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QUEZON CITY GR 144104 June29, 2004 En Banc, Callejo J: Facts: The lung center is a charitable institution within the context of 1973 and 1987 constitutions. The elements considered in determining a charitable institution are: the statue creating the enterprise; its corporate purposes; constitution and by-laws, methods of administration, nature of actual work performed, character of the services rendered, indefiniteness of the beneficiaries, and the use occupation of properties. As a gen. principle, a charitable institution doe not lose its character as such and its exemption form taxes simply because it derives income from paying patients, or receives subsidies from government; and no money insures to the private benefit of the persons managing or operating the institution. Issue: Whether or not the real properties of the lung center are exempt from real property taxes. Ruling. Partly No. Those portions of its real property that are leased to private entities are not exempt from actually, direct and exclusively used for charitable purpose. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. The property tax exemption under Sec. 28(3), Art. Vi of the property taxes only. This provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung center must be able to prove that: it is a charitable institution and; its real properties are actually, directly and exclusively used for charitable purpose. Accordingly, the portions occupied by the hospital used for its patients are exempt from real property taxes while those leased to private entities are not exempt from such taxes.


GR L-7859 December 22, 1955

Reyes, J.: FACTS: Walter Lutz, Judicial Administrator of the intestate estate of Ledesma, sought to recover the sum of Php14, 666.40 paid by the estate as taxes, alleging that such tax is unconstitutional as it levied for the aid and support of the sugar industry exclusively which is in his opinion not a public purpose. ISSUE: Whether or not tax is valid in supporting the sugar industry? RULING: The court ruled that the tax is valid as it served public purpose. The tax provided for in CA 567 is primarily an exercise of police power since sugar is a great source of income for the country and employs thousands of laborers. Hence, it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain.


G.R. No. No. L-30232 July 29, 1988

FACTS: Herein petitioner imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, it filed a Petition for Review with the Court of Tax Appeals in order to be granted a refund. Petitioner contends that tugboats are included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. He 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. 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. On the other hand, respondent contends that "tugboats"

are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes.


Whether or not tugboats are included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code.


No. tugboats are not included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. The Supreme Court explained that under the definition of tugboat, 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 canals. Which clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretence being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms.

Philex Mining vs. CIR

GR 125704, August 28, 1998


Philex Mining Corporation assails the decision of the court of appeals which affirmed the decision of the court of tax appeals ordering philex to pay its excise tax liability philex refused to pay and

contended it has pending claims for vat input credit or refund against the government which should be made compensate or set-off its tax liability.

Issue: can tax be subject for set-off?


No. tax cannot be the subject for compensation for simple reason that the government and the tax payer are not mutual creditors and debtors of each other. Debts are due in the government in its corporate capacity while taxes are due to the government in its sovereign capacity. A tax payer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government that the collection of the tax is contingent on the result of the law suit it filed against the government.


G.R. No. No. 88291 May 31, 1991 and G.R. No. No. 88291 June 8, 1993


Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic power and the production of power from other sources. Several laws were enacted granting NPC tax and duty exemption privileges such as taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities "directly or indirectly," on all petroleum products used by NPC in its operation. However P.D. No. 1931 withdrew all tax exemption privileges granted in favour of government-owned or controlled corporations including their subsidiaries but empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege enjoyed

by NPC under said section covers only taxes for which it is directly liable and not on taxes which are only shifted to it.

In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery. Thereafter, the FIRB issued several Resolutions in different occasions restoring the tax and duty exemption privileges of NPC indefinite period due to the restoration of the tax exemption privileges of NPC, NPC applied with the BIR for a "refund of Specific Taxes paid on petroleum products. On August 6, 1987, the Secretary of Justice, Opinion opined that "the power conferred upon Fiscal Incentives Review Board constitute undue delegation of legislative power and, therefore, unconstitutional. However, respondents Finance Secretary and the Executive Secretary declared that "NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Thereafter investigations were made for the refund of the tax payments of the NPC which includes Millions of pesos Tax refund. Petitioner, as member of the Philippine Senate introduced as Resolution Directing the Senate Blue Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the NonExisting Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance.


Whether or not respondent NPC is legally entitled to the questioned tax and duty refunds.


Yes. In G.R. No. No. 88291 the Supreme Court ruled in favour of exempting NPC to the said taxes. Also in G.R. No. No. 88291 the Supreme Court ruled in favour of respondents. NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Presidential Decree No. 938 amended the tax exemption of NPC by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings." the NPC electric power rates did not carry the taxes and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to the government, no part thereof was recovered from the sale of electricity produced. As a

consequence, as of our most recent information, some P1.55 B in claims represent amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order to the Bureaus concerned for the resumption of the processing of these claims.


