Tax Digest Assignment 9

TAX DIGEST ASSIGNMENT # 9 LOCAL GOVT TAXATION
Atty. Mendoza
MANILA ELECTRIC COMPANY vs. PROVINCE OF LAGUNA

FACTS
Manila Electric Company (MERALCO) on various dates (the
latest being January 19, 1983) was granted franchises by
various municipalities of Laguna. On Sept. 12 1991, RA 7160
"Local Government Code of 1991" (LGC) was enacted to take
effect on Jan.1 1992 enjoining local goverment units to create
their own sources of revenue and to levy taxes, fees and
charges, subject to the limitations, consistent with the basic
policy of local autonomy. Respondent Laguna Province
enacted Ordinance No. 01-92 (effective Jan. 1, 1993)
providing, in part:
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
MERALCO was then sent a demand letter to pay the

corresponding tax. MERALCO paid the tax under protest
(approx. Php19.5M) and later on filed a formal claim for
refund. It contends that the stated Section 2.09 of the LGC
contravened the provisions of Section 1 of PD 551, which
provides:
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,
1B in 3B DIGEST GROUP
Ad Deum Per Excellentia
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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.
MERALCO then filed a complaint for refund with a prayer for

the issuance of a writ of preliminary injunction and/or TRO at
the RTC of Sta. Cruz, Laguna. The RTC dismissed the
complaint and ruled that the Ordinance was valid, binding,
reasonable and enforceable.
ISSUES
1. W/N the imposition of a franchise tax under Section
2.09 of Laguna Provincial Ordinance No. 01-92, insofar
as MERALCO is concerned, is violative of the nonimpairment clause of the Constitution and Section 1 of
Presidential Decree No. 551? NO
2. W/N the LGC, has repealed, amended or modified
Presidential Decree No. 551? YES
RULING
(As an intro for the ruling as stated by the SC:)
Local Governments do not have the inherent power to

Atty. Mendoza
tax except to the extent that such power might be

delegated to them either by the basic law or by statute.
Presently, Under Article X of the 1987 Constitution, a general
delegation of that power has been given in favor of the Local
Government Units (LGU).
Under the now prevailing Constitution, where there is neither
a grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and
broad tax powers. Nevertheless, the fundamental law did
not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to
ensure that, while the local government units are being
strengthened and made more autonomous, the legislature
must still see to it that (a) the taxpayer will not be overburdened 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.
1. While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying
on the franchise, these exemptions, nevertheless, are far
from being strictly contractual in nature. 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
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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. Truly, tax exemptions of this kind may not be
revoked without impairing the obligations of contracts. These
contractual tax exemptions, however, are not to be confused
with tax exemptions granted under franchises. A franchise
partakes the nature of a grant which is beyond the purview of
the non-impairment clause of the Constitution.
2. The Local Government Code of 1991 explicitly authorizes
provincial governments, notwithstanding any exemption
granted by any law or other special law, x x x (to) impose a
tax on businesses enjoying a franchise". (Section 137 of the
LGC)
Indicative of the legislative intent to carry out the
Constitutional mandate of vesting broad tax powers to local
government units, LGC has effectively withdrawn under
Section 193 thereof, tax exemptions or incentives theretofore
enjoyed by certain entities. This law states:
Section 193 Withdrawal of Tax Exemption Privileges
Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned
or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, nonstock and non-profit hospitals and educational institutions,
are hereby withdrawn upon the effectivity of this Code.
The Code, in addition, contains a general repealing clause in

its Section 534; thus:

Atty. Mendoza
Section 534. Repealing Clause. x x x.

(f) All general and special laws, acts, city charters,
decrees,
executive
orders,
proclamations
and
administrative regulations, or part or parts thereof which
are inconsistent with any of the provisions of this Code are
hereby repealed or modified accordingly.
3. MERALCO further contends that in a plethora of cases

including Court in Province of Misamis Oriental vs. Cagayan
Electric Power and Light Company, Inc., the phrase "shall be
in lieu of all taxes and at any time levied, established by, or
collected by any authority" exempted the franchise holder
from any other tax imposed by the then Internal Revenue
Cod and local ordinaces. The SC holds otherwise.
In the recent case of the City Government of San Pablo, etc.,
et al. vs. Hon. Bienvenido V. Reyes, et al., the Court has held
that the phrase in lieu of all taxes have to give way to the
peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions,
privileges, and that upon the effectivity of the Local
Government Code all exemptions except only as provided
therein can no longer be invoked by MERALCO to disclaim
liability for the local tax. In fine, the Court has viewed
its previous rulings as laying stress more on the
legislative intent of the amendatory law whether the
tax exemption privilege is to be withdrawn or not
rather than on whether the law can withdraw, without
violating the Constitution, the tax exemption or not.
PROVINCE OF BULACAN vs. CA
FACTS
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On June 26, 1992, the Sangguniang Panlalawigan of Bulacan

passed Provincial Ordinance No. 3, known as "An Ordinance
Enacting the Revenue Code of the Bulacan Province." Section
21 of the ordinance provides as follows:
Sec. 21 Imposition of Tax. There is hereby levied and
collected a tax of 10% of the fair market value in the
locality per cubic meter of ordinary stones, sand, gravel,
earth and other quarry resources, such, but not limited to
marble, granite, volcanic cinders, basalt, tuff and rock
phosphate, extracted from public lands or from beds of
seas, lakes, rivers, streams, creeks and other public waters
within its territorial jurisdiction.
Pursuant thereto, the Provincial Treasurer of Bulacan, in a

letter dated November 11, 1993, assessed private
respondent Republic Cement Corporation P2,524,692.13 for
extracting limestone, shale and silica from several parcels of
private land in the province during the third quarter of 1992
until the second quarter of 1993. Believing that the province,
on the basis of above-said ordinance, had no authority to
impose taxes on quarry resources extracted from private
lands, Republic Cement formally contested the same on
December 23, 1993 but was denied by the Provincial
Treasurer on January 17, 1994. Republic Cement
consequently filed a petition for declaratory relief with the
RTC of Bulacan on February 14, 1994. The province filed a
motion to dismiss Republic Cement's petition, which was
granted by the trial court on May 13, 1993, which ruled that
declaratory relief was improper, allegedly because a breach
of the ordinance had been committed by Republic Cement.
On July 11, 1994, Republic Cement filed a petition for
certiorari with the Supreme Court seeking to reverse the trial

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court's dismissal of their petition. The Court, in a resolution

dated July 27, 1994, referred the same to the Court of
Appeals. In the interim, the Province of Bulacan issued a
warrant of levy against Republic Cement, allegedly because
of its unpaid tax liabilities. Negotiations between Republic
Cement and petitioners resulted in an agreement and modus
vivendi (temporary agreement) on December 12, 1994,
whereby Republic Cement agreed to pay under protest
P1,262,346.00, 50% of the tax assessed by petitioner, in
exchange for the lifting of the warrant of levy. CA ruled that
Province of Bulacan had no legal authority.
ISSUE
W/N the provincial government could impose and/or assess
taxes on quarry resources extracted by Republic Cement
from private lands pursuant to Section 21 of Provincial
Ordinance No. 3? No, a province may not levy excise
taxes on articles already taxed by the National
Internal Revenue Code.
RULING
First, with regard to the remedial issue. Petitioners assert that
the Court of Appeals could only rule on the propriety of the
trial court's dismissal of Republic Cement's petition for
declaratory relief, allegedly because that was the sole relief
sought by the latter in its petition for certiorari. Petitioners
claim that the appellate court overstepped its jurisdiction
when it declared null and void the assessment made by the
Province of Bulacan against Republic Cement. However, the
SC declared that under the principle of estoppel, the
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petitioners can no longer attack the modus Vivendi approved

by the CA.
Second and more importantly, is the issue on the validity of
the ordinance. The pertinent provisions of the Local
Government Code are as follows:
Sec. 134. Scope of Taxing Powers. Except as otherwise
provided in this Code, the province may levy only the
taxes, fees, and charges as provided in this Article.
Sec. 158. Tax on Sand, Gravel and Other Quarry Resources.
The province may levy and collect not more than ten
percent (10%) of fair market value in the locality per cubic
meter of ordinary stones, sand, gravel, earth, and other
quarry resources, as defined under the National Internal
Revenue Code, as amended, extracted from public lands or
from the beds of seas, lakes, rivers, streams, creeks, and
other public waters within its territorial jurisdiction.
xxx xxx xxx
The CA on the basis of Section 134, ruled that a province was

empowered to impose taxes only on sand, gravel, and other
quarry resources extracted from public lands, its authority to
tax being limited by said provision only to those taxes, fees
and charges provided in Article I, Chapter 2, Title 1 of Book II
of the Local Government Code. On the other hand,
petitioners claim that Sections 129 and 186 of the Local
Government Code authorizes the province to impose taxes
other than those specifically enumerated under the Local
Government Code. The CA erred in ruling that a province can
impose only the taxes specifically mentioned under the Local
Government Code. As correctly pointed out by petitioners,
Section 186 allows a province to levy taxes other than those
specifically enumerated under the Code, subject to the
conditions specified therein.

