these payments are not to be considered as
allowable deductions since, being members of the same family corporation, there was no indication that payments were
indeed given to those persons whether by check or in cash, and there is not enough substantiation of such payments. In
short, the CIR suggests that an attempt to evade taxes was done by involving imaginary deductions.
Issues:
1. (Substantive/Main Issue) W/N the P75,000 deduction is an allowable deduction from gross income.
2. (Procedural issue. Not related to topic, this will be taken later on Tax Remedies, but worth mentioning since Atty.
Gonzalez might ask a bit of it.) W/N the appeal was taken within the reglementary period.
Held/Ratio:
1. YES. The amount was considered to be an allowable deduction even though most of the payees were neither
employees nor stockholders of Algue Inc.
As a principle of taxation, the taxpayer shall have the burden of proving the validity of any deductions.
NIRC Sec. 30 (a)(1):
All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on
any trade or business, including a reasonable allowance for salaries or other compensation for
personal services actually rendered;

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Revenue Regulations No. 2 Sec. 70 (1):

The test of deductibility in the case of compensation payments is whether they are reasonable and
are, in fact, payments purely for service. This test and deductibility in the case of compensation
payments is whether they are reasonable and are, in fact, payments purely for service.
Algue Inc. successfully proved that the payment of the fees was necessary and reasonable in the light of the
efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and
should be, as it was, sufficiently recompensed by having 60% of the commission received by Algue.
2. YES. The appeal was filed in time since only 20 days of the 30-day reglementary period was consumed.
The protest filed had the effect of suspending on January 18, 1965, when it was filed, the reglementary period
which started on the date the assessment was received on January 14, 1965. The period started running again only
on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest
and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.

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04 - Municipality of Makati v. CA (1990) (expropriation, garnishment)

Doctrines:

Public funds are not subject to levy and execution.

Municipal revenues derived from taxes, licenses and market fees, and which are intended primarily and
exclusively for the purpose of financing governmental activities and functions of the municipality, are
exempt from execution.

Facts:
[The tax bit in this case is tiny. Its more of expropriation and garnishment.]
Petitioner has the ff. bank accounts in PNB Buendia:
1. Account No. S/A 265-537154-3 exclusively for the expropriation of the subject property, with an
outstanding balance of P99,743.94.
2. Account No. S/A 263-530850-7 for statutory obligations and other purposes of the municipal government,
with a balance of P170,098,421.72, as of July 12, 1989.
The case is a resolution, an off-shoot of expropriation proceedings initiated by petitioner municipality against
private respondent Admiral Finance. Petitioner opened a bank account (AC No. 265-537154-3) containing P417,510.
Respondent moved for execution, which was granted. A Notice of Garnishment was served by the sheriff to the manager
of PNB Buendia Branch, where the account of petitioner was opened.
Petitioner filed for a motion to lift the garnishment, arguing that payment for expropriated property should be
done in installments. In the meantime, PSB (Philippine Savings Bank) consolidated title over the subject property of
Admiral Finance, having bought it in an extrajudicial sale. PSB and private respondent entered into a subsequent
compromise which was approved by the court. Among its terms are: a.) PNB Buendia should release P4,953,506, which
was the balance to the appraised value of the property from the garnished bank account; b.) PSB and Admiral Finance
were ordered to execute the necessary conveyance for the property.
Issue:
1. W/N petitioners funds in accounts 265-537154-3 and 263-530850-7 could be subject to execution.
Held/Ratio:
1. NO.
Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation proceedings it
had initiated over the subject property, petitioner poses no objection to the garnishment or the levy under
execution of the funds deposited therein amounting to P99,743.94. However, it is petitioners main contention that
inasmuch as the assailed orders of respondent RTC judge involved the net amount of P4,965,506.45, the funds
garnished by respondent sheriff in excess of P99,743.94, which are public funds earmarked for the
municipal governments other statutory obligations, are exempted from execution without the proper
appropriation required under the law.
The funds deposited in the second account are public funds of the municipality. Public funds are not subject to
levy and execution, unless otherwise provided for by statute. Municipal revenues derived from taxes, licenses
and market fees, and which are intended primarily and exclusively for the purpose of financing
governmental activities and functions of the municipality, are exempt from execution. There was yet no
ordinance from the City of Makati regarding the disbursement of the funds in the bank account.
However, the Court held that the municipality could be compelled by mandamus to enact the ordinance for the
disbursement of the funds, because the city had been enjoying the property for 3 years now without paying
anything they even turned the site into Makati West High School.

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05 - The Philippine Guaranty Co. v. Commissioner of Internal Revenue (1965)

Doctrines:

The power to tax is an attribute of sovereignty. It is necessary to protect the sovereignty, the citizenry and those
falling within the States territory and protection.

The Government is not estopped from collecting taxes based on the errors of its agents.

Source in Sec. 24 of the Tax Code (taxation of foreign corporations), has been held to mean activity,
service or property giving rise to the income.
a. Place of business must not be confused with place of activity. Business is a series of transactions while
activity may be a single transaction.
b. What is controlling in Sec. 24 is the place of activity.
c. Section 37 of the Tax Code is not an exclusive list of sources of income in the Philippines, other sources
must be considered.

Withholding tax is computed from the total amount ceded and not from that actually remitted to the foreign
reinsurers.

Facts:
PhilGuaranty, a domestic insurance company, entered into several reinsurance contracts with foreign insurance
companies not doing business in the Philippines.1 PhilGuaranty agreed to cede to the foreign companies portions of
premiums coming from insurance policies issued by PhilGuaranty. In exchange, the foreign companies agreed to assume
the proportionate amount of risks arising from the issued insurance policies. Under the contract, the liability of the
foreign companies must be simultaneous with that of PhilGuaranty, risks ceded to the foreign companies were to be
recorded in a book binding upon them. They also agreed that the foreign reinsurers will pay the proportionate amount
of taxes on insurance premiums not recovered from the original assured. The all contracts were signed by PhilGuaranty
in the Philippines and the foreign corporations in their respective countries, except for one contract (with Swiss
Reinsurance)which was signed by both parties in Switzerland.
Based on these contracts, PhilGuaranty ceded to the reinsurers 842,466.71 (1953), and 721, 471.85 (1954). Said
premiums were not included by PhilGuaranty as part of their gross income upon filing of Income Tax Returns for the
years 1953 and 1954. Furthermore, it did not withhold or pay tax on them. The CIR assessed withholding tax for
PhilGuaranty on the said reinsurance premiums. For 1953 the CIR determined the gross premium to be P768,580 and
imposed a withholding tax due thereon at 24% or P184, 459, plus a penalty of P100 and surcharge of 25% of the
withholding tax , amounting to a total of P230,673. For 1954, the CIR assessed withholding tax to be P234,364 based on a
determined gross premium of P780,880.68, and computed under the same terms.
PhilGuaranty protested and argued that reinsurance premiums ceded to foreign corporations not doing business in
the Philippines cannot be subject to withholding tax. The CIR denied and the case was elevated to the Court of Tax
appeals which rendered judgment against PhilGuaranty. Thus this petition.
PhilGuaranty contends that, first, the reinsurance premiums in question did not constitute income from sources
within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have
office here. Second, PhilGuaranty contends that reinsurance premiums are not under the list of sources provided in
Section 37 of the Tax Code. Third, it contends that they merely relied, in good faith, on prior rulings of the CIR that the
reinsurance premiums in question are not subject to withholding tax. Fourth, that if it be subject to withholding tax, the
tax should be computed from the actual amount remitted, and not from the total amount ceded to the foreign
corporations, and because they did not make any remittance, they should not be subject to withholding tax.

1.

Imperio Compaia de Seguros, La Union y El Fenix Espaol, Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros Alianza,
Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss Reinsurance Company and Tariff Reinsurance Limited. (Not
really important but just in case he asks for the names.)

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Issues:
1. W/N foreign corporations not doing business in the Philippines are subject to withholding tax.
2. (TOPIC) W/N Section 37 is an exclusive list
3. (TOPIC) W/N the government is estopped from collecting taxes based on the wrongdoings of its agents.
4. W/N the tax should be computed from the actual amount remitted.
Held/Ratio:
1. YES. Place of Business must not be confused with place of activity. Business is a continuing series of
transactions while activity may consist only of one single transaction. An activity may occur outside the place
of business. The Tax Code does not require that the corporation must be doing business in the Philippines, it
merely requires that the source or activity creating the income is performed or done in the Philippines. The
reinsurance contracts show that the transactions are done in the Philippines: the liability of the foreign reinsurers
were simultaneous with PhilGuaranty, they were bound by the books of PhilGuaranty recording the risks, and
moreover, they agreed that whatever differences between the parties were subject to arbitration in the City of
Manila.
2. NO. Section 37 is not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned
therein should be treated as income from sources within the Philippines but it does not require that other kinds
of income should not be considered likewise. The power to tax is an attribute of sovereignty, emanating
from necessity. It is necessary to collect taxes to fund an army and a navy for the protection of its citizenry and
those under the States territory. It is also necessary to fund government projects for the use and enjoyment of the
public. Considering that the reinsurance premiums in question were afforded protection by the government
and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such
reinsurance premiums and reinsurers should share the burden of maintaining the state.
3. NO. The government cannot be estopped from collecting taxes. The defense of the petitioner that they merely
relied on prior rulings of the CIR cannot exculpate them from paying taxes but can only exculpate them from
paying penalties and surcharges.
4. NO. The code provides that it should be computed based on the total amount ceded and not that actually remitted.
The grounds for deductions are enumerated in Section 53 and the reinsurance premiums in question do not fall
under said grounds.

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06 - Collector of Internal Revenue v. J.C. Yuseco and The Court of Tax Appeals (1961) (CTA, appellate
jurisdiction)
Doctrines:

Taxes, being the chief source of revenue for the government, must be paid immediately and without delay.

The CTA is a regular court vested with exclusive appellate jurisdiction over cases arising under the NIRC,
Customs Law and Assessment Law.

Facts:
J.C. Yuseco did not file income tax returns for the years 1945 and 1946. The revenue examiners assessed against
and demanded from Yuseco the sums of P134.15 and P7,563.28 representing alleged income taxes and corresponding
surcharges for 1945 and 1946. Yuseco requested that he be informed as to how the assessments were made. The Collector
of Internal Revenue (CIR) furnished the information and demanded payment from Yuseco. Yuseco asked that he be given
an opportunity to present his side of the matter. However, the CIR denied reconsideration of the assessment and reiterated
their demand upon Yuseco for payment. Another demand followed. Yuseco once again requested for a reinvestigation of
the case. Such was once again denied. Nothing was heard of the matter for almost three years.
Later, the CIR issued a revised assessment notice which reduced the original assessment to P2,447.30 for the year
1946. A year later, the CIR issued a warrant of distraint and levy upon Yusecos properties which, however, was not
executed. Yuseco sought the withdrawal and/or reconsideration of said warrant. The CIR wrote to Yuseco, demanding
that the latter pay the P2,447.30 and P134.15. Subsequently, the CIR did not take any further action to collect the
assessment.
The CIR issued a second warrant of distraint and levy on the properties of Yuseco in order to effect collection of
the revised 1946 sum. Yuseco subsequently filed a petition for prohibition with the Court of Tax Appeals (CTA).
The CTA ruled that the warrant of distraint and levy was null and void and of no legal force. The CIR assails the
jurisdiction of the CTA to take cognizance of Yusecos taxpayers petition that seeks to enjoin the CIR from collecting the
income taxes and surcharges due by summary distraint of and levy upon Yusecos real and personal properties. The CIR
claims that Yuseco cannot bring to the CTA an independent special civil action without taking to the CTA an appeal from
the decision of the CIR.
Issues:
1. W/N the CTA has jurisdiction of the case
Held/Ratio:
1. NO.
7 (1) of Republic No. 1125 creating the CTA provides that the CTA shall exercise exclusive appellate
jurisdiction to review by appeal decisions of the CIR in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the BIR. 11 of the same law
provides that persons, associations or corporations affected by a decision of the CIR, Customs, or provincial or
city Board of Assessment may file an appeal in the CTA.
The law did not vest the CTA with original jurisdiction to issue writs of prohibition and injunction
independently of an appealed case. The power to issue writs exists only in cases appealed to it, as reflected on
the explanatory note of the bill creating the CTA (It is proposed in the attached bill to establish not merely an
administrative body but a regular court vested with exclusive appellate jurisdiction over cases arising under
the NIRC, Customs Law and Assessment Law).
Taxes, being the chief source of revenue for the government, must be paid immediately and without delay. A
taxpayer who feels aggrieved by the decision or ruling handed down by a revenue officer and appeals from his
decision or ruling to the CTA must pay the tax assessed. However, if in the opinion of the Court, the collection
would jeopardize the interest of the government and/or taxpayer, it could suspend the collection and require the

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taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount of the
tax assessed.

07 - Chavez v. Ongpin (1990) (Memory Aid - maximum of 5 words only)

Doctrines:

The general revision of assessments is a constitutional and continuing process. It does not involve the imposition
of new or increased taxes.

Facts:
Chavez, a taxpayer and real estate owner, assails the constitutionality of E.O. 73, which directs that the collection
of real property taxes should be based on the assessed 1984 real property values instead of the 1979 values. The Realty
Owners Association of the Philippines (ROAP) intervened. Aside from E.O. 73, they also assail the constitutionality of
P.D. 464, which imposes an additional 1% tax on all property owners. By virtue of P.D. 464, Pres. Aquino ordered the
General Revision of Assessments for real property values in 1985. However, the implementation revised assessed values
were deferred until 1988. E.O. 73 changes the date of effectivity to 1987. Chavez alleges that this will unconscionably
raise the taxes and amount to a confiscation of the owners properties.
Issues:
1. W/N E.O. 73 is unconstitutional
Held/Ratio:
1. NO, E.O. 73 merely changed the date of effectivity of the implementation of the revised assessed values for real
property tax. It does not impose new or additional taxes so it doesnt involve the governments power to tax. The
general revision of assessments is a continuing process, and if a property owner has any complaint about how his
property was assessed, he can appeal to the Local Board of Assessors. If he is still not satisfied with the Local
Boards decision, he can then appeal to the Central Board of Assessors.
The Court said that if anything should be assailed as unconstitutional, it should be P.D. 464. However, Chavez did
not do so. ROAPs intervention cannot stand because its not an independent charge.

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SCOPE AND LIMITATIONS

08 - Sison v. Ancheta acting CIR (1984) (Scope and Limitation)
Doctrines:

The power to tax is an attribute of sovereignty. It is the strongest of all the powers of government. It is, of
course, to be admitted that for all its plenitude, the power to tax is not unconfined. There are restrictions. The
Constitution sets forth such limits.

The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. In any
case therefore where it can be demonstrated that the challenged statutory provision ... fails to abide by its
command, then this Court must so declare and adjudge it null.

It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of
property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the
Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or
is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack
on due process grounds.

Facts:
A suit for declaratory relief or prohibition on the validity of Sec 1 of BP No. 135 was filed by petitioner claiming
that the said section as arbitrary amounting to class legislation, oppressive and capricious in character. Petitioner thus
claims that there is a transgression of both the equal protection and due process clauses of the Constitution as well as the
rule on uniformity in taxation.
The said section amends further Sec 21 of the NIRC (1977) for rates of tax on citizens or residents on:
a. taxable compensation income,
b. taxable net income,
c. royalties, prizes, and other winnings,
d. interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from
trust fund and similar arrangements,
e. dividends and share of individual partner in the net profits of taxable partnership,
f.

adjusted gross income.

SISON then claims that he would be unduly discriminated against by the imposition of higher rates of tax upon
his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried
individual taxpayers.
Issues:
1. W/N the Courts can rule on the Constitutionality of Sec 1 BP 135?
2. W/N the imposition of a higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm?
Held/Ratio:
1. YES, in any case where it can be demonstrated that the challenged statutory provision fails to abide by its
command, then the SC must so declare and adjudge as null and void.

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The power to tax as discussed by Justice Malcolm, is an attribute of sovereignty. It is the strongest of all the
powers of government. It is, of course, to be admitted that for all its plenitude the power to tax is not
unconfined. There are restrictions. The Constitution sets forth such limits. Adversely affecting as it does
properly rights, both the due process and equal protection clauses may properly be invoked, as the petitioner does,
to invalidate in appropriate cases a revenue measure. Otherwise, it would be as CJ Marshall stated the power of
tax involves the power to destroy as against Justice Holmes, The power to tax is not the power to destroy
while this Court sits.
2. NO, the mere allegation of the petitioner does not suffice, absent showing of proof to the contrary.
DUE PROCESS CLAUSE
This may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. It has also
been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose,
or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds.
EQUAL PROTECTION CLAUSE
This is invoked when the enactment of the law was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all
persons under similar circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed.
UNIFORMITY
According to the constitution, The rule of taxation shall be uniform and equitable. This requirement is met
according to Justice Laurel when the tax operates with the same force and effect in every place where the subject
may be found but provides that the rule of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable.

What misled the petitioner was his failure to consider the distinction between tax rate and tax base. There is no
legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be classified into different categories. It is enough that the
classification must rest upon substantial distinctions that make real differences.
In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of
them.
There is ample justification for the Batasang Pambansa to adopt the gross system of income taxation to
compensation income (no overhead costs), while continuing the system of net income taxation as regards
professional and business income (with operating/overhead costs).

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09 - CIR v. Placer Dome (2007) (0% rate VAT for Marinduque Marcopper Mining disaster cleanup)
Doctrines:

The scope of the word services in Section 102(b)(2) of the [1986 NIRC] is broad; it is not susceptible of narrow
interpretation.

Facts:
[This Marinduque Marcopper Mining disaster is famous, even at the global level.2]
To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the
owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac
Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a nonresident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services of
Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered ValueAdded Tax (VAT) entity, to implement the project in the Philippines.
Then on 11 September 1998, respondent filed an administrative claim for the refund of its reported total
input VAT payments in relation to the project it had contracted from PDTSL, amounting to P43,015,461.98. In
support of this claim for refund, respondent argued that the revenues it derived from services rendered to PDTSL,
pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in
foreign currency inwardly remitted to the Philippines. Section 102(b) of the 1986 NIRC reads:
Section 102. Value-Added Tax on Sale of Services and Use or Lease of Properties.
...
(b) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding subparagraph, the consideration
for which is paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the [BSP].
This provision was interpreted by the Bureau of Internal Revenue through Revenue Regulation No. 5-96, Section
4.102-2(b)(2).3

2.

