G.R. No. L-28896 February 17, 1988 COMMISSIONER OF INTERNAL REVEN E, petitioner, vs. ALG E, INC., a!

" T#E CO RT OF TA$ A%%EALS, respondents. CR &, J.: G.R. No. L-22'7( A)r*+ ,', 196T#E %#ILI%%INE G ARANT. CO., INC., petitioner, vs. T#E COMMISSIONER OF INTERNAL REVEN E a!" T#E CO RT OF TA$ A%%EALS, respondents. /ENG&ON, 0.%., J.: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts, on various dates, with foreign insurance companies not doing business in the Philippines namely: Imperio Compaia de eguros, !a "nion y #l $eni% #spaol, &verseas 'ssurance Corp., !td., ocieded 'nonima de (easeguros 'lian)a, To*io +arino , $ire Insurance Co., !td., "nion 'ssurance ociety !td., wiss (einsurance Company and Tariff (einsurance !imited. Philippine Guaranty Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines, in consideration for the assumption by the latter of liability on an e-uivalent portion of the ris*s insured. aid reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in +anila and by the foreign reinsurers outside the Philippines, e%cept the contract with wiss (einsurance Company, which was signed by both parties in wit)erland. The reinsurance contracts made the commencement of the reinsurers. liability simultaneous with that of Philippine Guaranty Co., Inc. under the original insurance. Philippine Guaranty Co., Inc. was re-uired to *eep a register in +anila where the ris*s ceded to the foreign reinsurers where entered, and entry therein was binding upon the reinsurers. ' proportionate amount of ta%es on insurance premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount e-ual to /0 of the reinsurance premiums. Conflicts and1or differences between the parties under the reinsurance contracts were to be arbitrated in +anila. Philippine Guaranty Co., Inc. and wiss (einsurance Company stipulated that their contract shall be construed by the laws of the Philippines. Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the following premiums:

23/4 . . . . . . . . . . . . . . . . . . . . . 23/6 . . . . . . . . . . . . . . . . . . . . .

P567,688.92 972,692.5/

aid premiums were e%cluded by Philippine Guaranty Co., Inc. from its gross income when it file its income ta% returns for 23/4 and 23/6. $urthermore, it did not withhold or pay ta% on them. Conse-uently, per letter dated 'pril 24, 23/3, the Commissioner of Internal (evenue assessed against Philippine Guaranty Co., Inc. withholding ta% on the ceded reinsurance premiums, thus: 23/4 Gross premium per investigation . . . . . . . . . . ;ithholding ta% due thereon at 760 . . . . . ... 7/0 surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . Compromise for non<filing of withholding income ta% return . . . . . . . . . . . . . . . . . . . . . . . . . T&T'! '+&"=T >"# , C&!!#CTI?!# . . . . 23/6 Gross premium per investigation . . . . . . . . . . ;ithholding ta% due thereon at 760 . . . . . ... 7/0 surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . Compromise for non<filing of withholding income ta% return . . . . . . . . . . . . . . . . . . . . . . . . . T&T'! '+&"=T >"# , C&!!#CTI?!# . . . . P95:.55:.85 P256,622.:: P985,/5:.:: P256,6/3.::

68,226.::

2::.:: P74:,894.:: @@@@@@@@@@

P256,622.::

2::.:: P746,486.:: @@@@@@@@@@

Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not subAect to withholding ta%. Its protest was denied and it appealed to the Court of Ta% 'ppeals. &n Buly 8, 2384, the Court of Ta% 'ppeals rendered Audgment with this dispositive portion: I= CI#; &$ TD# $&(#G&I=G C&= I>#('TI&= , petitioner Philippine Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of Internal (evenue the respective sums of P7:7,237.:: and

P294,2/4.:: or the total sum of P49/,46/.:: as withholding income ta%es for the years 23/4 and 23/6, plus the statutory delin-uency penalties thereon. ;ith costs against petitioner. Philippine Guaranty Co, Inc. has appealed, -uestioning the legality of the Commissioner of Internal (evenue.s assessment for withholding ta% on the reinsurance premiums ceded in 23/4 and 23/6 to the foreign reinsurers. Petitioner maintain that the reinsurance premiums in -uestion did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have office here. The reinsurance contracts, however, show that the transactions or activities that constituted the underta*ing to reinsure Philippine Guaranty Co., Inc. against loses arising from the original insurances in the Philippines were performed in the Philippines. The liability of the foreign reinsurers commenced simultaneously with the liability of Philippine Guaranty Co., Inc. under the original insurances. Philippine Guaranty Co., Inc. *ept in +anila a register of the ris*s ceded to the foreign reinsurers. #ntries made in such register bound the foreign resinsurers, locali)ing in the Philippines the actual cession of the ris*s and premiums and assumption of the reinsurance underta*ing by the foreign reinsurers. Ta%es on premiums imposed by ection 7/3 of the Ta% Code for the privilege of doing insurance business in the Philippines were payable by the foreign reinsurers when the same were not recoverable from the original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an amount e-uivalent to /0 of the ceded premiums, in consideration for administration and management by the latter of the affairs of the former in the Philippines in regard to their reinsurance activities here. >isputes and differences between the parties were subAect to arbitration in the City of +anila. 'll the reinsurance contracts, e%cept that with wiss (einsurance Company, were signed by Philippine Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad. 'lthough the contract between Philippine Guaranty Co., Inc. and wiss (einsurance Company was signed by both parties in wit)erland, the same specifically provided that its provision shall be construed according to the laws of the Philippines, thereby manifesting a clear intention of the parties to subAect themselves to Philippine law. ection 76 of the Ta% Code subAects foreign corporations to ta% on their income from sources within the Philippines. The word EsourcesE has been interpreted as the activity, property or service giving rise to the income.2 The reinsurance premiums were income created from the underta*ing of the foreign reinsurance

companies to reinsure Philippine Guaranty Co., Inc., against liability for loss under original insurances. uch underta*ing, as e%plained above, too* place in the Philippines. These insurance premiums, therefore, came from sources within the Philippines and, hence, are subAect to corporate income ta%. The foreign insurers. place of business should not be confused with their place of activity. Business should not be continuity and progression of transactions 7 while activity may consist of only a single transaction. 'n activity may occur outside the place of business. ection 76 of the Ta% Code does not re-uire a foreign corporation to engage in business in the Philippines in subAecting its income to ta%. It suffices that the activity creating the income is performed or done in the Philippines. ;hat is controlling, therefore, is not the place of business but the place ofactivity that created an income. Petitioner further contends that the reinsurance premiums are not income from sources within the Philippines because they are not specifically mentioned in ection 49 of the Ta% Code. ection 49 is not an all< inclusive enumeration, for it merely directs that the *inds of income mentioned therein should be treated as income from sources within the Philippines but it does not re-uire that other *inds of income should not be considered li*ewise.1wph1.t The power to ta% is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the tate.s sovereignty and a means to give the citi)enry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvement designed for the enAoyment of the citi)enry and those which come within the tate.s territory, and facilities and protection which a government is supposed to provide. Considering that the reinsurance premiums in -uestion were afforded protection by the government and the recipient foreign reinsurers e%ercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state. Petitioner would wish to stress that its reliance in good faith on the rulings of the Commissioner of Internal (evenue re-uiring no withholding of the ta% due on the reinsurance premiums in -uestion relieved it of the duty to pay the corresponding withholding ta% thereon. This defense of petitioner may free if from the payment of surcharges or penalties imposed for failure to pay the corresponding withholding ta%, but it certainly would not e%culpate if from liability to pay such withholding ta% The Government is not estopped from collecting ta%es by the mista*es or errors of its agents.4 In respect to the -uestion of whether or not reinsurance premiums ceded to foreign reinsurers not doing business

in the Philippines are subAect to withholding ta% under ection /4 and /6 of the Ta% Code, suffice it to state that this -uestion has already been answered in the affirmative in Alexander Howden & Co. !td. vs. Collector o" #nternal $evenue, !<23434, 'pril 26, 238/. $inally, petitioner contends that the withholding ta% should be computed from the amount actually remitted to the foreign reinsurers instead of from the total amount ceded. 'nd since it did not remit any amount to its foreign insurers in 23/4 and 23/6, no withholding ta% was due. The pertinent section of the Ta% Code tates: ec. /6. %ay&ent o" corporation inco&e tax at source. F In the case of foreign corporations subAect to ta%ation under this Title not engaged in trade or business within the Philippines and not having any office or place of business therein, there shall be deducted and withheld at the source in the same manner and upon the same items as is provided in ection fifty<three a ta% e-ual to twenty<four per centu& thereof, and such ta% shall be returned and paid in the same manner and subAect to the same conditions as provided in that section. The applicable portion of ection /4 provides: GbH 'onresident aliens. F 'll persons, corporations and general copartnerships Gcompaias colectivasH, in what ever capacity acting, including lessees or mortgagors of real or personal property, trustees acting in any trust capacity, e%ecutors, administrators, receivers, conservators, fiduciaries, employers, and all officers and employees of the Government of the Philippines having the control, receipt, custody, disposal, or payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensation, remunerations, emoluments, or other fi%ed or determinable annual or periodical gains, profits, and income of any nonresident alien individual, not engaged in trade or business within the Philippines and not having any office or place of business therein, shall Ge%cept in the case provided for in subsection IaJ of this sectionH deduct and withhold from such annual or periodical gains, profits, and income a ta% e-ual to twelve per centu& thereof: %rovided That no deductions or withholding shall be re-uired in the case of dividends paid by a foreign corporation unless G2H such corporation is engaged in trade or business within the Philippines or has an office or place of business therein, and G7H more than eighty<five per centu& of the gross income of such corporation for the three<year period ending with the close of its ta%able year