Atty. Mendoza
However, in spite of this, province of Bulacan is still

prohibited from imposing taxes on stones, sand, gravel, earth
and other quarry resources extracted from private lands. The
tax imposed by the Province of Bulacan is an excise tax,
being a tax upon the performance, carrying on, or exercise of
an activity. The Local Government Code provides:
Sec. 133. Common Limitations on the Taxing Powers of
Local Government Units. Unless otherwise provided
herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the
levy of the following:
xxx xxx xxx
(h) Excise taxes on articles enumerated under the National
Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products;
xxx xxx xxx
A province may not, therefore, levy excise taxes on articles

already taxed by the National Internal Revenue Code. The
National Internal Revenue Code levies a tax on all quarry
resources, regardless of origin, whether extracted from public
or private land. Thus, a province may not ordinarily impose
taxes on stones, sand, gravel, earth and other quarry
resources, as the same are already taxed under the National
Internal Revenue Code. The province can, however, impose a
tax on stones, sand, gravel, earth and other quarry resources
extracted from public land because it is expressly
empowered to do so under the Local Government Code. As to
stones, sand, gravel, earth and other quarry resources
extracted from private land, however, it may not do so,
because of the limitation provided by Section 133 of the
Code in relation to Section 151 of the National Internal
Revenue Code.
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MAGTAJAS vs. PRYCE PROPERTIES

FACTS
When PAGCOR announced the opening of a casino in
Cagayan de Oro City, Civic organizations angrily denounced
the project. The trouble arose when in 1992, PAGCOR decided
to expand its operations to Cagayan de Oro City. It leased a
portion of a building belonging to Pryce.
The Sangguniang Panlungsod of Cagayan de Oro City
enacted Ordinance No. 3353 which basically prohibits the
issuance of business permits to any establishment for the
using and allowing to be used its premises or portion thereof
for the operation of casino.It also adopted a sterner
Ordinance No. 3375-93 which prohibits the operation of
casino and providing penalty for violation thereof.
Pryce assailed the ordinances before the CA, where it was
joined by PAGCOR as intervenor and supplemental petitioner.
The CA declared the ordinances invalid and issued the writ
prayed for to prohibit their enforcement.
ISSUE
Whether or not the ordinances were unconstitutional and
thus void
RULING
Yes.
PAGCOR is a corporation created directly by P.D. 1869 to help
centralize and regulate all games of chance, including within

Atty. Mendoza
the territorial jurisdiction of the Philippines. In Basco v.

Philippine Amusements and Gaming Corporation, this Court
sustained the constitutionality of the decree and even cited
the benefits of the entity to the national economy as the
third highest revenue-earner in the government, next only to
the BIR and the Bureau of Customs.
Cagayan de Oro City is empowered to enact ordinances for
the purposes indicated in the Local Government Code. It is
expressly vested with the police power under what is known
as the General Welfare Clause now embodied in Section 16
as follows:
Sec. 16. General Welfare. Every local government unit
shall exercise the powers expressly granted, those
necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental for its efficient and
effective governance, and those which are essential to the
promotion of the general welfare. Within their respective
territorial jurisdictions, local government units shall ensure
and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance
the right of the people to a balanced ecology, encourage
and support the development of appropriate and selfreliant scientific and technological capabilities, improve
public morals, enhance economic prosperity and social
justice, promote full employment among their residents,
maintain peace and order, and preserve the comfort and
convenience of their inhabitants.
In addition, Section 458 of the said Code specifically declares

that:
Sec. 458. Powers, Duties, Functions and Compensation.
(a) The Sangguniang Panlungsod, as the legislative body
of the city, shall enact ordinances, approve resolutions and
appropriate funds for the general welfare of the city and its
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inhabitants pursuant to Section 16 of this Code and in the

proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:
(1) Approve ordinances and pass resolutions necessary for
an efficient and effective city government, and in this
connection, shall:
xxx xxx xxx
(v) Enact ordinances intended to prevent,
suppress and impose appropriate penalties
for habitual drunkenness in public places,
vagrancy,
mendicancy,
prostitution,
establishment and maintenance of houses of
ill repute, gambling and other prohibited
games of chance, fraudulent devices and
ways to obtain money or property, drug
addiction, maintenance of drug dens, drug
pushing, juvenile delinquency, the printing,
distribution or exhibition of obscene or
pornographic materials or publications, and
such other activities inimical to the welfare
and morals of the inhabitants of the city;
The petitioners argue that by virtue of these provisions, the

Sangguniang Panlungsod may prohibit the operation of
casinos because they involve games of chance, which are
detrimental to the people. The legislative power conferred
upon local government units may be exercised over all kinds
of gambling and not only over "illegal gambling" as the
respondents erroneously argue. Even if the operation of
casinos may have been permitted under P.D. 1869, the
government of Cagayan de Oro City has the authority to
prohibit them within its territory pursuant to the authority
entrusted to it by the Local Government Code.

Atty. Mendoza
The petitioners also stress that when the Code expressly

authorized the local government units to prevent and
suppress gambling and other prohibited games of chance,
like craps, baccarat, blackjack and roulette, it meant all forms
of gambling without distinction. Ubi lex non distinguit, nec
nos distinguere debemos. Otherwise, it would have expressly
excluded from the scope of their power casinos and other
forms of gambling authorized by special law, as it could have
easily done. The fact that it did not do so simply means that
the local government units are permitted to prohibit all kinds
of gambling within their territories, including the operation of
casinos.
The adoption of the Local Government Code, it is pointed out,
had the effect of modifying the charter of the PAGCOR. The
Code is not only a later enactment than P.D. 1869 and so is
deemed to prevail in case of inconsistencies between them.
More than this, the powers of the PAGCOR under the decree
are expressly discontinued by the Code insofar as they do not
conform to its philosophy and provisions, pursuant to Par. (f)
of its repealing clause reading as follows:
(f) All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative
regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed
or modified accordingly.
It is also maintained that assuming there is doubt regarding

the effect of the Local Government Code on P.D. 1869, the
doubt must be resolved in favor of the petitioners, in
accordance with the direction in the Code calling for its
liberal interpretation in favor of the local government units.
Section 5 of the Code specifically provides:
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Sec. 5. Rules of Interpretation. In the interpretation of

the provisions of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit
shall be liberally interpreted in its favor, and in case of
doubt, any question thereon shall be resolved in favor of
devolution of powers and of the lower local government
unit. Any fair and reasonable doubt as to the existence of
the power shall be interpreted in favor of the local
government unit concerned;
xxx xxx xxx
(c) The general welfare provisions in this Code shall be
liberally interpreted to give more powers to local
government units in accelerating economic development
and upgrading the quality of life for the people in the
community; . . . (Emphasis supplied.)
Finally, the petitioners also attack gambling as intrinsically

harmful and cite various provisions of the Constitution and
several decisions of this Court expressive of the general and
official disapprobation of the vice. They invoke the State
policies on the family and the proper upbringing of the youth
and, as might be expected, call attention to the old case of
U.S. v. Salaveria, which sustained a municipal ordinance
prohibiting the playing of panguingue.
The morality of gambling is not a justiciable issue. Gambling
is not illegal per se. While it is generally considered inimical
to the interests of the people, there is nothing in the
Constitution categorically proscribing or penalizing gambling
or, for that matter, even mentioning it at all. It is left to
Congress to deal with the activity as it sees fit. In the
exercise of its own discretion, the legislature may prohibit
gambling altogether or allow it without limitation or it may
prohibit some forms of gambling and allow others for