Wikipedia: On 24 March 1996, the Marcopper Mine on Marinduque made global news due to a Mining accident at their Marinduque mine. The
incident involved the Marcopper Mining Corporation which has been carrying out open-pit copper mining since the 1970s. When the company
finished one of its operations in Marinduque, it plugged up the old pit with a concrete fixture to allow the pit to act as a disposal lake for mining
waste. In August 1995, a significant leak was discovered in the pits drainage tunnel. This subsequently fractured. The accident discharged
tailings [toxic residue after extracting, with the use of chemicals, the mineral from the ore] into the Makulapnit-Boac (Boac) river system. The
disaster resulted in the release of over 1.6 million cubic meters of tailings along 27 km of the river and the coastal areas. The impact on the river
and the people who depend on it for their livelihoods was massive. The rush of tailings displaced river water which inundated low-lying areas,
destroying crops and vegetable gardens and clogging irrigation channels to rice fields. The release left the Boac River virtually dead. The effects
of the incident were so devastating that a UN assessment mission declared the accident to be a major environmental disaster.

3.

Section 4.102(b)(2)- Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for
goods which are subsequently exported, as well as services by a resident to a non-resident foreign client such as project studies, information
services, engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP.

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A VAT ruling is rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the
VAT law. VAT Ruling No. 040-984 interpreted the same provision in the 1997 Tax Code.
When the Commissioner of Internal Revenue (CIR) did not act on this claim, respondent duly filed a Petition
for Review with the Court of Tax Appeals (CTA). The CTA ruled in favor of Placer Dome as to the amount of
P17,178,373.12 which qualified for 0% rate VAT and thus could be refunded the respondent. The rulings of the CTA
were elevated by the CIR to the Court of Appeals on Petition for Review. The appellate court affirmed the CTA
rulings. As a consequence, the present petition is now before the Supreme Court.
CIR heavily relies on the interpretation of the BIR in the form of Revenue Regulation No. 5-96 and VAT
Ruling 040-98. CIR argues that, following Section 4.102-2(b)(2) of Revenue Regulation No. 5-96, there are only two
categories of services that are subject to zero percent VAT, namely: services other than processing, manufacturing
or repacking for other persons doing business outside the Philippines for goods which are subsequently exported;
and services by a resident to a non-resident foreign client, such as project studies, information services, engineering
and architectural designs and other similar services. Petitioner explains that the services rendered by respondent were
not for goods which were subsequently exported. Likewise, it is argued that the services rendered by respondent were not
similar to project studies, information services, engineering and architectural designs which were destined to be
consumed abroad by non-resident foreign clients. These views, petitioner points out, were reiterated in VAT Ruling No.
040-98 - that the location or destination where the services were destined for consumption was determinative of
whether the zero-rating availed when such services were sold by a resident of the Philippines to a non-resident
foreign client.
Issues:
1. W/N the services of Placer Dome is subject to 0% rate VAT
Held/Ratio:
1. YES. The services of Placer Dome is subject to 0% rate VAT (as to the amount of P17,178,373 as ruled by the
CTA).
Two years ago, the Court in Commissioner of Internal Revenue v. American Express International, Inc.
(Philippine Branch) definitively ruled that under the National Internal Revenue Code of 1986, as amended,
services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or
repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. The grant of the
present petition by the CIR entails the extreme step of rejecting American Express as precedent, a recourse
which the Court is unwilling to take.
First, although the regulatory provision contains an enumeration of particular or specific words, followed by the
general phrase and other similar services, such words do not constitute a readily discernible class and are
patently not of the same kind. Ejusdem generis does not apply. Project studies involve investments or marketing;
information services focus on data technology; engineering and architectural designs require creativity. Aside
from calling for the exercise or use of mental faculties or perhaps producing written technical outputs, no
common denominator to the exclusion of all others characterizes these three services. Nothing sets them apart

4.

The sales of services subject to zero percent (0%) VAT under Section 108(B)(2), of the Tax Code of 1997, are limited to such sales which are
destined for consumption outside of the Philippines in that such services are tacked-in as part of the cost of goods exported. The zero-rating also
extends to project studies, information services, engineering and architectural designs and other similar services sold by a resident of the
Philippines to a non-resident foreign client because these services are likewise destined to be consumed abroad. The phrase project studies,
information services, engineering and architectural designs and other similar services does not include services rendered by travel agents to
foreign tourists in the Philippines following the doctrine of ejusdem generis, since such services by travel agents are not of the same class or of
the same nature as those enumerated under the aforesaid section.
Considering that the services by your client to foreign tourists are basically and substantially rendered within the Philippines, it follows that the
onus of taxation of the revenue arising therefrom, for VAT purposes, is also within the Philippines. For this reason, it is our considered opinion
that the tour package services of your client to foreign tourists in the Philippines cannot legally qualify for zero-rated (0%) VAT but rather
subject to the regular VAT rate of 10%.

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from other and similar general services that may involve advertising, computers, consultancy, health care,
management, messengerial work to name only a few.
Second, there is the regulatory intent to give the general phrase and other similar services a broader meaning.
Clearly, the preceding phrase as well as is not meant to limit the effect of and other similar services.
Third, and most important, the statutory provision upon which this regulation is based is by itself not restrictive.
The scope of the word services in Section 102(b)(2) of the [1986 NIRC] is broad; it is not susceptible of
narrow interpretation. VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the
administrative level, rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of
the VAT law. As correctly held by the CA, when this ruling states that the service must be destined for
consumption outside of the Philippines in order to qualify for zero rating, it contravenes both the law and the
regulations issued pursuant to it. This portion of VAT Ruling No. 040-98 is clearly ultra vires and invalid.
Finally, interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the
legislators NOT to impose the condition of being consumed abroad in order for services performed in the
Philippines by a VAT-registered person to be zero-rated.5

5.

Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first paragraph is when one manufactures or packages
something here and he sends it abroad and they pay him, that is covered. That is clear to me. The second paragraph says Services other than
those mentioned in the preceding subparagraph, the consideration of which is paid for in acceptable foreign currency ... .
One example I could immediately think of I do not know why this comes to my mind tonight is for tourism or escort services. For
example, the services of the tour operator or tour escortjust a good name for all kinds of activities is made here at the Midtown Ramada
Hotel or at the Philippine Plaza, but the payment is made from outside and remitted into the country.
Senator Herrera: What is important here is that these services are paid in acceptable foreign currency remitted inwardly to the Philippines.

[Irrelevant note: Notice the first thing that came to Senator Macedas mind. J]

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10 - ABAKADA GURO Party List v. Executive Secretary Ermita (2005) (10% VAT)
Doctrines:

VAT is, by its nature, regressive.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional
provision has been interpreted to mean simply that direct taxes are to be preferred and as much as possible
indirect taxes should be minimized. However, resort to indirect taxes should not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers ability to pay.

Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same class
everywhere with all people at all times.

Facts:
On July 1, 2005, RA 9337 (a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705 and
Senate Bill No. 1950) took effect. The law increased the VAT on sale of goods and properties, importation of goods and
sale of services and use or lease of properties to 10%. It also introduced a 70% limitation on creditable input tax, a 60month amortization on the purchase or importation of capital goods exceeding P1,000,000 and a 5% final withholding tax
by government agencies. Several petitions for prohibition and certiorari (ABAKADA GURO, Senator Aquilino Pimentel
et. Al., Association of Pilipinas Shell Dealers, Inc., Rep. Francis Escudero, et. al., Governor Enrique Garcia) were filed
and the Court issued a temporary restraining order enjoining the government from implementing the law.
Issues:
Substantive:
1. W/N Sections 4, 5 and 6 of RA 9337 violate the following provisions of the Constitution:
a. Article VI, Section 28(1)
b. Article VI, Section 28(2)
2. W/N Section 8 of RA 9337 violates the following provisions of the Constitution:
a. Article III, Section 1
b. Article VI, Section 28(1)
Procedural:
3. W/N RA No. 9337 violates Sections 24 and 26, Article VI of the Constitution
Held/Ratio:
1. Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of
goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniform proviso authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been
satisfied, to wit:
That the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
i. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5 %); or
ii. National government deficit as a percentage of GDP of the previous year exceeds one and

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one-half percent (1 %).

a. NO.
Article VI, Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
The condition set for increasing the VAT rate to 12% have economic or fiscal meaning. That the first
condition amounts to an incentive to the President to increase the VAT collection does not render it
inequitable and therefore unconstitutional so long as there is a public purpose for which the law
was passed, which in this case, is mainly to raise revenue. The dire need for revenue cannot be ignored
and fiscal policy matters are not for the Courts to decide.
b. NO.
Article VI, Section 28. (2) The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government.
There is no delegation of legislative power. The law is complete in itself and it fixes a standard. It is
simply a delegation of ascertainment of facts upon which enforcement and administration of the increase
rate under the law is contingent. The legislature has made the operation of the 12% rate effective January
1, 2006, contingent upon a specified fact or condition. It leaves the entire operation or non-operation of
the 12% rate upon factual matters outside of the control of the executive. No discretion would be
exercised by the President.
2.
a. NO.
Article III, Section I No person shall be deprived of life, liberty, or property without due process
of law, nor shall any person be denied the equal protection of laws.
Section 8 of RA 9337 imposes a limitation on the amount of input tax that may be credited against
the output tax. (Input Tax is the tax paid by a person, passed on to him by the seller when he buys goods.
Output Tax is the tax due to a person when he sells goods.) Petitioners argue that with the limitation
imposed, input tax may not be wholly credited, which amounts to deprivation of property without due
process this is not absolute. The limitation is only applicable when the input tax exceeds 70% of
the output tax. If the input tax does not exceed 70%, then it may still be wholly credited from the output
tax. More importantly, the input tax in excess of 70% of the output tax, if any, is retained in the
books and may be credited in succeeding quarters. This is explicitly allowed by the law in Section
110. Therefore, there is no undue taking by the government. Crediting of the excess input tax is
merely delayed.
b. NO.
Article VI, Section 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. Different articles may be taxed at different amounts provided that the rate is
uniform on the same class everywhere with all people at all times. In this case, the tax law is uniform
as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of
R.A. No. 9337 provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods,
and sale of services and use or lease of properties. These same sections also provide for a 0% rate on
certain sales and transaction. Neither does the law make any distinction as to the type of industry or trade
that will bear the 70% limitation on the creditable input tax.

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R.A. No. 9337 is equitable because it is equipped with a threshold margin. The VAT rate of 0% or 10%
(or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding
P1,500,000 and certain agricultural products are exempted to ensure that prices at the grassroots level will
remain accessible. The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales exceeding P200,000. Small
corner sari-sari stores, farm and marine products are consequently exempt from its application.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on
those previously exempt.
It is true that VAT by its very nature is regressive. The principle of progressive taxation has no relation
with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought
or services enjoyed is the same regardless of income. In other words, the VAT paid eats the same
portion of an income, whether big or small. The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or profit margin, the smaller the portion of
the income or profit that is eaten by VAT. On the other hand, the lower the income or profit margin, the
bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the
VAT. What it simply provides is that Congress shall evolve a progressive system of taxation. The
constitutional provision has been interpreted to mean simply that direct taxes are to be preferred
and as much as possible, indirect taxes should be minimized.
3.
a. NO
Section 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills, shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
Although RA 9337 is a consolidation of a senate bill and 2 house bills, what the Constitution simply
means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the
public debt, private bills and bills of local application must come from the House of Representatives on
the premise that the members of the House are expected to be more sensitive to local needs and problems.
The Senate is not precluded from introducing amendments to tax bills originating from the House of
Representatives.
b. NO.
Section 26 (1) Every bill passed by the Congress shall embrace only one subject which shall be expressed
in the title thereof. (2) No bill passed by either House shall become a law unless it has passed three
readings on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the
yeas and nays entered in the Journal.
Art. VI. 26 (2) must be construed as referring only to bills introduced for the first time in either house of
Congress, not to the conference committee. The no-amendment rule refers only to the procedure to
be followed by each house of Congress with regard to bills initiated in each of said respective
houses, before said bill is transmitted to the other house for its concurrence or amendment. Verily,
to construe said provision in a way as to proscribe any further changes to a bill after one house has voted
on it would lead to absurdity as this would mean that the other house of Congress would be deprived of
its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of

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amendments and modifications to disagreeing provisions in bills that have been acted upon by both
houses of Congress is prohibited.

11 - Pascual v. Sec. of Public Works (1960)

Doctrine:

As regards the legal feasibility of appropriating public funds for a public purpose:
It is a general rule that the legislature is without power to appropriate public revenue for anything
but a public purpose . It is essential that the character of the direct object of the expenditure
which must determine its validity as justifying a tax, and not the magnitude of interest to be
affected nor the degree of public welfare, may be ultimately benefitted by their promotion.
Taxing power must be exercised for public purposes only . Money raised by taxation can be
expended only for public purposes and not for the advantage of private individuals.

Facts:
Wenceslao Pascual (then Provincial Governor of Rizal) instituted this action for declaratory relief with a prayer
for injunction on the ground that RA 920 (an act appropriating funds for public works). This is because Pascual alleges
that one item wrongfully allots P85,000 for the construction, repair, and improvement of Pasig feeder road terminals and
subdivisions. This is because the roads to be improved were still the private property of then Senator Zulueta, albeit to be
donated on the condition that the roads in question be used for street purposes only. Zulueta is the owner of several
parcels of land in Pasig, Rizal, known as the Antonio Subdivision, certain portions of which had been reserved for the
projected feeder roads, which were private property when RA 290 was enacted by Congress.
Pascual also prays that the donation be declared void ab initio for being violative of the Constitutional prohibition
on members of Congress from being directly or indirectly interested financially in any contract with the government. He
also alleges that the construction of the roads using public funds would relieve him [Sen. Zulueta] from the burden of
constructing his subdivision streets or roads at his own expense.
Respondents moved to dismiss on the ground that petitioner had no capacity to sue (also mentioned in the motion
to dismiss is movant is not aware of any law which makes illegal the appropriation of public funds for the improvement
of what we, in the meantime, may assume as private property. The lower court acted in favor of the respondents,
upholding the validity of the appropriation on the ground that petitioner Pascual, not being directly affected, had no
capacity to question the donation made by Sen. Zulueta.
Issue:
1. W/N Pascual had the capacity to institute the said action
Held/Ratio:
1. Yes, there are many decisions nullifying, at the instance of tax payers, laws providing for the disbursement of
public funds, upon the theory that the expenditure of public funds by an officer of the State for the purpose of
administering an unconstitutional act constitutes a misapplication of funds, which may be enjoined at the request
of a tax payer.
[The case was remanded and the injunction maintained]

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12 - Lutz v. Araneta (1955) (Legality of the taxes imposed by the Sugar Adjustment Act CA no. 567)
Doctrines:

It cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar
production, without any part of such money being channeled directly to private persons, constitutes expenditure of
tax money for private purposes

Facts:
CA no. 567: increase of the existing tax on the manufacture of sugar and owners or persons in control of land
devoted to the cultivation of sugar cane. All collections made shall accrue to the Sugar Adjustment and Stabilization
Fund.
Walter Lutz, as Judicial Administrator of the intestate estate of Ledesma, sought to recover the sum of P14,666.40
paid by the estate as taxes, alleging that such tax is unconstitutional as it is levied for the aid and support of the sugar
industry exclusively which is in his opinion not a public purpose.
Issues:
1. W/N the tax is valid
Held/Ratio:
1. YES, the tax is valid. The court ruled that CA no. 567 is not a pure exercise of the taxing purpose. The tax is
levied with a regulatory purpose which is to rehabilitate and stabilize the sugar industry. In other words, the act is
primarily an exercise of the police power.
Moreover, according to Johnson v. State ex rel. Marey: The protection of a large industry constituting one of the
great sources of the states wealth and therefore directly or indirectly affecting the welfare of so great a portion of
the population of the State is affected to such an extent by public interests as to be within the police power of the
sovereign. Because of this, it follows that the Legislature may determine within reasonable bounds what is
necessary for its protection and expedient for its promotion.
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar production, utilization of by-products and solution of
allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations,
without any part of such money being channeled directly to private persons, constitutes expenditure of tax money
for private purposes.

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13 - Valentin Tio v. VRB (Videogram Regulatory Board) (1987) (Inherent limitations, 30% tax, Videogram, 6
grounds)
Doctrines:

The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax
was to favor one industry over another

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that inequities which result from a singling out of one particular class for taxation or exemption infringe no
constitutional limitation.

The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely
venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it.

Facts:
Valentin Tio, petitioner, is doing business under the name of Omi Enterprises. Petitioner filed this case on his own
behalf and purportedly on behalf of other videogram operators adversely affected.
It assails the constitutionality of Presidential Decree No. 1987 entitled An Act Creating the Videogram
Regulatory Board with broad powers to regulate and supervise the videogram industry. The rationale behind the
enactment of the decree, is set out in its preambular clauses (Check case)
A month after the promulgation of P.D. 1987 (The Decree), Presidential Decree No. 1994 amended the National
Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax
Petitioner submits that the 30% tax imposed is harsh and oppressive, confiscatory, and in restraint of trade.
Petitioners provided 6 grounds to attack the constitutionality of P.D. 1987 (For this subject, we focus on #2)
Issues:
1. W/N P.D. is unconstitutional and void (different grounds)
a. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a
RIDER and the same is not germane to the subject matter thereof;
b. W/N the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the Constitution (30% tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade?);
c. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him
by Amendment No. 6;
d. There is undue delegation of power and authority;
e. The Decree is an ex-post facto law; and
f.

There is over regulation of the video industry as if it were a nuisance, which it is not.

Held/Ratio:
1. NO. It is constitutional and valid.
a. NO. The title of the P.D. 1987 is comprehensive enough to include the purposes expressed in its Preamble
and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that
the latter be an index to the body of the decree.

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b. NO. The tax remains a valid imposition. The rate of tax is a matter better addressed to the taxing
legislature.
It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages,
or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and
so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which exercises it.
In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation.
The tax imposed by P.D. 1987 is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600M per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make available for public viewing. The tax burden is
actually shifted on the buying or the viewing public (like amusement tax). It is a tax that is imposed
uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the P.D. 1987 to protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation

c. NO. In refutation, the Intervenors and the Solicitor Generals Office aver that the 8th whereas clause
sufficiently summarizes the justification in that grave emergencies corroding the moral values of the
people and betraying the national economic recovery program necessitated bold emergency measures to
be adopted with dispatch.
d. NO. The grant in Section 11 of the DECREE of authority to the BOARD to solicit the direct assistance
of other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board is not a delegation
of the power to legislate but merely a conferment of authority or discretion as to its execution,
enforcement, and implementation.
e. NOT violative of the ex post facto principle. An ex post facto law is, among other categories, one which
alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense.there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE,
besides the fact that the prima facie presumption of violation of the DECREE attaches only after a fortyfive-day period counted from its effectivity and is, therefore, neither retrospective in character.
f.

