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Mactan Cebu (MCIAA) vs.

Mactan Cebu International Airport Authority (MCIAA) was created to principally
undertake to economical, efficient and effective control, management and
supervision of the Mactan International Airport and such other airports as may be
established in the province of Cebu Section 14 of its charter excempts the
Authority from payment of realty taxes but in 1994, the City Treasurer demanded
payment for realty taxes on several parcels of land belonging to the other. MCIAA
filed a petition in RTC contending that, by nature of its powers and functions, it has
the same footing of an agency or instrumentality of the national government. The
RTC dismissed the petition based on Section 193 & 234 of the local Government
Code or R.A. 7160. Thus this petition.
Whether or not the MCIAA is excempted from realty taxes?
With the repealing clause of RA 7160 the tax exemption provided. All general and
special in the charter of the MCIAA has been expressly repeated. It state laws, acts,
City Charters, decrees, executive orders, proclamations and administrative
regulations, or part of parts thereof which are inconsistent with any of the provisions
of the Code are hereby repeated or modified accordingly. Therefore the SC affirmed
the decision and order of the RTC and herein petitioner has to pay the assessed
realty tax of its properties effective January 1, 1992 up to the present.
Facts:Petitioner Mactan Cebu International Airport Authority was created by virtue of
R.A. 6958, mandated to principally undertake the economical, efficient, and
effective control, management, and supervision of the Mactan International Airport
and Lahug Airport, and such other airports as may be established in Cebu. Since the
time of its creation, petitioner MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its charter. However, on
October 11, 1994, Mr. Eustaquio B. Cesa, Officer in Charge, Office of the Treasurer of
the City of Cebu, demanded payment from realty taxes in the total amount of
P2229078.79. Petitioner objected to such demand for payment as baseless and
unjustified claiming in its favor the afore cited Section 14 of R.A. 6958. It was also
asserted that it is an instrumentality of the government performing governmental
functions, citing Section 133 of the Local Government Code of 1991. Section 133.
Common limitations on the Taxing Powers of Local Government Units. The exercise
of the taxing powers of the provinces, cities, barangays, municipalities shall not
extend to the levi of the following:

xxx Taxes, fees or charges of any kind in the National Government, its agencies and
instrumentalities, and LGUs. xxx

Respondent City refused to cancel and set aside petitioners realty tax account,
insisting that the MCIAA is a government-controlled corporation whose tax
exemption privilege has been withdrawn by virtue of Sections 193 and 234 of Labor
Code that took effect on January 1, 1992.

Issue:Whether or not the petitioner is a taxable person

Taxation is the rule and exemption is the exception. MCIAAs exemption from
payment of taxes is withdrawn by virtue of Sections 193 and 234 of Labor Code.
Statutes granting tax exemptions shall be strictly construed against the taxpayer
and liberally construed in favor of the taxing authority. The petitioner cannot claim
that it was never a taxable person under its Charter. It was only exempted from
the payment of realty taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all
taxes, except real property tax.
GR No. L-22734, September 15, 1967
21 SCRA 105
FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the
eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in Court so that the
estate was divided among and awarded to the heirs. Atty Pineda's share amounted to about
P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax
liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the
corresponding income tax returns were not filed. Thereupon, the representative of the
Collector of Internal Revenue filed said returns for the estate issued an assessment and
charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable
only to extent of his proportional share in the inheritance.
ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.
HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes
The reason is that the Government has a lien on the P2,500.00 received by him from the
estate as his share in the inheritance, for unpaid income taxes for which said estate is liable.
By virtue of such lien, the Government has the right to subject the property in Pineda's

possession to satisfy the income tax assessment. After such payment, Pineda will have a
right of contribution from his co-heirs, to achieve an adjustment of the proper share of each
heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question. One, by going after
all the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received; and second, is by subjecting said property of the estate which is in the
hands of an heir or transferee to the payment of the tax due. This second remedy is the very
avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue
should be given, in instances like the case at bar, the necessary discretion to avail itself of
the most expeditious way to collect the tax as may be envisioned in the particular provision
of the Tax Code above quoted, because taxes are the lifeblood of government and their
prompt and certain availability is an imperious need.