Atty. Mendoza
whatever reasons it may consider sufficient. It is settled that

questions regarding the wisdom, morality, or practicibility of
statutes are not addressed to the judiciary but may be
resolved only by the legislative and executive departments,
to which the function belongs in our scheme of government.
That function is exclusive.
The only question we can and shall resolve in this petition is
the validity of Ordinance No. 3355 and Ordinance No. 337593 as enacted by the Sangguniang Panlungsod of Cagayan
de Oro City. And we shall do so only by the criteria laid down
by law and not by our own convictions on the propriety of
gambling.
The tests of a valid ordinance are well established. A long line
of decisions has held that to be valid, an ordinance must
conform to the following substantive requirements:
1) It must not contravene the constitution or any
statute.
2) It must not be unfair or oppressive.
3) It must not be partial or discriminatory.
4) It must not prohibit but may regulate trade.
5) It must be general and consistent with public
policy.
6) It must not be unreasonable.
We begin by observing that under Sec. 458 of the Local
Government Code, local government units are authorized to
prevent or suppress, among others, "gambling and other
prohibited games of chance." Obviously, this provision
excludes games of chance which are not prohibited but are in
fact permitted by law. The petitioners are less than accurate
in claiming that the Code could have excluded such games of
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chance but did not. In fact it does. The language of the

section is clear and unmistakable. Under the rule of noscitur
a sociis, a word or phrase should be interpreted in relation to,
or given the same meaning of, words with which it is
associated. Accordingly, we conclude that since the word
"gambling" is associated with "and other prohibited games of
chance," the word should be read as referring to only illegal
gambling which, like the other prohibited games of chance,
must be prevented or suppressed.
The apparent flaw in the ordinances in question is that they
contravene P.D. 1869 and the public policy embodied therein
insofar as they prevent PAGCOR from exercising the power
conferred on it to operate a casino in Cagayan de Oro City.
The petitioners have an ingenious answer to this misgiving.
They deny that it is the ordinances that have changed P.D.
1869 for an ordinance admittedly cannot prevail against a
statute. Their theory is that the change has been made by
the Local Government Code itself, which was also enacted by
the national lawmaking authority. In their view, the decree
has been, not really repealed by the Code, but merely
"modified pro tanto" in the sense that PAGCOR cannot now
operate a casino over the objection of the local government
unit concerned. This modification of P.D. 1869 by the Local
Government Code is permissible because one law can
change or repeal another law.
It seems to us that the petitioners are playing with words.
While insisting that the decree has only been "modified pro
tanto," they are actually arguing that it is already dead,
repealed and useless for all intents and purposes because
the Code has shorn PAGCOR of all power to centralize and
regulate casinos. Strictly speaking, its operations may now

Atty. Mendoza
be not only prohibited by the local government unit; in fact,

the prohibition is not only discretionary but mandated by
Section 458 of the Code if the word "shall" as used therein is
to be given its accepted meaning. Local government units
have now no choice but to prevent and suppress gambling,
which in the petitioners' view includes both legal and illegal
gambling. Under this construction, PAGCOR will have no more
games of chance to regulate or centralize as they must all be
prohibited by the local government units pursuant to the
mandatory duty imposed upon them by the Code. In this
situation, PAGCOR cannot continue to exist except only as a
toothless tiger or a white elephant and will no longer be able
to exercise its powers as a prime source of government
revenue through the operation of casinos.
It is noteworthy that the petitioners have cited only Par. (f) of
the repealing clause, conveniently discarding the rest of the
provision which painstakingly mentions the specific laws or
the parts thereof which are repealed (or modified) by the
Code. Significantly, P.D. 1869 is not one of them. A reading of
the entire repealing clause, Section 534, will disclose the
omission of said P.D. 1869. Furthermore, it is a familiar rule
that implied repeals are not lightly presumed in the absence
of a clear and unmistakable showing of such intention.
It is a canon of legal hermeneutics that instead of pitting one
statute against another in an inevitably destructive
confrontation, courts must exert every effort to reconcile
them, remembering that both laws deserve a becoming
respect as the handiwork of a coordinate branch of the
government. On the assumption of a conflict between P.D.
1869 and the Code, the proper action is not to uphold one
and annul the other but to give effect to both by harmonizing
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them if possible. This is possible in the case before us. The

proper resolution of the problem at hand is to hold that under
the Local Government Code, local government units may
(and indeed must) prevent and suppress all kinds of
gambling within their territories except only those allowed by
statutes like P.D. 1869. The exception reserved in such laws
must be read into the Code, to make both the Code and such
laws equally effective and mutually complementary.
This basic relationship between the national legislature and
the local government units has not been enfeebled by the
new provisions in the Constitution strengthening the policy of
local autonomy. Without meaning to detract from that policy,
we here confirm that Congress retains control of the local
government units although in significantly reduced degree
now than under our previous Constitutions. The power to
create still includes the power to destroy. The power to grant
still includes the power to withhold or recall. True, there are
certain notable innovations in the Constitution, like the direct
conferment on the local government units of the power to
tax, which cannot now be withdrawn by mere statute. By and
large, however, the national legislature is still the principal of
the local government units, which cannot defy its will or
modify or violate it.
Separate Opinions
PADILLA, J., concurring:
I concur with the majority holding that the city ordinances in
question cannot modify much less repeal PAGCOR's general
authority to establish and maintain gambling casinos
anywhere in the Philippines under Presidential Decree No.
1869.

Atty. Mendoza
However, despite the legality of the opening and operation of

a casino in Cagayan de Oro City by respondent PAGCOR, I
wish to reiterate my view that gambling in any form runs
counter to the government's own efforts to re-establish and
resurrect the Filipino moral character which is generally
perceived to be in a state of continuing erosion. It is in the
light of this alarming perspective that I call upon government
to carefully weigh the advantages and disadvantages of
setting up more gambling facilities in the country. That the
PAGCOR contributes greatly to the coffers of the government
is not enough reason for setting up more gambling casinos
because, undoubtedly, this will not help improve, but will
cause a further deterioration in the Filipino moral character.It
is worth remembering in this regard that, 1) what is legal is
not always moral and 2) the ends do not always justify the
means.
DAVIDE, JR., J., concurring:
While I concur in part with the majority, I wish, however, to
express my views on certain aspects of this case.
I.
It must at once be noted that private respondent Pryce
Properties Corporation (PRYCE) directly filed with the Court of
Appeals its so-called petition for prohibition, thereby invoking
the said court's original jurisdiction to issue writs of
prohibition under Section 9(1) of B.P. Blg. 129. As I see it,
however, the principal cause of action therein is one for
declaratory relief: to declare null and unconstitutional for,
inter alia, having been enacted without or in excess of
jurisdiction, for impairing the obligation of contracts, and for
being inconsistent with public policy the challenged
ordinances enacted by the Sangguniang Panglungsod of the
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City of Cagayan de Oro. The intervention therein of public

respondent Philippine Amusement and Gaming Corporation
(PAGCOR) further underscores the "declaratory relief" nature
of the action. PAGCOR assails the ordinances for being
contrary to the non-impairment and equal protection clauses
of the Constitution, violative of the Local Government Code,
and against the State's national policy declared in P.D. No.
1869. Accordingly, the Court of Appeals does not have
jurisdiction over the nature of the action. Even assuming
arguendo that the case is one for prohibition, then, under this
Court's established policy relative to the hierarchy of courts,
the petition should have been filed with the Regional Trial
Court of Cagayan de Oro City. I find no special or compelling
reason why it was not filed with the said court. I do not wish
to entertain the thought that PRYCE doubted a favorable
verdict therefrom, in which case the filing of the petition with
the Court of Appeals may have been impelled by tactical
considerations. A dismissal of the petition by the Court of
Appeals would have been in order pursuant to our decisions.
P&G vs. MUNICIPALITY OF JUGNA
FACTS
P &G is a domestic corporation engaged in the manufacture
of soap, edible oil, margarine and other similar products, and
for this purpose maintains a "bodega" in defendant
Municipality where it stores copra purchased in the
municipality and therefrom ships the same for its
manufacturing and other operations.
Subsequently, the Municipal Council of Jagna enacted
Municipal Ordinance No. 4 which imposes storage fees to all