preceding the declaration of such dividends Gor for such part of such period as the corporation has been in e%istenceHwas derived from sources within the Philippines as determined under the provisions of section thirty< seven:%rovided, "urther, That the Collector of Internal (evenue may authori)e such ta% to be deducted and withheld from the interest upon any securities the owners of which are not *nown to the withholding agent. The above<-uoted provisions allow no deduction from the income therein enumerated in determining the amount to be withheld. 'ccording, in computing the withholding ta% due on the reinsurance premium in -uestion, no deduction shall be recogni)ed. ;D#(#$&(#, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of Internal (evenue the sums of P7:7,237.:: and P294,2/4.::, or a total amount of P49/,46/.::, as withholding ta% for the years 23/4 and 23/6, respectively. If the amount of P49/,46/.:: is not paid within 4: days from the date this Audgement becomes final, there shall be collected a surcharged of /0 on the amount unpaid, plus interest at the rate of 20 a month from the date of delin-uency to the date of payment, provided that the ma%imum amount that may be collected as interest shall not e%ceed the amount corresponding to a period of three G4H years. ;ith costs againsts petitioner. G.R. No. 1(911' A)r*+ 9, 2'', NATIONAL %O1ER COR%ORATION, petitioner, vs. CIT. OF CA/ANAT AN, respondent. % NO, J.2 This is a petition for review2 of the >ecision7 and the (esolution4 of the Court of 'ppeals dated +arch 27, 7::2 and Buly 2:, 7::2, respectively, finding petitioner =ational Power Corporation G=PCH liable to pay franchise ta% to respondent City of Cabanatuan. Petitioner is a government<owned and controlled corporation created under Commonwealth 'ct =o. 27:, as amended.6 It is tas*ed to underta*e the Edevelopment of hydroelectric generations of power and the production of electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide basis.E/ Concomitant to its mandated duty, petitioner has, among others, the power to construct, operate and maintain power plants, au%iliary plants, power stations and substations for the purpose of developing hydraulic power and supplying such power to the inhabitants.8 $or many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a gross

income of P2:9,526,259.38 in 2337.9 Pursuant to section 49 of &rdinance =o. 28/<37,5 the respondent assessed the petitioner a franchise ta% amounting to P5:5,8:8.62, representing 9/0 of 20 of the latter.s gross receipts for the preceding year. 3 Petitioner, whose capital stoc* was subscribed and paid wholly by the Philippine Government,2: refused to pay the ta% assessment. It argued that the respondent has no authority to impose ta% on government entities. Petitioner also contended that as a non<profit organi)ation, it is e%empted from the payment of all forms of ta%es, charges, duties or fees22 in accordance with sec. 24 of (ep. 'ct =o. 843/, as amended, vi): E ec.24. 'on(pro"it Character o" the Corporation) *xe&ption "ro& all +axes ,uties -ees #&posts and .ther Char/es by 0overn&ent and 0overn&ental #nstru&entalities.( The Corporation shall be non< profit and shall devote all its return from its capital investment, as well as e%cess revenues from its operation, for e%pansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in ection one of this 'ct, the Corporation is hereby e%empt: GaH $rom the payment of all ta%es, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the (epublic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalitiesK GbH $rom all income ta%es, franchise ta%es and realty ta%es to be paid to the =ational Government, its provinces, cities, municipalities and other government agencies and instrumentalitiesK GcH $rom all import duties, compensating ta%es and advanced sales ta%, and wharfage fees on import of foreign goods re-uired for its operations and proAectsK and GdH $rom all ta%es, duties, fees, imposts, and all other charges imposed by the (epublic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utili)ation, and sale of electric power.E27 The respondent filed a collection suit in the (egional Trial Court of Cabanatuan City, demanding that petitioner pay the assessed ta% due, plus a surcharge e-uivalent to 7/0 of the amount of ta%, and 70 monthly

interest.24(espondent alleged that petitioner.s e%emption from local ta%es has been repealed by section 234 of (ep. 'ct =o. 928:,26 which reads as follows: E ec. 234. 1ithdrawal o" +ax *xe&ption %rivile/es.( "nless otherwise provided in this Code, ta% e%emptions or incentives granted to, or presently enAoyed by all persons, whether natural or Auridical, including government owned or controlled corporations, e%cept local water districts, cooperatives duly registered under (.'. =o. 8345, non<stoc* and non<profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.E &n Banuary 7/, 2338, the trial court issued an &rder2/ dismissing the case. It ruled that the ta% e%emption privileges granted to petitioner subsist despite the passage of (ep. 'ct =o. 928: for the following reasons: G2H (ep. 'ct =o. 843/ is a particular law and it may not be repealed by (ep. 'ct =o. 928: which is a general lawK G7H section 234 of (ep. 'ct =o. 928: is in the nature of an implied repeal which is not favoredK and G4H local governments have no power to ta% instrumentalities of the national government. Pertinent portion of the &rder reads: EThe -uestion of whether a particular law has been repealed or not by a subse-uent law is a matter of legislative intent. The lawma*ers may e%pressly repeal a law by incorporating therein repealing provisions which e%pressly and specifically citeGsH the particular law or laws, and portions thereof, that are intended to be repealed. ' declaration in a statute, usually in its repealing clause, that a particular and specific law, identified by its number or title is repealed is an e%press repealK all others are implied repeal. ec. 234 of (.'. =o. 928: is an implied repealing clause because it fails to identify the act or acts that are intended to be repealed. It is a well<settled rule of statutory construction that repeals of statutes by implication are not favored. The presumption is against inconsistency and repugnancy for the legislative is presumed to *now the e%isting laws on the subAect and not to have enacted inconsistent or conflicting statutes. It is also a well<settled rule that, generally, general law does not repeal a special law unless it clearly appears that the legislative has intended by the latter general act to modify or repeal the earlier special law. Thus, despite the passage of (.'. =o. 928: from which the -uestioned &rdinance =o. 28/<37 was based, the ta% e%emption privileges of defendant =PC remain.

'nother point going against plaintiff in this case is the ruling of the upreme Court in the case of Basco vs. %hilippine A&use&ent and 0a&in/ Corporation, 239 C(' /7, where it was held that: .!ocal governments have no power to ta% instrumentalities of the =ational Government. P'GC&( is a government owned or controlled corporation with an original charter, P> 2583. 'll of its shares of stoc*s are owned by the =ational Government. %%% ?eing an instrumentality of the government, P'GC&( should be and actually is e%empt from local ta%es. &therwise, its operation might be burdened, impeded or subAected to control by mere local government.. !i*e P'GC&(, =PC, being a government owned and controlled corporation with an original charter and its shares of stoc*s owned by the =ational Government, is beyond the ta%ing power of the !ocal Government. Corollary to this, it should be noted here that in the =PC Charter.s declaration of Policy, Congress declared that: .%%% G7H the total electrification of the Philippines through the development of power from all services to meet the needs of industrial development and dispersal and needs of rural electrification are primary obAectives of the nations which shall be pursued coordinately and supported by all instru&entalities and a/encies o" the /overn&ent including its financial institutions.. Gunderscoring suppliedH. To allow plaintiff to subAect defendant to its ta%< ordinance would be to impede the avowed goal of this government instrumentality. "nli*e the tate, a city or municipality has no inherent power of ta%ation. Its ta%ing power is limited to that which is provided for in its charter or other statute. 'ny grant of ta%ing power is to be construed strictly, with doubts resolved against its e%istence. $rom the e%isting law and the rulings of the upreme Court itself, it is very clear that the plaintiff could not impose the subAect ta% on the defendant.E28 &n appeal, the Court of 'ppeals reversed the trial court.s &rder29 on the ground that section 234, in relation to sections 249 and 2/2 of the !GC, e%pressly withdrew the e%emptions granted to the petitioner.25 It ordered the petitioner to pay the respondent city government the following: GaH the sum of P5:5,8:8.62 representing the franchise ta% due based on gross receipts for the year