G.R. No. L-35726 July 21, 1982

FACTS: Petitioner Social Security System, for operation purposes, maintains a five-storey building in Bacolod City occupying four parcels of land. Said lands and buildings were assessed for taxation. Petitioner failed to pay the realty taxes for the years 1968, 1969 and 1970. Consequently, the City of Bacolod levied upon said lands and buildings and declared them forfeited in its favour. In protest, petitioner wrote the city mayor through the city treasurer seeking reconsideration of the forfeiture proceeding on the ground that it is a government-owned and controlled corporation and as such, should be exempt from payment of real estate taxes. No action was however taken. Thereafter, petitioner filed an action in court for the nullification of the court proceedings. The court ruled that the properties of petitioner are not exempt from the payment of real property tax because these are not one of the exemptions under Section 29 of the Charter of Bacolod City and there is no other law providing for its exemption.


Should the subject properties maintained by petitioner SSS be exempt from payment of real property tax?


YES. Whether a government owned and controlled corporation is performing governmental or proprietary function is immaterial. Section 29 of the Charter of Bacolod City does not contain any qualification whatsoever in providing for the exemption from real estate taxes of "lands and buildings owned by the Commonwealth or Republic of Philippines." Hence, when the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose.

Further, P.D. 24 has amended the Social Security Act of 1954 expressly exempting the SSS from payment of any tax thereby removing all doubts as to its exemption.


G.R. No. L-29646, November 10, 1978

FACTS: On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).

Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila filed a petition with the CFI of Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of the rule of

the uniformity in taxation. The trial court declared City Ordinance No. 6537 null and void. Villegas filed the present petition.


Whether or not City Ordinance No. 6537 is a tax or revenue measure.


Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. 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 P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 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.


G.R. No. L-21183 September 27, 1968


This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental.

The disputed ordinance imposed license taxes on operators of sugar centrals and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity.

For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items.

Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff contends that the ordinance is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality.

The trial court rendered its judgment declaring that the ordinance in question refers to license taxes or fees. Both plaintiff and defendant directly appealed to the Supreme Court.


Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment or as a revenue measure?


The present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40, 000. 00 for sugar centrals, and P40, 000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.


Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under PD 269 which are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock, non-profit electric cooperatives organized and existing under PD 269, as amended, and registered with the National Electrification Administration (NEA). Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National Government, local government, and municipal taxes and fee, including franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party. From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the Philippine Government, acting through the National Economic council (now National Economic Development Authority) and the NEA, entered into six loan agreements with the government of the United States of America, through the United States Agency for International Development (USAID) with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Petitioners allege that with the passage of the Local Government Code their tax exemptions have been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to all persons, whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234 exempts the same cooperatives from payment of real property tax.

Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause since the provisions unduly discriminate against petitioners who are duly registered cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines?

(2) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the US Governments?

Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable classification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose of the law; (c) not limited to the existing conditions only; and (d) apply equally to all members of the same class. We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by PD 269 and electric cooperatives under RA 6938. First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the former, the government is the one that funds those so-called electric cooperatives, while in the latter, the members make equitable contribution as source of funds. a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than P2,000.00. b. Extent of Government Control over Cooperatives The extent of government control over electric cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of these electric cooperatives. Consequently, amendments were primarily geared to expand the powers of NEA over the electric cooperatives o ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation. Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of the power by the local governments is beyond the regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon the local government units and to limit exemptions from local taxation to entities specifically provided therein.

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

(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein.

Nitafan vs. Commissioner of Internal Revenue

G.R. No. L-78780, July 23, 1987

FACTS: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to continue the deduction of withholding taxes from salaries of the Justices of the Supreme Court and other members of the judiciary. This was affirmed by the Supreme Court en banc on December 4, 1987.

Petitioners are the duly appointed and qualified Judges presiding over Branches 52, 19 and 53, respectively, of the RTC, National Capital Judicial Region, all with stations in Manila. They seek to prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, from making any deduction of withholding taxes from their salaries. They contend that this constitutes diminution of salary contrary to Section 10, Article VIII of the 1987 Constitution, which

provides that the salary of the members of the Supreme Court and judges of lower courts shall be fixed by law and that during their continuance in office, their salary shall not be decreased. With the filing of the petition, the Court deemed it best to settle the issue through judicial pronouncement, even if it had dealt with the matter administratively.

The Supreme Court dismissed the petition for prohibition.


Whether or not the salaries of judges are subject to tax.


The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers. Although such intent was somehow and inadvertently not clearly set forth in the final text of the 1987 Constitution, the deliberations of the 1986 Constitutional Commission negate the contention that the intent of the framers is to revert to the original concept of non-diminution of salaries of judicial officers. Hence, the doctrine in Perfecto v. Meer and Endencia vs. David do not apply anymore. Justices and judges are not only the citizens whose income has been reduced in accepting service in government and yet subject to income tax. Such is true also of Cabinet members and all other employees.