Atty. Mendoza
exportable copra deposited in a bodega within the

jurisdiction of the Municipality.
For a period of six years, from 1958 to 1963, P&G paid
defendant Municipality, allegedly under protest, storage fees
in the total sum of 1142,265.13.
In 1964, P&G filed this suit in the CFI wherein it prayed that
1) Ordinance No. 4 be declared inapplicable to it (it claims
that it is not engaged in the storage of copra for
compensation and the tax pf P0.10 for 100 kilos is excessive,
unreasonable and oppressive), or that it be pronounced ultravires and void for being beyond the power of the Municipality
to enact; and 2) that defendant Municipality be ordered to
refund to it the amount which it had paid under protest; and
costs. However, defendant Municipality upheld its power to
enact the Ordinance in question; questioned the jurisdiction
of the CFI to take cognizance of the action; and pleaded
prescription and laches for P&G's failure to timely question
the validity of the said Ordinance.
After the parties had agreed to submit the case for judgment
on the pleadings, the CFI upheld its jurisdiction as well as
defendant Municipality's power to enact the Ordinance in
question under section 2238 of the Revised Administrative
Code, otherwise known as the general welfare clause, and
declared that P&G's right of action had prescribed under the
5-year period provided for by Article 1149 of the Civil Code.
ISSUE
Whether defendant Municipality was authorized to impose
and collect the storage fee provided for in the challenged
Ordinance
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RULING
The validity of the Ordinance must be upheld pursuant
to the broad authority conferred upon municipalities by
Commonwealth Act No. 472, which was the prevailing law
when the Ordinance was enacted. Section 1 thereof reads:
Section 1. A municipal council or municipal district council
shall have the authority to impose municipal license
taxes upon persons engaged in any occupation or
business, or exercising privileges in the municipality
or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council, or
municipal district council, and to collect fees and charges
for services renderedxx
Under the foregoing provision, a municipality is authorized to

impose three kinds of licenses: (1) a license for regulation of
useful occupation or enterprises; (2) license for restriction or
regulation of non-useful occupations or enterprises; and (3)
license for revenue. It is thus unnecessary, to determine
whether the subject storage fee is a tax for revenue purposes
or a license fee to reimburse defendant Municipality for
service of supervision because defendant Municipality is
authorized not only to impose a license fee but also to tax for
revenue purposes.
Moreover, the business of buying and selling and storing
copra is property the subject of regulation within the police
power granted to municipalities under section 2238 of the
Revised Administrative Code or the "general welfare clause"
P&G's argument that the imposition of P0.10 per 100 kilos of
copra stored in a bodega within defendant's territory is

Atty. Mendoza
beyond the cost of regulation and surveillance is not well

taken. As enunciated in the case of Victorias Milling Co. vs.
Municipality of Victorias, The cost of regulation cannot be
taken as a gauge, if the municipality really intended to enact
a revenue ordinance. Municipal corporations are allowed
wide discretion in determining the rates of imposable license
fees even in cases of purely police power measures. In the
case at bar, P&G has not sufficiently shown that the rate
imposed by the questioned Ordinance is oppressive,
excessive and prohibitive.
The Ordinance in question does not amount to double
taxation. For double taxation to exist, the same property
must be taxed twice, when it should be taxed but once.
Surely, a tax on P&G's products is different from a tax on the
privilege of storing copra in a bodega situated within the
territorial boundary of defendant municipality.
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TAX II
copra to be exported but also upon copra sold and to be used

for domestic purposes if stored in any warehouse in the
Municipality and the weight thereof is 100 kilos or more.
On the issue of prescription, the case of Municipality of Opon
vs. Caltex Phil., is authority for the view that the period for
prescription of actions to recover municipal license taxes is
six years under Article 1145(2) of the Civil Code. Thus,
plaintiff's action brought within six years from the time the
right of action first accrued in 1958 has not yet prescribed.
VILLANUEVA vs. CITY OF ILOILO

P&G's further contention that the storage fee imposed by the
Ordinance is actually intended to be an export tax, which is
expressly prohibited by section 2287 of the Revised
Administrative Code, is without merit. Said provision reads as
follows:
Section 2287 ... It shall not be in the power of the
municipal council to impose a tax in any form whatever
upon goods and merchandise carried into the municipality,
or out of the same, and any attempt to impose an import
or export tax upon such goods shall be void. xxx xxx xxx
We have held that only where there is a clear showing that

what is being taxed is an export to any foreign country would
the prohibition come into play. The storage fee impugned is
not a tax on export because it is imposed not only upon
FACTS
On September 30, 1946 the municipal board of Iloilo City
enacted Ordinance 86, imposing license tax fees on
tenement house.This Court, in City of Iloilo vs. Remedios Sian
Villanueva and Eusebio Villanueva declared the ordinance
ultra vires, "it not appearing that the power to tax owners of
tenement houses is one among those clearly and expressly
granted to the City of Iloilo by its Charter." On January 15,
1960 the municipal board of Iloilo City, believing, obviously,
that with the passage of RA 2264,Local Autonomy Act, it had
acquired the authority or power to enact an ordinance similar
to that previously declared by this Court as ultra vires,
enacted Ordinance 11 (AN ORDINANCE IMPOSING
MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE

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BUSINESS OF OPERATING TENEMENT HOUSES).By virtue of

the ordinance in question, the appellant City collected from
appellee Villanueva, for the years 1960-1964, the sum of
P5,824.30, and from other appellees, for the same year, the
sum of P1,317.00. Hence, plaintiffs-appellees filed a
complaint, against the City of Iloilo, praying that Ordinance
11 be declared "invalid for being beyond the powers of the
Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to
uniformity of taxation and for depriving said plaintiffs of the
equal protection clause of the Constitution," and that the City
be ordered to refund the amounts collected from them under
the said ordinance. Lower court rendered judgment declaring
the ordinance illegal.
ISSUES
1. Is the City of Iloilo empowered by the Local Autonomy
Act to impose tenement taxes? YES.
2. Is Ordinance 11 of the City of Iloilo, illegal because it
imposes double taxation? NO.
3. Is Ordinance 11 oppressive and unreasonable because
it carries a penal clause? NO.
4. Does Ordinance 11 violate the rule of uniformity of
taxation? NO.
RULING
1. RA 2264 confer on local governments broad taxing
authority which extends to almost "everything, excepting
those which are mentioned therein," provided that the tax so
A.M.+D.G.
TAX II
levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to
a controlling statute.Thus, when a tax, levied under the
authority of a city or municipal ordinance, is not within the
exceptions and limitations aforementioned, the same comes
within the ambit of the general rule, pursuant to the rules of
expressio unius est exclusio alterius, and exceptio firmat
regulum in casibus non excepti.
The appellees strongly maintain that it is a "property tax" or
"real estate tax," and not a "tax on persons engaged in any
occupation or business or exercising privileges," or a license
tax, or a privilege tax, or an excise tax. It is our view,
contrary to the appellees' contention, that the tax in question
is not a real estate tax. The tax imposed by the ordinance in
question does not possess the attributes of a real estate tax.
It is not a tax on the land on which the tenement houses are
erected, although both land and tenement houses may
belong to the same owner. The tax is not a fixed proportion of
the assessed value of the tenement houses, and does not
require the intervention of assessors or appraisers. It is not
payable at a designated time or date, and is not enforceable
against the tenement houses either by sale or distraint.
Clearly, therefore, the tax in question is not a real estate tax.
On the contrary, it is plain from the context of the ordinance
that the intention is to impose a license tax on the operation
of tenement houses, which is a form of business or calling.
The ordinance, in both its title and body, particularly sections
1 and 3 thereof, designates the tax imposed as a "municipal
license tax" which, by itself, means an "imposition or
exaction on the right to use or dispose of property, to pursue
a business, occupation, or calling, or to exercise a privilege.
In City of Iloilo vs. Remedios Sian Villanueva, et al., tenement