2337, GbH the ta% due every year thereafter based in the gross receipts earned by =PC, GcH in all cases, to pay a surcharge of 7/0 of the ta% due and unpaid, and GdH the sum of P 2:,:::.:: as litigation e%pense.23 &n 'pril 6, 7::2, the petitioner filed a +otion for (econsideration on the Court of 'ppeal.s >ecision. This was denied by the appellate court, vi2: EThe Court finds no merit in =PC.s motion for reconsideration. Its arguments reiterated therein that the ta%ing power of the province under 'rt. 249 GsicH of the !ocal Government Code refers merely to private persons or corporations in which category it G=PCH does not belong, and that the !GC G(' 928:H which is a general law may not impliedly repeal the =PC Charter which is a special lawFfinds the answer in ection 234 of the !GC to the effect that .ta% e%emptions or incentives granted to, or presently enAoyed by all persons, whether natural or Auridical, including government<owned or controlled corporations e%cept local water districts %%% are hereby withdrawn.. The repeal is direct and une-uivocal, not implied. I= CI#; ;D#(#&$, the motion for reconsideration is hereby >#=I#>. & &(>#(#>.E7: In this petition for review, petitioner raises the following issues: E'. TD# C&"(T &$ 'PP#'! G('C#!L #((#> I= D&!>I=G TD'T =PC, ' P"?!IC =&=<P(&$IT C&(P&('TI&=, I !I'?!# T& P'L ' $('=CDI # T'M ' IT $'I!#> T& C&= I>#( TD'T #CTI&= 249 &$ TD# !&C'! G&C#(=+#=T C&># I= (#!'TI&= T& #CTI&= 242 'PP!I# &=!L T& P(IC'T# P#( &= &( C&(P&('TI&= #=B&LI=G ' $('=CDI #. ?. TD# C&"(T &$ 'PP#'! G('C#!L #((#> I= D&!>I=G TD'T =PC. #M#+PTI&= $(&+ '!! $&(+ &$ T'M# D' ?##= (#P#'!#> ?L TD# P(&CI I&= &$ TD# !&C'! G&C#(=+#=T C&># ' TD# #='CT+#=T &$ ' !'T#( !#GI !'TI&=, ;DICD I ' G#=#('! !';, C'==&T ?# C&= T("#> T& D'C# (#P#'!#> ' P#CI'! !';. C. TD# C&"(T &$ 'PP#'! G('C#!L #((#> I= =&T C&= I>#(I=G TD'T '= #M#(CI # &$ P&!IC# P&;#( TD(&"GD T'M #M#+PTI&= D&"!> P(#C'I! &C#( TD# !&C'! G&C#(=+#=T C&>#.E72 It is beyond dispute that the respondent city government has the authority to issue &rdinance =o. 28/<37 and impose an annual ta% on Ebusinesses enAoying a

franchise,E pursuant to section 2/2 in relation to section 249 of the !GC, vi2: E ec. 249. -ranchise +ax. ( 'otwithstandin/ any exe&ption /ranted by any law or other special law the province &ay i&pose a tax on businesses en3oyin/ a "ranchise at a rate not e%ceeding fifty percent G/:0H of one percent G20H of the gross annual receipts for the preceding calendar year based on the incoming receipt, or reali)ed, within its territorial Aurisdiction. In the case of a newly started business, the ta% shall not e%ceed one<twentieth G217:H of one percent G20H of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the ta% shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.E Ge&phasis suppliedH % % % ec. 2/2. 4cope o" +axin/ %owers.< #%cept as otherwise provided in this Code, the city, may levy the ta%es, fees, and charges which the province or municipality may impose: %rovided however, That the ta%es, fees and charges levied and collected by highly urbani)ed and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of ta%es that the city may levy may e%ceed the ma%imum rates allowed for the province or municipality by not more than fifty percent G/:0H e%cept the rates of professional and amusement ta%es.E Petitioner, however, submits that it is not liable to pay an annual franchise ta% to the respondent city government. It contends that sections 249 and 2/2 of the !GC in relation to section 242, limit the ta%ing power of the respondent city government to private entities that are engaged in trade or occupation for profit.77 ection 242 GmH of the !GC defines a 5"ranchise5 as Ea right or privilege, affected with public interest which is conferred upon private persons or corporations under such terms and conditions as the government and its political subdivisions may impose in the interest of the public welfare, security and safety.E $rom the phraseology of this provision, the petitioner claims that the word EprivateE modifies the terms EpersonsE and Ecorporations.E Dence, when the !GC uses the term Efranchise,E petitioner submits that it should refer specifically to franchises granted to private natural persons and to private corporations.74 #rgo, its charter should not be considered a EfranchiseE for the purpose of imposing the franchise ta% in -uestion.

&n the other hand, section 242 GdH of the !GC defines EbusinessE as Etrade or commercial activity regularly engaged in as means of livelihood or with a view to profit.E Petitioner claims that it is not engaged in an activity for profit, in as much as its charter specifically provides that it is a Enon<profit organi)ation.E In any case, petitioner argues that the accumulation of profit is merely incidental to its operationK all these profits are re-uired by law to be channeled for e%pansion and improvement of its facilities and services. 76 Petitioner also alleges that it is an instrumentality of the =ational Government,7/ and as such, may not be ta%ed by the respondent city government. It cites the doctrine in Basco vs. %hilippine A&use&ent and 0a&in/ Corporation78 where this Court held that local governments have no power to ta% instrumentalities of the =ational Government, vi2: E!ocal governments have no power to ta% instrumentalities of the =ational Government. P'GC&( has a dual role, to operate and regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. ?eing an instrumentality of the Government, P'GC&( should be and actually is e%empt from local ta%es. &therwise, its operation might be burdened, impeded or subAected to control by a mere local government. .The states have no power by ta%ation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into e%ecution the powers vested in the federal government. G6C Culloch v. 6aryland, 6 ;heat 428, 6 ! #d. /93H. This doctrine emanates from the .supremacy. of the =ational Government over local governments. .Bustice Dolmes, spea*ing for the upreme Court, made reference to the entire absence of power on the part of the tates to touch, in that way Gta%ationH at least, the instrumentalities of the "nited tates GBohnson v. +aryland, 7/6 " /2H and it can be agreed that no state or political subdivision can re/ulate a "ederal instru&entality in such a way as to prevent it "ro& consu&&atin/ its "ederal responsibilities or even seriously burden it "ro& acco&plish&ent o" the&.. G'ntieau, 6odern Constitutional !aw, Col. 7, p. 26:, italics suppliedH

&therwise, mere creatures of the tate can defeat =ational policies thru e%termination of what local authorities may perceive to be undesirable activities or enterprise using the power to ta% as . a tool regulation. G7.4. v. 4anche2, 46: " 67H. The power to ta% which was called by Bustice +arshall as the .power to destroy. G6c Culloch v. 6aryland,supraH cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.E79 Petitioner contends that section 234 of (ep. 'ct =o. 928:, withdrawing the ta% privileges of government< owned or controlled corporations, is in the nature of an implied repeal. ' special law, its charter cannot be amended or modified impliedly by the local government code which is a general law. Conse-uently, petitioner claims that its e%emption from all ta%es, fees or charges under its charter subsists despite the passage of the !GC, vi2: EIt is a well<settled rule of statutory construction that repeals of statutes by implication are not favored and as much as possible, effect must be given to all enactments of the legislature. +oreover, it has to be conceded that the charter of the =PC constitutes a special law. (epublic 'ct =o. 928:, is a general law. It is a basic rule in statutory construction that the enactment of a later legislation which is a general law cannot be construed to have repealed a special law. ;here there is a conflict between a general law and a special statute, the special statute should prevail since it evinces the legislative intent more clearly than the general statute.E75 $inally, petitioner submits that the charter of the =PC, being a valid e%ercise of police power, should prevail over the !GC. It alleges that the power of the local government to impose franchise ta% is subordinate to petitioner.s e%emption from ta%ationK Epolice power being the most pervasive, the least limitable and most demanding of all powers, including the power of ta%ation.E73 The petition is without merit. Ta%es are the lifeblood of the government,4: for without ta%es, the government can neither e%ist nor endure. ' principal attribute of sovereignty,42 the e%ercise of ta%ing power derives its source from the very e%istence of the state whose social contract with its citi)ens obliges it to promote public interest and common good. The theory behind the e%ercise of the power to ta% emanates from necessityK47 without ta%es, government cannot fulfill its mandate of promoting the general welfare and well< being of the people.