NO. We do not share petitioners fears that the video industry is being over-regulated and being eased out
of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was
apparent. The enactment of the Decree since April 10, 1986 has not brought about the demise of the
video industry. On the contrary, video establishments are seen to have proliferated in many places
notwithstanding the 30% tax imposed.

NOTE: The case is discussed in p. 6 of Vitug Book. This case is under Inherent Limitations in the Course Outline. We focus on
Ground #2. If asked, Intervenors are the Greater Manila Theaters Association, Integrated Movie Producers, Importers and Distributors
Association of the Philippines, and Philippine Motion Pictures Producers Association

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14 - Luzon Stevedoring v. CTA (1988) (Tugboats)

Doctrines:

Taxation is an inherent power of sovereignty(from book, it was phrased differently in the case)

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. The general rule is that any claim for
exemption from the tax statute should be strictly construed against the taxpayer.

Facts:
Petitioner appellant Luzon Stevedoring Corp., for the repair and maintenance of its tugboats, imported various
engine parts and other equipment paid compensating tax, under protest. Luzon claimed for a tax refund in the
CIR(commission of internal revenue) but was denied, and later claimed refund of the amount of P33,442.13, in the Court
of Tax Appeals, which was also denied, hence this petition.
Issue:
1. W/N petitioners tugboats can be interpreted to be included in the term cargo vessels for purposes of the tax
exemption provided for in Section 190 of the National Internal Revenue Code, as amended by Republic Act No.
3176?
Held/Ratio:
1. No, although the petitioner Corp. argues that in legal contemplation, the tugboat and a barge loaded with cargoes
with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. and
accordingly it concludes that the engines, spare parts and equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating tax.
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.
Section 190 of the National Internal Revenue Code, as amended by Republic Act No. 3176, states that, ..That the
tax imposed in this section shall not apply.. to articles to be used by the importer himself as passenger and/or
cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel. The
amendatory provisions of Republic Act No. 3176 limit tax exemption from the compensating tax to imported
items to be used by the importer himself as operator of passenger and/or cargo vessel. In order that the
importations in question may be declared exempt from the compensating tax based on the cited provision, it is
indispensable that the requirements of the amendatory law be complied with, namely: (1) the engines and spare
parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said passenger
and/or cargo vessel must be used in coastwise or oceangoing navigation.
A tugboat is defined as a strongly built, powerful steam or power vessel, used for towing and, now, also used for
attendance on vessel, or a diesel or steam power vessel designed primarily for moving large ships to and from
piers for towing barges and lighters in harbors, rivers and canal,. A tug is a steam vessel built for towing,
synonymous with tugboat, based on the following definition petitioners tugboats clearly do not fall under the
categories of passenger and/or cargo vessels., It is a cardinal principle of statutory construction that where a
provision of law speaks categorically, the need for interpretation is obviated.
And, even if construction and interpretation of the law is insisted upon, it is a fundamental rule that statutes are to
be construed in the light of purposes to be achieved and the evils sought to be remedied, it will be noted, that the
purpose of amending the provision, was to provide incentives and inducements to bolster the shipping industry
and not the business of stevedoring.

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The Court of Tax Appeals found that , petitioner-appellants own evidence shows that it is engaged as a
stevedore, that is, the work of unloading and loading of a vessel in port; and towing of barges containing cargoes
is a part of petitioners undertaking as a stevedore. In fact, even its trade name is indicative that its sole and
principal business is stevedoring and lighterage, taxed under Section 191 of the National Internal Revenue Code
as a contractor, and not an entity which transports passengers or freight for hire which is taxed under Section 192
of the same Code as a common carrier by water.
As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of
Tax Appeals, which has necessarily developed an expertise on the subject unless there has been an abuse or
improvident exercise of authority.
Based on the forgoing, the tug boats cannot be considered a cargo vessel, therefore not exempted from tax.

15 - NPC v. Albay (1990) (power to recommend only)

Doctrines:

The power to impose taxes or revoke existing ones is a legislative prerogative.

Facts:
On March 14 and 15, 1989, respondents published a notice of auction sale involving the properties of NAPOCOR
and the Philippine Geothermal Inc. at Tiwi, Albay. The amounts were to be applied for the tax delinquencies claimed. The
back taxes of NAPOCOR being P214,845,184.76.
NAPOCOR opposed the sale interposing that under Resolution No. 17-87 of the Fiscal Incentives Review Board
(FIRB) and under a Memorandum issued by Executive Secretary Catalino Macaraig, NAPOCORs tax and duty
exemption privilege was restored.
On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay government to
CEASE and DESIST from selling and disposing of the NAPOCOR properties. But the same failed to reach the
respondents on time hence, the properties were then sold to the Province of Albay which was the highest bidder.
The records of the case show that under NAPOCORs charter, the latter was granted exemption from all taxes,
duties, fees, imposts, and other charges. Thereafter, on June 11, 1984, PD 1931 was promulgated which withdrew all
exemptions from payment of duties, taxes, fees, imposts and other charges granted in favor of government-owned or
controlled corporations.
On the other hand, the Fiscal Incentives Review Board (FIRB), created on August 24, 1975, was tasked to
determine what subsidies and tax exemptions should be modified, withdrawn, revoked or suspended. The latter may
recommend to the President of the Philippines the withdrawal, modification, revocation, or suspension of the
enforceability of any of the statutory subsidies or tax exemption grants, except those granted by the Constitution. The
FIRB issued three Resolutions which restored the tax exemption privilege of NAPOCOR, the first being Resolution No.
10-85 which granted exemption for the period of June 11, 1984 to June 30, 1985; the second, Resolution No. 1-86 which
was from July 1, 1985 to indefinitely thereafter; the third being Resolution No. 17-87 which granted said privileges until
March 10, 1987.
Now, on December 17, 1986, EO 93 was promulgated which withdrew all tax and duty incentives granted to
government and private entities. The same EO also granted the FIRB powers to restore tax and duty exemptions, revise
their scope, impose conditions, and prescribe their periods.
On October 5, 1987, the Office of the President issued the Memorandum confirming NAPOCORs tax exemption.
The provincial government is now defending the auction sale in question saying that the various FIRB issuances
constitute undue delegation of taxing Power and hence, null and void. Also contended was that insofar as EO 93
authorizes the FIRB to grant tax exemptions, the same is of no force and effect because of the constitutional provision
allowing the legislature alone to accord tax exemption privileges.

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Issues:
1. W/N the various tax exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid and
constitutional
Held/Ratio:
1. No, the FIRB, under its charter, was empowered only to recommend tax exemptions or restore tax liability. The
fact that under Executive Order No. 93, the FIRB has been given the prerogative to restore tax and/or duty
exemptions withdrawn hereunder in whole or in part, and impose conditions for ... tax and/or duty exemption
is of no moment. These provisions are prospective in character and can not affect the Boards past acts.
The issue of whether EO 93 constitutes an unlawful delegation of power was not touched upon in this case since
respondent admits to the validity of the restoration of the tax exemption of NAPOCOR by virtue of the
Memorandum issued. What it questions is NAPOCORs liability in the interregnum between June 11, 1984, the
date its tax privileges were withdrawn, and March 10, 1987, the date they were purportedly restored. To be sure, it
objects to Executive Order No. 93 as allegedly a delegation of legislative power, but only insofar as its
(NAPOCORs) June 11, 1984 to March 10, 1987 tax accumulation is concerned.

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16 - Pepsi v. City of Butuan (1968) (substantial distinction)

Doctrines:

In taxation, if classification is to be made, it must conform to the following conditions: (1) it is based upon
substantial distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions substantially
identical to those of the present; and (4) the classification applies equally all those who belong to the same class

Facts:
Pepsi seeks to recover the sums it paid to the City of Butuan pursuant to Municipal Ordinance No. 110, as
amended by MO no. 122.
The Ordinances impose a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola. Pepsi
operates within Butuan and it paid under protest the total amount of P14,177.03 (this is the amount Pepsi seeks to
recover). It assails the constitutionality of the Ordinance because the tax (1) partakes the nature of an import tax, (2) is
excessive, oppressive and confiscatory, and (3) is highly unjust and discriminatory.
Issues:
1. W/N the ordinance is valid
Held/Ratio:
1. NO, the ordinance is not valid
The second objection is untenable because the tax of P0.10 per case of 24 bottles is manifestly too small to be
excessive, oppressive, or confiscatory
The first and third objections are meritorious. MO110 originally taxed dealers engaged in selling soft drinks or
carbonated drinks. When amended by MO122, it imposed tax only upon any agent and/or consignee of any
person, association, etc. engaged in selling soft drinks and carbonated drinks. AS a consequence, merchants
engaged in the selling of soft drinks are not subject to the tax.
The classification made, to be valid must be: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies, not
only to present conditions, but, also, to future conditions substantially identical to those of the present; and (4) the
classification applies equally all those who belong to the same class. However, the conditions were not fully met
by the ordinance in question, therefore the MOs should be annulled, and the city must refund to Pepsi.

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17 - Vegetable Oil Corp. vs Wenceslao Trinidad (1924) (Vegetable or Coconut Oil)

Doctrines:

A consignment tax is a privilege tax on the business of consigning commodities abroad from the Philippines. The
definition of the word merchant as a person who is engaged in the sale, barter or exchange of personal property
is merely descriptive of the persons who are required to pay the tax and does not mean that, in order to exact from
them the payment of the consignment tax, the government must also be in a position to impose taxes on their
sales, barter or exchange.

If it were sales tax, then surely the said sale should be consummated in the Philippines in order to be taxable here.
But when the foreign merchant, as defined in our statutes, comes to our shores and enters into transactions upon
which a tax is laid, the government places him on an equality with domestic merchants and requires him to pay
the same privilege taxes.

Facts:
Vegetable Oil Corp (VOC) is a foreign corporation duly licensed to transact business in the Philippine Islands and
has a principal place of business in Manila. Trinidad is the duly appointed and acting CIR of the Philippines. VOC is
engaged in the purchase of copra in the Philippines and the shipment of such copra to its mills in the US for manufacture
into vegetable oil. VOC is engaged in no other business in the Philippines. The coconut oil it manufactures is sold as well
in the US.
In three instances, VOC purchased in the Philippines and shipped to its mills in the US, copra. The shipping
documents were signed; copra was shipped and was eventually converted into vegetable oil and sold in the US. In such
instances, Trinidad under the alleged authority of Sec1459 of Act 27116 demanded from VOC a tax of 1% of the value of
the shipments of copra. VOC to avoid penalties and forfeitures for non-payment, paid to defendant such taxes, under
written protest, which protest Trinidad overruled.
Value of Copra bought

1% Tax

256,797

2,567.97

1,402,169

14,021.69

399,004

3,390.04

VOC filed a case for the full recovery of such taxes. It claims that it was a consignor and argued that it is NOT
engaged in the sale, barter, or exchanged of personal property in the Philippine Islands, it is not a merchant within the
statutory definition of the term and therefore cannot be required to pay the consignment tax. Lower court ruled in VOCs
favor, Trinidad appealed to the SC.
Issues:
1. W/N Vegetable Oil Corp is entitled to full recovery of the amount of tax it paid
Held/Ratio:
1. NO. The tax was lawfully collected by the defendant. SC indicates that the statute itself does not provided that the
sale, barter or exchange must take place in the Philippine Islands in order to make a person engaged in such
business a merchant.

6.

Sec 1459 of Act 2711: All merchants not herein specifically exempted shall pay a tax of one per centum on the gross value in money of the
commodities, goods, wares, and merchandise sold, bartered, exchanged, or consigned abroad by them, such tax to be based on the actual selling
price or value of the things in question at the time they are disposed of or consigned, whether consisting of raw material or of manufactured or
partially manufactured products, and whether of domestic or foreign origin. The tax upon things consigned abroad shall be refunded upon
satisfactory proof of the return thereof to the Philippine Islands unsold.

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The decision explained the difference between tax on consignment and tax on sales. The tax on consignments is
a privilege tax pure and simple; it is a tax on the business of consigning commodities abroad from these Islands.
The definition of the word merchant as a person who is engaged in the sale, barter, or exchanged of personal
property is merely descriptive of the persons who are required to pay the tax and does not mean that, in order to
exact from them the payment of the consignment tax, the Government must also be in position to impose taxes on
their sales, barter, or exchange.
If the tax were one on sales, in order to be taxable in the Philippine Islands, must be consummated there; the
Philippine Government cannot, of course, collect privilege taxes on sales taking place in foreign countries no
matter whether the vendor is a Philippine merchant or whether he is a foreign one. The congress has imposed the
tax on local transactions; it does not seek to tax transactions carried out abroad. But when a foreign merchant, as
the word merchant is defined in our statutes, comes to our shores and enters into transactions upon which a tax
is laid, the Government can, and does, place him on an equality with domestic merchants and requires him to pay
the same privilege taxes.
The law defines the word merchant as a person who is engaged in the sale, barter, or exchange of personal
property, but does not say that he must be so engaged in the Philippine Islands in order to be considered a
merchant. As may be gathered from the language of the statute, he may do his selling, bartering or exchanging
wherever he pleases, but if he consigns merchandise abroad from the Philippine Islands he must pay the tax on his
consignments. Had it been the intention of the Legislature to require only the local merchant to pay the tax, the
definition of the word merchant in section 1459 would have read: Merchant as here used means a person
engaged in the sale, barter or exchange of personal property of whatever character in the Philippine Islands. But
it does not so read.
Also, the SC indicated that to hold that only persons who engage in sales, barter or exchange in the Philippine
Islands are to pay the tax on consignments would place the local merchants at a serious disadvantage in
competition with the foreign merchants, and would defeat the very evident purpose of the tax. The language of the
statute is perfectly clear and places the burden of the tax on all merchants alike.

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18 Wells Fargo Bank v. Collector (1940)

Facts:
[I got this case digest from the file Loi sent, since there was a mix-up with the person assigned.]
Birdie Lillian Eye died on 16 September 1932, at Los Angeles, California, the place of her alleged last residence
and domicile. Among the properties she left was her 1/2 conjugal shares of stock in the Benguet Consolidated Mining Co.,
an anonymous partnership (sociedad anonima), organized under the laws of the Philippines. She left a will duly admitted
to probate in California where her estate was administered and settled. Wells Fargo bank and Union Trust Co. was duly
appointed trustee of the trust by the said will. The Federal and California States inheritance taxes due thereon have been
duly paid. The Collector of Internal Revenue in the Philippines, however, sought to subject the shares of stock to
inheritance tax, to which Wells Fargo objected.
Issue:
1.

Whether the shares of stock are subject to Philippine inheritance tax considering that the decedent was domiciled
in California.

Held:
1.

YES. Originally, the settled law in the United States is that intangibles have only one situs for the purpose of
inheritance tax, and such situs is in the domicile of the decedent at the time of his or her death. But the rule has
been relaxed. The maxim mobila sequuntur personam, upon which the rule rests, has been decried as a mere
fiction of law having its origin in considerations of general convenience and public policy, and cannot be applied
to limit or control the right of the State to tax property within its jurisdiction and must yield to established fact
of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so would result in
inescapable and patent injustice. The relaxation of the original rule rests on either of two fundamental
considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties, and
rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as to
intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which
may be entered into with respect thereto.
Herein, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The
certificates of stock remained in the Philippines up to the time when the deceased died in California, and they
were in possession of one Syrena McKee, secretary of the corporation, to whom they have been delivered and
indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true owner thereof. The
owner residing in California has extended here her activities with respect to her intangibles so as to avail herself
of the protection and benefit of Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax
must be upheld.

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19 Meralco v. Yatco (1939)

Doctrine:

Where the insured, the risks insured against, and the contracts are within or are to be attended to in the
Philippines, the Philippines has the power to impose the tax upon the insured, regardless of whether the contract
was executed in a foreign country and with a foreign corporation.

Facts:
In 1935, Meralco insured certain real and personal properties situated in the Philippines with New York Insurance
Company and United States Guaranty Company. These insurance companies are foreign corporations not licensed to do
business in the Philippines and have no agents here. The policies contained provisions for the settlement and payment of
losses upon the occurrence of any risk insured against.
These insurance policies were entered into by a Meralco broker based in New York. This broker paid insurance
premiums to the companies worth P91,696. Yatco, the Collector of Internal Revenue in the Philippines, assessed and
levied a tax of 1% on the premiums, using as basis sec. 192 of Act No. 2427, as amended. Meralco paid under protest. The
protest was overruled, so Meralco instituted this action to recover the tax.
Issue:
1. W/N the tax assessed and levied by Yatco was improper, the contract being beyond the jurisdiction of the
Philippines
Held/Ratio:
1. NO, the tax was proper. The insured properties, the risks insured against, and certain incidents of the contract
(such as payment of dividends, sending of an unjuster, or making proof of loss) are within the territorial
jurisdiction of the Philippines. Thus, they are taxable by the Philippine government, regardless of whether the
contract was executed in a foreign country and with a foreign corporation. Substantial elements of the contract
may be said to be so situated in the Philippines so as to give its government the power to tax.
Even if it is assumed that the tax imposed upon Meralco will ultimately be passed on to the insurers, thus
constituting an indirect tax upon a foreign corporation, it would still be valid because the foreign corporations, by
the stipulations of the contract, have subjected themselves to the taxing jurisdiction of the Philippines. After all,
the Philippines, by protecting the properties insured, benefits the insurance corporations, and it is but reasonable
that the insurers should pay a just contribution therefor. It would certainly be a discrimination against domestic
corporations to hold the tax valid when the policy is given by them and invalid when issued by foreign
corporations.

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20 - Phil. Match Co., Ltd., v. Cebu (matches sold v. matches stored)

Doctrines:

The fact that the matches were delivered to customers, whose places of business were outside of the city,
would not place those sales beyond the citys taxing power. Those sales formed part of the merchandising
business being assigned on by the company in the city. In essence, they are the same as sales of matches fully
consummated in the city.

