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G.R. No.

L-26521

December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
Pelaez, Jalandoni and Jamir for plaintiff-appellees.
Assistant City Fiscal Vicente P. Gengos for defendant-appellant.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal
Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In
The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the
sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as
follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged
in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement
house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and
constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian
Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios
Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not
appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to
the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic
Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an
ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960,
hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE
BUSINESS OF OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act
No. 2264, otherwise known as the Autonomy Law of Local Government, that:
Section 1. — A municipal license tax is hereby imposed on tenement houses in accordance with the
schedule of payment herein provided.
Section 2. — Tenement house as contemplated in this ordinance shall mean any building or dwelling for
renting space divided into separate apartments or accessorias.
Section 3. — The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses:

(a) Apartment house made of strong materials

P20.00 per door p.a.

(b) Apartment house made of mixed materials

P10.00 per door p.a.

II Rooming house of strong materials

P10.00 per door p.a.

Rooming house of mixed materials

P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to
business in the following streets: J.M. Basa, Iznart, Aldeguer,
Guanco and Ledesma from Plazoleto Gay to Valeria. St.

P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to
business in any other street

P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super market
as soon as said place is declared commercial

P24.00 per door p.a.

Section 4. — All ordinances or parts thereof inconsistent herewith are hereby amended.
Section 5. — Any person found violating this ordinance shall be punished with a fine note exceeding
Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the
discretion of the Court.
Section 6 — This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement
houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva
are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by
either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a
dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod,
Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not impose tenement or
apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and
Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian

Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00.
Eusebio Villanueva has likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint,
respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960,
be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of
the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected
from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a)
"Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and
unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it
constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged
in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal
districts by requiring them to secure licences at rates fixed by the municipal board or city council of the
city, the municipal council of the municipality, or the municipal district council of the municipal district;
to collect fees and charges for services rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in connection with any business, profession or
occupation being conducted within the city, municipality or municipal district and otherwise to levy for
public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal
districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon
nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National
Internal Revenue Code;Provided, however, That no city, municipality or municipal district may levy or
impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of any newspaper,
magazine, review or bulletin appearing at regular intervals and having fixed prices for for subscription
and sale, and which is not published primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat
and power;

(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage,
and all other kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance
companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall
provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the
effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the
tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the said
Secretary exercises this authority the effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and the municipal council or
municipal district council in the case of municipalities or municipal districts may appeal the decision of
the Secretary of Finance to the court during the pendency of which case the tax levied shall be
considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing
authority which extends to almost "everything, excepting those which are mentioned therein," provided that the
tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or
is not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority of a city or municipal
ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the
general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in
casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of
the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees
strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any
occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the
title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating
tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on tenement
houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a
real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the
one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.
It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously,
the appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which,
although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate
tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially
exempted,8 and is payable regardless of whether the property is used or not, although the value may vary in
accordance with such factor.9 The tax is usually single or indivisible, although the land and building or

is not within the ordinance.. although the municipal board of Iloilo City is empowered. the intervention of assessors. so living and cooking. otherwise the subject-matter would have been not merely tenement houses. "The spirit. declared Ordinance 86 ultra vires. or calling. The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the tenement houses are erected. restaurants.19 are not mentioned in the aforestated section of the City Charter of Iloilo.12 It is collected or payable at appointed times. therefore. or an ordinance determines the construction thereof. theaters. Thus. under sec. leased. in both its title and body. occupation. L-12695. yards. and does not require the intervention of assessors or appraisers. On the contrary."15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed. livery garages. boarding houses. this Court explicitly said:. and requires. adopted the definition of a tenement house18 as "any house or building. or hired out to be occupied. The ordinance. similar to the hotel or motel business. but having a common right in the halls. and not by imprisonment of the owner. fix the license fee for. which is rented. et al. and regulate hotels. the exercise of such power cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants. The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax." . par. rather than the letter. in City of Iloilo vs. Called by either name. in the said case of City of Iloilo vs. by itself. and the court looks less to its words and more to the context. j of its Charter. what is within the spirit is within the ordinance although it is not within the letter thereof. Accordingly. or the operation of lodging houses or boarding houses. "to tax. or some of them. which constitute a different business enterprise. lodging houses. and is not enforceable against the tenement houses either by sale or distraint. "And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." Tenement houses. therefore constitute a distinct form of business or calling. because. cafes. or portion thereof. refreshment parlors. being necessarily offered for rent or lease by their very nature and essence." tenement houses. March 23. stairways.10 It is a fixed proportion11 of the assessed value of the property taxed. On the .. except when the land and building or improvements belong to separate owners." The Supreme Court. The tax is not a fixed proportion of the assessed value of the tenement houses."16. designates the tax imposed as a "municipal license tax" which. "The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it.13 and it constitutes a superior lien on and is enforceable against the property14 subject to such taxation. or privies. pawnshops. This is precisely one of the reasons why this Court. Remedios Sian Villanueva. consequence and effect. subject-matter. Clearly. supra. but such words must be taken in the connection in which they are used and the true character is to be deduced from the nature and essence of the subject. et al. therefore. particularly sections 1 and 3 thereof. it is not among the exceptions listed in section 2 of the Local Autonomy Act. 21. water-closets. to pursue a business.improvements erected thereon are assessed separately. or to exercise a privilege. it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses."17 The subject-matter of the ordinance is tenement houses whose nature and essence are expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into separate apartments or accessorias. cinematographs. It is not payable at a designated time or date. in the aforesaid case. as the home or residence of three families or more living independently of each other and doing their cooking in the premises or by more than two families upon any floor. the tax in question is not a real estate tax. Remedios Sian Villanueva. although not within the spirit. although both land and tenement houses may belong to the same owner. 1959. while that which is in the letter. or is occupied. means an "imposition or exaction on the right to use or dispose of property. public warehouses. which is a form of business or calling.

"In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once. or upon all persons of a certain class. both taxes must be imposed on the same property or subject-matter.other hand. and at the same time impose a license tax on that calling. whether on their account as principals or as owners of rental property or properties. 182 (A) (3) (s) of the National Internal Revenue Code.21. by the same State. 2. for the latter is a tax of a fixed amount upon all persons." . however." The lower court apparently had in mind. besides the tenement tax under the said ordinance. On the other hand. The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question. is also devoid of merit. but is permissible."27 Nor is the tax in question a poll tax. the imposition of the latter kind of tax being in no sensea double tax. the provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax. and "otherwise to levy for public purposes. although imposed by the sametaxing authority. the tax in question is not oppressive in the manner the lower court puts it."26 It is elementary. and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt. or exercising privileges within their respective territories. licenses. Title V. for the same purpose. and still taxable under the ordinance in question. resident within a specified territory." are considered "real estate dealers" and are taxed according to the amount of their annual income." but also unconstitutional as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of money." because "buildings pay real estate taxes and also income taxes as provided for in Sec. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation.28 Therefore. calling or activity by both the State and a political subdivision thereof.00 or imprisonment of 6 months or both. The State may collect an ad valorem tax on property used in a calling. or taxing authority. express or implied. and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in section 182. While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers. the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances. or fees. if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance. by virtue of which persons engaged in "leasing or renting property. when it made the above ruling." Obviously. The same tax may be imposed by the national government as well as by the local government.20. . and they must be the same kind or character of tax. that "a tax is not a debt in the sense of an obligation incurred by contract. 3. the argument against double taxation may not be invoked. in conflict with that prohibition.24 It is something not favored. of the National Internal Revenue Code.22. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it "carries a penal clause of a fine of P200. The trial court condemned the ordinance as constituting "not only double taxation but treble at that. At all events. such as the requirement that taxes must be uniform. just and uniform taxes. within the same jurisdiction or taxing district. Government. the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business."25. provided some other constitutional requirement is not thereby violated. during the same taxing period. without regard to their property or the occupations in which they may be engaged."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance. there is no constitutional prohibition against double taxation in the Philippines. are not of the same kind or character.

It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority. supra. that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition.". while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities..Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law. the complaint is hereby dismissed. and the said ordinance was enacted pursuant to the provisions of the City charter. therefore. to overthrow the presumption that tax statutes are intended to operate uniformly and equally. the appellees argue that there is "lack of uniformity" and "relative inequality.30." because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses. or both such fine and imprisonment for each offense. and therefore was not available for consideration in the decision in L-12695 which was promulgated on March 23."31 The fact. There is likewise no identity of cause of action in the two cases because the main issue in L12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11. and. the decision in that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment.34. It is our view that both assertions are undeserving of extended attention. 5. under the provisions of section 2 of the Local Autonomy Act. It should be noted that in the assessment of real estate tax all parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. the ordinance in questionbeing valid. 4. 35. where their councils do not enact a similar tax ordinance. local governments may now tax any taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local governments. To dispose of this contention. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695.which shall not exceed a fine of two hundred pesos or six months' imprisonment. 1959. because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. are permitted to escape such imposition. and their power to tax was construed in strictissimi juris.. ." . Moreover. as owners of tenement houses in the City of Iloilo.33 The plaintiffsappellees. supra." In Punsalan. 1959. it suffices to say that there is no identity of subject-matter in that case andthis case because the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses. Board of Manila. equality and uniformity of taxation is accomplished. This Court has already ruled that tenement houses constitute a distinct class of property. Complementing the above ruling of the lower court. vs. have not shown that the tax burden is not equally or uniformly distributed among them. If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation. et al. Mun. under the Local Autonomy Act which took effect on June 19. while citizens of other cities. No pronouncement as to costs. the judgment a quo is reversed. ACCORDINGLY.32So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated. The trial court brands the ordinance as violative of the rule of uniformity of taxation. this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation. for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time.. ". as ultra vires. series of 1960.

[G.R. No. 112675. January 25, 1999]
AFISCO INSURANCE CORPORATION vs. COURT OF APPEALS, COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE, respondents.
DECISION
PANGANIBAN, J.:
Pursuant to reinsurance treaties, a number of local insurance firms formed themselves into a pool in order
to facilitate the handling of business contracted with a nonresident foreign reinsurance company. May the
clearing house or insurance pool so formed be deemed a partnership or an association that is taxable as a
corporation under the National Internal Revenue Code (NIRC)? Should the pools remittances to the member
companies and to the said foreign firm be taxable as dividends? Under the facts of this case, has the
governments right to assess and collect said tax prescribed?
The Case

These are the main questions raised in the Petition for Review on Certiorari before us, assailing the
October 11, 1993 Decision[1] of the Court of Appeals[2]in CA-GR SP 29502, which dismissed petitioners appeal
of the October 19, 1992 Decision[3] of the Court of Tax Appeals[4] (CTA) which had previously sustained
petitioners liability for deficiency income tax, interest and withholding tax. The Court of Appeals ruled:
WHEREFORE, the petition is DISMISSED, with costs against petitioners.[5]
The petition also challenges the November 15, 1993 Court of Appeals (CA) Resolution [6] denying
reconsideration.
The Facts

The antecedent facts,[7] as found by the Court of Appeals, are as follows:
The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the
Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and Contractors All
Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and a
Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a
non-resident foreign insurance corporation. The reinsurance treaties required petitioners to form a
[p]ool. Accordingly, a pool composed of the petitioners was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an Information
Return of Organization Exempt from Income Tax for the year ending in 1975, on the basis of which it was
assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60,
and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the
petitioners, respectively. These assessments were protested by the petitioners through its auditors Sycip, Gorres,
Velayo and Co.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners,
assessed as Pool of Machinery Insurers, to pay deficiency income tax, interest, and with[h]olding tax, itemized
as follows:
Net income per information
return P3,737,370.00
===========
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76
to 4/15/79 545,193.60
TOTAL AMOUNT DUE & P1,843,273.60
COLLECTIBLE ===========
Dividend paid to Munich
Reinsurance Company P3,728,412.00
===========
35% withholding tax at
source due thereon P1,304,944.20
Add: 25% surcharge 326,236.05
14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penaltynon-filing of return 300.00
late payment 300.00
TOTAL AMOUNT DUE & P1,768,799.39
COLLECTIBLE ===========
Dividend paid to Pool Members P 655,636.00

===========
10% withholding tax at
source due thereon P 65,563.60
Add: 25% surcharge 16,390.90
14% interest from
1/25/76 to 1/25/79 6,884.18
Compromise penaltynon-filing of return 300.00
late payment 300.00
TOTAL AMOUNT DUE & P 89,438.68
COLLECTIBLE ===========[8]
The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a corporation,
and that the latters collection of premiums on behalf of its members, the ceding companies, was taxable
income. It added that prescription did not bar the Bureau of Internal Revenue (BIR) from collecting the taxes
due, because the taxpayer cannot be located at the address given in the information return filed. Hence, this
Petition for Review before us.[9]
The Issues

Before this Court, petitioners raise the following issues:
1.Whether or not the Clearing House, acting as a mere agent and performing strictly administrative functions,
and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a
corporation;
2.Whether or not the remittances to petitioners and MUNICHRE of their respective shares of reinsurance
premiums, pertaining to their individual and separate contracts of reinsurance, were dividends subject to tax;
and
3.Whether or not the respondent Commissioners right to assess the Clearing House had already prescribed.[10]
The Courts Ruling

The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is taxable as a
corporation, and that the governments right to assess and collect the taxes had not prescribed.

Rates of Income Tax on Domestic Corporations.[17] The Court is not persuaded.] as well as the performance of incidental functions. and the Court of Appeals.[15] (3) the executive board of the pool did not exercise control and management of its funds. unlike the board of directors of a corporation. in affirming the CTA which had previously sustained the internal revenue commissioner. They point out that the reinsurance policies were written by them individually and separately. 27. is dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject. the agency tasked with the enforcement of tax laws. Ineludibly. a specialized body created for the exclusive purpose of reviewing tax cases. because (1) they.[18] particularly in this case where the findings and conclusions of the internal revenue commissioner were subsequently affirmed by the CTA. and building and loan associations xxx. Rate of tax on corporations. and that their liability was limited to the extent of their allocated share in the original risks thus reinsured. such as the Court of Tax Appeals which. The opinion or ruling of the Commission of Internal Revenue. maintenance. such as records. general professional partnerships. [I]t has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies.[20] This Court rules that the Court of Appeals. -. but not including duly registered general co-partnership (compaias colectivas).[13] Petitioners belie the existence of a partnership in this case. or existing under the laws of the Philippines.[19] Indeed. 24. as worded in the year ending 1975. Parenthetically. private educational institutions. the Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations. [21] which amended the Tax Code. -- . -. when there is no showing that it is patently wrong. unless there has been an abuse or improvident exercise of its authority. did not share the same risk or solidary liability.[12] Its role was limited to its principal function of allocating and distributing the risk(s) arising from the original insurance among the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s) ceded[. which was taxable as a corporation under the NIRC. by the nature of its functions.(a) Tax on domestic corporations. is accorded much weight and even finality. Section 24 of the NIRC. the pool did not act or earn income as a reinsurer.First Issue: Pool Taxable as a Corporation Petitioners contend that the Court of Appeals erred in finding that the pool or clearing house was an informal partnership. collection and custody of funds. committed no reversible error. [11] Hence. [16] and (4) the pool or clearing house was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself. [14] (2) there was no common fund. the reinsurers. no matter how created or organized.A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in. the NLRCs inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act of 1997. provides: SEC. etc. Pertinent provisions of the new law read as follows: SEC.