In recent years, the increasing social challenges of the times e%panded the scope of state activity, and ta%ation has become a tool to reali)e social Austice and the e-uitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar obAectives.44 Ta%ation assumes even greater significance with the ratification of the 2359 Constitution. Thenceforth, the power to ta% is no longer vested e%clusively on CongressK local legislative bodies are now given direct authority to levy ta%es, fees and other charges46 pursuant to 'rticle M, section / of the 2359 Constitution, vi2: E ection /.< #ach !ocal Government unit shall have the power to create its own sources of revenue, to levy ta%es, fees and charges subAect to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. uch ta%es, fees and charges shall accrue e%clusively to the !ocal Governments.E This paradigm shift results from the reali)ation that genuine development can be achieved only by strengthening local autonomy and promoting decentrali)ation of governance. $or a long time, the country.s highly centrali)ed government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also Edampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders.E4/ The only way to shatter this culture of dependence is to give the !G"s a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 4 of 'rticle M of the 2359 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy o" local autono&y set the guidelines and limitations to this grant of ta%ing powers, vi2: E ection 4. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentrali)ation with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the -ualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organi)ation and operation of the local units.E To recall, prior to the enactment of the (ep. 'ct =o. 928:,48 also *nown as the !ocal Government Code of 2332 G!GCH, various measures have been enacted to

promote local autonomy. These include the ?arrio Charter of 23/3,49 the !ocal 'utonomy 'ct of 23/3,45 the >ecentrali)ation 'ct of 238943 and the !ocal Government Code of 2354.6: >espite these initiatives, however, the shac*les of dependence on the national government remained. !ocal government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: GaH inade-uate ta% base, GbH lac* of fiscal control over e%ternal sources of income, GcH limited authority to prioriti)e and approve development proAects, GdH heavy dependence on e%ternal sources of income, and GeH limited supervisory control over personnel of national line agencies.62 Considered as the most revolutionary piece of legislation on local autonomy,67 the !GC effectively deals with the fiscal constraints faced by !G"s. It widens the ta% base of !G"s to include ta%es which were prohibited by previous laws such as the imposition of ta%es on forest products, forest concessionaires, mineral products, mining operations, and the li*e. The !GC li*ewise provides enough fle%ibility to impose ta% rates in accordance with their needs and capabilities. It does not prescribe graduated fi%ed rates but merely specifies the minimum and ma%imum ta% rates and leaves the determination of the actual rates to the respective san//unian.64 &ne of the most significant provisions of the !GC is the removal of the blan*et e%clusion of instrumentalities and agencies of the national government from the coverage of local ta%ation. 'lthough as a general rule, !G"s cannot impose ta%es, fees or charges of any *ind on the =ational Government, its agencies and instrumentalities, this rule now admits an e%ception, i.e., when specific provisions of the !GC authori)e the !G"s to impose ta%es, fees or charges on the aforementioned entities, vi2: E ection 244. Co&&on !i&itations on the +axin/ %owers o" the !ocal 0overn&ent 7nits.< 7nless otherwise provided herein the e%ercise of the ta%ing powers of provinces, cities, municipalities, and baran/ays shall not e%tend to the levy of the following: % % % GoH Ta%es, fees, or charges of any *ind on the =ational Government, its agencies and instrumentalities, and local government units.E Ge&phasis suppliedH In view of the afore<-uoted provision of the !GC, the doctrine in Basco vs. %hilippine A&use&ent and 0a&in/ Corporation66 relied upon by the petitioner to support its claim no longer applies. To emphasi)e, the Basco case was decided prior to the effectivity of the !GC, when no law empowering the local government

units to ta% instrumentalities of the =ational Government was in effect. Dowever, as this Court ruled in the case of 6actan Cebu #nternational Airport Authority 86C#AA9 vs. 6arcos,6/ nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subAect to ta%.68 In enacting the !GC, Congress e%ercised its prerogative to ta% instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the !GC, this Court held that +CI'', although an instrumentality of the national government, was subAect to real property ta%, vi2: EThus, reading together sections 244, 747, and 746 of the !GC, we conclude that as a general rule, as laid down in section 244, the ta%ing power of local governments cannot e%tend to the levy of inter alia, .ta%es, fees and charges of any *ind on the national government, its agencies and instrumentalities, and local government units.K however, pursuant to section 747, provinces, cities and municipalities in the +etropolitan +anila 'rea may impose the real property ta% e%cept on, inter alia, .real property owned by the (epublic of the Philippines or any of its political subdivisions e%cept when the beneficial use thereof has been granted for consideration or otherwise, to a ta%able person as provided in the item GaH of the first paragraph of section 27..E69 In the case at bar, section 2/2 in relation to section 249 of the !GC clearly authori)es the respondent city government to impose on the petitioner the franchise ta% in -uestion. In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citi)ens of the country generally as a matter of common right.65 In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to e%ist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation.63 The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself./: &n the other hand, the latter refers to the right or privileges conferred upon an e%isting corporation such as the right to use the streets of a municipality to lay pipes of trac*s, erect poles or string wires. /2 The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, e%cept such

special or secondary franchises as are charged with a public use./7 In section 242 GmH of the !GC, Congress unmista*ably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the conte%t of ta%ation. 's commonly used, a "ranchise tax is Ea ta% on the privilege of transacting business in the state and e%ercising corporate franchises granted by the state.E/4 It is not levied on the corporation simply for e%isting as a corporation, upon its property/6 or its income,// but on its e%ercise of the rights or privileges granted to it by the government. Dence, a corporation need not pay franchise ta% from the time it ceased to do business and e%ercise its franchise./8 It is within this conte%t that the phrase Etax on businesses en3oyin/ a "ranchiseE in section 249 of the !GC should be interpreted and understood. Cerily, to determine whether the petitioner is covered by the franchise ta% in -uestion, the following re-uisites should concur: G2H that petitioner has a EfranchiseE in the sense of a secondary or special franchiseK and G7H that it is e%ercising its rights or privileges under this franchise within the territory of the respondent city government. Petitioner fulfills the first re-uisite. Commonwealth 'ct =o. 27:, as amended by (ep. 'ct =o. 943/, constitutes petitioner.s primary and secondary franchises. It serves as the petitioner.s charter, defining its composition, capitali)ation, the appointment and the specific duties of its corporate officers, and its corporate life span./9 's its secondary franchise, Commonwealth 'ct =o. 27:, as amended, vests the petitioner the following powers which are not available to ordinary corporations, vi2: E% % % GeH To conduct investigations and surveys for the development of water power in any part of the PhilippinesK GfH To ta*e water from any public stream, river, cree*, la*e, spring or waterfall in the Philippines, for the purposes specified in this 'ctK to intercept and divert the flow of waters from lands of riparian owners and from persons owning or interested in waters which are or may be necessary for said purposes, upon payment of Aust compensation thereforK to alter, straighten, obstruct or increase the flow of water in streams or water channels intersecting or connecting therewith or contiguous to its wor*s or any part thereof: Provided, That Aust compensation shall be paid to any person or persons whose property is, directly or indirectly, adversely affected or damaged therebyK GgH To construct, operate and maintain power plants, au%iliary plants, dams, reservoirs, pipes,

mains, transmission lines, power stations and substations, and other wor*s for the purpose of developing hydraulic power from any river, cree*, la*e, spring and waterfall in the Philippines and supplying such power to the inhabitants thereofK to ac-uire, construct, install, maintain, operate, and improve gas, oil, or steam engines, and1or other prime movers, generators and machinery in plants and1or au%iliary plants for the production of electric powerK to establish, develop, operate, maintain and administer power and lighting systems for the transmission and utili)ation of its power generationK to sell electric power in bul* to G2H industrial enterprises, G7H city, municipal or provincial systems and other government institutions, G4H electric cooperatives, G6H franchise holders, and G/H real estate subdivisions % % %K GhH To ac-uire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise dispose of property incident to, or necessary, convenient or proper to carry out the purposes for which the Corporation was created: Provided, That in case a right of way is necessary for its transmission lines, easement of right of way shall only be sought: Provided, however, That in case the property itself shall be ac-uired by purchase, the cost thereof shall be the fair mar*et value at the time of the ta*ing of such propertyK GiH To construct wor*s across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue, highway or railway of private and public ownership, as the location of said wor*s may re-uire %%%K GAH To e%ercise the right of eminent domain for the purpose of this 'ct in the manner provided by law for instituting condemnation proceedings by the national, provincial and municipal governmentsK % % % GmH To cooperate with, and to coordinate its operations with those of the =ational #lectrification 'dministration and public service entitiesK GnH To e%ercise complete Aurisdiction and control over watersheds surrounding the reservoirs of plants and1or proAects constructed or proposed to be constructed by the Corporation. "pon determination by the Corporation of the areas re-uired for watersheds for a specific proAect, the ?ureau of $orestry, the (eforestation 'dministration and the ?ureau of !ands shall, upon written advice by the Corporation, forthwith