Facts:
Phil. Match had a storage facility in Cebu City where it kept matches to be sold and delivered outside the City and
throughout the other provinces. Cebu City then enacted Ordinance No. 279 which imposed a 1% tax on the gross sales of
various commodities sold, bartered, or manufactured in the city in excess of P2,000 a quarter. Sec. 9 of the ordinance
states that all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold in that city,
shall be considered as sales in the city and shall be taxable. Under this ordinance, Phil. Match was taxed P12,844.61. It
paid under protest, and wrote a letter to the city treasurer to ask for a refund. The company alleges that they were taxed
improperly for transactions that were done outside the city:
1. Sales of matches booked and paid for in Cebu City but were directly delivered to customers outside the city
(sales invoice was issued)
2. Transfer of matches to newsmen assigned in different agencies outside the city (no sales invoice)
3. Shipments of matches to provincial customers, outside the city, pursuant to salesmens instructions (the
salesmen take the orders and issue the invoice, outside the city)
The city treasurer denied the refund, stating that all these transactions are taxable under the ordinance. Phil. Match
then brought a suit to the RTC. The Court ruled that the transfer of matches to newsmen and the shipments to customers
pursuant to the salesmens instructions do not fall within Sec. 9 of the ordinance. They should only fall under storage
taxes and not sales taxes, because they are not considered sold in the city.
However, the Court upheld the taxes levied on the matches booked and paid for in Cebu City because they were
considered consummated in the citythe delivery to the carrier in the city considered as delivery to the customers. Phil.
Match was refunded P8,923.55, but they seek to declare that the sales of matches booked and paid for in Cebu City but
delivered outside the city also be declared beyond the scope of the ordinance. They also seek an award for damages
against the city treasurer.
Issues:
1. W/N Cebu City has the jurisdiction to tax matches paid for within the city but delieverd to customers outside the
city
2. W/N the city treasurer of Cebu City is liable for damages
Held/Ratio:
1. YES, they fall within the taxable property in Sec. 9 of Ordinance No. 279. Phil. Match uses the case of Shell
Company v. Municipality of Sipocot to support its case. However in that case, the price of the oil sold was paid
outside Sipocot. Thus, it cannot apply in this case. Here, the sales took place in the city and the matches were
stored in the city. Moreover, the sellers place of business is within the city. Thus, the city has the jurisdiction and
the power to tax the sales of those matches. This instance clearly falls within the citys power to impose taxes on
any person engaged in business in the city.
The court also upheld the RTCs ruling that delivery to the carrier is considered delivery to the customers. To
hold otherwise would defeat the tax ordinance in question and encourage tax evasion by merely arranging
deliveries within the city.
2. NO. The city treasurer operated on the honest belief that all three transactions fell within Sec. 9 of the ordinance.
No bad faith can be imputed on her mistake. Also, she was merely doing her duties to collect the taxes and had no

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choice but to perform her functions. Sec. 257 of the Revised Manual of Instruction to a Treasurer, a tax ordinance
must be enforced according to its provisions unless voided by a competent court or otherwise revoked.

21 - CIR v. British Overseas Airways Corporation and CTA (1987)

Doctrine:

The source of an income is the property, activity or service that produced the income. For it to be considered as
coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.

as used in our income tax law, income means flow of wealth.

There is no specific criterion as to what constitutes doing or engaging in or transacting business. Each case
must be judged in the light of its peculiar circumstances. In order that a foreign corporation may be regarded as
doing business within a State, there must be continuity of conduct and intention to establish a continuous
business, such as the appointment of a local agent, and not one of a temporary character.

Facts:
BOAC is a 100% owned British Government-owned corporation engaged in international airline business. Being
a member of the Interline Air Transport association, it operates air transportation services and sells transportation tickets
over the routes of the other airline members.
From 1959-1972, they had no landing rights for traffic purposes in the Philippines and thus, did not carry
passengers and/or cargo to ad from the Philippines. However, it maintained a general sales agent in the Philippines
(Warner Barnes & Co. Ltd. and subsequently Qantas Airways, which were responsible for selling BOAC tickets covering
passengers and cargoes). The CIR assessed deficiency income taxes against BOAC.
This involved 2 prior cases but the only difference between them is the years for which assessment was made.
The Court of Tax Appeals, in rendering a decision in favor BOAC, held that the proceeds of ticket sales in the Philippines
do not constitute BOAC income from Philippine sources since no service of carriage of passengers was performed by
BOAC within the Philippines. The CTAs position is that income from transportation is income from services so that the
place where services are rendered determines the source.
Issues:
1. W/N the proceeds derived by BOAC from the sales, while having no landing rights here, constitute taxable
income
2. W/N it is a resident foreign corporation doing business in the Philippines or has a place of business in the
Philippines
3. W/N in the alternative that it is a non resident foreign corporation. Is it then liable to Philippine income tax at the
rate of 35% of its gross income received from all sources within the Philippines
Held/Ratio:
1. Yes. The Tax Code defines gross income thus:
Includes gains, profits, and income derived from salaries, wages, or compensation for personal
service of whatever kind and in whatever form paid, or from profession, vocations, trades,
business, commerce, sales, or dealings in property; also from interests, rents, dividends,
securities, or the transactions of any business carried on for gain or profile, or gains, profits, and
income derived from any source whatever.
The Court ruled that this definition is broad and comprehensive enough to include proceeds from sales of
transport documents. And also, as used in our income tax law, income means flow of wealth.
The source of an income is the property, activity or service that produced the income. For it to be considered as
coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In this

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case, the sale of tickets in the Philippines produced the income. The flow of wealth proceeded from, and occurred
within, Philippine territory enjoying the protection accorded by Philippine government.
2. Yes. The Court opined that BOAC is a resident foreign corporation. There is no specific criterion as to what
constitutes doing or engaging in or transacting business. Each case must be judged in the light of its
peculiar circumstances. In order that a foreign corporation may be regarded as doing business within a State, there
must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local
agent, and not one of a temporary character. In this case, BOAC had a general sales agent in the Philippines from
1959-1971 that sold and issued tickets and allocated to the different airlines the corresponding proceeds.
3. No need to answer.
[This is subject to the dissent by Justice Feliciano, voting to uphold the decision of the CTA. The gist of which dissent it
that the source of income relates to the property, activity or service which produced the income and not the physical
sourcing of a flow of money or the physical situs of payment.]

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CONSTITUTIONAL LIMITATIONS
22 - Manila Gas Corporation v. CIR (1936) (foreign corporation, local sources)
Doctrines:

No state may tax anything not within its jurisdiction without violating the due process clause of the constitution.
The taxing power of the state does not extend beyond its territorial limits, but within such it may tax persons,
property, income or business.

Facts:
Manila Gas is a corporation that operates a gas plant in Manila and furnishes gas service to the people of the
metropolis and surrounding municipalities. Islands Gas and Electric Company, a company based in New York, and
General Finance Company, domiciled in Switzerland, are stockholders of Manila Gas. Manila Gas religiously paid the
dividends and interest on bonds it owed to Islands Gas and Electric Company. The CIR required Manila Gas to deduct and
withhold P56,757.37 from the various sums it paid to foreign corporations as dividends and interest on bonds and other
indebtedness. Manila Gas paid this under protest.
Issues:
1. W/N the dividends paid by Manila Gas to its stockholders were subject to income tax
2. W/N the Manila Gas is entitled to recover the tax it paid
Held/Ratio:
1. YES.
Manila Gas claims that the dividends paid by it to stockholders were not subject to tax because to impose a tax
would be to do so on Manila gas, in violation of the terms of its franchise (Manila Gas were to pay 2 % of
gross receipts. Said payments shall be in lieu of all taxes...) Manila Gas contends that it would be oppressive and
inequitable. This argument is predicated on the constitutional provision that no law impairing the obligation of
contracts shall be enacted.
However, the SC held that a corporation has a personality distinct from that of its stockholders enabling the taxing
power to reach the latter when they receive dividends from the corporation. Dividends of a domestic corporation,
which are paid and delivered in cash to foreign corporations as stockholders, are subject to the payment in the
income tax.
2. NO. Manila Gas operates within the Philippines. Hence, its earnings come from local sources.
Manila Gas claims that since Island Gas and Electric Company and General Finance Company are domiciled in
the US and Switzerland, and as the interest on the bonds and other indebtedness earned by the mentioned
corporations has been paid in their respective domiciles, this is not income from Philippine sources within the
meaning of the Philippine Income Tax Law (interest paid to non-resident individuals or corporations is not
income from Philippine sources, and hence not subject to the Philippine Income Tax).
The SC held that no state may tax anything not within its jurisdiction without violating the due process
clause of the constitution. The taxing power of the state does not extend beyond its territorial limits, but
within such it may tax persons, property, income or business. If an interest in property is taxed, the situs of
either the property or interest must be found within the state. If an income is taxed, the recipient thereof must have
a domicile within the state or the property or business out of which the income issues must be situated within the
state so that the income may be said to have a situs therein. Personal property may be separated from its owner,
and he may be taxed on its account at the place where the property is although it is not the place of his own
domicile and even though he is not a citizen or resident of the state which imposes the tax.
Since Manila gas gets its earning from local sources, the place of material delivery of the interest to the foreign
corporations paid out of the revenue of the domestic corporation is of no particular moment. The place of

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payment even if outside the country cannot alter the fact that the income was derived from the Philippines.
The CIR was justified in withholding income taxes on interest on bonds and other indebtedness paid to nonresident corporation.

Sison v. Ancheta (See digest #8)

23 - Tiu, Montelibano and Jungco v. The Honorable Court of Appeals (1999)
Doctrine:
[Under the syllabus, due process dapat siya. Pero EPC talaga ang topic ng case.]

The Constitution does not require absolute equality among residents. It is enough that all persons under like
circumstances or conditions are given the same privileges and required to follow the same obligations. In
short, a classification based on valid and reasonable standards does not violate the equal protection clause.

Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the purpose of the law, (3)
not be limited to existing conditions only, and (4) apply equally to all members of the same class

Facts:
In 1992, the Congress enacted RA 7227 or the Bases Conversion and Development Act of 1992. According to
its title and whereas clauses, the law seeks to convert abandoned Military Bases into other productive uses. The law
aims to entice foreign investments to boost the economic situation and to create employment opportunities. Section 12 of
said law provides for the creation of the Subic Special Economic and Free-port Zone (SSEZ), consisting of certain
parts of the Municipality of Subic and Olongapo, Zambales, and the lands occupied by the former Subic Naval
Base; the President shall delineate the exact metes and bounds of the SSEZ. Among other incentives, investors within
the SSEZ shall enjoy tax-free privileges on the importation of raw materials, capital and equipment. However,
exportation of goods from the SSEZ shall be subject to tax.
Pursuant to RA 7227, the President issued EO 97-A delineating the area wherein the tax exemption applies.
According to the EO, the Secured Area, consisting only of the Subic Naval Base, shall be the only tax-free area in the
SSEZ.
Petitioners contend that the delineation made by EO 97-A is violative of their right to equal protection of the
laws. Citing Section 12 of RA 7227, petitioners contend that the SSEZ encompasses (1) the City of Olongapo, (2) the
Municipality of Subic in Zambales, and (3) the area formerly occupied by the Subic Naval Base. However, EO 97-A,
according to them, narrowed down the area within which the special privileges granted to the entire zone would
apply to the Subic Naval Base only. It has thereby excluded the residents of the first two components of the zone from
enjoying the benefits granted by the law.
Issue:
1. W/N EO 97-A, insofar as it exempts only the Secured Area from the payment of tax, is unconstitutional.
Held/Ratio:
1. NO. Firstly, Sec. 12 of RA7227 provides that the President has the power to delineate the metes and bounds of
the SSEZ. Secondly, the SC found substantial and reasonable distinctions between the Secured Area and
those outside. The classification made by the President fulfills the 4 requisites for a valid classification:
a. Germane to the purpose of the Law: In its declaration of policies, it can be seen that RA7227 aims to
convert the lands formerly occupied by the US military bases into economic or industrial areas. It is
this specific area which the government intends to transform and develop into a self-sustaining
industrial and commercial zone, particularly for big foreign and local investors to use as operational
bases for their businesses and industries.
b. Substantial Distinctions: Those being lured into the Secured Area are big investors who are capable of
pouring in money to attain the purpose of conversion. Their investments would affect the national

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economy. It is for this reason that the exemptions apply only to those within the Secured Area. Those
outside the area are merely small investors and local business operators. Their contributions would
affect merely the locality. As long as there are actual and material differences between territories,
there is no violation of the constitutional clause. Moreover, if they want to avail of the exceptions, what
they should do is merely to transfer their resources/businesses within the Secured Area.
c. Not limited to existing conditions only: The objective of RA7227 is to establish a self-sustaining,
industrial, commercial, financial and investment center in the area. There will, therefore, be a long-term
difference between such investment center and the areas outside it.
d. Applies equally to all members of the same class: The classification applies equally to everyone within
the Secured Area. They are treated the same both in privileges and obligations granted by law.

24 - Shell Co. v. Vano (1954) (installation manager)

Doctrines:

Equal protection is not violated if a law/ordinance imposes tax on a named occupation, so long as it is not limited
to a certain person or a certain group only.

Facts:
The Municipal Council of Cordova, Cebu adopted the following ordinances:
1. Ordinance No. 10, which imposes annual tax of P150 on the occupation or exercise of the privilege
of an installation manager
2. Ordinance No. 9, which imposes an annual tax of P40 for local deposits in drums of combustible and
inflammable materials, and
3. Ordinance No. 11, which imposes an annual tax of P150 on tin can factories having an output of
30,000 tin cans annually.
The Shell Co., a foreign corporation, filed a suit for the refund of the taxes paid by it, on the ground that imposing
such taxes are ultra vires and violative of the equal protection clause.
Issues:
1. W/N the Municipal Ordinance No. 10 is valid (Issue on Equal Protection)
2. W/N the Municipal Ordinances No. 9 and 11 are valid
Held/Ratio:
1. Yes
Although it was claimed that the ordinance be hostile and discriminatory because no other person in the locality
occupied such position is of no merit. This is because the ordinance will also apply to any person or firm who
will exercise such calling or occupation named or designated as installation manager.
2. Yes
Ordinance No. 9 was enacted pursuant to the provisions of the Commonwealth Act No. 472, which authorizes
municipal councils and district councils to impose license taxes upon persons engaged in any occupation or
business, or exercise of privileges in a municipality by, requiring them to secure licenses at rates fixed by the
council which shall be just and uniform but no percentages taxes.
Ordinance No. 11 was also enacted pursuant to the provisions of the Comm. Act No 472 and it is not a percentage
tax because it is tax on business and the maximum annual output capacity is not a percentage, because it is not a
share or a tax based on the amount of the proceeds realized out of the sale of the tin cans manufactured therein but
on the business of manufacturing tin cans having a maximum annual output capacity of 30,000 tin cans.

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25 - City of Baguio v. de Leon (1968) (uniformity)

Doctrines:

A tax is considered uniform when it operates with the same force and effect in every place where the subject may
be found

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.

Facts:
An ordinance of the City of Baguio imposed a license fee on any person, firm, entity or corporation doing
business in the City of Baguio. De Leon 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 was therefore obligated to pay P50 under such ordinance as an annual fee. The
lower court held that the ordinance is amended, valid and subsisting, and held defendant-appellant liable for the fees
therein prescribed as a real estate dealer. 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.
Issues:
1. W/N the ordinance is valid (Does it violate the rule of uniformity by the Constitution?)
Held/Ratio:
1. Yes, the ordinance is valid. 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, 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. 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
To satisfy this requirement then, all that is needed 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 case that inequalities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation.

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26 - Eastern Theatrical v. Alfonso (19xx) (cinematographs, theaters, exhibitions, etc.; equality and uniformity in tax)
Doctrines:

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 classification for purposes of taxation

Facts:
Twelve corporations engaged in motion picture business challenge the validity of ordinance 2958 of the City of
Manila which imposes a fee on tickets sold by cinematographs, theaters and exhibitions. They impugn the provisions
for being against the constitution, more particularly the provisions regarding the uniformity and equality of taxation and
the equal protection of the law. The Municipal Board in its affirmative defense alleges that the gradual tax required by
said ordinance applies to all cinematographs, theaters and exhibitions situated as a class and without exceptions. The
defendant also alleges that ever since the ordinance took effect the plaintiffs have been charging the patrons of the theater
increased prices for admission parallel to the gradual tax imposed by the ordinance.
Issues:
1. W/N the ordinance is valid
Held/Ratio:
1. YES.
The fact that some places of amusements are not taxed while others, as in this case, cinematographs, theaters,
exhibitions and other kinds, is no argument against the equality and uniformity of the tax imposition. Equality
and uniformity in taxations means that all taxable articles of 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 classification for
purposes of taxation; and the plaintiffs cannot point out what places of amusement taxed by the ordinance do not
constitute a class by themselves which can be confused with those not included in the ordinance.

Sison v. Ancheta (See digest #8)

Pepsi Cola v. Butuan (See digest #16)

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27 - Ormoc Sugar Company, Inc. v. Treasurer (1968) (tax ordinance on Ormoc Sugar Company only)
Doctrines:

Rate of tax shall be uniform.

A classification is reasonable where (1) it is based on substantial distinctions which make real differences; (2)
these are germane to the purpose of the law; (3) the classification applies not only to present conditions but also to
future conditions which are substantially identical to those of the present; (4) the classification applies only to
those who belong to the same class.

Facts:
The Municipal Board of Ormoc City passed an ordinance, imposing on any and all productions of centrifugal
sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per
export sale to the United States of America and other foreign countries. The Ormoc Sugar Company paid a total of
P12,087.50 (March: P7,087.50; April: P5,000) under protest.
Ormoc Sugar Company filed a complaint against the City of Ormoc, Treasurer, Municipal Board and Mayor
before the CFI of Leyte. It assailed the constitutionality of the ordinance as it violates the equal protection clause (Sec.
1[1], Art. III, Constitution) and rule of uniformity of taxation (Sec. 22[1]), Art. VI, Constitution). It further alleged that
the tax imposed is an export tax forbidden under Section 2287 of the Revised Administrative Code; that the tax is neither
a production nor a license tax Ormoc City is authorized to impose and that the tax amounts to customs duty, fee or charge
in violation of paragraph 1 of Section 2 of Republic Act 2264 because the tax is on both the sale and export of sugar.
In their Answer, respondents claimed that the tax ordinance was within the citys power under the Local
Autonomy Act and that it did not violate the Constitution. The CFI upheld the constitutionality of the ordinance and
broadened the taxing power of the city to include all other forms of taxes, licenses or fees not excluded in its charter.
Ormoc Sugar Company appealed.
Issues:
1. W/N constitutional limits on the power of taxation, specifically the equal protection clause and rule of uniformity
of taxation, were infringed.
Held/Ratio:
1. YES.
Art. 3, Sec. 1 provides: ... nor shall any person be denied the equal protection of the laws. The equal protection
clause applies only to persons or things identically situated. It does not bar a reasonable classification of the
subject of legislation. A classification is reasonable where (1) it is based on substantial distinctions which make
real differences; (2) these are germane to the purpose of the law; (3) the classification applies not only to present
conditions but also to future conditions which are substantially identical to those of the present; (4) the
classification applies only to those who belong to the same class.
The ordinance does not satisfy the requirements of a reasonable classification. It taxes only centrifugal sugar
produced and exported by the Ormoc Sugar Company. Ormoc Sugar Company was the only sugar central in
the Ormoc city at the time the taxing ordinance was enacted. However, a reasonable classification requires
that it be made applicable to future conditions as well. Even if another sugar company is set-up, it cannot be
subject to tax because the ordinance expressly points only to Ormoc Sugar Company.
The taxes were not arbitrarily collected because at the times of the collection, the ordinance provided means to
preclude arbitrariness.