[28] In the case before us. a pool of individual real property owners dealing in real estate business was considered a corporation for purposes of the tax in sec." Thus. -. property. or insurance companies. which had no legal personalities apart from their individual members. an income tax of thirty-five percent (35%) is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation. p. pool. General professional partnerships are partnerships formed by persons for the sole purpose of exercising their common profession. -. supra.When used in this Title: xxx xxx xxx (B) The term corporation shall include partnerships. an association implies associates who enter into a joint enterprise x x x for the transaction of business. associations. or venture is carried on. group. Collector of Internal Revenue.(A) In General. SEC.Definition. geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract without the Government. The Supreme Court said: The term partnership includes a syndicate. the Court in Evangelista v.[23] The Court of Appeals astutely applied Evangelista:[24] xxx Accordingly. as defined in Section 22 (B) of this Code. a partnership is formed when persons contract to devote to a common purpose either money.[27] Meanwhile. no part of the income of which is derived from engaging in any trade or business. Collector of Internal Revenue[22] held that Section 24 covered these unregistered partnerships and even associations or joint accounts. with the intention of dividing the profits among themselves.Except as otherwise provided in this Code. The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC: . xxx xxx xxx. joint accounts (cuentas en participacion). joint-stock companies.[26] In other words. through or by means of which any business. financial operation. the ceding companies entered into a Pool Agreement[29] or an association[30] that would handle all the insurance businesses covered under their quota-share reinsurance treaty [31] and surplus reinsurance treaty[32]with Munich. and taxable under this Title as a corporation xxx. 22.[25] Its requisites are: (1) mutual contribution to a common stock. * * * (8 Mertens Law of Federal Income Taxation. 562 Note 63) Article 1767 of the Civil Code recognizes the creation of a contract of partnership when two or more persons bind themselves to contribute money. or industry to a common fund. and (2) a joint interest in the profits. no matter how created or organized. 24 of the Tax Code in Evangelista v. or labor with the intention of dividing the profits between themselves. -. coal. but does not include general professional partnerships [or] a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum. joint venture or other unincorporated organization. property.

xxx taxing the same person twice by the same jurisdiction for the same thing. In Pascual. The tax on its income is obviously different from the tax on the dividends received by the said companies. composed of one representative for each of the ceding companies. petitioners argue that since Munich was not a signatory to the Pool Agreement. as it implies that profit actually resulted. . but merely a coownership which took up only two isolated transactions. Clearly. Second Issue: Pools Remittances Are Taxable Petitioners further contend that the remittances of the pool to the ceding companies and Munich are not dividends subject to tax. however. because the facts obtaining therein are not on all fours with the present case. profit must have been the object as. consisting of money and other valuables that are deposited in the name and credit of the pool.[34] (2) The pool functions through an executive board.[36] Profit motive or business is. as it would result in taxing the same premium income twice in the hands of the same taxpayer. the pool is a taxable entity distinct from the individual corporate entities of the ceding companies.[40] Moreover. there is no double taxation here. [39] The Court of Appeals did not err in applying Evangelista. and petitioners admit. which involved a partnership that engaged in a series of transactions spanning more than ten years. they would have been exempt under the previously mentioned sections of the 1977 NIRC. beneficial and economically useful to the business of the ceding companies and Munich. [46] In the instant case. They insist that taxing such remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and would be tantamount to an illegal double taxation. as in the case before us. the remittances it received from the pool cannot be deemed dividends. [42] as well as Article 7 of paragraph 1 [43] and Article 5 of paragraph 5[44] of the RP-West German Tax Treaty. which resembles the board of directors of a corporation. That is. Commissioner[38] is misplaced. [41] They add that even if such remittances were treated as dividends.[33] This common fund pays for the administration and operation expenses of the pool. x x x If together they have conducted business. indeed. It is apparent.[35] (3) True. that of the pool being used in the transaction of business for profit. there was no unregistered partnership. As aptly found by the CTA: xxx The fact that the pool does not retain any profit or income does not obliterate an antecedent fact. this is only a matter of consequence. the primordial reason for the pools formation.(1) The pool has a common fund. The ceding companies share in the business ceded to the pool and in the expenses according to a Rules of Distribution annexed to the Pool Agreement. the pool itself is not a reinsurer and does not issue any insurance policy. because without it they would not have received their premiums. its work is indispensable. Though the profit was apportioned among the members. Double taxation means taxing the same property twice when it should be taxed only once.[37] The petitioners reliance on Pascual v. that their association or coaction was indispensable [to] the transaction of the business.[45] Petitioners are clutching at straws. profit was earned. therefore.

because these were not yet in effect when the income was earned and when the subject information return for the year ending 1975 was filed. Although not a signatory to the Pool Agreement. Hence. Nor can Munich. since their entitlement thereto remains unproven and unsubstantiated. Under its pool arrangement with the ceding companies. because the internal revenue commissioner assessed the pool for corporate taxes on the basis of the information return it had submitted for the year ending 1975. it cannot be claimed by the ceding companies which are domestic corporations. Munich shared in their income and loss. Munich is patently an associate of the ceding companies in the entity formed. hence. It is axiomatic in the law of taxation that taxes are the lifeblood of the nation. pursuant to their reinsurance treaties which required the creation of said pool. and that the internal revenue commissioner was already barred by prescription from making an assessment. On the basis of this return. therefore. the petitioners claim that Munich is tax-exempt based on the RP-West German Tax Treaty is likewise unpersuasive. a taxable year when said treaty was not yet in effect. to give them notice of its letter of assessment dated March 27. Thus. a foreign corporation.[55] Third Issue: Prescription Petitioners also argue that the governments right to assess and collect the subject tax had prescribed.The tax exemptions claimed by petitioners cannot be granted. This cannot be applied to the present case because. Referring to the 1975 version of the counterpart sections of the NIRC. the BIR telephoned petitioners on November 11. 1976. On the other hand. 1984. the latter cannot individually claim the income tax paid by the former as their own.[57] because the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in sending the assessment. [58] Indeed. be granted exemption based solely on this provision of the Tax Code. as previously discussed.[47] Petitioners have failed to discharge this burden of proof. the Court takes judicial notice that it took effect only later. and the statutory exemption claimed must be expressed in a language too plain to be mistaken. This is manifest from a reading of Articles 3 [49] and 10[50] of the Quota Share Reinsurance Treaty and Articles 3 [51] and 10[52] of the Surplus Reinsurance Treaty.[53] Finally. Section 24 (b) (1) [48] pertains to tax on foreign corporations. because the same subsection specifically taxes dividends.[54] Although petitioners omitted in their pleadings the date of effectivity of the treaty. Section 255 provides that no tax shall xxx be paid upon reinsurance by any company that has already paid the tax xxx. The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must be construed strictissimi juris. the Court still cannot justify the exemptions claimed. 1981. the petitioners contend that the five-year statute of limitations then provided in the NIRC had already lapsed. 1981. on December 14.[56] We cannot sustain the petitioners. They claim that the subject information return was filed by the pool on April 14. The CA and the CTA categorically found that the prescriptive period was tolled under then Section 333 of the NIRC. the pool is a taxable entity distinct from the ceding companies. the type of remittances forwarded to it by the pool. whether the governments right to collect and assess the tax has prescribed involves facts which have been ruled upon by the . exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right. The sections of the 1977 NIRC which they cite are inapplicable.

” In the instant case.” Ineludibly.768. HELD: 1) Yes: Pool taxable as a corporation . Furthermore. There is no double taxation.68 on dividends paid to Munich and to the petitioners.799. for they stated that the pools information return filed in 1980 indicated therein its present address. Afiasco Insurance vs CA Unregistered Partnerships and associations are considered as corporations for tax purposes – Under the old internal revenue code. petitioners admitted in their Motion for Reconsideration before the Court of Appeals that the pool changed its address. the pool of machinery insurers submitted a financial statement and filed an “Information Return of Organization Exempt from Income Tax” for 1975. FACTS: The petitioners are 41 non-life domestic insurance corporations. On the basis of this. the ceding companies. the Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations.273.39 and P89. or an association that would handle all the insurance businesses covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich is considered a partnership or association which may be taxed as a ccorporation. or existing under the laws of the Philippines. xxx. The law clearly states that the said period will be suspended only if the taxpayer informs the Commissioner of Internal Revenue of any change in the address. The reinsurance treaties required petitioners to form a pool. as in this case. The Resolutions of the Court of Appeals dated October 11. The Court of Tax Appeal sustained the petitioner's liability. ISSUE/S: 1. 2. Costs against petitioners. Whether or not there is double taxation.60. a non-resident foreign insurance corporation. They issued risk insurance policies for machines. was taxable income. The CA ruled in that the pool of machinery insurers was a partnership taxable as a corporation. “A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in. no matter how created or organized. this Court must not overturn the factual findings of the CA and the CTA.lower courts. respectively. WHEREFORE. The Court finds that this falls short of the requirement of Section 333 of the NIRC for the suspension of the prescriptive period. the insurance pool is a taxable entity distince from the individual corporate entities of the ceding companies. the petition is DENIED. Whether or not the pool is taxable as a corporation. The petitioners in 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich). the CIR assessed a deficiency of P1. 1993 are hereby AFFIRMED.438. It is axiomatic that in the absence of a clear showing of palpable error or grave abuse of discretion. petitioners-insurance companies formed a Pool Agreement. which they complied with. The Court of Appeals dismissed their appeal. Insurance pool in the case at bar is deemed a partnership or association taxable as a corporation – In the case at bar.843. and withholding taxes in the amount of P1. Double Taxation is not Present in the Case at Bar – Double taxation means “taxing the same person twice by the same jurisdiction for the same thing. and that the latter’s collection of premiums on behalf of its members. The tax on its income is obviously different from the tax on the dividends received by the companies. 1993 and November 15. In 1976.

” “SEC. private educational institutions. (3) While. the Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations. the primordial reason for the pool’s formation. the Court in Evangelista v. 22 reads: “SEC. no matter how created or organized. Interestingly. or insurance companies. or existing under the laws of the Philippines. Argument of Petitioner: Remittances of the pool to the ceding companies and Munich are not dividends subject to tax.Argument of Petitioner: The reinsurance policies were written by them “individually and separately.When used in this Title: xxx xxx xxx (B) The term ‘corporation’ shall include partnerships. 2) No: There is no double taxation.” Ineludibly. such as records. Its role was limited to its principal function of “allocating and distributing the risk(s) arising from the original insurance among the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s) ceded[. Rates of Income Tax on Domestic Corporations.A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in.Except as otherwise provided in this Code.” In the instant case. its work is indispensable. no matter how created or organized. coal. maintenance. This common fund pays for the administration and operation expenses of the pool. they would have been exempt under tSections 24 (b) (I) and 263 of the 1977 NIRC . which had no legal personalities apart from their individual members. the pool did not act or earn income as a reinsurer. 22. Hence. (2) The pool functions through an executive board. and building and loan associations xxx. but does not include general professional partnerships [or] a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum. the insurance pool is a taxable entity distince from the individual corporate entities of the . Rate of tax on corporations. 27 read together with Sec. composed of one representative for each of the ceding companies. joint-stock companies. Profit motive or business is. consisting of money and other valuables that are deposited in the name and credit of the pool.” Argument of SC: According to Section 24 of the NIRC of 1975: “SEC. ‘General professional partnerships’ are partnerships formed by persons for the sole purpose of exercising their common profession. and taxable under this Title as a corporation xxx.” Furthermore. as it would result in taxing the same premium income twice in the hands of the same taxpayer. -(A) In General. as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of the RP-West German Tax Treaty. -. 24. geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract without the Government. but not including duly registered general co-partnership (compañias colectivas). therefore. the NIRC’s inclusion of such entities in the tax on corporations was made even clearer by the Tax Reform Act of 1997 Sec. which resembles the board of directors of a corporation. general professional partnerships.Definition. collection and custody of funds. the pool itself is not a reinsurer and does not issue any policies.] as well as the performance of incidental functions. -. associations. Collector of Internal Revenue held that Section 24 covered these unregistered partnerships and even associations or joint accounts. Thus. etc. no part of the income of which is derived from engaging in any trade or business.(a) Tax on domestic corporations. 27. Furthermore. because without it they would not have received their premiums pursuant to the agreement with Munich.” and that their liability was limited to the extent of their allocated share in the original risks thus reinsured. -. even if such remittances were treated as dividends. as defined in Section 22 (B) of this Code. an income tax of thirty-five percent (35%) is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation. Imposing a tax “would be tantamount to an illegal double taxation. -. Pool Agreement or an association that would handle all the insurance businesses covered under their quotashare reinsurance treaty and surplus reinsurance treaty with Munich may be considered a partnership because it contains the following elements: (1) The pool has a common fund. Argument of Supreme Court: Double taxation means “taxing the same person twice by the same jurisdiction for the same thing. -. joint accounts (cuentas en participacion). beneficial and economically useful to the business of the ceding companies and Munich.

and the statutory exemption claimed must be expressed in a language too plain to be mistaken. the type of remittances forwarded to it by the pool. Tax exemption cannot be claimed by non-resident foreign insurance corporattion. it cannot be claimed by the ceding companies which are domestic corporations. be granted exemption based solely on this provision of the Tax Code because the same subsection specifically taxes dividends. The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must be construed strictissimi juris. There is no double taxation. . Nor can Munich. tax exemption construed strictly against the taxpayer .ceding companies.Section 24 (b) (1) pertains to tax on foreign corporations. a foreign corporation. hence. The tax on its income is obviously different from the tax on the dividends received by the companies.

. On July 23. 23 and 27 legal . Leyte. Leyte. 1969. 1963. 23 and 27." 2 For the purpose of computing the taxes due. MARTIN. of the total number of bottles produced and corked during the month. LEYTE. the person. plaintiff-appellant. as involving only pure questions of law. 1963. June 19. sought to enforce compliance by the latter of the provisions of said Ordinance No. J. 2264. defendant appellees. which was approved on October 28. Sabido. 5 The tax imposed in both Ordinances Nos. firm. 3294. 3 On the other hand. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the same. fun company.R. Municipal Ordinance No. U. Provincial Fiscal Zoila M. 27. On February 14. 1962. which was certified to Us by the Court of Appeals on October 6. as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality. the material portions of which state that. commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. 23 and 27 is denominated as "municipal production tax. Inc. the acting Municipal Treasurer of Tanauan.' On October 7. 1963. 2264] declaring Ordinance Nos.S. 23. Reyes for appellees.. MUNICIPALITY OF TANAUAN. null and void. 1 otherwise known as the Local Autonomy Act. Pepsi-Cola Bottling Company of the Philippines. L-31156 February 27. 1963.G. Limcaoco & Solicitor Enrique M.) of volume capacity. both Ordinances Nos. the plaintiff-appellant. No. Republic Act No." 4 For the purpose of computing the taxes due. INC. challenging the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No.: This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. Municipal Ordinance No.. and second. company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report. levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0. the person. 27. ET AL. 1976 PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES. the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2. unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. series of 1962. of the municipality of Tanauan. which was approved on September 25. Leyte. first. vs. 1959). 1962.01) on each gallon (128 fluid ounces. that on January 17. partnership. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General Conrado T. series of 1962. as amended. THE MUNICIPAL MAYOR. the parties entered into a Stipulation of Facts. of Tanauan. 2264. Sabido & Associates for appellant.

the State is not limited 6 the exact measure of that which is exercised by itself. i. The exception. local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. which. (2) the rule on uniformity of taxation is observed. 7 This is sanctioned by immemorial practice. 10 This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over under the guise of the taxing power. it cannot be said that Section 2 of Republic Act No. ordering the plaintiff to pay the taxes due under the oft the said Ordinances. and a notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law." From this judgment. 9 Under the New Constitution. — Do Ordinances Nos. a tax is imposed on property outside the State. would not suffice to invalidate the said law as confiscatory and oppressive. and arbitrary or oppressive methods are used in assessing and collecting taxes. There are three capital questions raised in this appeal: 1. 2264 an undue delegation of power. as when (1) the tax is for a public purpose. it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. 12 There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. But.. said theory does not apply. The power of taxation is an essential and inherent attribute of sovereignty. Republic Act No. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. Thus. lies in the case of municipal corporations. belonging as a matter of right to every independent government. extraterritorial taxation. The plenary nature of the taxing power thus delegated. 23 and 27 unjust and unfair? 1. and to pay the costs. however. and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. 23 and 27 constitute double taxation and impose percentage or specific taxes? 3. In delegating the authority. to which.and constitutional. as amended. except when the taking of the property is in the lawful exercise of the taxing power. although the purpose of the tax will result in an injury rather than a benefit to such taxpayer. (3) either the person or property taxed is within the jurisdiction of the government levying the tax.e. municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes. elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948. as applied to a particular taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry. the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals. confiscatory and oppressive? 2. the legislative power to create political corporations for purposes of local selfgovernment carries with it the power to confer on such local governmental agencies the power to tax. subject to such limitations as may be provided by law. When it is said that the taxing power may be delegated to municipalities and the like. in turn. — Are Ordinances Nos. without being expressly conferred by the people. contrary to plaintiff-appellant's pretense. — Is Section 2. Legislative powers may be delegated to local governments in respect of matters of local concern. Article XI provides: "Each local government unit shall have the power to create its sources of revenue and to levy taxes." Withal. 13 The reason is that the State has exclusively reserved the . Section 5. 8 By necessary implication. 6 It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a public purpose. a tax does not violate the due process clause.

opium and other habit-forming drugs. U.S. The plaintiff-appellant submits that Ordinance No.same for its own prerogative. The tax is levied on the produce (whether sold or not) and not on the sales. 27. matches firecrackers. 27. even without words to that effect. 1962. to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline.) of volume capacity. 23. unjust and confiscatory. approved on October 28.01) on each gallon (128 fluid ounces. 23 as the provisions of the latter are inconsistent with the provisions of the former. series of 1962. in Ordinance No. products of tobacco other than cigars and cigarettes. or other taxes in any form based thereon. the imposition of "a tax of one centavo (P0. cinematographic films. Undoubtedly.01) on each gallon (128 fluid ounces. particularly. 23 and 27 constitute double taxation. coal. 27. series of 1962 is being enforced by defendantsappellees. in general. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. is broad enough as to extend to almost "everything. Specific taxes are those imposed on specified articles. under the provisions of the National Internal Revenue Code. imposing a tax of one centavo (P0. series of 1962.every bottle corked. 3. counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. U. levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for . The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No.S. or an equivalent of 1-½ centavos per case. manufactured oils and other fuels. 1962. but there is not set ratio between the volume of sales and the amount of the tax. 27 imposes a percentage or a specific tax. it was 1/16 of a centavo for every bottle corked. U. 22 Soft drink is not one of those specified. such as distilled spirits. 23 cannot be considered unjust and unfair. 17 2. U.) of volume capacity. 27. Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No.01) on each gallon (128 fluid ounces. This is not so. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose. 27. it is one centavo (P0. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products. irrespective of the volume contents of the bottle used. The tax of one (P0. diesel fuel oil. is not forbidden by our fundamental law. which was approved on September 25. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. saccharine. since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union. produced or manufactured. fermented liquors." For purposes of this particular limitation.) of volume capacity on all softdrinks. playing cards. bunker fuel oil. 23. Republic Act No. the same comes within the ambit of the general rule.S. 24 an increase in the tax alone would not support the claim that the tax is oppressive. 23. a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact." As long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law. . Ordinance No. 27. double taxation. series of 1962 clearly repeals Ordinance No. pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies. the taxing authority conferred on local governments under Section 2.S. The thesis proceeds from its assumption that both ordinances are valid and legally enforceable. 16 but not in a case where one tax is imposed by the State and the other by the city or municipality. Moreover. because these two ordinances cover the same subject matter and impose practically the same tax rate. 27 does not partake of the nature of a percentage tax on sales. As earlier quoted.01) on each gallon (128 fluid ounces. The intention of the Municipal Council of Tanauan in enacting Ordinance No. wines. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan. Even the Provincial Fiscal. 20But. and operates as a repeal of the latter." That brings Us to the question of whether the remaining Ordinance No. The aforementioned admission shows that only Ordinance No. accepting those which are mentioned therein.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the same tax rate. 21 Nor can the tax levied be treated as a specific tax. 2264. the Municipality of Tanauan enacted Ordinance No.