surrender Aurisdiction to the Corporation of all areas embraced within the watersheds, subAect to e%isting private rights, the needs of waterwor*s systems, and the re-uirements of domestic water supplyK GoH In the prosecution and maintenance of its proAects, the Corporation shall adopt measures to prevent environmental pollution and promote the conservation, development and ma%imum utili)ation of natural resources %%% E/5 ;ith these powers, petitioner eventually had the monopoly in the generation and distribution of electricity. This monopoly was strengthened with the issuance of Pres. >ecree =o. 6:,/3 nationali)ing the electric power industry. 'lthough #%ec. &rder =o. 72/8: thereafter allowed private sector participation in the generation of electricity, the transmission of electricity remains the monopoly of the petitioner. Petitioner also fulfills the second re-uisite. It is operating within the respondent city government.s territorial Aurisdiction pursuant to the powers granted to it by Commonwealth 'ct =o. 27:, as amended. $rom its operations in the City of Cabanatuan, petitioner reali)ed a gross income of P2:9,526,259.38 in 2337. $ulfilling both re-uisites, petitioner is, and ought to be, subAect of the franchise ta% in -uestion. Petitioner, however, insists that it is e%cluded from the coverage of the franchise ta% simply because its stoc*s are wholly owned by the =ational Government, and its charter characteri)ed it as a Enon<profitE organi)ation. These contentions must necessarily fail. To stress, a franchise ta% is imposed based not on the ownership but on the e%ercise by the corporation of a privilege to do business. The ta%able entity is the corporation which e%ercises the franchise, and not the individual stoc*holders. ?y virtue of its charter, petitioner was created as a separate and distinct entity from the =ational Government. It can sue and be sued under its own name,82 and can e%ercise all the powers of a corporation under the Corporation Code.87 To be sure, the ownership by the =ational Government of its entire capital stoc* does not necessarily imply that petitioner is not engaged in business. ection 7 of Pres. >ecree =o. 7:7384 classifies government<owned or controlled corporations GG&CCsH into those performing governmental functions and those performing proprietary functions, vi2: E' government<owned or controlled corporation is a stoc* or a non<stoc* corporation, whether per"or&in/ /overn&ental or proprietary "unctions which is directly chartered by special law or if organi)ed under the general corporation law is owned or controlled by the government directly, or indirectly through a parent

corporation or subsidiary corporation, to the e%tent of at least a maAority of its outstanding voting capital stoc* % % %.E Ge&phases suppliedH Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are underta*en only by way of advancing the general interest of society, and are merely optional on the government.86 Included in the class of G&CCs performing proprietary functions are Ebusiness<li*eE entities such as the =ational teel Corporation G= CH, the =ational >evelopment Corporation G=>CH, the ocial ecurity ystem G H, the Government ervice Insurance ystem GG I H, and the =ational ;ater ewerage 'uthority G=';' 'H,8/ among others. Petitioner was created to Eunderta*e the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis.E88 Pursuant to this mandate, petitioner generates power and sells electricity in bul*. Certainly, these activities do not parta*e of the sovereign functions of the government. They are purely private and commercial underta*ings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities li*e telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among othersK all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.89 ' closer reading of its charter reveals that even the legislature treats the character of the petitioner.s enterprise as a Ebusiness,E although it limits petitioner.s profits to twelve percent G270H, vi2:85 EGnH ;hen essential to the proper administration of its corporate affairs or necessary for the proper transaction of its business or to carry out the purposes for which it was organi)ed, to contract indebtedness and issue bonds subAect to approval of the President upon recommendation of the ecretary of $inanceK GoH To e%ercise such powers and do such things as may be reasonably necessary to carry out the business and purposes for which it was organi)ed, or which, from time to time, may be declared by the ?oard to be necessary, useful, incidental or au%iliary to accomplish the said purpose %%%.EGe&phases suppliedH

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It is worthy to note that all other private franchise holders receiving at least si%ty percent G8:0H of its electricity re-uirement from the petitioner are li*ewise imposed the cap of twelve percent G270H on profits.83 The main difference is that the petitioner is mandated to devote Eall its returns from its capital investment, as well as e%cess revenues from its operation, for e%pansionE9: while other franchise holders have the option to distribute their profits to its stoc*holders by declaring dividends. ;e do not see why this fact can be a source of difference in ta% treatment. In both instances, the ta%able entity is the corporation, which e%ercises the franchise, and not the individual stoc*holders. ;e also do not find merit in the petitioner.s contention that its ta% e%emptions under its charter subsist despite the passage of the !GC. 's a rule, ta% e%emptions are construed strongly against the claimant. #%emptions must be shown to e%ist clearly and categorically, and supported by clear legal provisions.92 In the case at bar, the petitioner.s sole refuge is section 24 of (ep. 'ct =o. 843/ e%empting from, among others, Eall income ta%es, franchise ta%es and realty ta%es to be paid to the =ational Government, its provinces, cities, municipalities and other government agencies and instrumentalities.E Dowever, section 234 of the !GC withdrew, subAect to limited e%ceptions, the sweeping ta% privileges previously enAoyed by private and public corporations. Contrary to the contention of petitioner, section 234 of the !GC is an e%press, albeit general, repeal of all statutes granting ta% e%emptions from local ta%es.97 It reads: E ec. 234. 1ithdrawal o" +ax *xe&ption %rivile/es.< 7nless otherwise provided in this Code tax exe&ptions or incentives /ranted to or presently en3oyed by all persons whether natural or 3uridical includin/ /overn&ent(owned or controlled corporations e%cept local water districts, cooperatives duly registered under (.'. =o. 8345, non<stoc* and non<profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.E Ge&phases suppliedH It is a basic precept of statutory construction that the e%press mention of one person, thing, act, or conse-uence e%cludes all others as e%pressed in the familiar ma%im expressio unius est exclusio alterius.94 =ot being a local water district, a cooperative registered under (.'. =o. 8345, or a non<stoc* and non< profit hospital or educational institution, petitioner clearly does not belong to the e%ception. It is therefore incumbent upon the petitioner to point to some provisions of the !GC that e%pressly grant it e%emption from local ta%es.

?ut this would be an e%ercise in futility. ection 249 of the !GC clearly states that the !G"s can impose franchise ta% Enotwithstandin/ any exe&ption /ranted by any law or other special law.E This particular provision of the !GC does not admit any e%ception. In City 0overn&ent o" 4an %ablo !a/una v. $eyes,96 +#('!C&.s e%emption from the payment of franchise ta%es was brought as an issue before this Court. The same issue was involved in the subse-uent case of 6anila *lectric Co&pany v. %rovince o" !a/una.9/ (uling in favor of the local government in both instances, we ruled that the franchise ta% in -uestion is imposable despite any e%emption enAoyed by +#('!C& under special laws, vi2: EIt is our view that petitioners correctly rely on provisions of ections 249 and 234 of the !GC to support their position that +#('!C&.s ta% e%emption has been withdrawn. The e%plicit language of section 249 which authori)es the province to impose franchise ta% .notwithstanding any e%emption granted by any law or other special law. is all<encompassing and clear. +he "ranchise tax is i&posable despite any exe&ption en3oyed under special laws. 4ection 1:; buttresses the withdrawal o" extant tax exe&ption privile/es. ?y stating that unless otherwise provided in this Code, ta% e%emptions or incentives granted to or presently enAoyed by all persons, whether natural or Auridical, including government<owned or controlled corporations e%cept G2H local water districts, G7H cooperatives duly registered under (.'. 8345, G4H non<stoc* and non<profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the e%emptions to the three enumerated entities. It is a basic precept of statutory construction that the e%press mention of one person, thing, act, or conse-uence e%cludes all others as e%pressed in the familiar ma%im expressio unius est exclusio alterius. In the absence of any provision of the Code to the contrary, and we find no other provision in point, any e%isting ta% e%emption or incentive enAoyed by +#('!C& under e%isting law was clearly intended to be withdrawn. $eadin/ to/ether sections 1;< and 1:; o" the !0C we conclude that under the !0C the local /overn&ent unit &ay now i&pose a local tax at a rate not exceedin/ =>? o" 1? o" the /ross annual receipts "or the precedin/ calendar based on the inco&in/ receipts reali2ed within its territorial 3urisdiction. +he le/islative purpose to withdraw tax privile/es en3oyed under existin/

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law or charter is clearly &ani"ested by the lan/ua/e used on 8sic9 4ections 1;< and 1:; cate/orically withdrawin/ such exe&ption sub3ect only to the exceptions enu&erated. 4ince it would be not only tedious and i&practical to atte&pt to enu&erate all the existin/ statutes providin/ "or special tax exe&ptions or privile/es the !0C provided "or an express albeit /eneral withdrawal o" such exe&ptions or privile/es. 'o &ore une@uivocal lan/ua/e could have been used.598 Ge&phases suppliedH. It is worth mentioning that section 237 of the !GC empowers the !G"s, through ordinances duly approved, to grant ta% e%emptions, initiatives or reliefs.99 ?ut in enacting section 49 of &rdinance =o. 28/<37 which imposes an annual franchise ta% Enotwithstanding any e%emption granted by law or other special law,E the respondent city government clearly did not intend to e%empt the petitioner from the coverage thereof. >oubtless, the power to ta% is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. 's this Court observed in the 6actan case, Ethe original reasons for the withdrawal of ta% e%emption privileges granted to government<owned or controlled corporations and all other units of government were that such privilege resulted in serious ta% base erosion and distortions in the ta% treatment of similarly situated enterprises.E 95 ;ith the added burden of devolution, it is even more imperative for government entities to share in the re-uirements of development, fiscal or otherwise, by paying ta%es or other charges due from them. I= CI#; ;D#(#&$, the instant petition is >#=I#> and the assailed >ecision and (esolution of the Court of 'ppeals dated +arch 27, 7::2 and Buly 2:, 7::2, respectively, are hereby '$$I(+#>. & &(>#(#>. G.R. No. L-(,'82 0u!e 18, 19,7 %A/LO LOREN&O, a3 4ru34ee o5 46e e34a4e o5 T6o7a3 #a!+ey, "e8ea3e", plaintiff<appellant, vs. 0 AN %OSA9AS, 0R., Co++e84or o5 I!4er!a+ Re:e!ue, defendant<appellant. LA REL, J.: &n &ctober 6, 2347, the plaintiff Pablo !oren)o, in his capacity as trustee of the estate of Thomas Danley, deceased, brought this action in the Court of $irst Instance of Namboanga against the defendant, Buan Posadas, Br., then the Collector of Internal (evenue, for the refund of the amount of P7,:/7.96, paid by the