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house is defined as "any house or building, or portion thereof,

which is rented, leased, or hired out to be occupied, or is
occupied, as the home or residence of three families or more
living independently of each other and doing their cooking in
the premises or by more than two families upon any floor, so
living and cooking, but having a common right in the halls,
stairways, yards, water-closets, or privies, or some of them."
Tenement houses, being necessarily offered for rent or lease
by their very nature and essence, therefore constitute a
distinct form of business or calling, similar to the hotel or
motel business, or the operation of lodging houses or
boarding houses.
A.M.+D.G.
TAX II
under the ordinance in question, the argument against

double taxation may not be invoked. The same tax may be
imposed by the national government as well as by the local
government. There is nothing inherently obnoxious in the
exaction of license fees or taxes with respect to the same
occupation, calling or activity by both the State and a
political subdivision thereof.
The lower court has interchangeably denominated the tax in

question as a tenement tax or an apartment tax. Called by
either name, it is not among the exceptions listed in section
2 of the Local Autonomy Act. On the other hand, the
imposition by the ordinance of a license tax on persons
engaged in the business of operating tenement houses finds
authority in section 2 of the Local Autonomy Act which
provides that chartered cities have the authority to impose
municipal license taxes or fees upon persons engaged in any
occupation or business, or exercising privileges within their
respective territories, and "otherwise to levy for public
purposes, just and uniform taxes, licenses, or fees."
The contention that the plaintiffs-appellees are doubly taxed

because they are paying the real estate taxes and the
tenement tax imposed by the ordinance in question, is also
devoid of merit. It is a well-settled rule that a license tax may
be levied upon a business or occupation although the land or
property used in connection therewith is subject to property
tax. To constitute double taxation in the objectionable or
prohibited sense the same property must be taxed twice
when it should be taxed but once; both taxes must be
imposed on the same property or subject-matter, for the
same purpose, by the same State, Government, or taxing
authority, within the same jurisdiction or taxing district,
during the same taxing period, and they must be the same
kind or character of tax. It has been shown that a real estate
tax and the tenement tax imposed by the ordinance,
although imposed by the same taxing authority, are not of
the same kind or character.
2. The trial court condemned the ordinance as constituting

"not only double taxation but treble at that," because
"buildings pay real estate taxes and also income taxes as
provided for in Sec. 182 (A) (3) (s) of the NIRC, besides the
tenement tax under the said ordinance." While it is true that
the plaintiffs-appellees are taxable under the aforesaid
provisions of the NIRC as real estate dealers, and still taxable
3. A tax is not a debt in the sense of an obligation incurred by

contract, express or implied, and therefore is not within the
meaning of constitutional or statutory provisions abolishing
or prohibiting imprisonment for debt, and a statute or
ordinance which punishes the non-payment thereof by fine or
imprisonment is not, in conflict with that prohibition. Nor is
the tax in question a poll tax, for the latter is a tax of a fixed

Atty. Mendoza
amount upon all persons, or upon all persons of a certain

class, resident within a specified territory, without regard to
their property or the occupations in which they may be
engaged. Therefore, the tax in question is not oppressive in
the manner the lower court puts it. On the other hand, the
charter of Iloilo City empowers its municipal board to "fix
penalties for violations of ordinances, which shall not exceed
a fine of two hundred pesos or six months' imprisonment, or
both such fine and imprisonment for each offense.
4. The trial court brands the ordinance as violative of the rule
of uniformity of taxation because while the owners of the
other buildings only pay real estate tax and income taxes,
the ordinance imposes aside from these two taxes an
apartment or tenement tax. Appellees also argue that there
is "lack of uniformity" and "relative inequality," because "only
the taxpayers of the City of Iloilo are singled out to pay taxes
on their tenement houses, while citizens of other cities,
where their councils do not enact a similar tax ordinance, are
permitted to escape such imposition."
A.M.+D.G.
TAX II
the same purpose should be imposed in different territorial

subdivisions at the same time.So long as the burden of the
tax falls equally and impartially on all owners or operators of
tenement houses similarly classified or situated, equality and
uniformity of taxation is accomplished.
The last important issue posed by the appellees is that since
the ordinance in the case at bar is a mere reproduction of
Ordinance 86 of the City of Iloilo which was declared by this
Court as ultra vires, the decision in that case should be
accorded the effect of res judicata in the present case or
should constitute estoppel by judgment. To dispose of this
contention, it suffices to say that there is no identity of
subject-matter in that case and this case because the
subject-matter in it was an ordinance which dealt not only
with tenement houses but also warehouses, and the said
ordinance was enacted pursuant to the provisions of the City
charter, while the ordinance in the case at bar was enacted
pursuant to the provisions of the Local Autonomy Act.
MUNICIPALITY OF OPON vs. CALTEX
It is our view that both assertions are undeserving of

extended attention. This Court has already ruled that
tenement houses constitute a distinct class of property. It has
likewise ruled that "taxes are uniform and equal when
imposed upon all property of the same class or character
within the taxing authority." The fact, therefore, that the
owners of other classes of buildings in the City of Iloilo do not
pay the taxes imposed by the ordinance in question is no
argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity
violated by the fact that tenement taxes are not imposed in
other cities, for the same rule does not require that taxes for
FACTS
Caltex (Philippines) Inc., is a domestic corporation engaged in
the business of importing, distributing and selling gasoline,
kerosene and other petroleum products. For the purpose of
storing its imported petroleum products it has an
establishment called 'Caltex Opon Terminal' located in the
Municipality of Opon, Cebu. In addition, the said 'Caltex Opon
Terminal' has a tin can factory whereby plaintiff-appellant
manufactures 5-gallon tin cans for its use in the sale and
distribution of its petroleum products.

Atty. Mendoza
Pursuant, however, to a service agreement dated August 1,

1946 and entered into between plaintiff-appellant and
Tidewater Associated Oil Company, plaintiff-appellant agreed
to arrange, within its ability to do so, in drum and package
factories owned and operated by it, to manufacture, supply
and/or fill cans and drums for Tidewater, provided the latter
reimburses herein plaintiff-appellant for all cost and expense
caused thereby, plus three (3%) per cent of such cost and
expense.
From 1950 to 1955, plaintiff-appellants9 tin can factory at its
'Caltex Opon Terminal' manufactured 8,037,775 tin cans out
of which 6,883,429 were used for the sale and distribution of
its own products and 1,154,346 tin cans were delivered to
Tidewater
by
virtue
of
the
service
agreement
abovementioned.
Ordinance No. 9, series of 1949, of defendant-appellee
Municipality of Opon, Cebu, imposes a municipal license tax
on tin factory on the basis of its maximum annual output
capacity, with a schedule of graduated rates. Section 1, in
part, provides: "A municipal license tax on tin factory" is
imposed upon "(a) Tin factory with a maximum output
capacity of 30,000 tins P150.00"
Pursuant to this ordinance, defendants-appellees levied and
collected from plaintiff-appellant license taxes based on the
production of the tin factory at its 'Caltex Opon Terminal' for
the years 1950 to 1955.
Plaintiff contends that respondent company is liable for the
entire output of the tin can factory because profit is the
A.M.+D.G.
TAX II
motivating factor in the manufacture thereof. Petitioners'

view is that the tin cans whether for its own use or for
Tidewater upon the contract heretofore stated, are taxable.
Reason therefor, so petitioners point out, is that the license
tax is based on the maximum annual output capacity of the
factory.
ISSUES
1. Whether or not respondent tin can factory is taxable as
a separate business of respondent NO.
2. Whether or not period to claim refund has prescribed
NO.
RULING
1. When a person or company is already taxed on its main
business, it may not be further taxed for doing something or
engaging in an activity or work which is merely a part of,
incidental to and is necessary to its main business.
In the sale and distribution of its products in liquid form
respondent uses containers. The container is a part of the
product sold. By maintaining its factory for tin cans
respondent is assured of continuous supply thereof.
Therefore, the tin cans it manufactures for its ownership are
not within the coverage of petitioner municipality's taxing
power under Ordinance No. 9.
The
entire-output-of-factory
argument
advanced
by
petitioners needs further articulation. For petitioners insist
that respondent's factory also serves the needs of another
entity Tidewater. To be noted here is that of the tin cans