Leyte. not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes. 28 Finally.000. Under the New Constitution. Whether or not there is doubletaxation. 27. 27 which levies and collects “on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one centavo P0. the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. SO ORDERED. Costs against petitioner-appellant. It argued. re-pealing Municipal Ordinance No. 27) comes within the second power of a municipality.00 with ten but not more than twenty crowners imposed on manufacturers. theMunicipality approved Ordinance No. The ordinance in question (Ordinance No. Pepsi Cola’s assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. 27 is being enforced and that the latter law is an amendment of Ordinance No. as amended. 27 if the purpose of the law to further strengthen local autonomy were to be realized. There is no double taxation. 231. in general. There is no undue delegation. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose. July 1. 23 which levies and collects “from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. 25 This is in line with the constutional policy of according the widest possible autonomy to local governments in matters of local taxation. Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of taxing powers to local government units. ISSUE: Whether or not there is undue delegation of taxing powers. Municipalities are empowered to impose.” Withal. same series. Further. that allowing local governments to tax companies like Pepsi Cola is confiscatory and oppressive. the constitutionality of Section 2 of Republic Act No. Article XI provides: “Each local government unit shall have the power to create its sources of revenue and to levy taxes. ACCORDINGLY. In September 1962. Legislative powers may be delegated to local governments in respect of matters of local concern. Leyte. courts will go slow in writing off an ordinance as unreasonable. the Municipality also approved Ordinance No. is hereby declared of valid and legal effect. importers and dealers of soft drinks and/or mineral waters under Ordinance No. an aspect that is given expression in the Local Tax Code (PD No. 29 appears not to affect the resolution of the validity of Ordinance No.Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 27 covers the same subject matter and impose practically the same tax rate as with Ordinance No. 41. but not in a case where one tax is imposed by the State and the other by the city or municipality. 23. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 2264.” In December 1962. among others.00 per corking machine with five but not more than ten crowners or P2. 26 Unless the amount is so excessive as to be prohibitive. 23.000. subject to such limitations as may be provided by law. The Municipality assailed the arguments presented by Pepsi Cola. is not forbidden by our fundamental law unlike in other jurisdictions. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. 27 of the Municipality of Tanauan. it cannot be said that Section 2 of Republic Act No. series of 1964. 1973). 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. that only Ordinance No. series of 1962. b) double taxation because the two ordinances impose percentage or specific taxes. Pepsi Cola has a bottling plant in the Municipality of Tanauan. double taxation. of defendant Municipality. otherwise known as the Local Autonomy Act. just and uniform taxes. Moreover. hence there is no double taxation. The Constitution even allows such delegation. local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. series of 1968. The argument of the Municipality is well taken. HELD: No. producers. is hereby upheld and Municipal Ordinance No. The reason is that the State has exclusively reserved the same for its own prerogative. Section 5.” Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two instances: a) double taxation because Ordinance No. as amended by Ordinance No. . the municipal license tax of P1. 54. By necessary implication. 23.01) on each gallon of volume capacity.

President and owner of 99. as evidenced by a Deed of Sale of Shares of Stocks. and ordered the cancellation and setting aside of the assessment issued by Commissioner of Internal Revenue Liwayway Vinzons-Chato on 9 January 1995. Toda.[3] which held that the respondent Estate of Benigno P.A.[G.725.R. 2004] COMMISSIONER OF INTERNAL REVENUE. and not against the new CIC. respondents.R. After crediting withholding taxes of P254. declaring.T. the Bureau of Internal Revenue (BIR) sent an assessment notice [10] and demand letter to the CIC for deficiency income tax for the year 1989 in the amount of P79.22. DECISION DAVIDE.J.: This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes tax evasion that would justify an assessment of deficiency income tax. Altonaga. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. 5328. asserting that the assessment should be directed against the old CIC. Makati City. sold the same property on the same day to Royal Match Inc. who. The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles Building. (RMI) for P200 million. 57799 affirming the 3 January 2000 Decision [2] of the Court of Tax Appeals (CTA) in C. Toda. petitioner. which is owned by an entirely different set of stockholders.. Jr. Case No. THE ESTATE OF BENIGNO P. it paid P26.099. On 29 March 1994.021. No. Toda died.[11] . CIC filed its corporate annual income tax return[7] for the year 1989.099. situated on two parcels of land on Ayala Avenue. is not liable for the deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount of P79.00. C.999. JR.[4] On 30 August 1989.728. Toda sold his entire shares of stocks in CIC to Le Hun T. or on 16 January 1994. Altonaga paid capital gains tax in the amount of P10 million.991% of its issued and outstanding capital stock.22 for the year 1989. CIC authorized Benigno P. On 2 March 1989. 147188. September 14. Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989. among other things. [9] Three and a half years later. in turn.[6] On 16 April 1990.[5] For the sale of the property to RMI. its gain from the sale of real property in the amount of P75.. TODA. SP No. vs.987.341. to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million. The new CIC asked for a reconsideration..207[8] for its net taxable income of P75. moreover. The petitioner seeks the reversal of the Decision [1] of the Court of Appeals of 31 January 2001 in CA-G.5 million. Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista.999. JR. Jr.497. Toda purportedly sold the property for P100 million to Rafael A. Choa for P12. On 12 July 1990.

00 36. that the inference of fraud of the sale of the properties is unreasonable and unsupported.595. Thru Capital Gains Tax made by R.704.88 25% Surcharge 6.099. Toda.[17] the Commissioner argued that the two transactions actually constituted a single sale of the property by CIC to RMI. The additional gain of P100 million (the difference between the second simulated sale for P200 million and the first simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of Altonaga. The income tax return filed by CIC for 1989 with intent to evade payment of the tax was thus false or fraudulent. and that the right of the Commissioner to assess CIC had already prescribed. and that Altonaga was neither the buyer of the property from CIC nor the seller of the same property to RMI.00 per investigation Tax Due thereof at 35% P 61.65 TOTAL AMT.On 27 January 1995.987.57 Add: Interest 20% from 4/16/90-4/30/94 (.999.999.349.999.22 ============ The Estate thereafter filed a letter of protest.00 Add: Additional gain on sale of real property taxable under ordinary corporate income but were substituted with individual capital gains (P200M 100M) 100.000.499.000.00 Balance of tax due P 24. computed as follows: Income Tax 1989 Net Income per return P75.703. Altonaga 10.595.00 Total Net Taxable Income P175. Per return P26.A.999.[13] In the letter dated 19 October 1995.94 Total P 43.75 Less: Payment already made 1.22. represented by special co-administrators Lorna Kapunan and Mario Luza Bautista. the Estate filed a petition for review [15] with the CTA alleging that the Commissioner erred in holding the Estate liable for income tax deficiency. the Estate of Benigno P.00 2.999.249.808) 35.725.099. thus evading the higher corporate income tax rate of 35%.725. Since such falsity or fraud was discovered by the BIR only on 8 March . stating that a fraudulent scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional gain of P100 million.704.000.999.999.[14] the Commissioner dismissed the protest.749. On 15 February 1996. DUE & COLLECTIBLE P 79. In his Answer[16] and Amended Answer.999.75 Add: 50% Surcharge 12. Jr. received a Notice of Assessment [12] dated 9 January 1995 from the Commissioner of Internal Revenue for deficiency income tax for the year 1989 in the amount of P79.. instead of at the rate of 35% as corporate income tax of CIC.000.595. which resulted in the change in the income structure of the proceeds of the sale of the two parcels of land and the building thereon to an individual capital gains.987.

being more advantageously situated and having the necessary expertise in matters of taxation. cancelled and set aside the assessment issued by the Commissioner on 9 January 1995. (2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead of the alleged sale between CIC and Altonaga. Toda. Page 20. and a close business associate of the former. She further points out that the documents themselves prove the fact of fraud in that (1) the two sales were done simultaneously on the same date. Hence. who was financially incapable of purchasing it.991% of the capital stock of CIC was not in itself sufficient ground for piercing the separate corporate personality of CIC. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE CORPORATE PERSONALITY OF CIBELES INSURANCE CORPORATION. Thus. Since he is already dead. the assessment issued on 9 January 1995 was well within the prescriptive period prescribed by Section 223 (a) of the National Internal Revenue Code of 1986. being the registered owner of the 99.991% shares of stock of CIC and the beneficial owner of the remaining 0. especially because the gains realized from the sale were withdrawn by him as cash advances or paid to him as cash dividends. Book I. In its challenged Decision of 31 January 2001.1991. Arreza Pabelana as Doc. having held his office in a property owned by CIC and derived his salary from a foreign corporation (Aerobin.22 and. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT COMMITTED NO FRAUD WITH INTENT TO EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE CORPORATION.999. The Commissioner reiterates her arguments in her previous pleadings and insists that the sale by CIC of the Cibeles property was in connivance with its dummy Rafael Altonaga.009% shares registered in the name of the individual directors of CIC. In its motion for reconsideration. the CTA declared that the Estate is not liable for deficiency income tax of P79. Series of 1989. and not from Altonaga. Page 20.099. prompting the Commissioner to file a petition for review[21] with the Court of Appeals. which is three years after the last day prescribed by law for the filing of the return.) duly owned by Toda for representation services rendered. 30 August 1989. as Doc. should be held liable for the deficiency income tax. reasoning that the CTA. of the same Notary Public. The CTA also ruled that the mere ownership by Toda of 99. (3) as early as 4 May 1989. the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. Book I. accordingly. propriety. It ruled that even assuming that a pre-conceived scheme was adopted by CIC. III. his estate shall answer for his liability. . no longer valid. the governments right to assess CIC prescribed on 15 April 1993. the Court of Appeals affirmed the decision of the CTA. No. The assessment issued on 9 January 1995 was. with the former registered in the Notarial Register of Jocelyn H. the Commissioner filed the present petition invoking the following grounds: I. therefore. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF PETITIONER TO ASSESS RESPONDENT FOR DEFICIENCY INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED. The substantial portion of P40 million was withdrawn by Toda through the declaration of cash dividends to all its stockholders. 91. With the sale being tainted with fraud. dummy. CIC received P40 million from RMI. and legality of the income tax assessments assailed by the Toda Estate. The said amount was debited by RMI in its trial balance as of 30 June 1989 as investment in Cibeles Building. Inc. The CTA denied[20] the motion for reconsideration. She further alleged that the latter was a representative. the applicable period for the BIR to assess CIC is that prescribed in Section 203 of the NIRC of 1986. Series of 1989.[22] Unsatisfied with the decision of the Court of Appeals. There being no proof of fraudulent transaction. 92. In its decision[18] of 3 January 2000. and not tax evasion. the separate corporate personality of CIC should be disregarded. and the latter. is better situated to determine the correctness. II. which provides that tax may be assessed within ten years from the discovery of the falsity or fraud. the same constituted mere tax avoidance.[19] the Commissioner insisted that the sale of the property owned by CIC was the result of the connivance between Toda and Altonaga.

hence. that information remains to be hearsay and is thus inadmissible in evidence. if not eliminate altogether.[28] Altonaga having left for the United States of America in January 1990. respondent Estate declared: Petitioner. the assistant accountant of CIC and an old timer in the company.[24] All these factors are present in the instant case. if any? We shall discuss these questions in seriatim. claims there was a change of structure of the proceeds of sale.[25] and not from Altonaga. however. Cibeles Bldg. Tax evasion. It is absolutely allowed. That admission is borne by the records. Boy Prieto. as of 31 July 1989. 40 (2) of the Tax Code exists. That P40 million was debited by RMI and reflected in its trial balance[26] as other inv.. another P40 million was debited and reflected in RMIs trial balance as other inv. This information was revealed by Mr.For its part. or the non-payment of tax when it is shown that a tax is due. As long as it is done legally. and (3) a course of action or failure of action which is unlawful. i.or deliberate and not accidental. Is this a case of tax evasion or tax avoidance? 2. it usually subjects the taxpayer to further or additional civil or criminal liabilities. respondent Estate asserts that the Commissioner failed to present the income tax return of Altonaga to prove that the latter is financially incapable of purchasing the Cibeles property. Tax planning is by definition to reduce. and not the intermediary Altonaga. on the other hand. To resolve the grounds raised by the Commissioner. the following questions are pertinent: 1. that Altonaga was a mere conduit finds support in the admission of respondent Estate that the sale to him was part of the tax planning scheme of CIC. Sec. . Surely petitioner [sic] cannot be faulted for wanting to reduce the tax from 35% to 5%. the payment of less than that known by the taxpayer to be legally due. This would show that the real buyer of the properties was RMI. CIC received P40 million from RMI. Also. But isnt this precisely the definition of tax planning? Change the structure of the funds and pay a lower tax. [27] But Mr. changing the structure of the property and the tax to be paid. Cibeles Bldg. Admitted one hundred percent.e. Precisely. in bad faith. prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989. Is this a case of tax evasion or tax avoidance? Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. Nevertheless. The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of the many trusted corporate executives of Toda. willfull. Prieto did not testify on this matter. It was not verified either. This method should be used by the taxpayer in good faith and at arms length. allowing tax free transfers of property for stock. since the letter-request for investigation of Altonaga was unserved. is a scheme used outside of those lawful means and when availed of. (2) an accompanying state of mind which is described as being evil.[29] [Underscoring supplied]. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and 3. It is significant to note that as early as 4 May 1989. a tax. In its Memorandum.[23] Tax evasion connotes the integration of three factors: (1) the end to be achieved. changing the structure of a transaction to achieve a lower tax is not against the law. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989.

Altonagas sole purpose of acquiring and transferring title of the subject properties on the same day was to create a tax shelter.The scheme resorted to by CIC in making it appear that there were two sales of the subject properties. In a nutshell. the intermediary transaction.[30] Here. and without business purpose and economic substance. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. Such scheme is tainted with fraud. (a) Tax on domestic corporations. and then from Altonaga to RMI cannot be considered a legitimate tax planning. The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership.. the transaction must be viewed as a whole. Accordingly. Hence. and not the 35% corporate income tax. and partnerships. Doubtless. CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. which exist solely to alter tax liabilities. in accordance with the following: Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred thousand pesos.. or by which an undue and unconscionable advantage is taken of another. i. i. or existing under the laws of the Philippines. To permit the true nature of the transaction to be disguised by mere formalisms. and concealment involving a breach of legal or equitable duty. The sale to him was merely a tax ploy. which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion. as amended (now 27 (A) of the Tax Reform Act of 1997). The 5% individual capital gains tax provided for in Section 34 (h) of the NIRC of 1986 [35] (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable. omissions. which stated as follows: Sec. is deemed to comprise anything calculated to deceive. a sham. the sale to Altonaga should be disregarded for income tax purposes.A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in. a sale or exchange of assets will have an income tax incidence only when it is consummated. The incidence of taxation depends upon the substance of a transaction. Hence. from CIC to Altonaga. resulting in the damage to another. the tax liability of CIC is governed by then Section 24 of the NIRC of 1986. it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax. including all acts. 24.[33] [32] To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. and each step from the commencement of negotiations to the consummation of the sale is relevant. trust or confidence justly reposed.. Rates of tax on corporations.e. Has the period of assessment prescribed? . no matter how created or organized but not including general professional partnerships. the sale of Altonaga.[31] Generally. Fraud in its general sense. and Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos. [34] The two sale transactions should be treated as a single direct sale by CIC to RMI. the assessment for the deficiency income tax issued by the BIR must be upheld. Rather. the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.e. would seriously impair the effective administration of the tax policies of Congress.