GR No. 86785, November 21, 1991
234 SCRA 348
FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes with the
BIR by which the latter denied on the ground of prescription. Citytrust filed a
petition for review before the CTA. The case was submitted for decision based solely
on the pleadings and evidence submitted by the respondent because the CIR could
not present any evidence by reason of the repeated failure of the Tax Credit/Refud
Division of the BIR to transmit the records of the case, as well as the investigation
report thereon, to the Solicitor General. CTA rendered the decision ordering BIR to
grant the respondent's request for tax refund amounting to P 13.3 million.
ISSUE: Failure of the CIR to present evidence to support the case of the
government, should the respondent's claim be granted?
HELD: Not yet. It is a long and firmly settled rule of law that the Government is not
bound by the errors committed by its agents. In the performance of its
governmental functions, the State cannot be estopped by the neglect of its agent
and officers. Although the Government may generally be estopped through the
affirmative acts of public officers acting within their authority, their neglect or
omission of public duties as exemplified in this case will not and should not produce
that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It is
axiomatic that the Government cannot and must not be estopped particularly in
matters involving taxes. Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. The errors of certain administrative
officers should never be allowed to jeopardize the Government's financial position,
especially in the case at bar where the amount involves millions of pesos the
collection whereof, if justified, stands to be prejudiced just because of bureaucratic
lethargy. Thus, it is proper that the case be remanded back to the CTA for further
proceedings and reception of evidence.

GR No. 124043, October 14, 1998
298 SCRA 83
FACTS: Private Respondent YMCA--a non-stock, non-profit institution, which conducts
various programs beneficial to the public pursuant to its religious, educational and
charitable objectives--leases out a portion of its premises to small shop owners, like
restaurants and canteen operators, deriving substantial income for such. Seeing this,
the commissioner of internal revenue (CIR) issued an assessment to private respondent
for deficiency income tax, deficiency expanded withholding taxes on rentals and
professional fees and deficiency withholding tax on wages. YMCA opposed arguing that
its rental income is not subject to tax, mainly because of the provisions of Section 27 of
NIRC which provides that civic league or organizations not organized for profit but
operate exclusively for promotion of social welfare and those organized exclusively for
pleasure, recreation and other non-profitble businesses shall not be taxed.
ISSUE: Is the contention of YMCA tenable?
HELD: No. Because taxes are the lifeblood of the nation, the Court has always applied
the doctrine of strict in interpretation in construing tax exemptions. Furthermore, a
claim of statutory exemption from taxation should be manifest and unmistakable from
the language of the law on which it is based. Thus, the claimed exemption "must
expressly be granted in a statute stated in a language too clear to be mistaken."


GR No. L-22074, April 30, 1965
13 SCRA 775
FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company,
entered into reinsurance contracts with foreign insurance companies not doing business
in the country, thereby ceding to foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines. The premiums paid by such
companies were excluded by the petitioner from its gross income when it file its income
tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them.
Consequently, the CIR assessed against the petitioner withholding taxes on the ceded
reinsurance premiums to which the latter protested the assessment on the ground that
the premiums are not subject to tax for the premiums did not constitute income from
sources within the Philippines because the foreign reinsurers did not engage in business
in the Philippines, and CIR's previous rulings did not require insurance companies to
withhold income tax due from foreign companies.
ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums
ceded to foreign insurance companies, which deprives the government from collecting
the tax due from them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means to
give the citizenry 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
enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide. Considering that
the reinsurance premiums in question were afforded protection by the government and
the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws,
such reinsurance premiums and reinsurers should share the burden of maintaining the
The petitioner's defense of reliance of good faith on rulings of the CIR requiring no
withholding of tax due on reinsurance premiums may free the taxpayer from the
payment of surcharges or penalties imposed for failure to pay the corresponding
withholding tax, but it certainly would not exculpate it from liability to pay such
withholding tax. The Government is not estopped from collecting taxes by the mistakes
or errors of its agents.