plaintiff as inheritance ta% on the estate of the deceased, and for the collection of interst thereon at the rate of 8 per cent per annum, computed from eptember 2/, 2347, the date when the aforesaid ta% was Ipaid under protest. The defendant set up a counterclaim for P2,232.79 alleged to be interest due on the ta% in -uestion and which was not included in the original assessment. $rom the decision of the Court of $irst Instance of Namboanga dismissing both the plaintiff.s complaint and the defendant.s counterclaim, both parties appealed to this court. It appears that on +ay 79, 2377, one Thomas Danley died in Namboanga, Namboanga, leaving a will G#%hibit /H and considerable amount of real and personal properties. &n Aune 26, 2377, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of $irst Instance of Namboanga. The will was admitted to probate. aid will provides, among other things, as follows: 6. I direct that any money left by me be given to my nephew +atthew Danley. /. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten G2:H years after my death, and that the same be handled and managed by the e%ecutors, and proceeds thereof to be given to my nephew, +atthew Danley, at Castlemore, ?allaghaderine, County of (osecommon, Ireland, and that he be directed that the same be used only for the education of my brother.s children and their descendants. 8. I direct that ten G2:H years after my death my property be given to the above mentioned +atthew Danley to be disposed of in the way he thin*s most advantageous. %%% %%% %%% 5. I state at this time I have one brother living, named +alachi Danley, and that my nephew, +atthew Danley, is a son of my said brother, +alachi Danley. The Court of $irst Instance of Namboanga considered it proper for the best interests of ther estate to appoint a trustee to administer the real properties which, under the will, were to pass to +atthew Danley ten years after the two e%ecutors named in the will, was, on +arch 5, 2376, appointed trustee. +oore too* his oath of office and gave bond on +arch 2:, 2376. De acted as trustee until $ebruary 73, 2347, when he resigned and the plaintiff herein was appointed in his stead. >uring the incumbency of the plaintiff as trustee, the defendant Collector of Internal (evenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued at P79,37: and personalty

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valued at P2,68/, and allowing a deduction of P65:.52, assessed against the estate an inheritance ta% in the amount of P2,646.76 which, together with the penalties for deli-uency in payment consisting of a 2 per cent monthly interest from Buly 2, 2342 to the date of payment and a surcharge of 7/ per cent on the ta%, amounted to P7,:/7.96. &n +arch 2/, 2347, the defendant filed a motion in the testamentary proceedings pending before the Court of $irst Instance of Namboanga G pecial proceedings =o. 4:7H praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P7,:/7.96. The motion was granted. &n eptember 2/, 2347, the plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff.s protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated. In his appeal, plaintiff contends that the lower court erred: I. In holding that the real property of Thomas Danley, deceased, passed to his instituted heir, +atthew Danley, from the moment of the death of the former, and that from the time, the latter became the owner thereof. II. In holding, in effect, that there was deli-uency in the payment of inheritance ta% due on the estate of said deceased. III. In holding that the inheritance ta% in -uestion be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value thereof at the e%piration of the period of ten years after which, according to the testator.s will, the property could be and was to be delivered to the instituted heir. IC. In not allowing as lawful deductions, in the determination of the net amount of the estate subAect to said ta%, the amounts allowed by the court as compensation to the EtrusteesE and paid to them from the decedent.s estate. C. In not rendering Audgment in favor of the plaintiff and in denying his motion for new trial. The defendant<appellant contradicts the theories of the plaintiff and assigns the following error besides: The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P2,232.79, representing part of the interest at the rate of 2 per cent per month from 'pril 2:, 2376, to Bune 4:, 2342, which the plaintiff had failed to pay on the inheritance ta% assessed by the defendant against the estate of Thomas Danley.

The following are the principal -uestions to be decided by this court in this appeal: GaH ;hen does the inheritance ta% accrue and when must it be satisfiedO G bH hould the inheritance ta% be computed on the basis of the value of the estate at the time of the testator.s death, or on its value ten years laterO GcH In determining the net value of the estate subAect to ta%, is it proper to deduct the compensation due to trusteesO GdH ;hat law governs the case at barO hould the provisions of 'ct =o. 48:8 favorable to the ta%<payer be given retroactive effectO G eH Das there been deli-uency in the payment of the inheritance ta%O If so, should the additional interest claimed by the defendant in his appeal be paid by the estateO &ther points of incidental importance, raised by the parties in their briefs, will be touched upon in the course of this opinion. GaH The accrual of the inheritance ta% is distinct from the obligation to pay the same. ection 2/48 as amended, of the 'dministrative Code, imposes the ta% upon Eevery transmission by virtue of inheritance, devise, be-uest, gift&ortis causa, or advance in anticipation of inheritance,devise, or be-uest.E The ta% therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. G82 C. B., p. 2/37.H It is in reality an e%cise or privilege ta% imposed on the right to succeed to, receive, or ta*e property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. 'cording to article 8/9 of the Civil Code, Ethe rights to the succession of a person are transmitted from the moment of his death.E EIn other wordsE, said 'rellano, C. B., E. . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had e%ecuted and delivered to them a deed for the same before his death.E G?ondad vs. ?ondad, 46 Phil., 747. 4ee also, +iAares vs. =ery, 4 Phil., 23/K uilong , Co., vs. Chio<Taysan, 27 Phil., 24K !ubrico vs. 'rbado, 27 Phil., 432K Innocencio vs. Gat<Pandan, 26 Phil., 632K 'liasas vs.'lcantara, 28 Phil., 653K Ilustre vs. 'laras $rondosa, 29 Phil., 472K +alahacan vs. Ignacio, 23 Phil., 646K ?owa vs. ?riones, 45 Phil., 79K &sario vs. &sario , Luchausti teamship Co., 62 Phil., /42K $ule vs. $ule, 68 Phil., 429K >ais vs. Court of $irst Instance of Capi), /2 Phil., 438K ?aun vs. Deirs of ?aun, /4 Phil., 8/6.H Plaintiff, however, asserts that while article 8/9 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. ?ut the language of article 8/9 of the Civil Code is broad and ma*es no distinction between different classes of heirs. That article does not spea* of forced heirsK it does not even use the word EheirE. It spea*s of the rights of succession and the transmission thereof from the moment of death. The

13

provision of section 87/ of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down in article 8/9 of the Civil Code. The authentication of a will implies its due e%ecution but once probated and allowed the transmission is effective as of the death of the testator in accordance with article 8/9 of the Civil Code. ;hatever may be the time when actual transmission of the inheritance ta*es place, succession ta*es place in any event at the moment of the decedent.s death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. E%oco i&portaE, says +anresa commenting on article 8/9 of the Civil Code, E@ue desde el "allei&iento del causante hasta @ue el heredero o le/atario entre en posesion de los bienes de la herencia o del le/ado transcurra &ucho o poco tie&po pues la ad@uisicion ha de retrotraerse al &o&ento de la &uerte y asi lo ordena el articulo :A: @ue debe considerarse co&o co&ple&ento del presente.E G/ +anresa, 4:/K see also, art. 66:, par. 2, Civil Code.H Thomas Danley having died on +ay 79, 2377, the inheritance ta% accrued as of the date. $rom the fact, however, that Thomas Danley died on +ay 79, 2377, it does not follow that the obligation to pay the ta% arose as of the date. The time for the payment on inheritance ta% is clearly fi%ed by section 2/66 of the (evised 'dministrative Code as amended by 'ct =o. 4:42, in relation to section 2/64 of the same Code. The two sections follow: #C. 2/64. *xe&ption o" certain ac@uisitions and trans&issions. F The following shall not be ta%ed: GaH The merger of the usufruct in the owner of the na*ed title. GbH The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. GcH The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor. In the last two cases, if the scale of ta%ation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference. #C. 2/66. 1hen tax to be paid. F The ta% fi%ed in this article shall be paid: GaH In the second and third cases of the ne%t preceding section, before entrance into possession of the property. GbH In other cases, within the si% months subse-uent to the death of the