The false return was filed on 15 April 1990.[37] The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. albeit not necessarily. As stated above. It has been held in a number of cases that personal liability of a corporate director. It is true that in a query dated 24 August 1989. in cases of (1) fraudulent returns. through his counsel. such was done with intent to evade or reduce tax liability. the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity. 3. or officer along. as the case may be. does not forthwith file with the corporate secretary his written objection thereto. He is made. the issuance of the correct assessment for deficiency income tax was well within the prescriptive period. 269. at any time within ten years after the discovery of the falsity. Paragraph g of the Deed of Sale of Shares of Stocks specifically provides: . the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof . by specific provision of law. However. the tax may be assessed. fraud or omission: Provided. or other persons. the period within which to assess tax is ten years from discovery of the fraud.[36] Thus. That in a fraud assessment which has become final and executory. the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. Obviously. resulting in damages to the corporation. Exceptions as to period of limitation of assessment and collection of taxes. certain instances in which personal liability may arise. and 1989. (b) bad faith or gross negligence in directing its affairs. trustee. we find that the income tax return filed by CIC for the year 1989 was false. falsification or omission. he knowingly and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987. however. He assents to the (a) patently unlawful act of the corporation. He agrees to hold himself personally and solidarily liable with the corporation. 1988. or 4. the BIR was amply informed of the transactions even prior to the execution of the necessary documents to effect the transfer. He consents to the issuance of watered down stocks or. (2) false returns with intent to evade tax. with the corporation may validly attach when: 1. It did not reflect the true or actual amount gained from the sale of the Cibeles property. As earlier discussed those two transactions were tainted with fraud. and (3) failure to file a return. the two sales were openly made with the execution of public documents and the declaration of taxes for 1989. or a proceeding in court after the collection of such tax may be begun without assessment. Altonaga. Put differently. And even assuming arguendo that there was no fraud. to personally answer for his corporate action.[38] It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Subsequently. There are. or (c) conflict of interest. Choa. these circumstances do not negate the existence of fraud. Clearly.No.-(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return. having knowledge thereof. its stockholders. Is respondent Estate liable for the 1989 deficiency income tax of Cibeles Insurance Corporation? A corporation has a juridical personality distinct and separate from the persons owning or composing it. 2. asked the Opinion of the BIR on the tax consequence of the two sale transactions. Thus. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read: Sec. and the falsity thereof was claimed to have been discovered only on 8 March 1991.

the petition is hereby GRANTED. Cibeles has no liabilities or obligations. he thereby voluntarily held himself personally liable therefor. Toda Jr.999. for taxes. Costs against respondent. in view of all the foregoing. Except for transactions occurring in the ordinary course of business. SO ORDERED. therefore.g. plus legal interest from 1 May 1994 until the amount is fully paid. and 1989. The decision of the Court of Appeals of 31 January 2001 in CA-G. SELLER undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987. attached hereto as Annex B and made a part hereof.[39] [Underscoring Supplied]. 1989. sums of money or insurance claims other than those reported in its audited financial statement as of December 31. contingent or otherwise. . Respondent estate cannot.099. When the late Toda undertook and agreed to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987. deny liability for CICs deficiency income tax for the year 1989 by invoking the separate corporate personality of CIC.R. as contained in the Deed of Sale of Shares of Stock. The business of Cibeles has at all times been conducted in full compliance with all applicable laws. WHEREFORE. 1988. and another one is hereby rendered ordering respondent Estate of Benigno P.22 as deficiency income tax of Cibeles Insurance Corporation for the year 1989. to pay P79. 57799 is REVERSED and SET ASIDE. rules and regulations. since its obligation arose from Todas contractual undertaking. 1988 and 1989. SP No.

this Court hereby renders judgment DISMISSING the complaint against all the defendants and ordering plaintiff [herein petitioner] to pay defendant Larin the amount of P200.847.00 1976 Declaration of Income on Disposition of Capital Asset subject to Tax: Initial Payment P461.00) pesos was to be paid in four equal consecutive annual installments. drawn against Bank of the Philippine Islands with the uniform amount of two hundred five thousand. petitioner reported the P461.754 initial payment as income from disposition of capital asset. JR. petitioner. which we find supported by the records.: For review is the Decision of the Court of Appeals in CA-C. Each periodic payment of P461. 17251 promulgated on November 29.90) 3 .847. J. 2000 BIBIANO V.00 Less: Cost of land and other incidental Expenses ( 76.00 pesos shall be payable starting on February 20. have been summarized by the Court of Appeals as follows: On February 20.000. sold to Ayala Investment Corporation (AYALA). two hundred twenty-four (P205. The balance of one million.754.R.00 Less Initial Payment 461.754.770. CV No. It affirmed in toto the judgment of the Regional Trial Court (RTC). respondents.00) pesos. No. AQUILINO T. BAÑAS.016. 1976.G. The same day. 1976. and every year thereafter. or until February 20. 128.754. QUISUMBING.016. in Civil Case No.00) pesos. AYALA issued one promissory note covering four equal annual installments. In his 1976 Income Tax Return. Manila. with twelve (12%) percent interest per annum on the outstanding balance. seven hundred seventy (P2.2 Selling Price of Land P2. all dated February 20. and P50. Muntinlupa. Said judgment disposed as follows: FOR ALL THE FOREGOING CONSIDERATIONS. for two million. vs.265 square meters of land located at Bayanan.00 Unrealized Gain P1.000. Branch 39. Bañas Jr. The Deed of Sale provided that upon the signing of the contract AYALA shall pay four hundred sixty-one thousand.00. AYALA issued nine (9) checks to petitioner. petitioner discounted the promissory note with AYALA.308. 82-12107. Bibiano V.016. three hundred eight thousand.R. evidenced by a Deed of Assignment signed by the petitioner and AYALA. 1980.1 The facts. 102967 February 10. 1991. for its face value of P1.547. seven hundred fifty-four (P461.00 as moral damages.000. P200. LARIN.847. petitioner. COURT OF APPEALS.000. 1977.00. eight hundred forty-seven thousand and sixteen (P1.00 as exemplary damages and attorneys fees of P100..00) pesos.308.00 (Two Hundred Thousand Pesos) as actual and compensatory damages.754. RODOLFO TUAZON AND PROCOPIO TALON.770.224.

petitioner did not recognize that his sale of land to AYALA was on cash basis. Larin filed a criminal complaint for tax evasion against the petitioner. After reviewing the examiners' report.65 In the succeeding years. On June 8. 10 x 50%) P192. In both. On July 1. The Chief of the Tax Fraud Unit recommended the prosecution of a criminal case for conspiring to file false and fraudulent returns.81).877.525. On April 11. 1981. On June 17.877. 1981. They recommended deficiency tax assessment for two million. five hundred twenty-five pesos and sixty-two centavos (P1. news items appeared in the now defunct Evening Express with the headline: "BIR Charges Realtor" and another in the defunct Evening Post with a news item: "BIR raps Realtor.00 as the realized gain on disposition of capital asset for the year." Another news item also appeared in the July 2.10 Income subject to tax (P385. On June 27. They discovered that petitioner had no outstanding receivable from the 1976 land sale to AYALA and concluded that the sale was cash and the entire profit should have been taxable in 1976 since the income was wholly derived in 1976.206. 1981.473.095. inclusive of surcharges and penalties for the year 1976. The deficiency tax assessment was reduced to nine hundred thirty six thousand. ninety-five thousand.62). respondent Larin sent a letter to petitioner informing of the income tax deficiency that must be settled him immediately. 1740 and paid the amount of forty-one thousand. Larin directed the revision of the audit report. the matter was endorsed to the Acting Chief of the Legal Branch of the National Office of the BIR.673. 2 accountants. On November 2. 1981.915. four hundred seventy-three thousand.00) pesos4 as gain from sale of capital asset.D.603. petitioner reported a uniform income of two hundred thirty thousand. Tuazon and Talon filed their audit report and declared a discrepancy of two million. petitioner again filed an Amnesty Tax Return under P. Rodolfo Tuazon and Procopio Talon to examine the books and records of petitioner for the year 1976. Meantime. petitioner also reported the same amount of P230. then Revenue Director Mauro Calaguio authorized tax examiners. petitioner acknowledged receipt of the letter but insisted that the sale of his land to AYALA was on installment. 1981. Alejandre and Conrado Bañas.D. issue of the Bulletin Today entitled: "3-face P1-M tax evasion raps.Income P385. 1978. Andres P.50).00) pesos in petitioner's 1976 net income. in violation of Section 51 of the Tax Code against petitioner and his accountants.00) pesos. 1840 and paid an additional amount of one thousand. eight hundred seventy-seven (P230." All news items mentioned petitioner's false income tax return concerning the sale of land to AYALA. In his 1980 income tax amnesty return. On September 26. until 1979. nine hundred fifteen (P2. 1980. Aquilino Larin succeeded Calaguio as Regional Director of Manila Region IV-A. 1981. with instruction to consider the land as capital asset. petitioner filed an Amnesty Tax Return under P.598. On July 2. . The tax due was only fifty (50%) percent of the total gain from sale of the property held by the taxpayer beyond twelve months pursuant to Section 345 of the 1977 National Internal Revenue Code (NIRC). six hundred seventy-three (P2.729. 1980.206. seven hundred twenty-nine pesos and eighty-one centavos (P41. five hundred ninety-eight pesos and fifty centavos (P936.

the respondent court affirmed the trial court's decision.Reacting to the complaint for tax evasion and the news reports. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF PRESIDENTIAL DECREE NOS.1âwphi1. Whether respondent court erred and committed grave abuse of discretion in awarding damages to respondent Larin.D. In essence. petitioner filed with the RTC of Manila an action6for damages against respondents Larin. . 2. Tuazon and Talon for extortion and malicious publication of the BIR's tax audit report. wherein petitioner raises before us the following queries: I. In fact. THUS IT FAILED TO APPRECIATE THE CORRECTNESS AND ACCURACY OF PETITIONER'S RETURN OF THE INCOME DERIVED FROM THE SALE OF THE LAND TO AYALA. WHEREFORE. IV. petitioner asks the Court to resolve seriatim the following issues: 1. PETITIONER'S IMMUNITY FROM CRIMINAL PROSECUTION. WHETHER THE RESPONDENT COURT ERRED IN NOT FINDING THAT THERE WAS AN ALLEGED ATTEMPT TO EXTORT [MONEY FROM] PETITIONER BY PRIVATE RESPONDENTS. 1740 and 1840. WHETHER THE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF PERTINENT TAX LAWS. 1991. on the same day of the sale). as already stated. In its decision of November 29. MORAL AND EXEMPLARY DAMAGES IN FAVOR OF RESPONDENT LARIN. AMONG OTHERS. Presidential Decree Nos. II.nêt Defendant-appellee Larin acted only in pursuance of the authority granted to him. Petitioner seasonably appealed to the Court of Appeals. 4. thus: The finding of the court a quo that plaintiff-appellant's actions against defendant-appellee Larin were unwarranted and baseless and as a result thereof. 1740 AND 1840. Whether respondent court erred in ruling that there was no extortion attempt by BIR officials. Whether respondent court erred in finding that petitioner's income from the sale of land in 1976 should be declared as a cash transaction in his tax return for the same year (because the buyer discounted the promissory note issued to the seller on future installment payments of the sale. WHETHER THE RESPONDENT COURT ERRED IN ITS INTERPRETATION OF WELLESTABLISHED DOCTRINES OF THIS HONORABLE COURT AS REGARDS THE AWARD OF ACTUAL. defendant-appellee Larin was subjected to unnecessary anxiety and humiliation is therefore supported by the evidence on record. 3. Whether respondent court erred in holding that P. the criminal charges filed against him in the Tanodbayan and in the City Fiscal's Office were all dismissed. The trial court decided in favor of the respondents and awarded Larin damages. 1740 and 1840 granting tax amnesties did not grant immunity from tax suits. the appealed judgment is hereby AFFIRMED in toto. III.7 Hence this petition. He claimed that the filing of criminal complaints against him for violation of tax laws were improper because he had already availed of two tax amnesty decrees.

allowed to file a return for each of the aforesaid taxable years and accurately declare therein the true and correct income. as amended. on the basis of evidence.D. — Any individual who. under the National Internal Revenue Code arising from failure to pay the correct income tax with respect to the taxable years from which an amended return was filed or for which an original return was filed in cases where no return has been filed for any of the taxable years 1974 to 1979: Provided. yet. Immunity from Penalties. 5. could not be held liable for extortion. Thus. Coverage. 1. Likewise. civil or criminal.D. AND NET WORTH. No. had failed to file a return is hereby. — In case of voluntary disclosure of previously untaxed income and/or wealth such as earnings. (emphasis ours) xxx xxx xxx Sec. neither should we disturb a finding of the trial court and appellate court that an allegation is not supported by evidence on record. by any individual taxpayer. 1840 — GRANTING A TAX AMNESTY ON UNTAXED INCOME AND/OR WEALTH EARNED OR ACQUIRED DURING THE TAXABLE YEARS 1974 TO 1980 AND REQUIRING THE FILING OF THE STATEMENT OF ASSETS. As found by the court a quo. Sec. said counsel did not take the witness stand to corroborate the testimony of plaintiff. gifts. (emphasis ours) P. — Any individual who voluntarily files a return under this Decree and pays the income tax due thereon shall be immune from the penalties. CONDONING PENALTIES FOR CERTAIN VIOLATIONS OF THE INCOME TAX LAW UPON VOLUNTARY DISCLOSURE OF UNDECLARED INCOME FOR INCOME TAX PURPOSES AND REQUIRING PERIODIC SUBMISSION OF NET WORTH STATEMENT. on whether the Court of Appeals erred in finding that there was no extortion. LIABILITIES. "said attempt was known to plaintiff-appellant's son-in-law and counsel on record. findings of fact by the Court of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court. NO. deductions and exemptions and pay the income tax due per return. however. which are taxable under the National Internal Revenue Code. 1. involves a determination of fact. unless these findings are not supported by evidence."8 As repeatedly held. in the original declaration. realized here or abroad. That these immunities shall not apply in cases where the amount of net taxable income declared under this Decree is understated to the extent of 25% or more of the correct net taxable income. Nos. xxx xxx xxx Sec. any individual who filed a false or fraudulent return for any taxable year in the period mentioned above may amend his return and pay the correct amount of tax due after deducting the taxes already paid. we agree with the conclusion of respondent court that herein private respondents. the assessment and collection of all internal revenue taxes. On the second issue of whether P.9 Similarly. 1740. for any or all of the taxable years 1974 to 1979.D. The Court of Appeals observed. the pertinent sections of these laws state: P. Voluntary Disclosure of Correct Taxable Income. The only evidence to establish the alleged extortion attempt by defendants-appellees is the plaintiffappellant's self serving declarations. if any. receipts. bequests or any other acquisition from any source whatsoever.The first issue. including the increments or . 1740 and 1840 which granted tax amnesties also granted immunity from criminal prosecution against tax offenses.

Here.00 per taxable year. and. P461. petitioner asserts that his sale of the land to AYALA was not on cash basis but on installment as clearly specified in the Deed of Sale which states: That for and in consideration of the sum of TWO MILLION THREE HUNDRED EIGHT THOUSAND SEVEN HUNDRED SEVENTY (P2. The mere filing of tax amnesty return under P. upon the signing of the Deed of Sale. two weeks after the filing of the tax evasion complaint against him by respondent Larin on June 17. the lender (e. on this matter.penalties on account of non-payment. banks.754.770. . Instead he insisted that such sale was on installment. the petitioner is not entitled to the benefits of P. To avail of a tax amnesty granted by the government.11 Hence. declaration of his untaxed income and full payment of tax due thereon.D. (emphasis ours) It will be recalled that petitioner entered into a deed of sale purportedly on installment. as well as all civil. He did not pay the tax which was considerably increased by the income derived from the discounting. 1981.D. 1740 and 1840. . it is our view that petitioner's claim of immunity from prosecution under the shield of availing tax amnesty is untenable. (emphasis ours) . 1981. 1840. b) The taxpayer must file an amnesty return on or before November 30. criminal or administrative liabilities arising from or incident thereto under the National Internal Revenue Code. much like a tax exemption. . His disclosure.D. is never favored nor presumed in law and if granted by statute.D. Sec. Nos. he discounted the promissory note covering the future installments. 1981. the tax payer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income. No. the discounting was done by the buyer. His amended tax return for the years 1974 1979 was filed with the BIR office of Valenzuela. instead of Manila where the petitioner's principal office was located. and d) The taxpayer must file a statement of assets. He did not meet the twin requirements of P. petitioner availed of the tax amnesty under P. are hereby condoned provided that the individual taxpayer shall pay. to be paid as follows: 1. however.D. as required under Section 6 hereof. and fully pay the tax due thereon.000. On the same day. No. 1740 and 1840 does not ipso facto shield him from immunity against prosecution.00) PESOS Philippine Currency. 1980. 1740. — The immunity granted under Section one of this Decree shall apply only under the following conditions: a) Such previously untaxed income and/or wealth must have been earned or realized in any of the years 1974 to 1980.00.308. The discounting seems questionable because ordinarily. He again availed of the tax amnesty under P. and to be immune from suit on its delinquencies. 1740 and 1840. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. On the third issue. c) The amnesty tax paid by the taxpayer under this Decree shall not be less than P1. On July 2. 2. when a bill is discounted. Bulacan. He did not amend his income tax return. Clearly.g. liabilities and net worth as of December 31. the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.10 It also bears noting that a tax amnesty. financial institution) charges or deducts a certain percentage from the principal value as its compensation. Conditions for Immunity. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. did not include the income from his sale of land to AYALA on cash basis.

be returned on the basis and in the manner above prescribed in this section. (2) Deferred-payment sales not on the installment plan. and (b) sales in which there is an immediate transfer of title. consecutive. for a price exceeding one thousand pesos.016.00. . 2. . in sections 174 and 176 of these regulations. to the extent it does not exceed the basis to the vendor of the property sold. that is sales in which the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable year in which the sale is made exceed 25 per cent of the selling price.2. the vendor being protected by a mortgage or other lien as to deferred payments. Commissions and other selling expenses paid or incurred by the vendor are not to be deducted or taken into account in determining the amount of the "initial payments. annual installments with interest thereon at the rate of twelve percent (12%) per annum. 43 of the 1977 NIRC states. — . Installment basis. The balance of P1. . 175 of Revenue Regulation No. — Under section 43 deferred-payment sales of real property include (1) agreements of purchase and sale which contemplate that a conveyance is not to be made at the outset. As used in this section the term "initial payment" means the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made." as those terms are used in section 43 of the Code. as follows: (1) Sales of property on the installment plan. . In the sale of mortgaged property the amount of the mortgage." or the "selling price. Section 175 provides. (emphasis ours) Revenue Regulation No. is . but only after all or a substantial portion of the selling price has been paid. Sec.12 Petitioner resorts to Section 43 of the NIRC and Sec. Sale of real property involving deferred payments. 1976. and in this section." The term "initial payments" contemplates at least one other payment in addition to the initial payment. shall be included as a part of the "selling price" but the amount of the mortgage. or (2) of a sale or other disposition of real property if in either case the initial payments do not exceed twenty-five percentum of the selling price. to be paid in four (4) equal. The term "initial payments" does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the purchase price which are due and payable in subsequent years. the income may not be returned on the installment basis. (b) Sales of realty and casual sales of personalty — In the case (1) of a casual sale or other casual disposition of personal property (other than property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year). . other than evidences of indebtedness of the purchaser. Such sales either under (a) or (b). shall not be considered as a part of the "initial payments" or of the "total contract price. 2 to support his claim. said installments to be evidenced by four (4) negotiable promissory notes. that is. If the entire purchase price is to be paid in a lump sum in a later year. — (a) Dealers in personal property. there being no payment during the year. under regulations prescribed by the Minister of Finance. sales in which the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable year in which the sale is made do not exceed 25 per cent of the selling price. fall into two classes when considered with respect to the terms of sale.847. beginning on February 20. Income may not be returned on the installment basis where no payment in cash or property. whether the property is merely taken subject to the mortgage or whether the mortgage is assumed by the purchaser. the income may." the "total contract price.