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28 - Cagayan Electric Power and Light Co. v. CIR (1985) (Franchise Tax v. Income Tax)
Doctrine:

A franchise is granted by the legislature. It can be repealed or amended by the same Congress when the public
interest so requires.

Facts:
Cagayan Electric Power and Light Co. or CEPALCO is Cagayan de Oros version of our Meralco. This case
involves three laws: RA 3247, RA 5431, and RA 6200.
RA 3247

RA 5431

RA 6200

Enacted 1961

Enacted 1968

Enacted August 4, 1969

The law that granted

CEPALCO the franchise to
distribute power in the Cagayan
de Oro area.

Effective January 1, 1969,

franchise companies (like
CEPALCO) would be subject to
income tax in addition to the
franchise tax they are already
paying.

The law that amended RA 3247,

enlarging the territory covered
by CEPALCO to include new
towns in the Misamis Oriental
province.

It imposed a 3% franchise tax

on the gross income of
CEPALCO, but in exchange,
the law gave it an exemption
from any other tax to be levied
against it

More importantly, the law REENACTED / REITERATED

the income tax exemption to
CEPALCO originally stipulated
in RA 3247.
Thus, RA 6200 impliedly
repealed RA 5431 insofar as
CEPALCO is concerned.
So between January 1, 1969 and August 4, 1969, there were seven
months for which CEPALCO did not have an income tax
exemption.

The CIR wants to collect an income tax from CEPALCO for Jan 1969 to Aug 1969. CEPALCO is refusing to pay
based on its contention that its legislative franchise (RA 3247) cannot be impaired.
Issue:
1. W/N CIR can collect the income tax from CEPALCO.
Held/Ratio:
1. YES.
a. Congress could impair CEPALCOs legislative franchise by making it liable for income tax from which it
was originally exempted.
b. A legislative franchise is subject to amendment, alteration, repeal by Congress when the public interest so
requires.
c. Even PLDT, a larger franchise company, paid its income taxes on top of the franchise taxes.

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29 - CIR v. Lingayen Gulf (1988) (from 5% to 2%)

Doctrines:

The Legislature has the inherent power not only to select the subjects of taxation but also to grant exemptions.
Tax exemptions have never been deemed violative of the equal protection clause. Whenever the legislature makes
tax laws and exceptions the courts, in the absence of violations of substantive rights, cannot inquire into the
wisdom of such decisions.

Facts:
Lingayen Gulf Electric Power operates an electric power plant serving the adjoining municipalities of Lingayen
and Binmaley (Pangasinan) pursuant to the municipal franchises, which imposes upon it the payment of not more than 2%
franchise tax. After some time, the President approved its franchise. Thereafter, the BIR demanded from it the payment of
deficiency taxes applying franchise tax rates of 5% on gross receipts, instead of the lower rates provided for by the
municipal franchises. Lingayen refused and motioned for a reinvestigation, alleging that it made overpayment. Pending
the cases, RA 3843 was approved which granted Lingayen legislative franchises for the operation of the electric light,
which imposed upon it the payment of only 2% franchise tax, effective from the date the original municipal franchise was
granted. Thus, the CTA absolved Lingayen from all its liabilities. The BIR, unfazed, countered that RA 3843 in so far as it
grants Lingayen the payment of only 2% franchise tax is discriminatory and hence, violative of the rule on equality and
uniformity of taxation as others are subject to 5% franchise tax.
Issue:
1. W/N the Supreme Court may determine the validity of RA 3843 as to its imposition of a 2% franchise tax in favor
of Lingayen.
Held/Ratio:
1. NO. The SC does not have the authority to inquire into the wisdom of such act. Furthermore, the 5% franchise tax
rate provided in Section 259 of the Tax Code was never intended to have a universal application; it even expressly
allows the payment of taxes at rates lower than 5% when the charter granting the franchise of a grantee precludes
the imposition of a higher tax. RA 3843 did not only fix and specify a franchise tax of 2% on its gross receipts,
but made it in lieu of any and all taxes, all laws to the contrary notwithstanding, thus, leaving no room for doubt
regarding the legislative intent. Charters or special laws granted and enacted by the Legislature are in the nature of
private contracts. They are usually adopted after careful consideration of the private rights in relation with
resultant benefits to the State. In passing a special charter, the attention of the legislature is directed to the facts
and circumstances which the act or charter is intended to meet, the legislature considers and makes provision for
all the circumstances of a particular case. Obviously in this case, the legislature found it wise to impose a lower
tax rate on Lingayen, and the Court cannot inquire into the wisdom of such finding.

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30 - Province of Misamis Oriental v. Cagayan Electric Power and Light Co. (1990) (franchise with tax
exemption)
Doctrines:

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 unless there is manifest intent to repeal or alter the special law.

This case is listed under the item non-impairment of contracts. Just note that by virtue of the franchise given to
Cagayan Electric by law, a contract exists between the company and the government.

Facts:
Under Republic Act No. 3247, Cagayan Electric Power and Light Company (CEPALCO) was granted a franchise
to install, operate and maintain an electric light, heat, and power system in the city of Cagayan de Oro and its suburbs. RA
3570 and RA 6020 were subsequently passed, adding 4 municipalities to CEPALCOs sphere of operation.
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.
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.
Pursuant thereto, the Province of Misamis Oriental 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.
The provincial treasurer of Misamis Oriental demanded payment from CEPALCO. At first, CEPALCO refused to
pay, on the basis of the exemption granted by RA 3247, RA 3570, and RA 6020, and asked for the provincial fiscals
opinion. The provincial fiscal upheld Provincial Revenue Ordinance No. 19. CEPALCO paid P 4, 276.28 under protest
and appealed the fiscals ruling to the Secretary of Justice, who subsequently reversed the fiscal.
The Province filed a complaint for declaratory relief at the CFI of Misamis Oriental. The complaint was dismissed
and the Province was ordered to reimburse CEPALCO.
Hence, this petition.
Issues:
1. W/N CEPALCO is exempt from paying a provincial franchise tax.
Held/Ratio:

1. YES, PD 231 did not repeal the laws granting exemption to CEPALCO in any way, shape, or form. There is no
conflict between the subject pieces of legislation. Republic Acts Nos. 3247, 3570 and 6020 are special laws

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applicable only to CEPALCO, while P.D. No. 231 is a general tax law. While the general tax law is the general
rule, the special laws are the exceptions.
Note: This case is also listed under contractual tax exemptions so please note that the court said:
Such exemption is part of the inducement for the acceptance of the franchise and the rendition of
public service by the grantee. As the charter is in the nature of a private contract, the impostion of
another franchise tax on the corporation by the local authority would constitute an impairment of
the contract between the government and the corporation
[Compare with the doctrine in Cagayan Electric Co v. Commissioner where it was said that tax exemptions under
franchises are not to be confused with contractual tax exemptions within the purview of the non-impairment clause.]

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31 - City of San Pablo v. Reyes (1999)

Doctrines:

The Local Government Code has revoked the tax exemptions given by franchise.

Facts:
Act No. 3648 granted the Escudero Electric Service Company a legislative franchise to maintain and operate an
electric light and power system in the City of San Pablo and nearby municipalities. Its franchise stated that a tax of two
percent of gross earnings will be imposed in lieu of any and all taxes of any kind nature or description levied, established
or collected by any authority whatsoever, municipal, provincial or insular. Escuderos franchise was transferred to the
plaintiff (herein respondent) MERALCO under Republic Act No. 2340.
Republic Act No. 7160, or Local Government Code of 1991 took effect. It authorizes the province/city to impose a
tax on business enjoying a franchise at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year realized within its jurisdiction.
The City of San Pablo then passed an Ordinance, demanding 50% of 1% of the gross annual receipts from Meralco
(among others).
Issues:
1. W/N the City of San Pablo may impose a local franchise tax pursuant to the LGC upon the Manila Electric
Company which pays a tax equal to two percent of its gross receipts in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on savings or income.
Held/Ratio:
1. Yes. A general law cannot be construed to have repealed a special law by mere implication unless the intent to
repeal or alter is manifest. . The explicit language of Section 1377 which authorizes the province to impose
franchise tax notwithstanding any exemption granted by any law or other special law is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.
Reading together Sections 137 and 1938 of the LGC, we conclude that under the LGC the local government unit
may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding
calendar year based on the incoming receipts realized within its territorial jurisdiction. The LGC provided for an
express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have
been used.
Private respondents invocation of the non-impairment clause of the Constitution is accordingly unavailing. The
LGC was enacted in pursuance of the constitutional policy to ensure autonomy to local governments and to enable
them to attain fullest development as self-reliant communities.
The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be exercised by local
legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority
conferred by Section 5, Article X of the Constitution.
Also, a franchise is granted upon the condition that it shall be subject to amendment, or repeal by the Congress

7.

Sec. 137 Franchise Tax Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on
business enjoying a franchise, at a rate not exceeding fifty percent 50% of one percent 1% of the gross annual receipts for the preceding
calendar year based on the incoming receipts, or realized, within its territorial jurisdiction.

8.

Sec. 193 Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. 6938, non- stock and non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code.

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32 - MERALCO v. Province of Laguna (1999) (Franchise Tax)

Doctrines:

Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution
can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by them under enabling laws in which the government,
acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Tax exemptions
of this kind may not be revoked without impairing the obligations of contracts.

A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. No franchise for the operation of a public utility shall be granted except under the condition that
such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so
requires.

Facts:
Certain municipalities of Laguna (Binan, Sta. Rosa, San Pedra, Luisiana, Calauan and Cabuyao) issued
resolutions through their respective municipal councils granting MERALCO the franchise to supply electric light, heat
and power within their respective areas. Subsequently, MERALCO was also granted a franchise by the National
Electrification Administration to operate an electric light and power service in Calamba, Laguna.
Pursuant to the Local Government Code of 1991 which encouraged LGUs to create their own sources of
revenue, the Province of Laguna enacted Ordinance No. 01-92, imposing a tax on businesses enjoying a franchise.9
MERALCO fell under the coverage of this imposition and was made to pay. Thus, MERALCO paid the tax amounting to
over P19M under protest. Thereafter, MERALCO demanded the provincial Treasurer of Laguna for a refund, claiming the
Province of Laguna effectively compelled it to pay a second franchise tax violating Sec. 1 of P.D. 551 as follows:
Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric current for light, heat and power shall
be two per cent (2%) of their gross receipts received from the sale of electric current and from
transactions incident to the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month following the end of each calendar quarter or
month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes
and assessments of whatever nature imposed by any national or local authority on earnings,
receipts, income and privilege of generation, distribution and sale of electric current.
The Governor denied the claim for refund, basing his decision on the fact that the Local Government Code (LGC)
is a more recent law that had the effect of superseding PD 551 which was passed in 1974. The RTC of Sta. Cruz, Laguna
also denied MERALCOs claim, holding that the questioned ordinance was valid and binding. Hence, this petition.
Issue:
1. W/N the imposition of a franchise tax under the questioned ordinance, in so far as MERALCO is
concerned, violates of the non-impairment clause of the Constitution and of Section 1 of PD 551

9.

Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one
percent (1%) of the gross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar
year within this province, including the territorial limits on any city located in the province.

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Held/Ratio:
1. NO.
NON-IMPAIRMENT CLAUSE:
There is no violation of the non-impairment clause. It cannot be said that the exemption is a contractual one,
and therefore cannot be withdrawn unilaterally. When the law speaks of contractual tax exemptions, it must be
understood as those agreed to by the taxing authority in actual contracts, in its private capacity. These exemptions
are not to be confused with tax exemptions granted under franchises, such as the one subject of the controversy. A
franchise is a grant which is beyond the scope of the non-impairment clause.
LEGISLATIVE INTENT:
To bolster its position MERALCO cited cases where the phrase shall be in lieu of all taxes found in PD 551
exempted corporations from paying locally imposed franchise taxes. However, in the recent case of City
Government of San Pablo v. Reyes, the SC ruled that this phrase in PD 551 must give way to the LGC which
precisely withdraws such exemptions and privileges. Thus, it must be noted that upon effectivity of the LGC,
all standing exemptions, except only those provided therein, can no longer be invoked by MERALCO to
avoid paying the local franchise tax. Moreover, the LGC contains a repealing clause that effectively repeals all
other laws inconsistent with its provisions.
*In case Atty. Gonzales asks about the nature of the power to tax in relation to LGUs:
The Court emphasized that local governments do not have the inherent power to tax, except to the extent that such
power might be delegated to them either by the basic law or by statute. According to the Court, the rule under the
prevailing Constitution is that the tax power must be deemed to exist, where there is neither a grant nor a prohibition by
statute. The rationale for this rule is the need to secure the self-sufficiency of LGUs by granting them general and
broad tax powers. However, Congress must still see to it that such power is exercised within certain limitations.10

10. (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each local government unit will have its
fair share of available resources; (c) the resources of the national government will not be unduly disturbed; and (d) local taxation will be fair,
uniform, and just.

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33 - Herrera v. Quezon City Board of Assessment Appeals (1961)

Doctrine:

Operations which are considered merely incidental to the main purpose of the property shall not affect its
worthiness of exemption as the case may be.

Facts:
St. Catherine Hospital was initially granted exemption to the payment of real property tax. However, roughly 3
years later, the QC Assessor re-classified the properties to taxable due to several reasons:
1. Receipt of profits from pay-patients
2. Operation of a Midwifery School (part of the building is used for this)
The petitioners instituted an appeal. The CTA decided that the land, building and other improvements were not
exempted from paying the said tax. Stating that the building was not used exclusively for charitable and educational
purposes stating the abovementioned reasons and in addition, it said that the building had dual purposes where the portion
dedicated to education and charitable purposes cannot be identified from those destined to other uses; and the building
itself is an indivisible property, therefore, not tax exemption is due.
Issue:
1. W/N the lot, building and other improvements of St. Catherin Hospital are exempt from Real Property Tax.
Held/Ratio:
1. YES. The court deemed that St. Catherine hospital is still a charitable institution worthy of the said exemption.
The profits received from pay-patients were devoted exclusively to benevolent purposes where such is used for
the improvement of the charity wards. In addition, the existence of the Midwifery school does not affect the
exemption grated since there stands in the Constitution that all lands, building, and improvements used
exclusively for religious, charitable or educational purposes shall be exempt from taxation.
The existence of tuition fees and other fees paid by the enrollees are deemed immaterial. However, the Congress
may, if it deems fit to do so, impose taxes upon profits, but these said lands, buildings and improvements are
beyond the legislatives 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. Catherines Hospital, but, also, in
St. Marys Hospital, and were entitled to transportation thereto for Mrs. Herrera received no compensation as
directress of St. Catherines 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.

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34 - Abra Valley College, Inc. v. Aquino (1988) (2nd floor directors residence, 1st floor commercial space)
Doctrines:

The exemption in favor of property used exclusively for charitable or educational purposes is not limited to
property actually indispensable therefor, 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, such as
Athletic fields including a firm used for the inmates of the institution. (CIR v. Bishop of the Missionary
District)

Facts:
Abra Valley College is an educational corporation of higher learning and offers primary, secondary and college
courses. The school was assessed with realty taxes, and because of failure to pay, being auctioned. It filed a complaint
asking the court to declare void a notice of seizure and notice of sale of its lot and building located at Bangued, Abra
for non-payment of real estate taxes and penalties. The trial court said that 5the property in question was not used
exclusively for educational purposes because the 2nd floor is being used by the director of the school as a residence.
Issues:
1. W/N the lot and building in question is used exclusively for educational purposes
Held/Ratio:
1. While the court allows a more liberal and non-restrictive interpretation of the phrase exclusively used for
educational purposes, as provided by the Constitution at the time, reasonable emphasis has always been made
that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment
of the main purpose.
The use of the 2nd floor as residence finds justification under the concept of incidental use, but the lease of the 1st
floor to Northern Marketing Corp., cannot be considered as incidental to the purpose of education. But since only
a portion is used for the purposes of commerce, it is only fair that half of the assessed tax be returned to the school
involved. (ASSESSED TAX: P5,140.31)

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35 - CN Hodges v. Municipal Board of Iloilo City (1967)

Doctrines:
Facts:
The municipal board of the City of Iloilo enacted Ordinance 31 (An Ordinance Imposing Municipal Tax On The
Sale of Real Property Situated In The City of Iloilo), invoking RA 2264 (Local Autonomy Code). The said ordinance
requires any person, firm, association or corporation who shall sell real property located in the city to pay a real
property sales tax of one-half of one percent (1%) of the contract price and/or consideration before such sale could be
registered and the ownership thereof transferred in the Office of the Register of Deeds of Iloilo.
The petitioner C. N. Hodges, who was engaged in the business of buying and selling real estate in the city and the
Province of Iloilo, stood to be subjected to the tax thus imposed. Contending that the ordinance was beyond the corporate
powers of the respondent City, he filed an action for declaratory relief to test the validity thereof. Meanwhile after the
ordinance became effective, the petitioner paid taxes imposed under the authority thereof upon sales of real estate made
by him.
On the contrary, the respondents justified the enactment of the ordinance not only under the city charter but also
upon the authority vested in the respondent City by section 2 of the Local Autonomy Act.
Issues:
1. PROCEDURAL ISSUE: W/N the Court did not acquire jurisdiction over the case because the appellee failed to
exhaust administrative remedies
2. TAXATION ISSUE: W/N the questioned ordinance is ultra vires views vis--vis the corporate powers of the
appellant City.
Held/Ratio:
1. NO.
The appellants argue that the court a quo acquired no jurisdiction over the case because the appellee failed to
exhaust administrative remedies, more particularly the last paragraph of section 2 of the Local Autonomy Act, to
wit:
In such event the municipal board or city council in the case of cities and the municipal council or
municipal district council in the case of municipalities and municipal districts may appeal the
decision of the Secretary of Finance to the court during the pendency of which case the tax levied
shall be considered as paid under protest.
Nothing in the foregoing quotation even remotely applies to the situation at hand. The authority vested in the
Secretary of Finance to suspend the effectivity of a tax ordinance is limited to cases wherein the tax or fee thereby
levied is unjust, excessive, oppressive or confiscatory.
It is also necessary to correct the impression of the appellants that failure to exhaust administrative remedies goes
into the jurisdiction of the trial court. The fact of the matter is that such discrepancy, if any, merely implies
absence of a cause of action. This point specially acquires pertinence when it is noted that while the appellants set
up in their answer the defense of want of a cause of action, the same was based upon the alleged inexistence of a
justiciable controversy. The absence of a cause of action upon the ground of non-exhaustion of administrative
remedies does not appear to have been posed in issue below. It is thus likewise too late to invoke it at this stage.
Hence, the result stands the same.
2. PARTLY YES, PARTLY NO. The court ruled for the validity of the Ordinance in that the it is within the
corporate powers of the said City to adopt, but with the exception of the portion thereof which prescribes
payment of the tax therein levied as a requirement for the transfer of ownership and the registration of the
sale in the office of the Register of Deeds.