GR No. L-23645, October 29, 1968
25 SCRA 827
FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando,
Pampanga. It did not bear the special anti-TB stamp required by the RA 1635. It was
returned to the petitioner. Petitioner now assails the constitutionality of the statute
claiming that RA 1635 otherwise known as the Anti-TB Stamp law is violative of the
equal protection clause because it constitutes mail users into a class for the purpose of
the tax while leaving untaxed the rest of the population and that even among postal
patrons the statute discriminatorily grants exemptions. The law in question requires an
additional 5 centavo stamp for every mail being posted, and no mail shall be delivered
unless bearing the said stamp.
ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the
equal protection clause?
HELD: No. It is settled that the legislature has the inherent power to select the subjects
of taxation and to grant exemptions. This power has aptly been described as "of wide
range and flexibility." Indeed, it is said that in the field of taxation, more than in other
areas, the legislature possesses the greatest freedom in classification. The reason for
this is that traditionally, classification has been a device for fitting tax programs to local
needs and usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a

privilege and on administrative convenience. Tax exemptions have never been thought
of as raising revenues under the equal protection clause.

Hydro Resources Contractors Corporation v CTA

National Irrigation Administration (NIA) entered into an agreement with Hydro
Resources for the construction of the Magat River Multipurpose Project in Isabela.
Under their contract, Hydro was allowed to procure new construction equipment,
the payment for which will be advanced by NIA. Hydro shall repay NIA the costs
incurred and the manner of repayment shall be through deductions from each
monthly payment due to Hydro. Hydro shall repay NIA the full value of the
construction before the eventual transfer of ownership.
Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it paid
under protest. The Collector of Customs then ordered for the refund of the ad
valorem duty in the form of tax credit. This was then reversed by the Deputy
Minister of Finance.
Whether or not the imposition of the 3% ad valorem tax on importations is valid.
No. EO 860 which was the basis for the imposition of the ad valorem duty took
effect December 1982. The importations were effected in 1978 and 1979 by NIA. It
is a cardinal rule that laws shall have no retroactive effect unless contrary is
provided. EO 860 does not provide for its retroactivity. The Deputy Minister of
Finance even clarified that letters of credit opened prior to the effectivity of EO 860
are not subject to its provisions.
In the case, the procurement of the equipment was not on a tax exempt basis as the
import liabilities have been secured to paid under a financial scheme. It is a matter
of implementing a pre-existing agreement, hence, the imported articles can only be
subject to the rates of import duties prevailing at the time of entry or withdrawal
from the customs custody.
Commissioner of Internal Revenue v Ayala Securities Corporation
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so
Ayala was charged with 25% surtax by the Commissioner of internal Revenue. The
CTA (Court of Tax Appeals) reversed the Commissioners decision and held that the
assessment made against Ayala was beyond the 5-yr prescriptive period as

provided in section 331 of the National Internal Revenue Code. Commissioner now
files a motion for reconsideration of this decision. Ayala invokes the defense of
prescription against the right of the Commissioner to assess the surtax.

Whether or not the right to assess and collect the 25% surtax has prescribed after
five years.

No. There is no such time limit on the right of the Commissioner to assess the 25%
surtax since there is no express statutory provision limiting such right or providing
for its prescription. Hence, the collection of surtax is imprescriptible. The underlying
purpose of the surtax is to avoid a situation where the corporation unduly retains its
surplus earnings instead of declaring and paying dividends to its shareholders. SC
reverses the ruling of the CTA.
Victorias Milling Co. vs. Municipality of Victorias
GR L-21183, 27 September 1968
En Banc, Sanchez (J): 9 concur
Facts: Ordinance 1 (1956) was approved by the municipal council of Victorias by
way of an amendment to 2 municipal ordinances separately imposing license taxes
on operators of sugar centrals and sugar refineries. The changes were: (1) with
respect to sugar centrals, by increasing the rates of license taxes; and (2) as to
sugar refineries, by increasing the rates of license taxes as well as teh range of
graduated schedule of annual output capacity. Victorias Milling questioned the
validity of Ordinance 1 as it, among others, allegedly singled out Victorias Milling
Co. since it is the only operator of a sugar central and a sugar refinery within the
jurisdiction of the municipality.
Issue: Whether Ordinance 1 is discriminatory.
Held: The ordinance does not single out Victorias as the only object of the ordinance but is made to
apply to any sugar central or sugar refinery which may happen to operate in the municipality. The fact
that Victorias Milling is actually the sole operator of a sugar central and a sugar refinery does not make
the ordinance discriminatory. The ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board
of Ormoc City, which specifically spelled out Ormoc Sugar as the subject of the taxation, the name of the
company herein was never mentioned in the ordinance.
Villanueva vs. Iloilo City
GR L-26521, 28 December 1968
En Banc, Castro (J): 8 concur