But. exclusive of the proceeds of discounted notes.00 1978 230. he argues. provided that the initial payment does not exceed 25% of the selling price. during the respective year it was realized. If the initial payment is within 25% of total contract price.15 Although the proceed of a discounted promissory note is not considered part of the initial payment. respondents assert that taxation is a matter of substance and not of form. Consequently. he religiously reported his yearly income from sale of capital asset. 175 says that among the entities who may use the above-mentioned installment method is a seller of real property who disposes his property on installment. Petitioner states that the original agreement in the Deed of Sale should not be affected by the subsequent discounting of the bill. Petitioner asserts that Sec. Initial payment does not include amounts received by the vendor in the year of sale from the disposition to a third person of notes given by the vendee as part of the purchase price which are due and payable in subsequent years. The subsequent payments or liquidation of certificates of indebtedness is reported using the installment method in computing the proportionate income16 to be returned.13 Sec. 43 and Sec.877. like promissory notes or mortgages. given of the purchaser during the taxable year of sale. the proceeds of the promissory notes. does not include amounts received by the vendor which are part of the complete purchase price. Considering the progressive nature of our income taxation. and a statute provides that income shall be taxable in the year in which it is "received.00 Petitioner says that his tax declarations are acceptable modes of payment under Section 175 of the Revenue Regulations (RR) No. the taxable income goes down and the tax due correspondingly decreases. As a general rule. as follows: Year 1977 (50% of P461. 43 allows him to return as income in the taxable years involved. the respective installments as provided by the deed of sale between him and AYALA.877. Thus." the profit from an installment sale is to be apportioned between or among the years in which such installments are paid and received. the sale qualifies as an installment sale. When payment is in lump sum the tax for the year proportionately increases. Ultimately.754) P230.14 Such disposition or discounting of receivable is material only as to the computation of the initial payment. not yet due which he discounted to AYALA should not be included as income realized in 1976.00 1979 230.877. Returns are scrutinized to determine if transactions are what they are and not declared to evade taxes. still due and payable in subsequent years. 2. The term "initial payment". if not all of the sale price is received during such year. when income is spread over several installment payments through the years. in later years. If .877. otherwise it is a deferred sale. the purchaser having promised to make two or more payments.received during the first year. a declaration that a sale is on installment diminishes government taxes for the year of initial installment as against a declaration of cash sale where taxes to the government is larger. it is still taxable income for the year it was converted into cash. subject to tax. They also state what may be regarded as installment payment and what constitutes initial payment. On the other hand. Initial payment means the payment received in cash or property excluding evidences of indebtedness due and payable in subsequent years. Non-dealer sales of real or personal property may be reported as income under the installment method provided that the obligation is still outstanding at the close of that year.00 1980 230. the whole profit accruing from a sale of property is taxable as income in the year the sale is made.

with knowledge that it was false or with reckless disregard of whether it was false or not. the actual amount of loss. with certainty. et. vs. pp. Actual damages cannot be allowed unless supported by evidence on the record. al. Clearly. 6-7.17 This rule prevails in the United States. In fact. he necessarily must report the balance of the income from the discounting not only income from the initial installment payment. In Babst. income is an actual gain or an actual increase of wealth. The trial court awarded him two hundred thousand (P200. caused him strong anxiety and social humiliation. Moral damages may be recovered in cases involving acts referred to in Article 2127 of the Civil Code. petitioner questions the damages awarded to respondent Larin.29 which we have long adopted. we reiterated the test for actual malice as set forth in the landmark American case of New York Times vs. Where an installment obligation is discounted at a bank or finance company. However.19 interpretations by American courts an our parallel tax laws have persuasive effect on the interpretation of these laws. We can further grant that the pertinent tax laws needed construction. or handles repossession of merchandise in case of default. discounted by AYALA itself. When petitioner had the promissory notes covering the succeeding installment payments of the land issued by AYALA.21 Although the proceeds of a discounted promissory note is not considered initial payment. Lastly. 04 November 1985).000.28 As a rule. to show that he suffered loss of seniority that allegedly barred his promotion.23 Moreover. a public official may not recover damages for charges of falsehood related to his official conduct unless he proves that the statement was made with actual malice. in installment. Larin was given a promotion at the BIR. while the seller acquires money for the settlement of his receivables.26 Since we have no basis with which to assess. continues to collect on the installment obligation. Logically then. it is necessary to prove with a reasonable degree of certainty. the award of such damages should be deleted.24The court cannot rely on speculation. the records of the case contain no statement whatsoever of the amount of the actual damages sustained by the respondents. he lost entitlement to report the sale as a sale on installment since.00) pesos as actual damages. What petitioner did is tantamount to an attempt to circumvent the rule on payment of income taxes gained from the sale of the land to AYALA for the year 1976. 11 December 1985). Sullivan. viz.. despite pendency of this case.22 Larin says the extortion cases filed against him hampered his immediate promotion.the seller disposes the entire installment obligation by discounting the bill or the promissory note. on the same day of the sale. 330 (1984).18 Since our income tax laws are of American origin. even if the seller guarantees its payment. Any person who seeks to be awarded actual or compensatory damages due to acts of another has the burden of proving said damages as well as the amount thereof. a taxable disposition results. We appreciate petitioner's claim that he filed his 1976 return in good faith and that he had honestly believed that the law allowed him to declare the sale of the land. the indebtedness of the buyer is discharged. by analogy. he was promoted to his present position despite the pendency of the instant case (TSN. as we have earlier done. al. all the more would a taxable disposition result when the discounting of the promissory note is done by the seller himself. aside from defendant-appellee Larin's statements (TSN. et.25 To justify a grant of actual or compensatory damages. the actual or compensatory damages counter-claimed by respondent Larin. For income tax purposes. .: . 35-39. the appellate court stated that. the income should be reported at the time of the actual gain. 132 SCRA 316. . still it must be included as taxable income on the year it was converted to cash. pp. Said respondent court: We find nothing on record. That petitioner was offended by the headlines alluding to . a taxable disposition resulted and petitioner was required by law to report in his returns the income derived from the discounting. conjectures or guesswork as to the fact and amount of damages.20 Thus. National Intelligence Board. in defamation and libel cases.

. 57 O. Petitioner presented no evidence to prove Larin extorted money from him.Inc. Bacharach Motors Co. On respondent Larin's instruction. the trial court did not err in dismissing petitioner's complaints. Yet. Larin was not yet the Regional Director of BIR Region IV-A. 93 Phil. Surro.00). this Court found the amount of exemplary damages required to be paid (P1.. and where moral and exemplary damages were reduced for being "too excessive. Del Rosario vs.A.000. a ruling affirmed by the Court of Appeals. we are constrained to agree that there is sufficient basis for the award of moral and exemplary damages in favor of respondent Larin. . Nevertheless.G. for fear of lawsuits from vindictive government officials.30 Hence. Thus.. the income from which was subjected to only fifty percent (50%) assessment. When the tax investigation against the petitioner started. we find the award of P100. do not justify what amounted to a baseless prosecution of respondent Larin. In the same case (PNB v. But in more recent cases where the awards of moral and exemplary damages are far too excessive compared to the actual loses sustained by the aggrieved party.G.000. . petitioner went on to file the extortion cases against Larin in different fora. 57 O.000. 57 O. [4] 636 and Adone v. In the case of Prudenciado v. prejudice or corruption on the part of the trial court" (Gellada v.) In other words.. viz: ** **. the moral damages awarded must be commensurate with the loss or injury suffered. what would be a fair amount to be paid as compensation for moral damages also requires determination. It will be noted that in above cases. there is adequate support for respondent court's conclusion that moral damages have been proved.G. Keeping all these in mind. 7358. Moreover.000. All these. we must be careful lest the amounts awarded make citizens hesitate to expose corruption in the government.31 On this score. however. Inc.. thus reducing the original tax assessment by half. Inc.33 we hereby reduce the moral damages award in this case from two hundred . Warner Barnes & Co. conformably with our declaration that moral damages are not intended to enrich anyone.. (Emphasis ours. CA). 472) and that the Court of Appeals can only modify or change the amount awarded when they are palpably and scandalously excessive "so as to indicate that it was the result of passion. [I]t is undisputed that the trial courts are given discretion to determine the amount of moral damages (Alcantara v. Manila.Court of Appeals. the parties who were awarded moral damages were not public officials. . 656). for it might open the floodgates for government officials counter-claiming damages in suits filed against them in connection with their functions. . Considering that here. Bacharach Motor Co. however. [4] 7347. Each case must be governed by its own peculiar circumstances.32 cites several cases where no actual damages were adjudicated. Inc. . Petitioner's actions against Larin were found "unwarranted and baseless. this Court quoted with approval the following observation from RCPI v.. C. This is where actual malice could attach on petitioner's part. the award is in favor of a government official in connection with his official function. These circumstances may be taken to show that Larin's involvement in extortion was not indubitable. Alliance Transport System. this Court ruled that they should be reduced to more reasonable amounts.00) "too excessive" and reduced it to an "equitable level" (P25. Sadie v. Rodriguez.. it is with caution that we affirm granting moral damages." and the criminal charges filed against him in the Tanodbayan and City Fiscal's Office were all dismissed. (148 SCRA 440 [1987]) we said: . petitioner's tax assessment was considered one involving a sale of capital asset." thus: In the case of PNB v. Now.him as tax evader is also fully understandable. The appellate court believed respondent Larin when he said he suffered anxiety and humiliation because of the unfounded charges against him. Significantly. [256 SCRA 309 (1996)].00 as moral damages in favor of respondent Rodriguez excessive and unconscionable. He even admitted that he never met nor talked to respondent Larin.

and that petitioner is hereby ORDERED to pay to respondent Larin moral damages in the amount of P75. WHEREFORE. February 10. A negotiable instrument is deemed a substitute for money and for value.00) pesos.00 as reasonable attorney's fees.000. Court of Appeals [G. the assailed decision of the Court of Appeals dated November 29.00 only.nêt No pronouncement as to costs. and when the party to a suit was compelled to incur expenses to protect his interest. The law allows the award of attorney's fees when exemplary damages are awarded. According to Sec.R. is hereby AFFIRMED with MODIFICATION so that the award of actual damages are deleted. exemplary damages in the amount of P25.00. and attorney's fees in the amount of P50. there is ample ground to award in his favor P50. He discounted the promissory note covering the future installments for purposes of taxation. given the circumstances of this case. 102967.000. 1991. RULING YES. 2000] FACTS Petitioner entered into a deed of sale purportedly on installment. Bañas Jr.1âwphi1.00) pesos to seventy five thousand (P75.thousand (P200. SO ORDERED. while the exemplary damage is set at P25. An antecedent or pre-existing debt constitutes value. No. v.000. In our view.000.000. ISSUE Whether or not the promissory note should be declared cash transaction for purposes of taxation.00 only. 25 of NIL: “value is any consideration sufficient to support a simple contract. considering the nature of the charges. herein respondent Larin was compelled to hire a private lawyer for the conduct of his defense as well as the successful pursuit of his counterclaims.000. and is deemed such whether the instrument is payable on demand or at a future time”.00.000. . Although the proceed of a discounted promissory note is not considered part of the initial payment. it is still taxable income for the year it was converted into cash.34 Though government officers are usually represented by the Solicitor General in cases connected with the performance of official functions.

[4] Private Respondent YMCA is a non-stock. non-profit institution..80 from leasing out a portion of its premises to small shop owners.subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution? The Case This is the main question raised before us in this petition for review on certiorari challenging two Resolutions issued by the Court of Appeals[1] on September 28. petitioner. 1984. Delote. private respondent earned. J. It appears from the testimonies of the witnesses for the [private respondent] particularly Mr. the commissioner of internal revenue (CIR) issued an assessment to private respondent. (YMCA) established as a welfare.R. No. 1989. In reply. deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. former accountant of YMCA. 124043. Inc. an income of P676. INC. COURT OF APPEALS. pursuant to its religious. vs.615. Contesting the denial of its protest. On July 2.00 from parking fees collected from non-members. The Rentals were minimal as for example. 1998] COMMISSIONER OF INTERNAL REVENUE. that these facilities were leased to members and that they have to service the needs of its members and their guests. October 14. 1985. especially the young people.829. The parking was primarily for . the CTA issued this ruling in favor of the YMCA: xxx [T]he leasing of private respondents facilities to small shop owners. In 1980. the YMCA filed a petition for review at the Court if Tax Appeals (CTA) on March 14. James C. Both Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the YMCA to claim tax exemption on the latters income from the lease of its real property. to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the [private respondents]. 32007. DECISION PANGANIBAN. filed a letter dated October 8. COURT OF TAX APPEALS and YOUNG MENS CHRISTIAN ASSOCIATION OF THE PHILIPPINES. in the total amount of P415. Private respondent formally protested the assessment and. the CIR denied the claims of YMCA. which conducts various programs and activities that are beneficial to the public. The Facts The Facts are undisputed. among others.[G.01 including surcharge and interest.259. 1995[2] and February 29. respondents. like restaurants and canteen operators. and P44. 1996[3] in CA-GR SP No.: Is the income derived from rentals of real property owned by the Young Mens Christian Association of the Philippines. educational and charitable non-profit corporation -. In due course. the barbershop was only charged P300 per month. He also testified that there was actually no lot devoted for parking space but the parking was done at the sides of the building. educational and charitable objectives. as a supplement to its basic protest. for deficiency income tax.