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The grant of the power to tax to chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary
to cover everything, excepting those which are mention therein, subject only to the limitation that the tax so
levied is for public purposes, just and uniform. Since its public purpose, justness and uniformity of application
are not disputed, the tax so levied must be sustained as valid.
Nor is this without precedent. On all fours to the case at bar is C.N. Hodges v. The Municipal Board of the City of
Iloilo, et al., G.R. L- 18129, January 31, 1963, which, significantly enough, not only involved the same parties but
as well concerned another ordinance of the appellant City, ordinance 33, series of 1960, enacted barely six days
after the enactment of the ordinance now under scrutiny, that is, on June 13, 1960. Ordinance 33, similar to the
one now in controversy, levied as sales tax of one-half of one percent (1%) of the selling price of any motor
vehicle sold in the City of Iloilo. The Court upheld the validity thereof and affirmed the corporate power of the
appellant City to enact the same.
However, the questioned ordinance does not merely levy a tax. It commands that The payment of this
municipal tax shall be a requirement for the registration ... of said sale in the Office of the Register of Deeds or
the Office of the City Treasurer of the City of Iloilo and, for purposes of which, demands that the tax receipt
shall be made a part of the documents to be presented for registration (section 3). Challenging this requirement,
the appellee contended and the trial court agreed that, in effect, it imposes a condition to the registration of the
deed of conveyance not otherwise called for by the general statutory law on the matter and, to that extent,
amounts to amending or modifying the applicable statute, which, it is argued, is not within the competence of the
appellant municipal board of Iloilo City to do.
After carefully re-examining the ruling thus enunciated, the SC ruled that while:
We find no cause to doubt the validity there of as a general principle, the same cannot by
any means be regarded as a hard- and-fast rule. Applied to specific cases, the broad sweep
thereof must be limited or qualified depending upon the particular attendant circumstances.
The general rule should be that the appellant municipal board may resort to all means reasonably necessary
and proper to give effect to the powers expressly conferred upon it, provided, however, that said means are
not otherwise contrary to any statutory or other more authoritative provision on the subject.
It should be taken in consideration that the registration with the registry of deeds of voluntary conveyances of real
property under the Torrens system is, in this jurisdiction, mainly controlled by the Land Registration Act, Act
496, as amended.
In this posture, to sanction the condition to registration imposed by the ordinance under examination would
virtually allow the appellant municipal board to add new requirements for registration not otherwise
provided by applicable statutory law on the matter. In effect, it gives power to the said appellant to amend or
modify the law a power which, definitely, is not vested in it. We therefore conclude that the condition thus
imposed by the ordinance in question is ultra vires. Considering that this portion is severable from the rest of the
provisions thereof without affecting the integrity of the remaining portions as a complete set of provisions on the
matter standing by themselves, the same may properly be nullified while the rest of the ordinance not otherwise
infirm may be sustained.

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36 - Phil. Lung Center v. Quezon City (2004)

Doctrine:

If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes
but is subject to taxation.

Facts:
The Lung Center of the Philippines is a non-stock and non-profit entity established by virtue of Presidential
Decree No. 1823. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and
to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for
their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is
vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased
for commercial purposes to Elliptical Orchids and Garden Center. The center accepts paying and non-paying patients. It
also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients,
the petitioner receives annual subsidies from the government.
Both the land and the hospital building of the petitioner were assessed for real property taxes by the City Assessor
of Quezon City. The petitioner alleged that under the 1987 Constitution, the property is exempt from real property taxes.
It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of
its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as such, is
exempt from real property taxes.
Issue:
1. W/N the real properties of the lung center are exempt from real property taxes.
Held/Ratio:
1. NO. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is determinative of whether the property is
used for tax-exempt purposes.
The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and
exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and
the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being
leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a
private individual for her business enterprise under the business name Elliptical Orchids and Garden Center.

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ASPECTS OF TAXATION
38 - Republic v. Ricarte (1985) (pay-as-you-file system, 5-year prescriptive period)
Facts:
On March 1959, Ricarte filed his income tax return for 1958. On April 1959, the office of the Collector of
Internal Revenue made the corresponding assessment and fixed at P222 Ricartes income tax liability pursuant to the
NIRC. He paid his income tax in 2 equal installments- May and August 1959.
On June 20, 1959, RA 2343 took effect which amended the NIRC. It provides the pay-as-you-file system
wherein the taxpayer assesses himself, files his return and pays the tax as shown in his return upon filing of the income
tax. In 1961, the BIR after investigation, found that the defendant had a deficiency of P1,136.87 in his income for
1958.
On Jan 1959, an assessment notice for the said amount was issued together with a demand letter to Ricarte.
But then, he failed to pay so a complaint for collection of unpaid taxes was filed before the City Court of Cebu.
The City Court of Cebu dismissed the case on the ground of prescription of action (the assessment was made
on April 1959 but the case was filed on January 1966, which went beyond the 5-year prescriptive period stated in
the NIRC). On appeal in the Court of First Instance of Cebu, the court dismissed the appeal on the ground that the BIR
sought to collect from Ricarte an assessment which was made under the new law (RA2343), which was not yet in effect at
the time of the filing of Ricartes income tax return for 1958. It also held that the action has prescribed.
Issue:
1. W/N the Republic can still collect the alleged deficiency income tax liability of Ricarte
Held/Ratio:
1. NO. Though the SC held that the CFI made an error on its decision by saying that the subsequent
assessment made was based on the amendatory act, the SC agrees that the action has prescribed.
Before the amendment, the taxpayer files his ITR and the Collector or Internal Revenue assesses the tax due and
notifies the taxpayer. But, under the amendatory act, the taxpayer assesses himself, files his ITR and is required to
pay the tax as shown in his return upon filing. Simply put, under the old law the CIR was required to assess
the tax due, while under RA2343, the taxpayer himself computes the tax based on the figures in his ITR.
After paying his ITR, the BIR reviewed it and found a deficiency in the assessment it previously made and the
income tax paid by Ricarte. A subsequent assessment made by the BIR was based merely on the ITR filed by
Ricarte. The amount of tax due was previously computed by BIR. Finding that it made an error, it reassessed
the ITR but such was made pursuant to the old law and not under the amendatory act. [NOTE: Akala kasi
ng CFI, based sa RA2343 yung subsequent assessment na ginawa ng BIR pero yung old law talaga yung sinunod
ng BIR. So yung issue ng walang legal basis yung BIR sa subsequent assessment nila, mali yon. Kasi yung
applicable law pa nun yung old law. J]
Although a subsequent notice of assessment was allegedly made and sent to Ricarte on January 19, 1961, both the
City Court and CFI found no evidence that Ricarte actually received a copy of that assessment notice
regarding the alleged deficiency tax. Thus, the prescriptive period provided for in Section 332(c) of the tax code
should be counted from April 6, 1959, the date when the BIR assessed the ITR of Ricarte. From said date until
the filing of this case on January 14, 1966, 6 years and 9 months had elapsed which was beyond the 5-year
prescriptive period.

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39 - Tupaz v. Ulep (1999)

Doctrine:
An assessment contains not only a computation of tax liabilities, but also a demand for payment within a
prescribed period.
Facts:
On January 10, 1991, State Prosecutor (SP) Molon filed with the Regional Trial Court, Quezon City, two (2)
informations, docketed as Criminal Case Nos. Q-91-17321(Case 1) and Q-91-17322(Case 2), against the spouses
Petronilla Tupaz and Jose Tupaz, as corporate officers of El Oro Engravers Corporation, for an alleged nonpayment of
deficiency corporate income tax for the year 1979, amounting around 2M. Case 1 was under Judge Ulep; Case 2 was
under Judge Solano. Both cases have identical infomations.
September 20, 1994, accused Petronila C. Tupaz, for Case 1, was arraigned and she pleaded not guilty.
Later, Judge Ulep issued an order directing the prosecution to withdraw the information in Case 2, after
discovering that said information was identical to the one filed with him. On April 16, 1996, SP Agcaoili filed with the
trial court a motion to withdraw information in Case 1. The Prosecutor thought that accused was charged in Case 1, for
nonpayment of deficiency contractors tax, but found that accused was exempted from paying said tax.
Later, Prosecutor Agcaoili filed a motion to consolidate the two cases. The court granted the motion for
consolidation.
Then, Judge Ulep, granted the motion for withdrawal of the information in Case 1 and dismissed the case, as
prayed for by the prosecution.
Later, Prosecutor Agcaoili filed, a motion to reinstate Case 1, because he thought case was a similar to a different
case. Over the objections of accused, On August 6, 1996, Judge Ulep, granted the motion and ordered the information in
Case 1 reinstated. Tupazs motion for reconsideration was denied. Hence, this petition.
Issues:
1. W/N the offense has prescribed?
2. W/N there is double jeopardy?
Held/Ratio:
1. No. It must be stressed that internal revenue taxes are self-assessing and no further assessment by the
government is required to create the tax liability. An assessment, however, is not altogether inconsequential; it is
relevant in the proper pursuit of judicial and extra judicial remedies to enforce taxpayer liabilities. An assessment
contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period.
Assessments made beyond the prescribed period would not be binding on the taxpayer.
Tupaz was charged with nonpayment of deficiency corporate income tax for the year 1979, which tax return was
filed in April 1980. On July 16, 1984, the Bureau of Internal Revenue (BIR) issued a notice of assessment. Tupaz
alleged that the period of assessment has prescribed, applying the three (3) year period provided under Batas
Pambansa No. 700.
The shortened period of three (3) years prescribed under B.P. Blg. 700 is not applicable to Tupaz. B.P. Blg. 700,
specifically states that the shortened period of three years shall apply to assessments and collections of internal
revenue taxes beginning taxable year 1984. Assessments made on or after April 5, 1984 are governed by the fiveyear period if the taxes assessed cover taxable years prior to January 1, 1984. The deficiency income tax under
consideration is for taxable year 1979. Thus, the period of assessment is still five (5) years. The income tax
return was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within the prescribed period.
Article 22 of the Revised Penal Code (retroactive application of laws) has no application because provisions on
the period of assessment can not be considered as penal in nature.

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Tupaz also invokes Section 340 of the Tax Code which provides that violations of any provision of the Code
prescribe in five (5) years. Tupaz asserts that in this case, it began to run in 1979, when she failed to pay the
correct corporate tax due during that taxable year. Hence, when the BIR instituted criminal proceedings on June
8, 1989, by filing a complaint for violation of the Tax Code it was beyond the prescriptive period of 5 years.
The offense has not prescribed. The offense can only be committed only after the finality of the assessment
coupled with taxpayers willful refusal to pay the taxes within the allotted period. In this case, when the notice of
assessment was issued on July 16, 1984, the taxpayer still had thirty (30) days from receipt thereof to protest. As
he did not protest, the assessment became final and unappealable on August 16, 1984. Consequently, when the
complaint for preliminary investigation was filed with the DOJ on June 8, 1989, the criminal action was instituted
within the five 5 year prescriptive period.
2. Yes, there is double jeopardy. An accused is placed in double jeopardy if he is again tried for an offense which the
indictment against him was dismissed without his consent. In the instant case, there was a valid complaint filed
against Tupaz. The court dismissed the case at the instance of the prosecution, without the consent of Tupaz.
This consent cannot be implied or presumed, therefore the dismissal of Case 1 is final.

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CLASSIFICATION OF TAXES
40 - Calalang v. Lorenzo (1955)
Doctrines:

For not the name but the object of the charge determines whether it is a tax or a fee. Generally speaking, taxes are
for revenue, whereas fees are exactions for purposes of regulation and inspection and are for that reason limited in
amount to what is necessary to cover the cost of the services rendered in that connection.

Facts:
Calalang wants to compel the Secretary of Public Works and Communications and the Chief of the Motor
Vehicles Office to authorize payment of petitioners motor vehicle registration fees for the year 1953 with a backpay
certificate of indebtedness. The defendants contended that fees are not taxes and, therefore, not authorized to be paid with
such certificate.
Issues:
1. W/N motor vehicle registration fees come within the purview of the above provision of the Backpay Law on the
theory that they are taxes.
Held/Ratio:
1. Yes. For not the name but the object of the charge determines whether it is a tax or a fee. Generally speaking,
taxes are for revenue, whereas fees are exactions for purposes of regulation and inspection and are for that reason
limited in amount to what is necessary to cover the cost of the services rendered in that connection.
Where the charge has no relation to the value of the services performed and where the amount collected
eventually finds its way into the treasury of the branch of the government whose officer or officers collected the
charge, is not a fee but a tax.
From the data submitted in the court below, it appears that the expenditures of the Motor Vehicle Office are but a
small portion about 5% of the total collections from motor vehicle registration fees. And as proof that the
money collected is not intended for the expenditures of that office, the law itself provides that all such money
shall accrue to the funds for the construction and maintenance of public roads, streets and bridges. It is thus
obvious that the fees are not collected for regulatory purposes, that is to say, as an incident to the enforcement of
regulations governing the operation of motor vehicles on public highways, for their express object is to provide
revenue with which the Government is to discharge one of its principal functions the construction and
maintenance of public highways for everybodys use. They are veritable taxes, not merely fees.

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41 - PAL v. Edu (1988) (motor vehicle registration fee = tax)

Doctrines:

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose
is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly
called a tax.

Facts:
PAL is a corporation organized and existing under the laws of the Philippines and engaged in the air
transportation business under a legislative franchise. Under its franchise, PAL is exempt from the payment of taxes. PAL
has not paid any motor vehicle registration fees since 1956.
In 1971, Commissioner Romeo Edu issued a regulation requiring all tax exempt entities to pay motor vehicle
registration fees. This includes PAL. Edu refused to register PALs motor vehicles unless PAL paid the proper fees
(P19,529.75). PAL paid under protest.
After paying the fees, PAL wrote a letter demanding a refund claiming that (1) motor vehicle registration fees are
taxes; and (2) PAL is exempted from paying taxes under its legislative franchise. Edu denied the request on the ground
that motor vehicle registration fees are regulatory exceptional, not revenue measures and do not come within the
exemption granted to PAL. PAL filed a complaint before the CFI of Rizal. Edu filed a motion to dismiss on the ground
that the complaint had no cause of action. PAL appealed to the CA.
Issues:
1. W/N motor vehicle registration fees are taxes.
2. W/N Commissioner Edu may be required to refund the amounts.
Held/Ratio:
1. YES.
The registration fee is a tax. Therefore, PAL is exempted. The purpose of the Land Transportation and Traffic
Code in requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and
maintenance of highways and to pay for the operating expense of the administrative agency. Fees may be
properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily
revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax.
Such is the case of motor vehicle registration fees. These are for the registration or operation of any motor
vehicle. The intent to impose a tax is apparent.
2. NO.
Section 24 of R.A. 5448 dated June 27, 1968, repealed all earlier tax exemptions of corporate taxpayers found in
legislative franchises. The country needs increased revenues. A listing of entities entitled to tax exemption is
available and PAL is not included. Any registration fees collected between June 27, 1968 to April 9, 1979 were
correctly imposed because the tax exemption in the franchise of PAL was repealed during the period.

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42 - Esso Standard Eastern Inc. v. The Commissioner of Internal Revenue (1989) (dry hole, police power)
Doctrines:

Margin levy on foreign exchange was held to be a police power measure to strengthen the countrys international
reserve rather than a tax.

Facts:
Petitioner ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expenses,
the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the
Commissioner of Internal Revenue on the ground that the expenses should be capitalized and might be written off as a
loss only when a dry hole should result. ESSO then filed an amended return where it asked for the refund of P323,279
by reason of its abandonment of dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in
the same return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit
remittances to its New York head office. The CIR granted a tax credit of P221,033 only, disallowing the claimed
deduction for the margin fees paid.
ESSO appealed to the CTA and sought the refund, contending that the margin fees were deductible from gross
income either as a tax or as an ordinary and necessary business expense.
Issues:
1. W/N margin fees could be considered deductible business expenses.
Held/Ratio:
1. NO.
They are neither taxes nor necessary expenses.
Margin fees are NOT taxes because they are NOT imposed as a revenue measure but as a police measure whose
proceeds are applied to strengthen the countrys international reserves.
Neither are they necessary and ordinary business expenses. ESSO has not shown that the remittance to the head
office of part of its profits was made in furtherance of its own trade or business. The petitioner merely presumed
that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra
vires.
The public respondent is correct when it asserts that the paramount rule is that claims for deductions are a matter
of legislative grace and do not turn on mere equitable considerations. The taxpayer in every instance has the
burden of justifying the allowance of any deduction claimed.

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43 - Lozano v. ERB (1990) (Oil Price Hike)

Doctrines:

Courts should give way to the wisdom of the political leadership which determines the policy and the proper
purpose of the fund raised, unless it is otherwise arbitrary, since such questions are best judged by such
authorities.

Facts:
On September 1990, gas conglomerates Petron, Shell, and Caltex each applied to the Energy Regulatory for the
increase of the prices of petroleum products at ranging from P2 to P3 respectively. The ERB issued an joint order
authorized them to a provisional increase of P1.42. Senator Ernesto Maceda and Oliver Lozano then submitted that the
above joint order had been issued with grave abuse of discretion, tantamount to lack of jurisdiction and due process.
Senator Maceda and Lozano claims that the ERB issued without notice and hearing the said Order and saying that
such created a new source for the Oil Price Stabilization Fund, which in a way levied a tax, which as we all know, is a
power vested in the legislature.
In addition, the Trade Union of the Philippines and Allied Services argues that no increase can be made since the
old stock of oil which was purchase for a lower price had not been depleted yet.
Issue:
1. W/N the price increase would comprise a tax.
2. W/N the ERB committed grave abuse of discretion and violation of due process.
Held/Ratio:
1. NO. The ERB in authorizing the increase did not commit an act of taxation since it is completely allowed to
increase the prices, provided that the proceeds be deposited in the Oil Price Stabilization Fund (OPSF). EO 137
(c) provides that any additional amount to be imposed on petroleum products to augment the resources of the
Fund through an appropriate Order by the ERB can be issued. Evidently, authorities were unable to raise enough
taxes needed to replenish the OPSF, therefore, a price hike is the only alternative.
2. NO. EO 172 provides that the ERB may temporarily authorize the adjustment of price levels of petroleum
products if there is a shortage or when the public interest so requires. This of course will require the proper
application, even without prior hearing, and the support of proper evidence. However, a special hearing must be
held 30 days after notification and publication to all affected parties.
What is the OPSF?
The OPSF was established precisely to protect the consuming public from the erratic movement of oil prices and to
preclude oil companies from taking advantage of fluctuations occurring every so often. As a buffer mechanism, it
stabilizes domestic prices by bringing about a uniform rate rather than leaving pricing to the caprices of the market.