Facts: On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance
86 imposing license tax fees upon tenement house (P25); tenemen house partly
engaged or wholly engaged in and dedicated to business in Baza, Iznart, and
Aldeguer Streets (P24 per apartment); and tenement house, padtly or wholly
engaged in business in other streets (P12 per apartment). The validity of such
ordinance was challenged by Eusebio and Remedios Villanueva, owners of four
tenement houses containing 34 apartments. The Supreme Court held the ordinance
to be ultra vires. On 15 January 1960, however, the municipal board, believing that
it acquired authority to enact an ordinance of the same nature pursuant to the Local
Autonomy Act, enacted Ordinance 11 (series of 1960), Eusebio and Remedios
Villaniueva assailed the ordinance anew.
Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.
Held: The Court has ruled that tenement houses constitute a distinct class of
property; and that taxes are uniform and equal when imposed upon all property of
the same class or character within the taxing authority. The fact that the owners of
the other classes of buildings in Iloilo are not imposed upon by the ordinance, or
that tenement taxes are imposed in other cities do not violate the rule of equality
and uniformity. The rule does not require that taxes for the same purpose should be
imposed in different territorial subdivisions at the same time. So long as the burden
of tax falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity is accomplished. The
presumption that tax statutes are intended to operate uniformly and equally was
not overthrown herein.
CIR V SC JOHNSON INC. June 25, 1999
Monday, January 26, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Taxation
Facts: Respondent is a domestic corporation organized and operating under the
Philippine Laws, entered into a licensed agreement with the SC Johnson and Son,
USA, a non-resident foreign corporation based in the USA pursuant to which the
respondent was granted the right to use the trademark, patents and technology
owned by the later including the right to manufacture, package and distribute the
products covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son USA.
For the use of trademark or technology, respondent was obliged to pay SC Johnson
and Son, USA royalties based on a percentage of net sales and subjected the same
to 25% withholding tax on royalty payments which respondent paid for the period
covering July 1992 to May 1993 in the total amount of P1,603,443.00.
On October 29, 1993, respondent filed with the International Tax Affairs Division
(ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing
that, the antecedent facts attending respondents case fall squarely within the same
circumstances under which said MacGeorge and Gillette rulings were issued. Since
the agreement was approved by the Technology Transfer Board, the preferential tax
rate of 10% should apply to the respondent. So, royalties paid by the respondent to
SC Johnson and Son, USA is only subject to 10% withholding tax.

The Commissioner did not act on said claim for refund. Private respondent SC
Johnson & Son, Inc. then filed a petition for review before the CTA, to claim a refund
of the overpaid withholding tax on royalty payments from July 1992 to May 1993.
On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered
the CIR to issue a tax credit certificate in the amount of P163,266.00 representing
overpaid withholding tax on royalty payments beginning July 1992 to May 1993.
The CIR thus filed a petition for review with the CA which rendered the decision
subject of this appeal on November 7, 1996 finding no merit in the petition and
affirming in toto the CTA ruling.
Issue: Whether or not tax refunds are considered as tax exemptions.
Held: It bears stress that tax refunds are in the nature of tax exemptions. As such
they are registered as in derogation of sovereign authority and to be construed
strictissimi juris against the person or entity claiming the exemption. The burden of
proof is upon him who claims the exemption in his favor and he must be able to
justify his claim by the clearest grant of organic or statute law. Private respondent is
claiming for a refund of the alleged overpayment of tax on royalties; however there
is nothing on record to support a claim that the tax on royalties under the RP-US
Treaty is paid under similar circumstances as the tax on royalties under the RP-West
Germany Tax Treaty.