1984 until fully paid but not to exceed three (3) years pursuant to Section 51 (e)(2) & (3) of the National Internal Revenue Code effective as of 1984. will fall under the last paragraph of section 27 of the Tax Code and any income derived therefrom shall be taxable.15. While the following assessments are hereby sustained: 1980 Deficiency Expanded Withholding Tax P1.058. As pointed out earlier.82 plus 10% surcharge and 20% interest per annum from July 2. in view of all the foregoing. vs.93.50 for non-members.members with stickers on the windshields of their cars and they charged P.23. the appealed decision is hereby REVERSED in so far as it dismissed the assessment for: 1980 Deficiency Income Tax P 353.[7] Aggrieved.15 and P3. xxxxxxxxx WHEREFORE. Hernando and Abra Valley College Inc. The rentals and parking fees were just enough to cover the costs of operation and maintenance only.20.578.798.15 1980 Deficiency Contractors Tax P 3.73. to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the petitioners. We find it reasonably necessary therefore for [private respondent] to make [the] most out [of] its existing facilities to earn some income. the following assessments are hereby dismissed for lack of merit: 1980 Deficiency Fixed Tax P353. 1980 Deficiency Withholding Tax on Wages P33. Under these circumstances. but the same is AFFIRMED in all other respect. Aquino.129.20.' and the income derived therefrom are tax exempt. must be reversed. real or personal. Considering our findings that [private respondent] was not engaged in the business of operating or contracting [a] parking lot. or should it invest its funds in the buy and sell of properties. the CA[6] initially decided in favor of the CIR and disposed of the appeal in the following manner: Following the ruling in the afore-cited cases of Province of Abra vs. 1980 Deficiency Income Tax P372. & 1980 Deficiency Income Tax P372.The earning[s] from these rentals and parking charges including those from lodging and other charges for the use of the recreational facilities constitute [the] bulk of its income which [is] channeled to support its many activities and attainment of its objectives. the ruling of the respondent Court of Tax Appeals that the leasing of petitioners (herein respondent) facilities to small shop owners. the CIR elevated the case to the Court of Appeals (CA). In its Decision of February 16. we find no legal basis also for the imposition of [a] deficiency fixed tax and [a] contractors tax in the amount[s] ofP353.578.23. the YMCA asked for reconsideration based on the following grounds: .129. 1994. It would have been different if under the circumstances. or construct a building and lease it out to the highest bidder or at the market rate for commercial purposes.129. not incidental and reasonably necessary to the pursuit of the objectives of the association and therefore. the membership dues are very insufficient to support its program.[5] Dissatisfied with the CTA ruling. WHEREFORE. we could conclude that the activities are already profit oriented. 1980 Deficiency Contractors Tax P3. respectively. [private respondent] will purchase a lot and convert it to a parking lot to cater to the needs of the general public for a fee.

and allow it to continue with its laudable work. Not even the petitioner would hazard the suggestion that YMCA is designed for profit. the little income from small shops and parking fees help[s] to keep its head above the water. so to speak. this petition for review under Rule 45 of the Rules of Court. Consequently. 1994. petitioner imputes to the Court of Appeals the following errors: I In holding that it had departed from the findings of fact of Respondent Court of Tax Appeals when it rendered its Decision dated February 16. as they are supported by evidence beyond what is considered as substantial. 1995 its first assailed Resolution which. xxxxxxxxx The second ground raised is that the respondent CTA did not err in saying that the rental from small shops and parking fees do not result in the loss of the exemption.[10] The Issues Before us. Hence.I The findings of facts of the Public Respondent Court of Tax Appeals being supported by substantial evidence [are] final and conclusive. reads: The Court cannot depart from the CTAs findings of fact. and II In affirming the conclusion of Respondent Court of Tax Appeals that the income of private respondent from rentals of small shops and parking fees [is] exempt from taxation. II The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from the income on rentals of small shops and parking fees [are] in accord with the applicable law and jurisprudence. therefore.[11] This Courts Ruling . the respondent CTAs decision is AFFIRMED in toto.[9] The internal revenue commissioners own Motion for Reconsideration was denied by Respondent Court in its second assailed Resolution of February 29. in part. finds the second ground of the motion to be meritorious and in accord with law and jurisprudence. WHEREFORE. the CA reversed itself and promulgated on September 28. The Court. the motion for reconsideration is GRANTED. 1996.[8] Finding merit in the Motion for Reconsideration filed by the YMCA.

the CA did not doubt. it is a basic rule in taxation that the factual findings of the CTA. Second Issue: Is the Rental Income of the YMCA Taxable? We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to tax? At the outset. [16] In the present case. On the other hand. That it did so in a manner different from that of the CTA did not necessarily imply a reversal of factual findings. the CA did not alter any fact or evidence. will not be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts.[14] In the present case. and other non-profitable purposes.[13] The commissioner has a point. First Issue: Factual Findings of the CTA Private respondent contends that the February 16. as indeed it was expected to. much less change. petitioner argues that the CA merely reversed the ruling of the CTA that the leasing of private respondents facilities to small shop owners. this Court finds that the February 16. of the CTA. as amended. That its interpretation or conclusion is different from that of the CTA is not irregular or abnormal.The Petition is meritorious. to restaurant and canteen operators and the operation of parking lots are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the private respondent and that the income derived therefrom are tax exempt. [12] Petitioner insists that what the appellate court reversed was the legal conclusion. The latter merely applied the law to the facts as found by the CTA and ruled on the issue raised by the CIR: Whether or not the collection or earnings of rental income from the lease of certain premises and income earned from parking fees shall fall under the last paragraph of Section 27 of the National Internal Revenue Code of 1977. 1994 CA Decision reversed the factual findings of the CTA. not the factual finding. no part of the net income of which inures to the benefit of any private stockholder or member. Indeed. we set forth the relevant provision of the NIRC: SEC.[15] Clearly. 27. the facts narrated by the CTA. The distinction between a question of law and a question of fact is clear-cut. (h) Club organized and operated exclusively for pleasure. It has been held that [t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts. xxxxxxxxx .The following organizations shall not be taxed under this Title in respect to income received by them as such -xxxxxxxxx (g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare. recreation. It merely applied the law to the facts. there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts. Exemptions from tax on corporations. -. It merely resolved the aforementioned issue. 1994 Decision of the CA did not deviate from this rule. when supported by substantial evidence.

Section 28 of par. Petitioner adds that rented income derived by a tax-exempt organization from the lease of its properties. This makes income from the property of the organization taxable.[21] Parenthetically. be subject to the imposed by the same Code. as a rule. a consideration of the question of construction must not even begin. exempt from income taxation. real or personal. the income of whatever kind and character of the foregoing organization from any of their properties. Hence. [23] This argument is erroneous. the tax exemption claimed by YMCA on income it derived from renting out its real property. Decree No. Because taxes are the lifeblood of the nation. therefore. neither should we.[22] The last paragraph of Section 27. 1457) Petitioners argues that while the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC is. is taxable.whether for profit or for lofty non-profit purposes. the exemption does not apply to income derived xxx from any if their properties. [24] exempts charitable institutions from the payment not only of property taxes but also of income tax from any source. 3 of the 1987 Constitution. Thus. or from any of their activities conducted for profit.[25] In support of its novel theory. charitable and educational propert[ies] or institutions. the YMCA argues. the claimed exemption must expressly be granted in a statute stated in a language too clear to be mistaken. private respondent submits that Article VI.Notwithstanding the provision in the preceding paragraphs. even if such income [is] exclusively used for the accomplishment of its objectives. The rental income is taxable regardless of whence such income is derived and how it used or disposed of. the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties.[20] the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. the Court has always applied the doctrine of strict interpretation in construing tax exemptions. regardless of the disposition made of such income. It is axiomatic that where the language of the law is clear and unambiguous. real or personal. As previously stated. Where the law does not distinguish. regardless.[17] We agree with the commissioner. should be subject to the qualification that the income from the properties must arise from activities conducted for profit before it may be considered taxable. a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Verba legis non est recedendum. The law does not make a distinction. of the disposition made of such income xxx. or from any of their activities conducted for profit. Respondent Court of Appeals committed reversible error when it allowed. Constitutional Provisions on Taxation Invoking not only the NIRC but also the fundamental law. regardless of how that income is used -. The phrase any of their activities conducted for profit does not qualify the word properties. real or personal. on the solitary but unconvincing ground that the said income is not collected for profit but is merely incidental to its operation. particularly when such question is on whether to apply a strict construction or a literal one on statutes that grant tax exemptions to religious. real or personal. its express terms must be applied. it compares the use of .[19] In the instant case. on reconsideration.[18] Furthermore. Because the last paragraph of said section unequivocally subjects to tax the rent income f the YMCA from its rental property. [is] not. shall be subject to the tax imposed under this Code. a reading of said paragraph ineludibly shows that the income from any property of exempt organizations. (as amended by Pres. exempted from the payment of tax in respect to income received by them as such. as well as that arising from any activity it conducts for profit.

directly and exclusively used for religious. but also to the above-quoted first category which includes charitable institutions like the private respondent. on the other hand. [27] and (2) [a]ll lands. directly. laws allowing tax exemption are construed strictissimi juris. [45] It is settled that the term educational institution. even non-formal education is understood to be school-based and private auspices such as foundations and civic-spirited organizations are ruled out. Mr. interpellations and expressions of opinion of the framers of the Constitution reveal their intent which. adhered to the same view that the exemption created by said provision pertained only to property taxes. 3 of the Charter. a former constitutional commissioner. non-profit educational institution. Commissioner of Internal Revenue. may have guided the people in ratifying the Charter. refers to a xxx school seminary. mosques and non-profit cemeteries. for the YMCA to be granted the exemption it claims under the aforecited provision. charitable or educational purposes. buildings and improvements. the phrase actually. but not income tax on the rentals from its property. par.[26] Private respondent enunciates three points. [38] Under the Education Act of 1982. Vitug concurs. it must prove with substantial evidence that (1) it falls under the classification non-stock. Jr. Private respondent also invokes Article XIV.[44] Furthermore. stressed during the Concom debates that xxx what is exempted is not the institution itself xxx. all tax-exempt.the words charitable institutions. and in Article VI Section 22. [41] The Court has examined the Amended Articles of Incorporation[42] and By-Laws[43] of the YMCA. par. As previously discussed. Accordingly. such term refers to schools. Is the YMCA an educational institution within the purview of Article XIV.3 of the Constitution? We rule that it is not. under the Education Act of 1982. buildings and improvements actually. [36] claiming that the YMCA is a non-stock. but found nothing in them that even hints that it is a school or an educational institution. referred to the provision of the 1935 Constitution and not to its counterparts in the 1973 and the 1987 Constitutions. which are exempt only from property taxes. directly and exclusively for educational purposes so it is exempt from taxes on its properties and income. non-profit educational institution whose revenues and assets are used actually.[40] which refers to the hierarchically structured and chronological graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to the higher levels. in turn. The term educational institution or institution of learning has acquired a well-known technical meaning. . on the hand. Section 28. [30] Third. of which the members of the Constitutional Commission are deemed cognizant. The bare allegation alone that it is a non-stock. [39] The school system is synonymous with formal education.. directly and exclusively used for religious.[31] The Court is not persuaded."[35] Indeed. charitable or educational purposes refers not only to all lands. the income tax exemption claimed by private respondent finds no basis in Article VI.[28] Second. Davide. Section 4. those exempted from real estate taxes are lands. Lladoc v. stating that [t]he tax exemption covers property taxes only. non-profit educational institution is insufficient to justify its exemption from the payment of income tax. the incomes of which are. 3 of the Constitution. churches and parsonages or convents appurtenant thereto. charitable or educational purposes. The debates. when used in laws granting tax exemptions. Hence. par. Section 4. Bernas.[33] Father Joaquin G. [37] We reiterate that private respondent is exempt from the payment of property tax. from whatever source. the Court notes that not a scintilla of evidence was submitted by private respondent to prove that it met the said requisites. the present provision is divisible into two categories: (1) [c]haritable institutions. Justice Hilario G.[34] In his treatise on taxation. par. who is now a member of this Court. and (2) the income it seeks to be exempted from taxation is used actually. First. 3 of the 1935 Constitution. an eminent authority on the Constitution and also a member of the Concom. actually and directly in the 1973 and the 1987 Constitutions. and exclusively for educational purposes.[29] which limited the exemption only to the payment of property taxes. Justice Jose C. buildings and improvements actually and directly used for religious. However. [32] Such intent must be effectuated.

But such belief. and as well of religious and moral sentiments. We concede that private respondent deserves the help and the encouragement of the government. or that of its rent income is actually. the Courts power and function are limited merely to applying the law fairly and objectively. Indeed. the Court also notes that the former did not submit proof of the proportionate amount of the subject income that was actually. It needs laws that can facilitate. cannot bestow upon the Court the power to change or amend the law. Article XIII. The Resolutions of the Court of Appeals dated September 28. improvement and development of mind and body. not income tax. Hospital de San Juan de Dios. its humanitarian tasks. Otherwise. specifically electrical inspection fees.[53] the party therein. v. without conceding that Private Respondent YMCA is an educational institution. some of the member of the Court may even believe in the wisdom and prudence of granting more tax exemptions to private respondent.That we conceive to be the true intent and scope of the term [educational institutions. YMCA of Manila v. On the other hand. imposed by an ordinance of Pasay City -. given its limited constitutional authority. and not frustrate. is patently insufficient. directly and exclusively used for educational purposes. Com. was an educational institution which submitted substantial evidence that the income subject of the controversy had been devoted or used solely for educational purposes.[46] Therefore.an issue not at all related to that involved in a claimed exemption from the payment if income taxes imposed on property leases. [48] In sum. Pasay City[52] is not in point either. It appreciates the nobility its cause. the petition is GRANTED. the private respondent cannot be deemed one of the educational institutions covered by the constitutional provision under consideration. Inc.[47] Moreover. Of Internal Revenue. directly and exclusively used for educational purposes. Collector of Internal Revenue[50] and Abra Valley College. The . Section 5 of the YMCA by-laws. however well-meaning and sincere. WHEREFORE. v. Inc. While in its broadest and best sense education embraces all forms and phrases of instruction. It cannot change the law or bend it to suit its sympathies and appreciations. That prerogative belongs to the political departments of government. because it involves a claim for exemption from the payment of regulatory fees. 1995 is REVERSED and SET ASIDE. yet in the common understanding and application it means a place where systematic instruction in any or all of the useful branches of learning is given by methods common to schools and institutions of learning. 1995 and February 29. it cannot rule on the wisdom or propriety of legislation. the private respondent in the present case had not given any proof that it is an educational institution. Aquino[51] are not applicable. which claimed an exemption from the payment of income tax. In Jesus Sacred Heart College v. Epilogue In deliberating on this petition. But the Court regrets that. it would be overspilling its role and invading the realm of legislation. which formed part of the evidence submitted. However.college or educational establishment xxx. since the same merely signified that [t]he net income derived from the rentals of the commercial buildings shall be apportioned to the Federation and Member Associations as the National Board may decide. because the controversy in both cases involved exemption from the payment of property tax. xxx Words used in the Constitution are to be taken in their ordinary acceptation. 1996 are hereby dated February 16.] as used in the Constitution. we find no basis for granting the YMCA exemption from income tax under the constitutional provision invoked Cases Cited by Private Respondent Inapplicable The cases[49] relied on by private respondent do not support its cause. the Court expresses its sympathy with private respondent.

Said claims were not immediately acted upon by the Commissioner of Internal Revenue. Whether or not Republic Act No. 1995 is REINSTATED. respondents. On July 7. No pronouncement as to costs. motor fuel and diesel fuel oils that it had utilized in its operations as a mining concessionaire. 83583-84 September 30. cities and municipalities can no longer levy any additional tax on . Rio Tuba submitted affidavits of its president and of at least two disinterested persons attesting to the fact that the refined and manufactured mineral oils. In fine. Rio Ruba purchased from Petrophil Corporation and the other oil companies varied quantities of manufactured minerals oils. Nos.R. Private respondent Rio Tuba Nickel Mining Corporation is a domestic corporation engaged in the business of mining with several mining lease contracts entered into with the Republic of the Philippines. 1983. 1435. 1982 and from May. With the issuance however of Presidential Decree Nos. 1984. representing 25% of the specific taxes collected on the refined and manufactured mineral oils. 1991 COMMISSIONER OF INTERNAL REVENUE. lean on one another. motor fuel oils and diesel fuel oils which respondent actually and exlusively used in connection. it is no longer the national tax that is being refunded but only 25% local additional tax. respectively. like houses. 1980 to May 31. In support of its claims for refund. Court of Tax Appeals 1 Rio Tuba filed with the Commissioner of Internal Revenue two separate written claims for refund in the amounts of P974. RIO TUBA NICKEL MINING CORPORATION and COURT OF TAX APPEALS. Edmund Burke once said law.33.978. During the pendency of the said petition. 1435 (An Act To Provide Means of Increasing the Highway Special Fund) or certain provisions thereof have been repaed by subsequent statutes is the problem now confronting us. In other words. Said provisions. petitioner.Decision of the Court of Appeals dated February 16. 1983 and pursuant to Section 5 of Republic Act No. 1435 and the Supreme Court decision in the case of Insular Lumber Co. should however be read in conjunction with the provision of Section 4 of that law. respectively. motor fuesl and diesel oils that the said oil companies had sold to the mining firm. petitioner. 1982 and September 23. vs. there must also be a municipal or city ordinance which imposes an additional tax of not exceeding 25% of the regular specific tax levied under Sections 142 and 145 of the Tax Code. Petrophil Corporation and the other oil companies paid and passed on to Rio Tuba the specific taxes imposed under Sections 153 and 156 (formerly Section 142 and 145) of the National Internal Revenue Code of 1977 on refined and manufactured oils. vs.303. Section 5 of which authorizes the refund of 25% of the specific tax paid on petroleum products if used in mining or logging. During the period from June 1. It is our view that in order to avail of the benefits of partial tax refund mentioned in said Act. The question concerning their repeal then becomes difficult especially when the new law does not expressly provide for the repeal of the old law. refund will arise only after the enactment of the required ordinance levying will arise only after the enactment of the required ordinance levying the additional tax and subsequent payment thereof. 1973 and March 30. SO ORDERED. thus compelling taxpayer Rio Tuba to seek recourse in the Court of Tax Appeals by means of a petition for review. motor fuels and diesel fuel oils purchased from Petrophil were actually and exclusively used in the exploitation and operation of its mining concession. 1982 to March. 231 and 426 dated June 28. insofar as it ruled that the income tax.50 and P424. G. Commissioner denied the first claim for refund and ruled: It appears that your claim is principally anchored on the provisions of Republic Act No.