Atty. Mendoza
produce for the period 1950-1955, 85.63% were used by

respondent; 14.361% delivered to Tidewater. Jurisprudential
support is not wanting for the decision of the Court of
Appeals establishing a dividing line between the tin cans
manufactured for respondent's own business and those for
Tidewater.
For the tin cans produced for Tidewater license tax was
correctly assessed. But for those produced by respondent for
its own use, no license tax is due, because the manufacture
thereof is "incidental to" and tends "to better accomplish the
principal end in view" its main business.
A.M.+D.G.
TAX II
PBA now raises the case to the SC

ISSUES
1. Does the National government have jurisdiction to tax
PBA or is it the local government as provided in SEC.
13 of the Local Tax code? NO
2. Is the Petitioner liable for the said amusement taxes?
YES
PHILIPPINE BASKETBALL ASSOCIATION vs. CA
Petitioner contends PD 231, otherwise known as the Local Tax

Code of 1973, transferred the power and authority to levy
and collect amusement taxes from the sale of admission
tickets to places of amusement from the national
government to the local governments. Petitioner cited BIR
Memorandum Circular No. 49-73 providing that the power to
levy and collect amusement tax on admission tickets was
transferred to the local governments by virtue of the Local
Tax Code; and BIR Ruling No. 231-86 which held that "the
jurisdiction to levy amusement tax on gross receipts from
admission tickets to places of amusement was transferred to
local governments under P.D. No. 231, as amended.
FACTS
RULING
2. A rule which has earned acceptance is that the period for

prescription of action to recover municipal license taxes is six
years under Article 1145 (2) of the Civil Code. The two-year
prescriptive period in Section 306 of the National Internal
Revenue Code relied upon by petitioners finds no application.
For, this codal provision, as we have said in one case, "clearly
refers exclusively to claims for refund of `national internal
revenue tax' erroneously or illegally collected" and not "to a
refund of `local or municipal license fees' illegally collected."
PBA received a tax assessment from the BIR for deficiency on

amusement taxes
PBA contested the said deficiency on amusement taxes with
the CTA however was denied. The same was raised to the CA
and was also denied as well as a subsequent MR.
Sec. 13. Amusement tax on admission. -The province shall

impose a tax on admission to be collected from the
proprietors,
lessees,
or
operators
of
theaters,
cinematographs, concert halls, circuses and other places of
amusement xxx."

Atty. Mendoza
The foregoing provision of law in point indicates that the

province can only impose a tax on admission from the
proprietors,
lessees,
or
operators
of
theaters,
cinematographs, concert halls, circuses and other places of
amusement. The authority to tax professional basketball
games is not therein included.
With the reference to PD 871 by PD 1456 and PD 1959, there
is a recognition under the laws of this country that the
amusement tax on professional basketball games is a
national, and not a local, tax. Even up to the present, the
category of amusement taxes on professional basketball
games as a national tax remains the same. This is so
provided under Section 125 of the 1997 National Internal
Revenue Code. Section 140 of the Local Government Code of
1992 (Republic Act 7160), meanwhile, retained the areas
(theaters, cinematographs, concert halls, circuses and other
places of amusement) where the province may levy an
amusement tax without including therein professional
basketball games.
Last issue for resolution concerns the liability of petitioner for
the payment of surcharge and interest on the deficiency
amount due. Petitioner contends that it is not liable, as it
acted in good faith, having relied upon the issuances of the
respondent Commissioner. This issue must necessarily fail as
the same has never been posed as an issue before the
respondent court. Issues not raised in the court a quo cannot
be raised for the first time on appeal.
All things studiedly considered, the Court rules that the
petitioner is liable to pay amusement tax to the national
government, and not to the local government, in accordance
with the rates prescribed by PD 1959.
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HAGONOY MARKET VENDOR ASSOCIATION vs.

MUNICIPALITY OF HAGONOY
FACTS
On October 1, 1996, the Sangguniang Bayan of Hagonoy,
Bulacan, enacted an ordinance, Kautusan Blg. 28, which
increased the stall rentals of the market vendors in Hagonoy.
Article 3 provided that it shall take effect upon approval. The
subject ordinance was posted from November 4-25, 1996. In
the last week of November, 1997, the petitioners members
were personally given copies of the approved Ordinance and
were informed that it shall be enforced in January, 1998. On
December 8, 1997, the petitioners President filed an appeal
with the Secretary of Justice assailing the constitutionality of
the tax ordinance. Petitioner claimed it was unaware of the
posting of the ordinance.
Respondent opposed the appeal. It contended that the
ordinance took effect on October 6, 1996 and that the
ordinance, as approved, was posted as required by law.
Hence, it was pointed out that petitioners appeal, made over
a year later, was already time-barred. The Secretary of
Justice dismissed the appeal on the ground that it was filed
out of time, i.e., beyond thirty (30) days from the effectivity
of the Ordinance on October 1, 1996, as prescribed under
Section 187 of the 1991 Local Government Code. Citing the
case of Taada vs. Tuvera, the Secretary of Justice held that
the date of effectivity of the subject ordinance retroacted to
the date of its approval in October 1996, after the required
publication or posting has been complied with, pursuant to
Section 3 of said ordinance.

Atty. Mendoza
A.M.+D.G.
ISSUE
YAMANE vs. BA LEPANTO
Was the appeal by the petitioner with the Secretary of Justice

time-barred?
FACTS
RULING
YES. Section 187 of the Local Govt Code requires that an
appeal of a tax ordinance or revenue measure should
be made to the Secretary of Justice within thirty (30)
days from effectivity of the ordinance and even during
its pendency, the effectivity of the assailed ordinance
shall not be suspended. In the case at bar, Municipal
Ordinance No. 28 took effect in October 1996. Petitioner filed
its appeal only in December 1997, more than a year after the
effectivity of the ordinance in 1996. Clearly, the Secretary of
Justice correctly dismissed it for being time-barred. At this
point, it is apropos to state that the timeframe fixed by law
for parties to avail of their legal remedies before competent
courts is not a mere technicality that can be easily brushed
aside. The periods stated in Section 187 of the Local
Government Code are mandatory. Ordinance No. 28 is a
revenue measure adopted by the municipality of Hagonoy to
fix and collect public market stall rentals. Being its lifeblood,
collection of revenues by the government is of paramount
importance. The funds for the operation of its agencies and
provision of basic services to its inhabitants are largely
derived from its revenues and collections.
Thus, it is
essential that the validity of revenue measures is not left
uncertain for a considerable length of time. Hence, the law
provided a time limit for an aggrieved party to assail the
legality of revenue measures and tax ordinances.
TAX II
Respondent BA-Lepanto Condominium Corporation (the