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44 - City of Ozamiz v. Lumapas (1975)

Doctrine:

License Fee: The city may impose a fee sufficient in amount to include the expense of issuing the license and the
cost of necessary inspection or police surveillance connected with the business or calling licensed.

Toll: The word toll when used in connection with highways has been defined as a duty imposed on goods and
passengers travelling public roads. The toll for use of a toll road is for its use in travelling thereon, not for its use
as a parking place for vehicles.

Facts:
Lumapas is an operator of transportation buses for passengers and cargoes, under the name of Romar Line, with
Ozamiz City and Pagadian, Zamboanga del Sur, as terminal points, by a certificate of public convenience issued to him by
the Public Service Commission.
The Municipal Board of Ozamiz City enacted the Ordinance No. 466, imposing parking ffes for every motor
vehicle parked on any portion of the existing parking space in the City of Ozamiz. The City began collecting the parking
fees and collected from Lumapas, who had paid under protest, the parking fees at One Peso (P1) for each of his buses,
from October 1964 to January 1967.
The TPU buses of Lumapas stopped on the extended portion of Zulueta Street beside the public market,and that as
soon as the buses were loaded, they proceeded to the station, about one hundred (100) feet away from the parking area,
where a toll clerk of the City collected the Parking fee of P1 per bus once a day, before said buses were allowed to
proceed to their destination.
4 years later, Lumapas filed a complaint against the city for recovery of parking fees, alleging, among others, that
said Ordinance No. 466 is ulta vires, and praying that the ordinance would be nullified.
Issue:
1. W/N Ordinance No. 466 can be enacted by the City.
2. W/N said ordinance considered parking fees as road tolls under Republic Act No. 4136
Held/Ratio:
1. Yes. Municipal corporations, being mere creatures of the law, have only such powers as are expressly granted to
them and those which are necessarily implied or incidental to the exercise, and the power to tax is inherent upon
the State and it can only be exercised by Congress, unless delegated or conferred by it to a municipal corporation.
Under the Ozamiz City Charter (Rep. Act No. 321), the municipal board has the power to regulate the use of
streets avenues and the authority to enact all ordinances it may deem necessary and proper for the sanitation and
safety. It is, therefore, patent that the City of Ozamiz has been clothed with full power to control and regulate its
streets for the purpose of promoting the public health, safety and welfare.
2. NO. The term parking ordinarily implies something more than a mere temporary and momentary stoppage at a
curb for the purpose of loading or unloading passengers or merchandize; it involves the idea of using a portion of
the street as storage space for an automobile. Section 3 of Ordinance No. 466 defines the word parking to
mean the stoppage of a motor vehicle of whatever kind on any portion of the existing parking areas for the
purpose of loading and unloading passengers or cargoes.
It is not pretended, however, that the public utility vehicles are subject to the payment, if they pass without
stopping thru the aforesaid sections of Zulueta Street. Considering that the public utility vehicles are only charged
the fee when said vehicles stop on any portion of the existing parking areas for the purpose of loading or
unloading passengers or cargoes, the fees collected are actually in the nature of parking fees and not toll fees for
the use of Zulueta Street.

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This is clear from the Stipulation of Facts which shows that fees were not exacted for mere passage thru the street
but for stopping in the designated parking areas therein to unload or load passengers or cargoes. It was not,
therefore a toll fee for the use of public roads, within the context of Section 59[b] of Republic Act No. 4136,
which requires the authorization of the President of the Philippines.

45 - Mayor Antonio G. Villegas v. Hiu Chiong Tsai Pao Ho (1978) (tax disguised as fees)
Doctrine:

While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor
involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character the second part which requires the payment of P50 as
employees fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50 from
aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money
under the guise of regulation

Facts:
Ordinance No. 6357 was issued by the City of Manila on February 1968. Among others it prohibits aliens to
engage or participate in any position or occupation or business enumerated therein, temporary or casual, without first
applying for an employment permit from the Mayor and paying P50, except for those employed in their own households
and in consular missions. The ordinance also penalizes violators with 3 to 6 months imprisonment and a fine of P100 to
P200. Respondent assails the ordinance on the ground that it violates equal protection, that it is oppressive and unjust, and
violates the rule on uniformity of taxation.
Issues:
1. W/N Ordinance No 6357 is regulatory, not taxation in nature.
2. W/N Ordinance No 5357 is constitutional.
Held/Ratio:
1. NO.
While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor
involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character the second part which requires the payment of P50 as
employees fee is not regulatory but a revenue measure.
2. NO.
The fee prescribed by the ordinance is not only excessive but also fails to take into consideration substantial
distinctions among individual aliens who are required to pay it. It violated the equal protection clause this way.
Also, the ordinance does not lay out sufficient standards for the mayor to follow in enforcing it. The ordinance
confers upon the mayor arbitrary and unrestricted power to decide whether a certain applicant would be granted
the permit or not.

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46 - Progressive Development Corp v. Quezon City (1989) (privately owned public market)
Doctrine:

To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages
the public interest in health, morals, safety and development as to require regulation for the protection and
promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of
regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well.

Facts:
The City Council of QC adopted Ordinance No. 7997, known as the Market Code, section 3 of which provides
that privately owned and operated public markets shall pay a 10% tax on all gross receipts from stall rentals as
supervision fee. The Market Code was amended by Ordinance 9236 which says that a 5% tax on gross receipts of stall
rentals shall be paid privately owned public markets in Quezon City.
Progressive Development Corp, owner of the public market known as Farmers Market & Shopping Center filed
a petition for prohibition with preliminary injunction against the CFI of Rizal on the ground that said license fee/
supervision fee is really a tax on income which respondent cannot impose as it was expressly prohibited by RA 2264.
Petitioner insist that the supervision fee collected from rentals, being a return from capital invested in the construction
of the Farmers Market, practically operates as a tax on income, one of those expressly excepted from respondents taxing
authority, and thus beyond the latters competence.
Issue:
1. W/N the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the
nature of an income tax
Held/Ratio:
1. NO. The tax imposed is in the nature of a license fee.
The Revised Charted of Quezon City confers upon the city council the grant of authority not only to regulate and
fix the license fee but also to tax. Both the Local Autonomy Act and the Charter of respondent clearly show that
respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator
of a privately-owned public market. When an activity, occupation or profession is of such a character that
inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of
public health, morals and safety, or the general welfare, the legislature may provide that such inspection or
supervision or other form of regulation shall be carried out at the expense of the persons engaged in such
occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity
until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, a
charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a
tax rather than an exercise of the police power.
In the case at bar, the Farmers Market & Shopping Center was built by virtue of Resolution No. 7350 which
imposed upon petitioner, as a condition for continuous operation, the obligation to abide by and comply with the
ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in
Quezon City.
The Farmers Market and Shopping Center being a public market in the sense of a market open to and inviting
the patronage of the general public, even though privately owned, petitioners operation thereof required a license
issued by the respondent City, the issuance of which, applying the standards set forth above, was done principally
in the exercise of the respondents police power.
It is held that hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on
income, not a city income tax but rather a license tax or fee for the regulation of the business in which the
petitioner is engaged. Local governments are allowed wide discretion in determining the rates of imposable
license fees even in cases of purely police power measures, in the absence of proof as to particular municipal

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conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of
arbitrariness or unreasonableness of the questioned rates.
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so
grossly disproportionate to the costs of the regulatory service being performed by the respondent as to compel the
Court to characterize the imposition as a revenue measure exclusively.
As a general rule, there must be a statutory grant for a local government unit to impose lawfully a gross receipts
tax, that unit not having the inherent power of taxation. The rule, however, finds no application in the instant case
where what is involved is an exercise of, principally, the regulatory power of the respondent City and where that
regulatory power is expressly accompanied by the taxing power.

47 - Apostolic Prefect of the Mountain Province v. Treasurer of Baguio (1941) (corporation sole, Spanish
case)
DISCLAIMER: the entire case is in Spanish so I just looked for digests and tried to understand it based on the little
English in the case. The basic facts are taken from Michael Mendiolas digest
Doctrines:

A general tax is different from a special assessment

Facts:
The Apostolic Prefect is a corporation sole organized under Philippine Laws. It has its residence in Baguio. The
City imposed a special assessment against properties within its territorial jurisdiction for the benefit of the citys drainage
and sewerage system. The City Assessor furnished a list of the properties to be levied, called the Special Assessment
List to the City Treasurer. Included are the Apostolic Prefects property. Under the special assessment, each owner or
possessor must pay 1% of the total value of the property to the City Treasurer. The Apostolic Prefect contends that its
properties are exempt from taxation, since it is a religious entity
Issues:
1. W/N the Apostolic Prefect is exempt from paying the special assessment
Held/Ratio:
1. NO. Tax, in its broad meaning, includes both general taxes and special assessments. Though they appear similar,
there is a recognized distinction between them. A special assessment is confined to local impositions upon
property for the payment of the cost of public improvements in its immediate vicinity and is levied with
reference to special benefits to the property assessed. Strictly speaking, it is not a tax. A special assessment 1)
can only be levied on land; 2) cannot be made a personal liability of the person assessed (at least in most states);
3) is based wholly on benefits; and 4) is exceptional both as to time and locality. On the other hand, a tax is the
imposition of a charge on all real and personal property in a prescribed area, even if the purpose is for a local
improvement. A charge imposed only on property owners benefited is a special assessment not a tax even if it is
called a tax.
Thus, Constitutional exemptions cannot apply to a special assessment. Assuming arguendo that it applies, still, the
Apostolic Prefect was not able to prove that the property in question is exclusively used for religious purposes.
Thus, the Apostolic Prefect is required to pay the special assessment.

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48 - Victoria Milling Co. (VMC) v. Office of the Presidential Assistant for Legal Affairs and PPA (1987)
Doctrines:

Debt or ordinary obligation

Facts:
The case is a petition for review on certiorari brought about by petitioner-VMC [Infairness, ito talaga abbreviation
ng company na ito J] after the case was dismissed on the sole ground that it was filed beyond the reglementary period.
Respondent-PPA wrote VMC requiring its tugboats and barges, undergo harbor formalities and pay
entrance/clearance fees as well as berthing fees. Furthermore, PPA required VMC to secure a permit for cargo handling
operations at its Da-an Banua wharf and remit 10% of its gross income for said operations as the government share.
In response, VMC maintained that it is exempt from paying PPA any fee or charge basically because the
government never spent anything for the companys use of the wharf, which it owns.
Since PPA Iloilo did not accept VMCs defense, the latter appealed the case to the CTA, who then dismissed the
case on the ground of its lack of jurisdiction. A petition for review before the SC was also denied. Lastly, VMC filed an
appeal with the Office of the President but was denied on the sole ground that it was filed beyond the reglementary period.
Issues:
1. NON-TAX ISSUE: W/N the 30-day period for appeal under PPA Admin Order was tolled by the pendency of the
petitions filed first with the CTA and then with the SC
2. TAX ISSUE: W/N the petitioners defense (PPA has no basis to collect since it does not incur any expense in the
operation of the wharf) is tenable?
Held/Ratio:
1. NO, PPA enacted the Admin Order precisely to govern appeals from PPAs decision. It is settled that rules and
regulations issued in accordance with the law, like the admin order, have the force and effect of law.
2. NO, the fees and charges PPA collects are not for the use of the wharf that petitioner owns but for the
privilege of navigating public waters, of entering and leaving public harbors and berthing on public
streams of waters.
Jurisprudence provides that berthing charges against a vessel are collectible regardless of the fact that mooring or
berthing is made from a private pier or wharf. This is because the government maintains bodies of water in
navigable condition and it is to support its operations in this regard that dues and charges are imposed for the use
of piers and wharves regardless of their ownership.
As to the requirement to remit 10% of the handling charges, the PPA is authorized to levy dues, rates, or charges
for the use of the premises, works, appliances, facilities, or for services provided by or belonging to the Authority,
or any organization concerned with port operations. This 10% government share of earnings of arrastre and
stevedoring operators is in the nature of contractual compensation to which a person desiring to operate
arrastre service must agree as a condition to the grant of the permit to operate.

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49 - Caltex v. CA (1992)
Doctrine:

The Oil Price Stabilization Fund was created under Section 8 of Presidential Decree No. 1956 to be used to
reimburse the oil companies for cost increases on crude oil and imported petroleum products resulting from
exchange rate adjustment and/or increase in world market prices in the desire to stabilize the prices of petroleum
products for a longer period despite exchange rate adjustments or world market price changes.

It is settled that a taxpayer may not offset taxes due from the claims that he 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.

Facts:
1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum
authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance. In their
reply, Caltex submitted to the COA a proposal for the payment of the collections and the recovery of claims, since the
outright payment of the sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the
OPSF will cause a very serious impairment of its cash position. Caltex suggested that they will deliver to Office of Energy
Affairs (OEA) P1.287 billion as payment to OPSF, similarly OEA will deliver to Caltex the same amount in cash
reimbursement from OPSF. The COA denied such request.
Issue:
1. W/N Caltex can avail of the right to offset the amount that it may be required to remit to the OPSF fund against
any amount that it may receive by way of reimbursement.
Held/Ratio:
1. No.
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. There can be no offsetting of taxes against 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. Taxes cannot be the 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, in respect to the taxes for the OPSF, 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. In that capacity, Caltex, as one of such companies, has the primary obligation to account
for and remit the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship
between the two; petitioner certainly cannot be considered merely as a debtor. Money due the government, either
in the form of taxes or other dues, is its lifeblood and should be collected without hindrance

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50 - Republic v. Ericta and Sampaguita Pictures (1989) (legal compensation; Sampaguita)

Doctrine:

Taxes, unlike normal debts, cannot be subject to legal compensation or set-off.

Facts:
In relation to producing motion pictures, Sampaguita Pictures incurred an obligation for taxes in the amount of
P10K in favor of the Republic. In satisfaction thereof, Sampaguita tendered and delivered to the Treasurer of Bocaue,
Bulacan sixteen back pay negotiable certificates of indebtedness in the aggregate sum of P16K, which had earlier been
negotiated to them by the original holders thereof. (Think Nego.)
Almost two weeks later, the BIR wrote Sampaguita, saying that such certificates cannot be accepted as payment
for taxes; BIR demanded payment in cash. However, Sampaguita did not budge, which prompted the BIR to write another
letter, this time giving a moratorium. Sampaguita, again, did not give a fuck. Surprisingly, it took eight long years before
the government decided to sue Sampaguita over the tax obligations. The Republics claim alleged that Sampaguitas
payment was void since under the law, only original holders of back pay certificates are allowed to use the same in
payment of their own taxes, citing the 1963 Borja case. On the other hand, Sampaguitas counter-claim primarily averred
that the cause of action had already prescribed, and that since (in 1958) it and the Republic became mutual creditors and
debtors of each other, legal compensation had taken place.
The trial court rendered a decision essentially saying that under the Borja case, Sampaguita cannot apply the
certificates to its obligation to the Republic for taxes. However, what Sampaguita can do is demand from the government
payment for the certificates (again, think Nego).
Issues:
1. Minor Issue: W/N tender of the certificate of indebtedness constitutes payment of taxes.
2. W/N the Republics claim is offset by Sampaguitas counter-claim.
Held/Ratio:
1. NO. Under the 1963 case of Borja v. Gella, tender of the certificates of indebtedness does not constitute payment;
hence, Sampaguita ought to be properly sentenced to pay the taxes sought to be collected by the Republic. Under
the said case, even if such certificates are indeed negotiable, only original holders are allowed to apply them as
payment for taxes.
2. NO. Legal compensation cannot take place against the Republic with respect to taxes, fees, duties and similar
forced contributions due to it. Legal compensation as a mode of extinguishing an obligation to pay taxes is
unavailing against the government, conformably with Borja v. Gella. In this sense, taxes are different from
normal debts. While normal obligations are subject to compensation, taxes are not.
Note: I have omitted the issue on redeemability here because it was just a simple case of the Solicitor Generals eyes
needing a little cleaning. Basically, the Solicitor General averred that the certificates redeeming date (when the amounts
represented by such certificates becomes due and demandable) was nowhere to be found when, in fact, it was clearly
stated in the law that the same were redeemable within 10 years after issue. What you need to remember is that the
certificates of indebtedness, at the time Sampaguita tried to pay its taxes with the same, were due and demandable.
This case is eerily similar to the 1963 case of Borja v. Gella. In that case, Borja tried to pay his real property taxes using
the certificates of indebtedness as well. The Supreme Court explained why legal compensation, as enunciated in our Civil
Code, couldnt be availed of to extinguish a persons obligation to pay taxes to the government. Okay, Obligations and
Contracts Review Time!

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For legal compensation to take place between two persons, the following must concur:
1. That both are principal debtors and creditors of each other;
2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also
of the same quality if the latter has been stated;
3. That the two debts are due;
4. That the two debts are liquidated and demandable; and
5. That over neither of them there be any retention or controversy, commenced by third persons, and communicated
in due time to the debtor.
The Court said that the scenario that Borja wants does not satisfy the first requisite. In the first place, according to the
Court, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the Philippines, whereas the
real estate taxes owed by Borja are due to the City of Manila and Pasay City, each one of which having a distinct and
separate personality from our Republic. Therefore, it appears, that each one of the obligors concerning the two obligations
is not at the same time the principal creditor of the other. Legal compensation cannot take place. Applying to the Ericta
case, just replace Borja with Sampaguita and City of Manila and Pasay with Bulacan, and there you go!