Assuming arguendo that such privilege still exists. one centavo:Provided. 4 The Commissioner of Internal Revenue now asserts that the tax refunds granted to Rio Tuba are without legal basis.A. 142. during the five years from June eighteen. two and one-half centavos. 711 which took effect on July 1. gasoline and all other similar products of distillation.articles subject to the specific tax. and 2. the same can no longer be invoked as the basis for instituting claims for refund of alleged overpaid specific tax. For the purpose of this subsection. 1435 presently subsists. The full text of Republic Act No. the removal of denatured alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for motive power. to wit: 1. Accordingly. 1975 abolished all special and fiduciary funds. eight centavos. per liter of volume capacity. Since Republic Act No. used in agriculture and aviatio. the specific tax on which has already been paid. (c) Naptha. only the alcohol content shall be subject to the tax herein prescribed. there shall be collected the following taxes: (a) Kerosene or petroleum.216. the Commissioner was ordered "to refund to . Furthermore. (b) Lubricating oils. partial refund of specific tax payments on the petroleum products used in logging or mining can no longer be authorized.076. and as the refund sought entirely depends on the exercise of such power. 1435 was passed by Congress precisely to provide the means of increasing the Highway Special Fund. without interest. Section one hundred and forty-two of the National Internal Revenue Code.. Whenever any of the oils mentioned above are.. 3 In the assailed decision dated February 1. 1988. Rio Tuba elevated that claim to the Tax Court without waiting for the Commissioner's decision. Whether the privilege of a partial refund of specific tax paid on manufactured oils used in mining concessions as provided under Section 5. is further amended to read as follows: Sec. per liter of volume capacity. per liter of volume capacity. the Court of Tax Appeals reversed the decision of the Commissioner and instead granted Rio Tuba's claims for refund. No. R. That if the denatured alcohol is mixed with gasoline. fifty per centum of the specific . said Decree has in effect repealed said Act.90 as specific tax paid. seven centavos. Specific Tax on manufactured oils and other fuels. as amended. Both claims were consolidated. unless shown to the contrary. whether Rio Tuba is entitled to such refund. On refined and manufactured mineral oils and motor fuels. hence.36 and P859. Presidential Decree No. He raises various arguments which can be simplified into two basic issues. 1435 states: Section 1. and (d) On denatured alcohol to be used for motive power. nineteen hundred and fifty-two. Rio Tuba Nickel Mining Corporation the sums of P695. Consequently. 2 As there was still no action on the second claim for refund and since the two-year required by law for bringing the claim before the Court of Tax Appeals was about to lapse. per liter of volume capacity.

shall be set aside exclusively for amortizing loans or bonds that may have been authorized for the construction. commercially know as diesel fuel oil. sworn certificate satisfactory to the Collector proving that the said oils were actually used in aviation: Provided. twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of ils and under similar conditions enumerated in sub-paragraphs one and tow of section one thereof. Section one hundred and forty-five of the National Internal Revenue Code. lubricating oil and other fuels. as amended. on manufactured oils sold or distributed within the limits of the city or municipality. or in lieu thereof. as amended. as required in section twenty-six of the Philippine Highway Act of 1953. (3) In the case of aviation oils. there shall be collected. that whenever any oils mentioned above are used by miners or forest concessionaires in their operations. levy an additional tax of not exceeding twenty-five per centum of the rates fixed in said sections. Section 4. one peso. as hereinabove amended. reconstruction or improvement of highways inluding bridges as well as for liquidating toll bridges constructed from revolving funds authorized under Act Number Thirty-five hundred. That municipal taxes heretofore levied by cities through city ordinances on gasoline. The method of collecting said additional tax shall be prescribed by the municipal board or council concerned. amending section one hundred forty-two of the Internal Revenue Code: Provided. notwithstanding the provisions of sections one hundred and forty-tw and one hundred and forty-five of the National Internal Revnue Code. 145. The proceeds of the additional tax on manufactured oils shall accrrue to the road and bridge funds of the political subdivision for whose benefit the tax is collected: Provided. . and and on all similar fuel oils. airplane fuel. per metric ton. Specific Tax on Diesel fuel oil. is further amended to read as follows: Sec. That no such refunds shall be granted in respect to the oils used in aviation by citizens and corporations of foreign countries which do not grant equivalent refunds or exemptions in respect to similar oils used in aviation citizens and corporations of the Philippines. — On fuel oil. duly registered with the Securities and Exchange Commission.tax paid thereon shall be refunded by the Collector of Internal Revenue upon the submission of the following: (1) A sworn affidavit of the producer and two disintegrated persons proving that the said oils were actually used in agriculture. further That no new road shall be constructed unless the routesd or location thereof shall have been approved by the Commissioner of Public Highways after a determination that such road can be made part of an integral and articulated route in the Philippine Highway System. Provided. Section 5. Municipal Boards or councils may. the affidavit of the president of the association of federation. having more or less the same generating power. Section 3. The proceeds of the increased taxes accruing to the Highway Special Fund. however. are hereby ratified and declared valid. attesting to the fact that the oils were actually used in agriculutre. as a resulf of the amendment of Sections one hundred and forty-two and one hundred and forty-five of the National Internal Revenue Code as above provided. (2) Should the producer belong to any producers association or federation. Section 2. whenever such liquidation is recommended by the Secretary of Public Works and Communications and approved by the President.

then President Marcos abolished the so-called special funds. or decrees creating such special and fiduciary funds. No. The statutory grant of a partial exemption from the imposed increased specific taxes is manifest from a reading of the proviso in Section 5. provided that the personnel whose salaries and/or wages are drawn from such special and fidiciary funds shall be paid out of the General Fund subject to the provisions of Section 2 hereof. To our mind. as well as then finaning and operations thereof. Section 1 of P. . 711 states: All existing special and fiduciary funds are hereby abolished and all assets.D. As contended by Rio Tuba. For one thing. the Solicitor General. 5 It is the position of the Revenue Commissioner that the subject refund privilege is conditioned on the actual payment of an additional tax imposed by the local government to augment the highway fund pursuant to Section 4 of Republic Act 1435. Approved. cited by Rio Tuba are not on all fours with the instant petition. And this brings us to the discussion of the reason why Rio Tuba's two claims for refund cannot be allowed. 1981. the factual milieu in the earlier cases occurred between 1958 and 1963. Reportedly concerend over the accumulation of big cash balances in special and fiduciary funds which adversely affected the management and control of such cash resources in the National Treasury and thus resulting in the useless immobilization of public funds which could otherwise be advantageously availed of to finance the various essential public services. December 11. 1435. June 14. But in our opinion. 104 SCRA 710. Insular Lumber Co. What is clear therein is that the Revenue Commissioner shall refund 25% of the specific tax whenever "any oils mentioned above are used by miners or forest is complied with. But even on the supposition that private respondent Rio Tuba could avail itself of the privilege of tax refund on the basis of the proviso in Section 5. and Insular Lumber Co. 21 SCRA 1237. 1956. in the case of private respondent Rio Tuba. there is nothing in that proviso which states that before a miner can be entitled to the 25% tax refund of specific tax paid on the oils it used in its operations. laws. 1435. surpluses and appropriations pertaining to all special and fiduciary funds as authorized by the corresponding acts. are hereby tranferred to the General Fund of the National Government. the Commissioner interjected the aforementiuoned pre-requisite to justify his denial of the claimed exemption. Rio Tuba cannot consider itself entitled tothe partial refund. However. Since then. there must first be a municipal or city ordinance levying an additional tax not exceeding 25% of the rates fixed in Sections 142 and 145 of the Tax Code. as counsel for the Commissioner. the entire Section 5 does not even make any reference to Section 4 which empowers municipalities and cities to impose the additional tax on oils sold or distributed within their resepctive territorial jurisdictions.Section 6. 1975. L-24221. The cases of Commissioner of Internal Revenue vs. 1967.. RA No. the tax measure most decisive of the present isue and the one that clearly demonstrates the intent of the law-making body to legislate the exemption out of existence is Presidential Decree No. Not having shown any proof that it has paid the additional specific taxes pursuant to a municipal ordinance in accordance with Section 4 of RA No. Court of Tax Appeals. He proceeded to interpre the term "additional taxes" as referring to the municipal-imposed specific taxes. including the imposition of martial law which saw the seemingly endless enactment of tax decrees transforming manufactured oils into a major source of revenue for the government. vs. L-31057. In fact. We disagree. 711 6 issued on July 1. May 29. 1435 has been repealed by subsequent laws. has painstakingly provided us with a detailed overview of the relevant revenue laws starting with Republic Act 1435 and including the Local Tax Code and the National Internal Revenue Code of 1977 to drive home his main contention that the disputed refund privilege or exemption laid down in RA No. much has taken place. the proviso in Section 5 standing alone is enough basis for the grant of regund. we are not prepared to affirm the ruling of the Tax Court. Republic Act 1435. No. liabilities. This Act shall take effect upon its approval. Interestingly enough.

1435.. With PD No. All taxes. inconsistent with PD No. In other words. Tax measures. 711 is simply the transfer of the funding and operations of all existing special and fiduciary funds into one fund. the funds that have accrued from the various special funds are channeled to the so-called General Fund." So if they are not entitled to the benefit of the law. sooner or later. Now. then the proviso in Section 5 of RA No. Section 2 of said decree provides: The existing functions and activities authorized under present laws creating each of the special and fiduciary funds which. Only to the miners and forest concessionaires is given that privilege on account of circumstances peculiar to them. fees or imposts comprising the special fiduciary funds and their being spend only for the particular purposes designated by the law creating them. 1435 has truly become an anachronism. the components of the various special funds and the operations thereof. the miners will stand to benefit from any of the government endeavors and it will no longer be correct to asseverate that the imposition of the increased rates in specific taxes to augment the general fund for government undertakings is "unfair" to the miners because they are not directly convenienced. Section 5 does not extend to all and sundry the privilege of partial refund of specific taxes on oils used in one's operations. by virtue of PD No. then there is no need or justification for the continued special treatment accorded to the miners. 1435 was drated to favor a particular group of taxpayers-the miners and the lumbermen-because it was "unfair" to subject them to the increased rates and in effect make them subsidize the construction of highways from which they did not directly benefit. 711 is precisely the reason why said decree cannot be considered as consistent with the proviso set forth in Section 5 of RA No. known as the General Fund. This is the raison d'etre for the grant of partial tax exemption under RA No. the essence of PD No. The laudable social and encompassing objective of PD No. According to Rio Tuba. fees. they serve to worsen the already growing confusion in the minds of our taxpayers. as determined by the National Economic and Development Authority. More often than not. were only transferred to the General Fund of the government. Given the present concept of the general fund andits wide application. are in conformity with the present social and economic plans and programs formulated consistent with national development goals shall continue to be maintained under the General Fund. it will be unfair if they will be required to pay. There is much to be said about the strong and persuasive arguments of both sides but we are compelled to abide by the maxim that all doubts must be resolved in favor of the taxing authority and that tax exemptions (or tax refunds for that matter) must be strictly construed and can only be given force when the grant is clear and categorical. have proliferated to alarming proportions. levies. in order to facilitate the implementation of social and economic programs and projects of the government for the general welfare of the masses. 711. any government project can be the beneficiary of such funds as long as it is for the general welafare of the masses. it cannot be denied that situations can and do arise wherein we are left with no other alternative but to concede the point that an earlier law has been impliedly repealed or revoked by a later law because of an obvious inconsistency. It is inevitable that. What in effect was abolished was the designation and destination of the particular taxes. (T)hese lumber and mining companies seldom use the national highways because they have their own roads. they have their own compounds. We therefore hold that the tax . ".. levies. as well as all assets. While we generally do not favor repeal by implication. 711. particulary its Section 5. 7 Thus we find tha the disputed proviso found in Section 5 of RA No. in recent years. 1435. . etc.. liabilities. 711 ot warrant an implied repeal.. imposts and other income of all special and fiduciary funds duly authorized under existing laws shall remain in force and shall accrue to the General Fund. if. 1435 which allows a partial exemption to the miners and forest under special conditions.Private respondent Rio Tuba submits that the mere abrogation of the Highway Special Fund itself did not make RA No.

DECISION PANGANIBAN. On July 8. [G. assessing private respondent the sum of P174.refunds in the amounts of P695. 1983. non-profit educational institution with auxiliary units and branches all over the Philippines. SP No.043. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture. No. private respondent sent petitioner a letter-protest and subsequently filed with the latter a memorandum contesting the validity of the assessments. Denying said tax liabilities. Unsatisfied. 115349. 1983. the same being largely undisputed by the parties. April 18.076.216. Private respondent Rio Tuba Mining Corporation's twin claims for refunds of specific taxes paid on manufactured oils are DENIED. THE COURT OF APPEALS. Private respondent is a non-stock.41.R.516. is the Ateneo de Manila University performing the work of an independent contractor and thus taxable within the purview of then Section 205 of the National Internal Revenue Code levying a three percent contractors tax? This question is answered by the Court in the negative as it resolves this petition assailing the Decision[1] of the Respondent Court of Appeals[2] in CA-G. vs. 1994 affirming that of the Court of Tax Appeals. exclusive of surcharge and interest.837 for alleged deficiency income tax.141. which has no legal personality separate and distinct from that of private respondent. 1978. One such auxiliary unit is the Institute of Philippine Culture (IPC).55. the instant petition is hereby GRANTED. petitioner issued a final decision dated August 3. On March 17. private respondent requested for a reconsideration or reinvestigation of the modified assessment.36 and P859. WHEREFORE. private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3. 1997] COMMISSIONER OF INTERNAL REVENUE. 1988. At the same time.97 for alleged deficiency contractors tax. No costs. respondents. THE COURT OF TAX APPEALS and ATENEO DE MANILA UNIVERSITY.: In conducting researches and studies of social organizations and cultural values thru its Institute of Philippine Culture. The questioned decision of the Court of Tax Appeals is SET ASIDE. Occasionally. While the petition was pending before the respondent court. .R. private foundations and government agencies. it filed in the respondent court a petition for review of the said letter-decision of the petitioner. both for the fiscal year ended March 31. 31790 promulgated on April 27.[3] The Antecedent Facts The antecedents as found by the Court of Appeals are reproduced hereinbelow. petitioner. 1988 reducing the assessment for deficiency contractors tax from P193. J.475. 1983 in the sum of P1.475. and an assessment dated June 27. it accepts sponsorships for its research activities from international organizations.90 in favor of private respondent Rio Tuba must be set aside.55 to P46. petitioner rendered a letter-decision canceling the assessment for deficiency income tax but modifying the assessment for deficiency contractors tax by increasing the amount due to P193.

No pronouncement as to cost.A contractors tax of three per centum of the gross receipts is hereby imposed on the following: xxxxxxxxx (16) Business agents and other independent contractors except persons. To petitioner. as amended. 5186. The deficiency contractors tax assessment in the amount of P46. SO ORDERED.On July 12. including their alien executives. Individuals occupation tax under Section 12 of the Local Tax Code (under the old Section 182 [b] of the Tax Code). . associations and corporations under contract for embroidery and apparel for export. communication and coordinating centers for their affiliates. Persons. and 2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO 3% CONTRACTORS TAX UNDER SECTION 205 OF THE TAX CODE. encompasses all kinds of services rendered for a fee and that the only exceptions are the following: a. 5186: xxxxxxxxx The term independent contractors include persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. the term independent contractor. . respondents decision is SET ASIDE. provide: Sec.A. subsidiaries or branches in the Asia Pacific Region (Section 205 of the Tax Code). as defined by the Code. petitioner has come to this Court via the present petition for review raising the following issues: 1)WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER THE PURVIEW OF INDEPENDENT CONTRACTOR PURSUANT TO SECTION 205 OF THE TAX CODE. in view of the foregoing. the respondent court rendered the questioned decision which dispositively reads: WHEREFORE. and which headquarters do not earn or derive income from the Philippines and which act as supervisory.41 exclusive of surcharge and interest for the fiscal year ended March 31. as well as their agents and contractors and except gross receipts of or from a pioneer industry registered with the Board of Investments under Republic Act No. The pertinent portions of Section 205 of the National Internal Revenue Code. Regional or area headquarters established in the Philippines by multinational corporations.516. and c. 1978 is hereby CANCELED. b. No. 1993. Contractor. and others. proprietors or operators of dockyards. 205. Not in accord with said decision. association and corporations under contract for embroidery and apparel for export and gross receipts of or from pioneer industry registered with the Board of Investment under R. xxxxxxxxx Petitioner contends that the respondent court erred in holding that private respondent is not an independent contractor within the purview of Section 205 of the Tax Code.

performing the work of an independent contractor and. -. thus. including their alien executives. through its auxiliary unit or branch -.A contractors tax of three per centum of the gross receipts is hereby imposed on the following: xxxxxxxxx (16) Business agents and other independent contractors.[4] The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue and affirmed the assailed decision of the Court of Tax Appeals.[5] In fine. private respondent is therefore subject to the 3% contractors tax imposed under the same Code. as well as their agents and contractors.Petitioner thus submits that since private respondent falls under the definition of an independent contractor and is not among the aforementioned exceptions. The Issues Petitioner submits before us the following issues: 1) Whether or not private respondent falls under the purview of independent contractor pursuant to Section 205 of the Tax Code 2) Whether or not private respondent is subject to 3% contractors tax under Section 205 of the Tax Code.the Institute of Philippine Culture -. these may be reduced to a single issue: Is Ateneo de Manila University. associations and corporations under contract for embroidery and apparel for export. Interpretation of Tax Laws The parts of then Section 205 of the National Internal Revenue Code germane to the case before us read: SEC. and which headquarters do not earn or derive income from the Philippines and which act as supervisory. and except gross receipts of or from a pioneer industry registered with the Board of Investments under the provisions of Republic Act No. except persons. Unfazed. The term independent contractor shall not include regional or area headquarters established in the Philippines by multinational corporations. subject to the three percent contractors tax levied by then Section 205 of the National Internal Revenue Code? The Courts Ruling The petition is unmeritorious. Contractors. petitioner now asks us to reverse the CA through this petition for review. 5186. . 205. and others. xxxxxxxxx The term independent contractors include persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. proprietors or operators of dockyards.