Corporation) is a duly organized condominium corporation
constituted in accordance with the Condominium Act, which
owns and holds title to the common and limited common
areas of the BA-Lepanto Condominium (the Condominium),
situated in Paseo de Roxas, Makati City. Its membership
comprises the various unit owners of the Condominium. The
Corporation is authorized, under Article V of its Amended ByLaws, to collect regular assessments from its members for
operating expenses, capital expenditures on the common
areas, and other special assessments as provided for in the
Master Deed with Declaration of Restrictions of the
Condominium.
The Corporation received a Notice of Assessment signed by
the City Treasurer stating that the Corporation is liable to
pay the correct city business taxes, fees and charges,
computed as totaling P1,601,013.77 for the years 1995 to
1997. The Notice of Assessment was silent as to the statutory
basis of the business taxes assessed. The Corporation
responded with a written tax protest addressed to the City
Treasurer. It was evident in the protest that the Corporation
was perplexed on the statutory basis of the tax assessment.
Proceeding from the premise that its tax liability arose from
Section 3A.02(m) of the Makati Revenue Code, the
Corporation proceeded to argue that under both the Makati
Code and the Local Government Code, business is defined

Atty. Mendoza
A.M.+D.G.
TAX II
as trade or commercial activity regularly engaged in as a

means of livelihood or with a view to profit. It was submitted
that the Corporation, as a condominium corporation, was
organized not for profit, but to hold title over the common
areas of the Condominium, to manage the Condominium for
the unit owners, and to hold title to the parcels of land on
which the Condominium was located. Neither was the
Corporation authorized, under its articles of incorporation or
by-laws to engage in profit-making activities. The
assessments it did collect from the unit owners were for
capital expenditures and operating expenses.
of the RTC brought on appeal from a first level court could

be elevated for review under the mode of review
prescribed under Rule 42. However, the Corporation
pointed out in its Motion for Reconsideration that under
Section 195 of the Local Government Code, the remedy of
the taxpayer on the denial of the protest filed with the
local treasurer is to appeal the denial with the court of
competent jurisdiction.
The protest was rejected by the City Treasurer, insisting that

the collection of dues from the unit owners was effected
primarily to sustain and maintain the expenses of the
common areas, with the end in view of getting full
appreciative living values for the individual condominium
occupants and to command better marketable prices for
those occupants who would in the future sell their
respective units. Thus, she concluded since the chances of
getting higher prices for well-managed common areas of any
condominium are better and more effective that
condominiums with poor managed common areas, the
corporation activity is a profit venture making.
ISSUES
From the denial of the protest, the Corporation filed an

Appeal with the RTC which dismissed the apeal for lack of
merit, accepting the premise laid by the City Treasurer.
From this Decision of the RTC, the Corporation filed a
Petition for Review under Rule 42 of the Rules of Civil
Procedure with the Court of Appeals. Initially, the petition
was dismissed outright on the ground that only decisions
The CA reversed the RTC and declared that the Corporation

was not liable to pay business taxes to the City of Makati.
1. Whether the RTC, in deciding an appeal taken from a

denial of a protest by a local treasurer under Section
195 of the Local Government Code, exercises original
jurisdiction or appellate jurisdiction.
2. Whether or not the City of Makati may collect business
taxes on condominium corporations.
RULING
1. Original Jurisdiction. The question assumes a measure of
importance to this petition, for the adoption of the position of
the City Treasurer that the mode of review of the decision
taken by the RTC is governed by Rule 41 of the Rules of Civil
Procedure means that the decision of the RTC would have
long become final and executory by reason of the failure of
the Corporation to file a notice of appeal.
Labelling the said review as an exercise of appellate
jurisdiction is inappropriate, since the denial of the protest is

Atty. Mendoza
not the judgment or order of a lower court, but of a local

government official.
From these premises, it is evident that the stance of the City
Treasurer is correct as a matter of law, and that the proper
remedy of the Corporation from the RTC judgment is an
ordinary appeal under Rule 41 to the Court of Appeals.
However, we make this pronouncement subject to two
important qualifications. First, in this particular case there are
nonetheless significant reasons for the Court to overlook the
procedural error and ultimately uphold the adjudication of the
jurisdiction exercised by the Court of Appeals in this case.
Second, the doctrinal weight of the pronouncement is
confined to cases and controversies that emerged prior to the
enactment of Republic Act No. 9282, the law which expanded
the jurisdiction of the Court of Tax Appeals (CTA).
2. No. The coverage of business taxation particular to the City
of Makati is provided by the Makati Revenue Code (Revenue
Code), enacted through Municipal Ordinance No. 92-072. The
Revenue Code remains in effect as of this writing. Article A,
Chapter III of the Revenue Code governs business taxes in
Makati, and it is quite specific as to the particular businesses
which are covered by business taxes.
At no point has the City Treasurer informed the Corporation,
the RTC, the Court of Appeals, or this Court for that matter, as
to what exactly is the precise statutory basis under the
Makati Revenue Code for the levying of the business tax on
petitioner.
The notice of assessment, which stands as the first instance
the taxpayer is officially made aware of the pending tax
liability, should be sufficiently informative to apprise the
taxpayer the legal basis of the tax. Section 195 of the Local
A.M.+D.G.
TAX II
Government Code does not go as far as to expressly require

that the notice of assessment specifically cite the provision of
the ordinance involved but it does require that it state the
nature of the tax, fee or charge, the amount of deficiency,
surcharges, interests and penalties. In this case, the notice of
assessment sent to the Corporation did state that the
assessment was for business taxes, as well as the amount of
the assessment. There may have been prima facie
compliance with the requirement under Section 195. However
in this case, the Revenue Code provides multiple provisions
on business taxes, and at varying rates. Hence, we could
appreciate the Corporations confusion, as expressed in its
protest, as to the exact legal basis for the tax.
Moreover, a careful examination of the Revenue Code shows
that while Section 3A.02(m) seems designed as a catch-all
provision, Section 3A.02(f), which provides for a different tax
rate from that of the former provision, may be construed to
be of similar import. While Section 3A.02(f) is quite
exhaustive in enumerating the class of businesses taxed
under the provision, the listing, while it does not include
condominium-related enterprises, ends with the abbreviation
etc., or et cetera.
(m) On owners or operators of any business not specified
above shall pay the tax at the rate of two percent (2%) for
1993, two and one-half percent (2 %) for 1994 and 1995,
and three percent (3%) for 1996 and the years thereafter of
the gross receipts during the preceding year.
We do note our discomfort with the unlimited breadth and the
dangerous uncertainty which are the twin hallmarks of the
words et cetera. Certainly, we cannot be disposed to
uphold any tax imposition that derives its authority from

Atty. Mendoza
enigmatic and uncertain words such as et cetera. Yet we

cannot even say with definiteness whether the tax imposed
on the Corporation in this case is based on et cetera, or on
Section 3A.02(m), or on any other provision of the Revenue
Code. Assuming that the assessment made on the
Corporation is on a provision other than Section 3A.02(m), the
main legal issue takes on a different complexion. For
example, if it is based on et cetera under Section 3A.02(f),
we would have to examine whether the Corporation faces
analogous comparison with the other businesses listed under
that provision.
Certainly, the City Treasurer has not been helpful in that
regard, as she has been silent all through out as to the exact
basis for the tax imposition which she wishes that this Court
uphold. Indeed, there is only one thing that prevents this
Court from ruling that there has been a due process violation
on account of the City Treasurers failure to disclose on paper
the statutory basis of the taxthat the Corporation itself does
not allege injury arising from such failure on the part of the
City Treasurer.
As stated earlier, local tax on businesses is authorized under
Section 143 of the Local Government Code. The word
business itself is defined under Section 131(d) of the Code
as trade or commercial activity regularly engaged in as a
means of livelihood or with a view to profit. This definition of
business takes on importance, since Section 143 allows
local government units to impose local taxes on businesses
other than those specified under the provision. Moreover,
even those business activities specifically named in Section
143 are themselves susceptible to broad interpretation.
A.M.+D.G.
TAX II
It is thus imperative that in order that the Corporation may be

subjected to business taxes, its activities must fall within the
definition of business as provided in the Local Government
Code. And to hold that they do is to ignore the very statutory
nature of a condominium corporation.
For orderly administration over common areas which are
jointly owned by the various unit owners, the Condominium
Act permits the creation of a condominium corporation, which
is specially formed for the purpose of holding title to the
common area, in which the holders of separate interests shall
automatically be members or shareholders, to the exclusion
of others, in proportion to the appurtenant interest of their
respective units.
In line with the authority of the condominium corporation to
manage the condominium project, it may be authorized, in
the deed of restrictions, to make reasonable assessments to
meet authorized expenditures, each condominium unit to be
assessed separately for its share of such expenses in
proportion (unless otherwise provided) to its owners
fractional interest in any common areas. It is the collection
of these assessments from unit owners that form the basis of
the City Treasurers claim that the Corporation is doing
business.
We can elicit from the Condominium Act that a condominium
corporation is precluded by statute from engaging in
corporate activities other than the holding of the common
areas, the administration of the condominium project, and
other acts necessary, incidental or convenient to the
accomplishment of such purposes. Neither the maintenance
of livelihood, nor the procurement of profit, fall within the