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51 - Matalin Coconut Co. v. Municipal Council of Malabang (1986) (police inspection fees)
Facts:
The Municipal Council of Malabang, Lanao del Sur enacted a municipal ordinance which made it unlawful for
any person/company to ship out of Malabang cassava starch or flour without paying the municipal treasurer the
corresponding fee fixed. It also imposed a police inspection fee of P0.30 per sack which will be paid by the shipper before
it transported or shipped outside the municipality. Those who violate the ordinance shall be fined not less than P100 but
not more than P1,000 and to pay P1 per sack of flour illegally shipped, or suffer imprisonment for 20 days, or both, in the
discretion of the court.
Matalin Coconut Inc, challenged the validity of the ordinance alleging that the ordinance is ultra vires and
unreasonable, oppressive, and confiscatory. Matalin prayed that the ordinance be declared null and void and that the
municipal treasurer be ordered to refund the amounts paid by Matalin under the ordinance. Meanwhile, Purakan
Plantation intervened alleging that while its cassava flour factory was situated in Balabagan, Lanao del Sur, it had to
transport the starch and flour it produced to the seashore through Malabang. As a result of the ordinance, Purakan had to
refrain from transporting its products through the Malabang in order to ship them by sea to other places.
The trial court declared the ordinance null and void. Municipal treasurer was ordered to refund payments made
under the ordinance and enjoined Malabang from collecting the P0.30 tax per bag.
Issues:
1. Whether the municipal ordinance is valid?
Held/Ratio:
1. NO.
Pursuant to sec 2 of the Local Autonomy Act, Malabang is contending that has the power and authority to
approve the ordinance. Since enactment of the Local Autonomy Act, a liberal rule has been followed by the SC in
construing municipal ordinances enacted pursuant to the taxing power granted under Sec 2 is sufficiently plenary
with the only limitation that the tax levied is for public purposes, just and uniform.
Though the amount collected under the ordinance is called a police inspection fee, it is actually in the nature of
tax since its aim is to raise revenue. The SC corrected the trial court when it said the tax imposed under the
ordinance is not a percentage tax on sales (as this is prohibited under Sec2 of LAA) but a fixed tax of P0.30 per
bag.
HOWEVER, the tax imposed is declared INVALID for other reasons. FIRST, the tax levied by the ordinance is
UNJUST and UNREASONABLE. Only service rendered by Malabang by way of inspection is for policemen to
verify from the truck drivers passing by the checkpoint the number of bags loaded per trip which are to be shipped
based on the trip tickets for computing the total amount of tax to be collected. The contention that the police also
inspect the cassava flour to determine if it is fit for human consumption is baseless as the said purpose was not
stated in the ordinance and the police are not competent enough to determine what is fit for human consumption.
Also, Malabang contends that the reason why the trucks of cassava starch bags of Matalin are escorted by a
policeman from the mill to the bodega is to protect the truck and its cargoes from molestation. But this cannot be
sustained as Matalin did not ask for any police protection because there was never a time that its trucks have been
molested. Therefore, the imposition of a police inspection fee of P.30 per bag is unjust and unreasonable.
SECOND, the P0.30 inspection fee is EXCESSIVE and CONFISCATORY. Matalin is merely getting a marginal
average profit of P0.40/bag. The further imposition of P0.30 tax would force Matalin to close shop as it is
maintaining a big labor force in its operation including a security guard force to guard its properties. The
ordinance has an adverse effect on the economic growth of Malabang and of the nation and is contrary to
economic policy of the government.

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52 - LTO v. Butuan (2000) (LTO Tricycles Registration Requirement)

Doctrines:

Although certain functions of the DOTC were transferred to the LGUs, the powers of LTO under R.A. No. 4136
requiring the registration of motor vehicles are not affected by the Local Government Code. Thus, the authority to
requirethe registration of motor vehicles is a power still vested with the LTO and not LGUs.

Facts:
The Sangguniang Panglungsod (SP) of Butuan, passed SP Ordinance No. 916-92.The ordinance provided for,
among other things, the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the
registration of the vehicle, and fees for the issuance of a permit for the driving thereof. LTO however disallowed this
saying the authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such
vehicles has not been transferred to the LGUs.
To settle the issue, the City of Butuan, represented by its City Mayor Democrito D. Plaza, filed with the trial court
a petition for prohibition, mandamus, injunction with a prayer for preliminary restraining order ex-parte seeking the
declaration of the validity of SP Ordinance No. 962-93 and the prohibition of the registration of tricycles-for-hire and the
issuance of licenses for the driving thereof by the LTO. In both motion for reconsideration and appeal, petitioners cases
were dismissed.
Issues:
1. W/N the part of Ordinance No. 962-93 requiring the due registration of tricycles and a license for the driving
thereof is valid.
Held/Ratio:
1. No it is not valid. Although under the Local Government Code, certain functions of the DOTC were transferred to
the LGUs, clearly unaffected by the Local Government Code are the powers of LTO under R.A. No. 4136
requiring the registration of all kinds of motor vehicles used or operated on or upon any public highway in the
country.
The Court shares the apprehension of the Solicitor General saying: If the tricycle registration function of
respondent LTO is decentralized, the incidence of theft of tricycles will most certainly go up, and stolen tricycles
registered in one local government could be registered in another with ease and that fake drivers licenses will
likewise proliferate.
TAX RELATED: The reliance made by respondents on the broad taxing power of local government units, specifically
under Section 133 of the Local Government Code, is tangential. To construe the tax provisions of Section 133(1)
indistinctively would result in the repeal to that extent of LTOs regulatory power which evidently has not been intended.
If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the Local Government Code in
the same manner that the specific devolution of LTFRBs power on franchising of tricycles has been provided. Repeal by
implication is not favored.

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INTERPRETATION AND CONSTRUCTION OF TAX STATUTES

53 - Comm v. CTA (1991) (franchise, exemption)
Doctrines:

A legislative franchise partakes of the nature of a contract.

Facts:
Eastern Extension Australasia and China Telegraph Co., Ltd, is a foreign corporation existing under the laws of
Great Britain. By a Royal Decree of the Spanish Government dated 1898, Eastern Extension was given a concession for
the construction, operation, and maintenance of submarine telegraph cable from HK to Manila. In 1952, when the
concession expired, RA 808 was approved granting a legislative franchise to the Eastern Extension to land, construct,
maintain and operate at Manila a submarine telegraph cable connecting Manila with HK. The law granted to Eastern
Extension a tax exemption from the payment of taxes whether municipal, provincial or national, except a franchise tax of
5% on the gross earnings and tax on its real property. Later, the law was amended by RA 5002, enlarging the scope of the
franchise.
The CIR assessed a P7,122,571.61 income tax deficiency. The CIR made such assessment based on its belief that
Eastern Extension franchise is inoperative for failure to conform with the constitutional requirement that it be organized
under Philippine laws with 60% of its capital owned by Filipinos. The CIR contends that since Eastern Extension is 100%
British owned, it is illegally operating its business in the Philippines.
Eastern Extension filed with the CTA a petition for review, contesting the legality of the assessment. During the
pendency of the case, then President Marcos promulgated PD 489, authorizing Eastern Extension to transfer its franchise
to Eastern Telecommunications, a duly organized corporation existing under the laws of the Philippines with at least 60%
of its capital owned by Filipinos. The CTA, while holding the franchise as unconstitutional, cancelled the CIRs
assessment.
Issues:
1. W/N the provision in the franchise requiring the payment of only 5% of gross receipts (considering that the
franchise is inoperative for failure to comply with the Constitution) is unenforceable?
Held/Ratio:
1. NO.
RA 808, enacted in 1952, and RA 5002, enacted in 1957, conferred the franchise to Eastern Extension during the
effectivity of the 1935 Constitution. This is a persuasive indication that Congress excluded the operation of
international telecommunication from the coverage of the constitutional prohibition.
A legislative franchise partakes of the nature of a contract. Franchises spring from contracts between the
sovereign power and private citizens made upon valuable considerations, for purposes of individual advantages as
well as public bereft. It is generally considered that the obligation resting upon the grantee to comply with the
terms and conditions of the grant constitutes a sufficient consideration. It can also be said that the benefit to the
community may constitute the sole consideration for the grant of a franchise by the state. Such being the case,
the franchise is the law between the parties and they are bound by the terms thereof.
The CIR, being a government agency, is also bound by the terms of the franchise. Hence, it cannot declare the
franchise as ineffective and unenforceable. To allow the CIRs claim would be to defy and ignore the superiority
of a legislative franchise granted by a special enactment.
Regarding the constitutional requirement, the franchise of Eastern Extension expressly prohibits it from leasing,
transferring, selling or assigning the franchise granted to it, without the approval of the Congress. Hence, Eastern
Extension cannot be faulted in not restructuring its equity to conform with the constitutional requirement of 60%
Filipino ownership.

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54 - Cagayan Electric v. CIR (1985)

Facts:
Cagayan Electric Power & Light Co., Inc. is the holder of a legislative franchise, RA 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.
RA 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, its franchise was amended by RA No. 6020, by authorizing the Cagayan Electric to furnish electricity
to the municipalities in Misamis Oriental as well as Cagayan de Oro. 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.
The Commissioner of Internal Revenue in a demand letter required the Cagayan Electric to pay deficiency income
taxes for 1968-to 1971 in addition to franchise tax.
Issue:
1. W/N the Cagayan Electric is liable for income taxes, in addition to the franchise taxes that it was already paying.
Held/Ratio:
1. NO. RA No. 5431 had the effect of withdrawing Cagayan Electrics exemption from income tax. But the
exemption was restored by the subsequent enactment of RA No. 6020 which reenacted the said tax exemption.
Hence, the Cagayan is liable only for the income tax for the period from January 1 to August 3, 1969 when its tax
exemption was modified by RA No. 5431.
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 Cagayan Electrics income tax liability. It had
reason not to pay income tax because of the tax exemption in its franchise. For this reason, it should be liable only
for tax proper and should not be held liable for the surcharge and interest.

Misamis Oriental v. Cagayan Electric (see Digest #30)

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55 - Ernesto M. Maceda v. Hon. Catalino Macaraig Jr. (1991) (NAPOCOR tax exemption)
Doctrines:

The rule on strict interpretation does not apply in the case of tax exemptions in favor of the government, political
subdivision or instrumentality. The practical effect of exemption is merely to reduce the amount of money that
has been handled by the government in the course of its operations.

Facts:
The Commonwealth Act 120 created the National Power Corporation (NAPOCOR) was created as a public
corporation to undertake the development of hydraulic power and the production of power from other sources. RA 358
(1949) granted NAPOCOR tax and duty exemption privileges or exemption from all taxes. RA 6395 (1971) revised the
charter of the NAPOCOR, tasking it to carry out the national electrification, and provided in detail NAPOCORs tax
exceptions. PD 380 (1974) specified that NPC was exempt from all taxes imposed directly or indirectly. PD 938
integrated all the tax exemptions in favor of GOCCs including their subsidiaries. However, PD 1931 withdrew all tax
exemption privileges of NPC.
The President and/or the Minister of Finance, upon the recommendation of the Fiscal Incentives Review Board
(FIRB), could restore the exemption. FIRB Resolution No. 10-85 (1985) restored the tax exemption privileges. EO 93
(1987) withdrew the exemption privileges. FIRB Resolution No. 17-87 (1987) restored the tax exemptions again.
Since 1976 (Before PD 1931), oil firms never paid excise or specific and ad valorem taxes for petroleum products
sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products
to NAPOCOR only in 1984.NAPOCOR now claims refunds of taxes and duties originally paid by Caltex, Petrophil and
Shell for specific and ad valorem taxes to BIR (P468.58 million). Only portion thereof, corresponding to Caltex (P58
million), was approved and released by way of a tax credit memo. This nonpayment of taxes spanned 8 years. Other
claims for refund P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of
petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery. When the FIRB Resolution
restored the tax exemptions, NAPOCOR applied for a refund of such taxes paid.
The BIR held that the scope of the tax exemption covers only taxes for which it is directly liable and not on taxes
which are only shifted to it. The BIR, however, refunded the P58million paid by Caltex. NPC now wants more refund.
The BIR again ruled that NAPOCOR only enjoys special privilege for taxes for which it is directly liable.
Maceda argues that the NAPOCOR cannot be exempt from indirect taxes. He cites the principle that the exception
must be strictly construed against the one claiming the exemption. Maceda claims that the FIRb only restored the direct
tax exemption privileges and cannot be interpreted to cover indirect taxes. He claims that the P58M refund was illegal
Issues:
1. W/N the NPC enjoy indirect tax and duty exemption
Held/Ratio:
1. YES. NPC is a non-profit public corporation created for the general good and welfare and wholly owned by the
government of the RP. From its creation, the NAPOCOR enjoyed preferential tax treatment. All the laws
promulgated show that it was meant to be exempt from tax. PD 380 said it was exempt from both direct and
indirect tax. The court defined direct and indirect tax as:
a. Direct Tax the where the person supposed to pay the tax really pays it. WITHOUT transferring the
burden to someone else (Ex: Individual income tax, corporate income tax, transfer taxes, residence tax,
immigration tax).
b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the consumer who
ultimately pays for it, not as a tax, but as a part of the purchase price (Ex: the internal revenue indirect
taxes , specific tax, percentage taxes, (VAT) and the tariff and customs indirect taxesimport duties,
special import tax and other dues)

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PD 938 then amended the tax exemption and said that it was exempt from all forms of taxes. The use of the
phrase all forms of taxes demonstrate the intention of the law to give NAPOCOR all the tax exemptions it has
been enjoying since the beginning. Also, PD 938s preamble states that the non-profit character of the NPC has
not been fully utilized because of the restrictive interpretations of the taxing agencies of the government.
It is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of
a government political subdivision or instrumentality. The reason is that the practical effect of an exemption is
merely to reduce the amount of money that has to be handled by the government in the course of its operations. If
NAPOCOR should accept liability on the tax and duty components on the oil products, such amount will go into
its fuel cost and be passed onto its consumers through corresponding increase in rates. This tax exemption is
intended not only to insure that the NAPOCOR shall continue to generate electricity for the country but more
importantly, to assure cheaper rates to be paid by the consumers.
Cruzs dissent: Issues on the legislative validity of some of the PDs (promulgated by Marcos). Also mentioned
that the tax credits are tremendous since they involve amounts of about 1.58 billion, which could go a long way in
improving the national economy and the well-being of the Filipino people.

City of San Pablo v. Reyes (see Digest #31)

MERALCO v. Province of Laguna (see Digest #32)

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DOCTRINES IN TAXATION
56 - Hydro Resources Contractors Corp. v. CTA (1990)
Doctrine:

Taxes may be imposed retroactively but unless expressed by law, taxes must only be imposed prospectively.

Facts:
In 1978, The National Irrigation Administration (NIA) entered into an agreement with Hydro Resources
Contractors Corporation (HYDRO) for the construction of the Magat River Multipurpose Project in Ramon, Isabela.
Under the contract, HYDRO was to procure new construction equipment abroad for the project. The cost of which
as well as all taxes, duties, and fees incidental to the importation of the equipment shall be shouldered by NIA. Payments
advanced by the NIA shall be repaid by HYDRO through deductions from progress payments due to them. Also,
ownership of the equipment shall be transferred to Hydro once payment is completed.
However, NIA failed to comply with its tax obligations. In the meantime, HYDRO had fully repaid the value of
the construction equipment so much so that NIA executed deeds of sale covering the same, and transferred the ownership
thereof in favor of HYDRO.
Upon the transfer of the ownership of the said equipment, HYDRO was assessed by the Bureau of Customs (BoC)
for customs duty and compensating tax (P2,303,378.63) which was subsequently paid by HYDRO. In addition, HYDRO
was assessed additional 3% ad valorem duty in the amount of P281,591 prescribed in Executive Order 860. HYDRO also
paid this amount but this time under protest.
The Collector of Customs acted favorably on petitioners protest and ruled that the imposition of the 3% ad
valorem tax was unfair considering that EO No. 860 took effect only on December 21, 1982 when the sale of the
equipment took place in 1978. The Acting Customs Commissioner also ruled in favor of HYDRO however their findings
were reversed by the Deputy Minister of Finance. The CTA also denied the appeal of HYDRO.
Hence this petition.
Issue:
1. W/N the imposition of the 3% ad valorem tax on importations made prior to its issuance is violative of the
Constitution
Held/Ratio:
1. YES. It is a cardinal rule that laws shall have no retroactive effect, unless the contrary is provided. (Art. 4, Civil
Code) Executive Order No. 860 does not provide for its retroactivity. Moreover, the Deputy Minister of
Finance in his 1st Indorsement to the Central Bank clarified that letters of credit opened prior to the effectivity
of E.O. 860 are not subject to the provisions thereof. Consequently, the importations in question which arrived
in 1977 and 1978 are not subject to the 3% additional ad valorem duty, the same being imposed only on those
whose letter of credit were opened after the promulgation of Executive Order 860.
The CTA contends that since HYDRO failed to show that the sale and transfer of such equipment were made
before Dec. 21, 1982, they should not be entitled for a refund. This conclusion is erroneous. The subsequent
executions of the Deeds of Sale on December 1982 and March 1983 are immaterial in the application of EO 860.
The contract was a perfected contract of sale subject to a suspensive condition, the full payment by HYDRO of
the purchase price is the operative act to compel NIA to effect the transfer of ownership to HYDRO. Thus, the
implementation of the contract executed on August 1978 should be reckoned and construed as the actual date of
sale.

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57 - Hilado v. Collector of Internal Revenue (1956) (War-time losses)

Doctrines:

A law once established continues until changed by some competent legislative power. It is not changed merely by
change of sovereignty.

Internal revenue laws are not political in nature and as such were continued in force during the period of enemy
occupation.

Facts:
[The original case was not nicely written. I had a hard time deducing what each paragraph meant. Overall, this covers
the prospectivity of our Tax laws.]
Emilio Hilado was claiming a deduction worth P12,837.50, representing war damage on properties, from his gross
income in his 1951 Income Tax Return (ITR) pursuant to Circular No. V-123. Later, it was found that this circular was
wrong and was revoked. Meanwhile, in 1952, Circular No. V-139 was issued which revoked the provisions and declared
that losses of property from war damage shall only be deductible at the year of actual loss. Therefore, the deduction he
was claiming was not granted. After his motion for reconsideration was denied, he then filed a petition for review with the
Court of Tax Appeals which also denied his petition. He then appealed to the Supreme Court.
Hilado alleges that he treated this deduction as a business asset since it represents collectibles from the
government. In addition he avers that as consequence of enemy occupation, there was no taxable year to consider, therefor
it is in 1951 that he decided to put such deduction into his ITR.
Issues:
1. W/N Hilado is entitled to the said deduction.
2. W/N that the Internal Revenue code and its regulations are inactive during times of war.
Held/Ratio:
1. NO. Circular V-123 was issued on a wrong construction of the law, therefore cannot give rise to a vested right
that can be invoked by a taxpayer. The amount cannot be considered as a business asset which can be deducted
as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent
merely upon the generosity of the U. S. government. Therefore, Circular V-123 was declared void for having the
wrong interpretation for the law which then necessitated the issuance of Circular V-139 to properly lay down
the rules.
2. YES. Our internal revenue laws are not political in nature therefore they are continued in force during the period
of enemy occupation and effected by the territorial government. As a matter of fact, income tax returns were filed
during that period and income tax payment were effected and considered valid and legal. Such tax laws are
deemed to be the laws of the occupied territory and not of the occupying enemy.
It is a legal maxim, that excepting that of a political nature, Law once established continues until changed by
some competent legislative power. It is not changed merely by change of sovereignty. Joseph H. Beale (Cited
in the case)

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