predecessorK but if Audicial testamentary or intestate proceedings shall be instituted prior to the e%piration of said period, the payment shall be made by the e%ecutor or administrator before delivering to each beneficiary his share. If the ta% is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the ta%K and to the ta% and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty<five per centum. ' certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal (evenue by the Cler* of Court within thirty days after their issuance. It should be observed in passing that the word EtrusteeE, appearing in subsection GbH of section 2/64, should read EfideicommissaryE or Ecestui @ue trustE. There was an obvious mista*e in translation from the panish to the #nglish version. The instant case does fall under subsection GaH, but under subsection GbH, of section 2/66 above<-uoted, as there is here no fiduciary heirs, first heirs, legatee or donee. "nder the subsection, the ta% should have been paid before the delivery of the properties in -uestion to P. B. +. +oore as trustee on +arch 2:, 2376. GbH The plaintiff contends that the estate of Thomas Danley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, +atthew Danley, until after the e%piration of ten years from the death of the testator on +ay 79, 2377 and, that the inheritance ta% should be based on the value of the estate in 2347, or ten years after the testator.s death. The plaintiff introduced evidence tending to show that in 2347 the real properties in -uestion had a reasonable value of only P/,959. This amount added to the value of the personal property left by the deceased, which the plaintiff admits is P2,68/, would generate an inheritance ta% which, e%cluding deductions, interest and surcharge, would amount only to about P283./7. If death is the generating source from which the power of the estate to impose inheritance ta%es ta*es its being and if, upon the death of the decedent, succession ta*es place and the right of the estate to ta% vests instantly, the ta% should be measured by the vlaue of the estate as it stood at the time of the decedent.s death, regardless of any subse-uent contingency value of any subse-uent increase or decrease in value. G82 C. B., pp. 2837, 2834K 78 (. C. !., p. 747K ?la*emore and ?ancroft, Inheritance Ta%es, p. 249. 4ee also Pnowlton vs. +oore, 295 ". ., 62K 7: up. Ct. (ep., 969K 66 !aw. ed., 383.H EThe right

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of the state to an inheritance ta% accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. ubse-uent appreciation or depriciation is immaterial.E G(oss, Inheritance Ta%ation, p. 97.H &ur attention is directed to the statement of the rule in Cyclopedia of !aw of and Procedure Gvol. 49, pp. 2/96, 2/9/H that, in the case of contingent remainders, ta%ation is postponed until the estate vests in possession or the contingency is settled. This rule was formerly followed in =ew Lor* and has been adopted in Illinois, +innesota, +assachusetts, &hio, Pennsylvania and ;isconsin. This rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the property G78 (. C. !., p. 742.H. (eali)ing, perhaps, the defects of its anterior system, we find upon e%amination of cases and authorities that =ew Lor* has varied and now re-uires the immediate appraisal of the postponed estate at its clear mar*et value and the payment forthwith of the ta% on its out of the corpus of the estate transferred. G#n re Canderbilt, 297 =. L., 83K 83 =. #., 957K #n re Duber, 58 =. L. 'pp. >iv., 6/5K 54 =. L. upp., 983K #state of Tracy, 293 =. L., /:2K 97 =. L., /23K #state of ?re), 297 =. L., 8:3K 86 =. #., 3/5K #state of Post, 5/ 'pp. >iv., 822K 57 =. L. upp., 2:93. Bide also, altoun vs. !ord 'dvocate, 2 Peter. c. 'pp., 39:K 4 +ac-. D. !., 8/3K 74 #ng. (ul. Cas., 555.H California adheres to this new rule G tats. 23:/, sec. /, p. 464H. ?ut whatever may be the rule in other Aurisdictions, we hold that a transmission by inheritance is ta%able at the time of the predecessor.s death, notwithstanding the postponement of the actual possession or enAoyment of the estate by the beneficiary, and the ta% measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. GcH Certain items are re-uired by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance ta% is to be computed Gsec. 2/43, (evised 'dministrative CodeH. In the case at bar, the defendant and the trial court allowed a deduction of only P65:.52. This sum represents the e%penses and disbursements of the e%ecutors until +arch 2:, 2376, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P2,259.75 G#%hibits C, '', ##, PP, DD, BB, !!, ==, &&H, should also be deducted under section 2/43 of the (evised 'dministrative Code which provides, in part, as follows: EIn order to determine the net sum which must bear the ta%, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the Audicial e%penses of the testamentary or intestate proceedings, . . . .E

' trustee, no doubt, is entitled to receive a fair compensation for his services G?arney vs. aunders, 28 Dow., /4/K 26 !aw. ed., 2:69H. ?ut from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subAect to ta%. There is no statute in the Philippines which re-uires trustees. commissions to be deducted in determining the net value of the estate subAect to inheritance ta% G82 C. B., p. 29:/H. $urthermore, though a testamentary trust has been created, it does not appear that the testator intended that the duties of his e%ecutors and trustees should be separated. G #bid.K #n re Cannec*.s #state, 282 =. L. upp., 534K 29/ 'pp. >iv., 484K #n re Collard.s #state, 282 =. L. upp., 6//.H &n the contrary, in paragraph / of his will, the testator e%pressed the desire that his real estate be handled and managed by his e%ecutors until the e%piration of the period of ten years therein provided. Budicial e%penses are e%penses of administration G82 C. B., p. 29:/H but, in tate vs. Dennepin County Probate Court G227 =. ;., 595K 2:2 +inn., 65/H, it was said: E. . . The compensation of a trustee, earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within the class or reason for e%empting administration e%penses. . . . ervice rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and are not re-uired or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the estate. =o sound reason is given to support the contention that such e%penses should be ta*en into consideration in fi%ing the value of the estate for the purpose of this ta%.E GdH The defendant levied and assessed the inheritance ta% due from the estate of Thomas Danley under the provisions of section 2/66 of the (evised 'dministrative Code, as amended by section 4 of 'ct =o. 48:8. ?ut 'ct =o. 48:8 went into effect on Banuary 2, 234:. It, therefore, was not the law in force when the testator died on +ay 79, 2377. The law at the time was section 2/66 above<mentioned, as amended by 'ct =o. 4:42, which too* effect on +arch 3, 2377. It is well<settled that inheritance ta%ation is governed by the statute in force at the time of the death of the decedent G78 (. C. !., p. 7:8K 6 Cooley on Ta%ation, 6th ed., p. 4682H. The ta%payer can not foresee and ought not to be re-uired to guess the outcome of pending measures. &f course, a ta% statute may be made retroactive in its operation. !iability for ta%es under retroactive legislation has been Eone of the incidents of

15

social life.E G eattle vs. Pelleher, 23/ ". ., 48:K 63 !aw. ed., 747 up. Ct. (ep., 66.H ?ut legislative intent that a ta% statute should operate retroactively should be perfectly clear. G cwab vs. >oyle, 67 up. Ct. (ep., 632K mietan*a vs. $irst Trust , avings ?an*, 7/9 ". ., 8:7K toc*dale vs. Insurance Co., 7: ;all., 474K !unch vs. Turrish, 769 ". ., 772.H E' statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance ta%, unless the language of the statute clearly demands or e%presses that it shall have a retroactive effect, . . . .E G82 C. B., P. 28:7.H Though the last paragraph of section / of (egulations =o. 8/ of the >epartment of $inance ma*es section 4 of 'ct =o. 48:8, amending section 2/66 of the (evised 'dministrative Code, applicable to all estates the inheritance ta%es due from which have not been paid, 'ct =o. 48:8 itself contains no provisions indicating legislative intent to give it retroactive effect. =o such effect can begiven the statute by this court. The defendant Collector of Internal (evenue maintains, however, that certain provisions of 'ct =o. 48:8 are more favorable to the ta%payer than those of 'ct =o. 4:42, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 77 of the (evised Penal Code. This is the reason why he applied 'ct =o. 48:8 instead of 'ct =o. 4:42. Indeed, under 'ct =o. 48:8, G2H the surcharge of 7/ per cent is based on the ta% only, instead of on both the ta% and the interest, as provided for in 'ct =o. 4:42, and G7H the ta%payer is allowed twenty days from notice and demand by rthe Collector of Internal (evenue within which to pay the ta%, instead of ten days only as re-uired by the old law. Properly spea*ing, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the #%ecutive has the power to pardon. In common use, however, this sense has been enlarged to include within the term Epenal statutesE all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without e%pressly prohibiting certain acts, impose a penalty upon their commission G/3 C. B., p. 222:H. (evenue laws, generally, which impose ta%es collected by the means ordinarily resorted to for the collection of ta%es are not classed as penal laws, although there are authorities to the contrary. G4ee utherland, tatutory Construction, 482K Twine Co. vs. ;orthington, 262 ". ., 685K 27 up. Ct., //K (ice vs. ". ., 6 C. C. '., 2:6K /4 $ed., 32:K Com. vs. tandard &il Co., 2:2 Pa. t., 2/:K tate vs. ;heeler, 66 P., 64:K 7/ =ev. 264.H 'rticle 77 of the (evised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give 'ct =o. 48:8 a retroactive effect.