Atty. Mendoza
scope of permissible corporate purposes of a condominium

corporation under the Condominium Act.
The Court has examined the particular Articles of
Incorporation and By-Laws of the Corporation, and these
documents unmistakably hew to the limitations contained in
the Condominium Act. Obviously, none of these corporate
purposes are geared towards obtaining of profit. Even though
the Corporation is empowered to levy assessments or dues
from the unit owners, these amounts collected are not
intended for the incurrence of profit by the Corporation or its
members, but to shoulder the multitude of necessary
expenses that arise from the maintenance of the
Condominium Project. Just as much is confirmed by Section 1,
Article V of the Amended By-Laws, which enumerate the
particular expenses to be defrayed by the regular
assessments collected from the unit owners. These would
include the salaries of the employees of the Corporation, and
the cost of maintenance and ordinary repairs of the common
areas.
The City Treasurer nonetheless contends that the collection of
these assessments and dues are with the end view of getting
full appreciative living values for the condominium units, and
as a result, profit is obtained once these units are sold at
higher prices. The Court cites with approval the two
counterpoints raised by the Court of Appeals in rejecting this
contention. First, if any profit is obtained by the sale of the
units, it accrues not to the corporation but to the unit owner.
Second, if the unit owner does obtain profit from the sale of
the corporation, the owner is already required to pay capital
gains tax on the appreciated value of the condominium unit.
A.M.+D.G.
TAX II
The City Treasurer also contends that the fact that the
Corporation is engaged in business is evinced by the Articles
of Incorporation, which specifically empowers the Corporation
to acquire, own, hold, enjoy, lease, operate and maintain,
and to convey, sell, transfer mortgage or otherwise dispose of
real or personal property. What the City Treasurer fails to
add is that every corporation organized under the Corporation
Code is so specifically empowered. Section 36(7) of the
Corporation Code states that every corporation incorporated
under the Code has the power and capacity to purchase,
receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal
property . . . as the transaction of the lawful business of the
corporation
may
reasonably
and
necessarily
require . . . . Without this power, corporations, as juridical
persons, would be deprived of the capacity to engage in most
meaningful legal relations.
Again, whatever capacity the Corporation may have pursuant
to its power to exercise acts of ownership over personal and
real property is limited by its stated corporate purposes,
which are by themselves further limited by the Condominium
Act. A condominium corporation, while enjoying such powers
of ownership, is prohibited by law from transacting its
properties for the purpose of gainful profit.
Accordingly, and with a significant degree of comfort, we hold
that condominium corporations are generally exempt from
local business taxation under the Local Government Code,
irrespective of any local ordinance that seeks to declare
otherwise.

Atty. Mendoza
SAN JUAN vs. CASTRO

FACTS
Romulo D. San Juan, registered owner of real properties in
Marikina City conveyed, by Deed of Assignment, the
properties to the Saints and Angels Realty Corporation
(SARC), then under the process of incorporation, in exchange
for 258,434 shares of stock therein with a total par value of
P2,584,340.
Mr. San Juan then paid the transfer tax based on the
consideration stated in the Deed of Assignment. Marikina
City Treasurer Ricardo L. Castro informed him, however, that
the tax due is based on the fair market value of the property.
In turn, Mr. San Juan in writing protested the basis of the tax
due but on July 15, 2005, via a letter, Mr. Castro responded
on the negative.
Mr. San Juan thus filed before RTC a Petition for mandamus
and damages against Mr. Castro in his capacity as Marikina
City Treasurer praying that the latter be compelled to
perform a ministerial duty, that is, to accept the payment of
transfer tax based on the actual consideration of the
transfer/assignment. Mr. San Juan claims that the intention
of the law in Sec. 135 of the LGC is not to automatically apply
the whichever is higher rule. Clearly, from reading the
provision, it is only when there is a monetary consideration
involved and the monetary consideration is not substantial
that the tax rate is based on the higher fair market value. But
the RTC dismissed the case holding that [M]onetary
consideration as used in Section 135 of R.A. 7160 does not
A.M.+D.G.
TAX II
only pertain to the price or money involved but likewise, as in

the case of donations or barters, this refers to the value or
monetary equivalent of what is received by the transferor.
And in this case the fair market value of the stocks which is
P7M is higher than the consideration which is only P2.58M,
hence, the former amount must be used as tax base.
Moreover, The subject of this Petition is the
performance of a duty which is not ministerial in
character. Assessment of tax liabilities or obligations
and the corresponding duty to collect the same
involves a degree of discretion. It is erroneous to
assume that the City Treasurer is powerless to
ascertain if the payment of the tax obligation is
proper or correct. Mandamus cannot lie to compel the
City Treasurer to accept as full compliance a tax
payment which in his reasoning and assessment is
deficient and incorrect.
ISSUE
Did the RTC err in dismissing the petition for mandamus?
RULING
NO. For a petition for Mandamus to lie, there must be no
other plain, speedy and adequate remedy in the ordinary
course of law. In this case, the said condition was not
satisfied. A taxpayer who disagrees with a tax assessment
made by a local treasurer may file a written protest as
prescribed by Sec. 195 of the LGC: The taxpayer shall
have thirty (30) days from the receipt of the denial of
the protest or from the lapse of the sixty-day (60)
period prescribed herein within which to appeal with

Atty. Mendoza
the court of competent jurisdiction, otherwise the

assessment becomes conclusive and unappealable.
That Mr. San Juan protested in writing against the
assessment of tax due and the basis thereof is on record as
in fact it was on that account that Mr. Castro sent him the July
15, 2005 letter which operated as a denial of Mr. San Juans
written protest. Mr. San Juan should thus have, in accordance
with Sec. 195 of the LGC, either appealed the assessment
before the court of competent jurisdiction or paid the tax and
then sought a refund. He did not observe any of these
remedies available to him, however. He instead opted to file
a petition for mandamus to compel Mr. Castro to accept
payment of transfer tax as computed by him.
Mandamus lies only to compel an officer to perform a
ministerial duty (one which is so clear and specific as to
leave no room for the exercise of discretion in its
performance) but not a discretionary function (one which by
its nature requires the exercise of judgment). Mr. Castros
argument that [m]andamus cannot lie to compel the City
Treasurer to accept as full compliance a tax payment which
in his reasoning and assessment is deficient and incorrect is
thus persuasive.
MACTAN CEBU INTERNATIONAL AIRPORT vs. MARCOS
(TO FOLLOW)
A.M.+D.G.
TAX II

Tax Digest Assignment 9

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Tax Digest Assignment 9

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TAX DIGEST ASSIGNMENT # 9 LOCAL GOVT TAXATION

MANILA ELECTRIC COMPANY vs. PROVINCE OF LAGUNA

MERALCO was then sent a demand letter to pay the

distribution and sale of electric current.

MERALCO then filed a complaint for refund with a prayer for