GeH The plaintiff correctly states that the liability to pay a ta% may arise at a certain time and the ta% may be paid within another given time. 's stated by this court, Ethe mere failure to pay one.s ta% does not render one delin-ent until and unless the entire period has eplased within which the ta%payer is authori)ed by law to ma*e such payment without being subAected to the payment of penalties for fasilure to pay his ta%es within the prescribed period.E G". . vs. !abadan, 78 Phil., 743.H The defendant maintains that it was the duty of the e%ecutor to pay the inheritance ta% before the delivery of the decedent.s property to the trustee. tated otherwise, the defendant contends that delivery to the trustee was delivery to the cestui @ue trust, the beneficiery in this case, within the meaning of the first paragraph of subsection GbH of section 2/66 of the (evised 'dministrative Code. This contention is well ta*en and is sustained. The appointment of P. B. +. +oore as trustee was made by the trial court in conformity with the wishes of the testator as e%pressed in his will. It is true that the word EtrustE is not mentioned or used in the will but the intention to create one is clear. =o particular or technical words are re-uired to create a testamentary trust G83 C. B., p. 922H. The words EtrustE and EtrusteeE, though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the -uestion that a trust is created G83 C. B., p. 926H. ETo create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the e-uitable estate, and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or obAect of the trust, and the property or subAect matter thereof. tated otherwise, to constitute a valid testamentary trust there must be a concurrence of three circumstances: G2H ufficient words to raise a trustK G7H a definite subAectK G4H a certain or ascertain obAectK statutes in some Aurisdictions e%pressly or in effect so providing.E G83 C. B., pp. 9:/,9:8.H There is no doubt that the testator intended to create a trust. De ordered in his will that certain of his properties be *ept together undisposed during a fi%ed period, for a stated purpose. The probate court certainly e%ercised sound Audgment in appointment a trustee to carry into effect the provisions of the will Gsee sec. /57, Code of Civil ProcedureH. P. B. +. +oore became trustee on +arch 2:, 2376. &n that date trust estate vested in him Gsec. /57 in relation to sec. /3:, Code of Civil ProcedureH. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance ta% laws or e%empt it from the payment of the inheritance ta%. The corresponding inheritance ta% should have been paid on or before +arch 2:, 2376, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery

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of the same estate to the cestui @ue trust, the beneficiary in this case. ' trustee is but an instrument or agent for thecestui @ue trust G helton vs. Ping, 733 ". ., 3:K 44 up. Ct. (ep., 853K /9 !aw. ed., 2:58H. ;hen +oore accepted the trust and too* possesson of the trust estate he thereby admitted that the estate belonged not to him but to hiscestui @ue trust GTolentino vs. Citug, 43 Phil.,278, cited in 8/ C. B., p. 837, n. 84H. De did not ac-uire any beneficial interest in the estate. De too* such legal estate only as the proper e%ecution of the trust re-uired G8/ C. B., p. /75H and, his estate ceased upon the fulfillment of the testator.s wishes. The estate then vested absolutely in the beneficiary G8/ C. B., p. /67H. The highest considerations of public policy also Austify the conclusion we have reached. ;ere we to hold that the payment of the ta% could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Danley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period which does not offend the rule against petuities. The collection of the ta% would then be left to the will of a private individual. The mere suggestion of this result is a sufficient warning against the accpetance of the essential to the very e%eistence of government. G>obbins vs. #rie Country, 28 Pet., 64/K 2: !aw. ed., 2:77K Pir*land vs. Dotch*iss, 2:: ". ., 632K 7/ !aw. ed., //5K !ane County vs. &regon, 9 ;all., 92K 23 !aw. ed., 2:2K "nion (efrigerator Transit Co. vs. Pentuc*y, 233 ". ., 236K 78 up. Ct. (ep., 48K /: !aw. ed., 2/:K Charles (iver ?ridge vs. ;arren ?ridge, 22 Pet., 67:K 3 !aw. ed., 994.H The obligation to pay ta%es rests not upon the privileges enAoyed by, or the protection afforded to, a citi)en by the government but upon the necessity of money for the support of the state G>obbins vs. #rie Country, supraH. $or this reason, no one is allowed to obAect to or resist the payment of ta%es solely because no personal benefit to him can be pointed out. GThomas vs. Gay, 283 ". ., 786K 25 up. Ct. (ep., 46:K 64 !aw. ed., 96:.H ;hile courts will not enlarge, by construction, the government.s power of ta%ation G?romley vs. +cCaughn, 75: ". ., 276K 96 !aw. ed., 778K /: up. Ct. (ep., 68H they also will not place upon ta% laws so loose a construction as to permit evasions on merely fanciful and insubstantial distictions. G". . vs. ;atts, 2 ?ond., /5:K $ed. Cas. =o. 28,8/4K ". . vs. ;igglesirth, 7 tory, 483K $ed. Cas. =o. 28,83:, followed in $roelich , Puttner vs. Collector of Customs, 25 Phil., 682, 652K Castle ?ros., ;olf , ons vs. +cCoy, 72 Phil., 4::K +uo) , Co. vs. Dord, 27 Phil., 876K Dong*ong , hanghai ?an*ing Corporation vs. (afferty,

43 Phil., 26/K !u)on tevedoring Co. vs. Trinidad, 64 Phil., 5:4.H ;hen proper, a ta% statute should be construed to avoid the possibilities of ta% evasion. Construed this way, the statute, without resulting in inAustice to the ta%payer, becomes fair to the government. That ta%es must be collected promptly is a policy deeply intrenched in our ta% system. Thus, no court is allowed to grant inAunction to restrain the collection of any internal revenue ta% G sec. 2/95, (evised 'dministrative CodeK arasola vs. Trinidad, 6: Phil., 7/7H. In the case of !im Co Chui vs. Posadas G69 Phil., 682H, this court had occassion to demonstrate trenchment adherence to this policy of the law. It held that Ethe fact that on account of riots directed against the Chinese on &ctober 25, 23, and 7:, 2376, they were prevented from praying their internal revenue ta%es on time and by mutual agreement closed their homes and stores and remained therein, does not authori)e the Collector of Internal (evenue to e%tend the time prescribed for the payment of the ta%es or to accept them without the additional penalty of twenty five per cent.E G yllabus, =o. 4.H E. . . It is of the utmost importance,E said the upreme Court of the "nited tates, E. . . that the modes adopted to enforce the ta%es levied should be interfered with as little as possible. 'ny delay in the proceedings of the officers, upon whom the duty is developed of collecting the ta%es, may derange the operations of government, and thereby, cause serious detriment to the public.E G>ows vs. Chicago, 22 ;all., 2:5K 7: !aw. ed., 8/, 88K Churchill and Tait vs. (afferty, 47 Phil., /5:.H It results that the estate which plaintiff represents has been delin-uent in the payment of inheritance ta% and, therefore, liable for the payment of interest and surcharge provided by law in such cases. The delin-uency in payment occurred on +arch 2:, 2376, the date when +oore became trustee. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is mandatory Gsee and cf. !im Co Chui vs. Posadas, supraH, and neither the Collector of Internal (evenuen or this court may remit or decrease such interest, no matter how heavily it may burden the ta%payer. To the ta% and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal (evenue, a surcharge of twenty<five per centum should be added Gsec. 2/66, subsec. GbH, par. 7, (evised 'dministrative CodeH. >emand was made by the >eputy Collector of Internal (evenue upon +oore in a communiction dated &ctober 28, 2342 G#%hibit 73H. The date fi%ed for the payment of the ta% and interest was =ovember 4:, 2342. =ovember 4: being an official holiday, the tenth day fell on >ecember

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2, 2342. 's the ta% and interest due were not paid on that date, the estate became liable for the payment of the surcharge. In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief. ;e shall now compute the ta%, together with the interest and surcharge due from the estate of Thomas Danley inaccordance with the conclusions we have reached. 't the time of his death, the deceased left real properties valued at P79,37: and personal properties worth P2,68/, or a total of P73,45/. >educting from this amount the sum of P65:.52, representing allowable deductions under secftion 2/43 of the (evised 'dministrative Code, we have P75,3:6.23 as the net value of the estate subAect to inheritance ta%. The primary ta%, according to section 2/48, subsection GcH, of the (evised 'dministrative Code, should be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon the amount by which the share e%ceed thirty thousand pesos, plus an additional two hundred per centum. &ne per centum of ten thousand pesos is P2::. Two per centum of P25,3:6.23 is P495.:5. 'dding to these two sums an additional two hundred per centum, or P38/.28, we have as primary ta%, correctly computed by the defendant, the sum of P2,646.76. To the primary ta% thus computed should be added the sums collectible under section 2/66 of the (evised 'dministrative Code. $irst should be added P2,68/.42 which stands for interest at the rate of twelve per centum per annum from +arch 2:, 2376, the date of delin-uency, to eptember 2/, 2347, the date of payment under protest, a period covering 5 years, 8 months and / days. To the ta% and interest thus computed should be added the sum of P976.55, representing a surhcarge of 7/ per cent on both the ta% and interest, and also P2:, the compromise sum fi%ed by the defendant G#%h. 73H, giving a grand total of P4,846.64. 's the plaintiff has already paid the sum of P7,:/7.96, only the sums of P2,/52.83 is legally due from the estate. This last sum is P43:.67 more than the amount demanded by the defendant in his counterclaim. ?ut, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable only in the sum of P2,232.79 the amount stated in the counterclaim. The Audgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. o ordered.

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