The tax is imposed on the exercise of a taxable activity. we find no evidence that Ateneos Institute of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university.[6] Petitioner states that the term independent contractor is not specifically defined so as to delimit the scope thereof. is now indubitably considered an independent contractor liable to 3% contractors tax. applying the rule of strict interpretation of laws imposing taxes and other burdens on the populace. Only after such coverage is shown does the rule of construction -. undiminished by amount paid to the subcontractor. subsidiaries or branches in the Asia-Pacific Region. And it is only after private respondent has been found clearly to be subject to the provisions of Sec. Hence. hence. contrary to petitioners position.that tax exemptions are to be strictly construed against the taxpayer -. the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. and unambiguously. Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo de Manila University falls within the definition of an independent contractor and is not one of those mentioned as excepted. so much so that any person who x x x renders physical and mental service for a fee. Petitioner Commissioner of Internal Revenue contends that the tax is due on its activity of conducting researches for a fee. Stressing that it is not the Ateneo de Manila University per se which is being taxed. It is obviously both illogical and impractical to determine who are exempted without first determining who are covered by the aforesaid provision.communications and coordinating centers for their affiliates. such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. it is basic that in case of doubt. to impose the three percent contractors tax on Ateneos Institute of Philippine Culture. 205 that the question of exemption therefrom would arise.[9] To fall under its coverage. before asking Ateneo to prove its exemption therefrom. x x x (A) tax cannot be imposed without clear and express words for that purpose. Section 205 of the National Internal Revenue Code requires that the independent contractor be engaged in the business of selling its services. shall be excluded from the taxable gross receipts of the subcontractor. The Ateneo de Manila University Did Not Contract for the Sale of the Services of its Institute of Philippine Culture After reviewing the records of this case. expressly. Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without first applying the well-settled doctrine of strict interpretation in the imposition of taxes.come into play. in answering the question of who is subject to tax statutes. The tax is due on the gross receipts made in favor of IPC pursuant to the contracts the latter entered to conduct researches for the benefit primarily of its clients.[8] Parenthetically. Accordingly. it is properly a subject of the three percent contractors tax levied by the foregoing provision of law. it should be sufficiently proven that the private respondent is indeed selling its services for a fee in pursuit of an independent business. Ateneo has the burden of proof to show its exemption from the coverage of the law. The Commissioner should have determined first if private respondent was covered by Section 205. We disagree. The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws that (a) statute will not be construed as imposing a tax unless it does so clearly. This is the main line of reasoning of the Court of Tax Appeals in its decision. x x x [T]he sale of services of private respondent is made under a contract and the various contracts . [7] according to petitioner. The term gross receipts means all amounts received by the prime or principal contractor as the total contract price.[10] which was affirmed by the CA.

the petitioner has presented no evidence to prove its bare contention that. Clearly then. the evidence shows that for about 30 years. IPC realized profits from such work. Since it can only finance a limited number of IPCs research projects. the records do not show that Ateneos IPC in fact contracted to sell its research services for a fee. For another. such sponsorships are subject to private respondents terms and conditions. The fact that it accepted sponsorship for IPCs unfunded projects is merely incidental. However. among others. among which are. On the contrary. that the research is confined to topics consistent with the private respondents academic agenda. the aforementioned terms and conditions belie the allegation that private respondent is a contractor or is engaged in business. the main function of the IPC is to undertake research projects under the academic agenda of the private respondent. For. indeed. the Court of Tax Appeals accurately and correctly declared that the funds received by the Ateneo de Manila University are technically not a fee. the Commissioner of Internal Revenue may be correct. contracts for sale of services were ever entered into by the private respondent. In fact. showing. petitioners theory is inapplicable to the established factual milieu obtaining in the instant case. As appropriately pointed out by the latter: An examination of the Commissioners Written Formal Offer of Evidence in the Court of Tax Appeals shows that only the following documentary evidence was presented: Exhibit 1 BIR letter of authority no. it bears stressing that private respondent is a non-stock. which means that sponsored funds are less than actual expenses for its research projects.[13] Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals: To our mind.entered into between private respondent and its clients are almost of the same terms. as found by the Court of Appeals and the Court of Tax Appeals. None of the foregoing evidence even comes close to purport to be contracts between private respondent and third parties. the established facts show that IPC. the research activities being carried out by the IPC is focused not on business or profit but on social sciences studies of Philippine society and culture. private foundations and governmental agencies. as a unit of the private respondent. . private respondent occasionally accepts sponsorship for unfunded IPC research projects from international organizations. For one. non-profit educational corporation.[11] (Underscoring supplied.[12] Moreover. that no proprietary or commercial purpose research is done. private respondent is mandated by law to undertake research activities to maintain its university status. and that private respondent retains not only the absolute right to publish but also the ownership of the results of the research conducted by the IPC. Tan Jr. private respondent hardly fits into the definition of an independent contractor. 331844 2 Examiners Field Audit Report 3 Adjustments to Sales/Receipts 4 Letter-decision of BIR Commissioner Bienvenido A. In the first place. Quite clearly. the records do not show that in accepting sponsorship of research work. is not engaged in business. IPC had continuously operated at a loss. Moreover. They may however fall as gifts or donations which are taxexempt as shown by private respondents compliance with the requirement of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational institution. the compensation and terms of payment.) In theory. Undisputedly. That IPC has been operating at a loss loudly bespeaks of the fact that education and not profit is the motive for undertaking the research projects. However.

may not be deemed. Thus. scholarly publications and research activities published in its school journal as well as their leadership activities in the profession. including Sanchez Roman. [17] In the case of a contract for a piece of work. (underscoring supplied) xxxxxxxxx .Then. x x x. and the other to pay therefor a price certain in money or its equivalent. in consideration of a certain price or compensation. It is also well to stress that the questioned transactions of Ateneos Institute of Philippine Culture cannot be deemed either as a contract of sale or a contract for a piece of work. he shall deliver the thing produced to the employer and transfer dominion over the thing. have considered such transfer of ownership as the primary purpose of sale. such sponsorships are subject to IPCs terms and conditions.[15] The amounts given to IPC. the contractor binds himself to execute a piece of work for the employer. whether the contract be one of sale or one for a piece of work. [18] Ineludably. One of the departments shall be science and technology. one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing. This is clear from a reading of the regulations governing universities: 31.Even in the absence of this express requirement. the amounts are in the nature of an endowment or donation given by IPCs benefactors solely for the purpose of sponsoring or funding the research with no strings attached. By the contract of sale. stating that the delivery of the thing does not mean a mere physical transfer. therefore. and IPC retains the ownership of the results of the research.In addition to the legal requisites an institution must meet. too. x x x If the contractor agrees to produce the work from materials furnished by him. [16] By its very nature. as in fact none was so distributed because they accrued to the benefit of the private respondent which is a non-profit educational institution. as adverted to earlier. however. most writers. it is clear that the funds received by Ateneos Institute of Philippine Culture are not given in the concept of a fee or price in exchange for the performance of a service or delivery of an object. following modern codes. including the absolute right to publish the same. the fact still remains that there is no proof that part of such earnings or profits was ever distributed as dividends to any stockholder. a transfer of ownership is involved and a party necessarily walks away with an object. but is a means of transmitting ownership. it bears stressing. as fees or gross receipts that can be subjected to the three percent contractors tax. The copyrights over the results of the research are owned by Ateneo and. Furthermore. Valverde.[19] In the case at bench. As found by the two courts below. a reasonable portion of which should be devoted to institutional development and research. the following requirements before an application for university status shall be considered: xxxxxxxxx (e) The institution must undertake research and operate with a competent qualified staff at least three graduate departments in accordance with the rules and standards for graduate education. such as the German and the Swiss. The competence of the staff shall be judged by their effective teaching. it is clear that the research activity of the Institute of Philippine Culture is done in pursuance of maintaining Ateneos university status and not in the course of an independent business of selling such research with profit in mind. Colin and Capitant. No proprietary or commercial research is done. Gayoso. Article 1458 of the Civil Code expressly makes the obligation to transfer ownership as an essential element of the contract of sale. Ruggiero. there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the Institute of Philippine Culture. Perez and Alguer follow the same view. Rather. among others.[14] Therefore. granting arguendo that IPC made profits from the sponsored research projects. (f) The institution must show evidence of adequate and stable financial resources and support. it is clear from the evidence on record that there was no sale either of objects or services because. Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. a contract of sale requires a transfer of ownership. consequently. no portion thereof may be reproduced without its permission.

Leonor Wijangco.014. ultimately.[24] So. For the institute to have tenaciously continued operating for so long despite its accumulation of significant losses. we reiterate that the Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. Thus. University status may be withdrawn. we can only agree with both the Court of Tax Appeals and the Court of Appeals that education and not profit is [IPCs] motive for undertaking the research projects. why is this done by the University? A Because of our faculty development program as a university. [23] In fact. Public Service. provides significant insight on the academic and nonprofit nature of the institutes research activities done in furtherance of the universitys purposes. The testimony of Ateneos Director for Accounting Services. Not Profit. by the very nature of its function. Through its expertise.[20] Petitioners contention that it is the Institute of Philippine Culture that is being taxed and not the Ateneo is patently erroneous because the former is not an independent juridical entity that is separate and distinct from the latter. to public service. [22] This point becomes more evident in the case before us where the findings and conclusions of both the Court of Tax Appeals and the Court of Appeals appear untainted by any abuse of authority. after due notice and hearing. we find the decision of the latter affirming that of the former free from any palpable error. why is it that Ateneo continues to operate and conduct researches through its Institute of Philippine Culture when it undisputedly loses not an insignificant amount in the process? The plain and simple answer is that private respondent is not a contractor selling its services for a fee but an academic institution conducting these researches pursuant to its commitments to education and. for failure to maintain satisfactorily the standards and requirements therefor.32. dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority x x x. it was Ateneo de Manila University itself that had funded the research projects of the institute. much less grave abuse of discretion. as a matter of principle. Will you please tell us in this case when the actual cost is a lot less than the grant who shoulders the additional cost? A The University. it is undeniably competent to determine the issue of whether[21] Ateneo de Manila University may be deemed a subject of the three percent contractors tax through the evidence presented before it. and it was only when Ateneo could no longer produce the needed funds that the institute sought funding from outside.624.[25] . is the Motive The records show that the Institute of Philippine Culture conducted its research activities at a huge deficit of P1. Ms. Factual Findings and Conclusions of the Court of Tax Appeals Affirmed by the Court of Appeals Generally Conclusive In addition.00 as shown in its statements of fund and disbursements for the period 1972 to 1985. because a university has to have its own research institute. this Court will not set aside the conclusion reached by x x x the Court of Tax Appeals which is. as follows: Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the Institute of Philippine Culture) that as far as grants from sponsored research it is possible that the grant sometimes is less than the actual cost. Q Now. Consequently.

. SO ORDERED.WHEREFORE. the petition is DENIED and the assailed Decision of the Court of Appeals is hereby AFFIRMED in full. premises considered.

private respondent is mandated by law to undertake research activities to maintain its university status. among which are. a transfer of ownership is involved and a party necessarily walks away with an object. 115349 April 18. CIR sent a demand letter assessing the sum of P174. the contractor binds himself to execute a piece of work for the employer. Since it can only finance a limited number of IPC’s research projects. Accdg to CIR. the research activities being carried out by the IPC is focused not on business or profit but on social sciences studies of Philippine society and culture. Whether the contract be one of sale or one for a piece of work. such sponsorships are subject to private respondent’s terms and conditions. CONTRACT FOR PIECE OF WORK By the contract of sale. he shall deliver the thing produced to the employer and transfer dominion over the thing. a contract of sale requires a transfer of ownership. In fact. IPC had continuously operated at a loss. and that private respondent retains not only the absolute right to publish but also the ownership of the results of the research conducted by the IPC.043. They may however fall as gifts or donations which are tax-exempt. to impose the three percent contractor’s tax on Ateneo’s Institute of Philippine Culture. the petitioner has presented no evidence to prove its bare contention that. . Another fact that supports this contention is that for about 30 years. Occasionally. SALE vs. it should be sufficiently proven that the private respondent is indeed selling its services for a fee in pursuit of an independent business. which means that sponsored funds are less than actual expenses for its research projects. In this case. that the research is confined to topics consistent with the private respondent’s academic agenda.R. private foundations and government agencies. private respondent occasionally accepts sponsorship for unfunded IPC research projects from international organizations. Funds received by the Ateneo de Manila University are technically not a fee. and the other to pay therefore a price certain in money or its equivalent.COMMISSIONER OF INTERNAL REVENUE vs. in consideration of a certain price or compensation. it accepts sponsorships for its research activities from international organizations. On July 1983. By its very nature.) Issue: 1) WON ADMU is an independent contractor hence liable for tax? NO. COURT OF APPEALS G. In the case of a contract for a piece of work. In the first place. private foundations and governmental agencies. Held: 1) Hence. 2) Records do not show that Ateneo’s IPC in fact contracted to sell its research services for a fee. (Independent Contractor means any person whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. that no proprietary or commercial purpose research is done. 2) WON the acceptance of research projects by the IPC of ADMU a contract of sale or a contract for a piece of work? NEITHER. indeed. If the contractor agrees to produce the work from materials furnished by him. No. contracts for sale of services were ever entered into by the private respondent. In fact. one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing. ADMU falls under the purview of independent contractor pursuant to Sec 205 of Tax Code and is also subject to 3% contractor’s tax under Sec 205 of the same code. However.97 for alleged deficiency contractor’s tax. 1997 Facts: ADMU Institute of Philippine Culture is engaged in social science studies of Philippine society and culture. there was no sale either of objects or services because there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the Institute of Philippine Culture.

But during these two years. 112024. petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282. on July 25. are hereby AFFIRMED in toto. affirming the Decision[2] and Resolution[3] of the Court of Tax Appeals which denied the claims of the petitioner for tax refund and tax credits.954. 1988 before the Court of Tax Appeals (CTA).602. petitioners claim for refund/tax credit of overpaid income tax for 1985 in the amount of P5.795.317. The taxes due were settled by applying PBComs tax credit memos and accordingly.228. Subsequently. The lessees withheld and remitted to the BIR withholding creditable taxes of P282. 1993.00. respectively. SO ORDERED. petitioner.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. a commercial banking corporation duly organized under Philippine laws. The petition was docketed as CTA Case No.299. Pending the investigation of the respondent Commissioner of Internal Revenue.50 and in 1986 for P234.253. DECISION QUISUMBING. Philippine Bank of Communications (PBCom). ending December 31.077.69 in 1986. Thereafter. filed its quarterly income tax returns for the first and second quarters of 1985. and disposing as follows: IN VIEW OF ALL THE FOREGOING.401. The Decision of the Court of Tax Appeals dated May 20. 1993.749. petitioner requested the Commissioner of Internal Revenue. January 28. however. for a tax credit of P5. and thus declared no tax payable for the year. reported profits.016.[G. the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. among others. 1985. Commissioner of Internal Revenue. The 1986 claim for refund amounting toP234. COMMISSIONER OF INTERNAL REVENUE.69.129. J.701.016. On August 7.00.954. 1986.795. 4309 entitled: Philippine Bank of Communications vs.00. and paid the total income tax of P5. PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31.50 in 1985 and P234.R.00. respondents. 1999] PHILIPPINE BANK OF COMMUNICATIONS. the instant petition for review is DENIED due course.: This petition for review assails the Resolution[1] of the Court of Appeals dated September 22.[5] The facts on record show the antecedent circumstances pertinent to this case. The petition for review is dismissed for lack of merit. 0746-85 and 0747-85 for P3. For the succeeding year. vs. COURT OF TAX APPEALS and COURT OF APPEALS. thereby showing no income tax liability.077.[4] The Court of Tax Appeals earlier ruled as follows: WHEREFORE. the petitioner likewise reported a net loss of P14. No. 1993 and its resolution dated July 20. 615. PBCom earned rental income from leased properties. SO ORDERED.95 is hereby denied for having been filed beyond the reglementary period. petitioner instituted a Petition for Review on November 18. 1987. Petitioner.077. it declared a net loss of P25. . 1988.00 and P1.00 representing the overpayment of taxes in the first and second quarters of 1985.

69 Excess Tax Payments P5.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.749. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income tax payments is not two years but ten (10). 1993.299.299.50 234.077. filed before the Court of Tax Appeals. On June 22. 1993. the Court of Appeals affirmed in toto the CTAs resolution dated July 20. the CTA rendered a decision which.69======= ======= ======= *CTAs decision reflects PBComs 1985 tax claim as P5.95.[6] Thereafter.00) (P14. without proof. 1993. Hence this petition now before us.299. On May 20. are as follows: 1985 1986 Net Income (Loss) (P25.95.00 --- Tax Withheld at Source 282. as stated on the outset.which relied in good faith on the formal assurances of BIR in RMC No. A forty-five centavo difference was noted. petitioner filed a Motion for Reconsideration of the CTAs decision but the same was denied due course for lack of merit. The issues raised by the petitioner are: I.00) Tax Due NIL NIL Quarterly tax Payments Made 5.077.954.795. Whether taxpayer PBCom -. on the ground that it was filed beyond the two-year reglementary period provided for by law.50*======= P234.602. of its assurances in RMC No. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBComs claim for the refund of P234. 1993. applied retroactively. denied the request of petitioner for a tax refund or credit in the sum amount of P5.317.749. PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals.can be prejudiced by the subsequent BIR rejection. The petitioners claim for refund in 1986 amounting to P234. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments -.749. that there were taxes due in 1987 and that PBCom availed of tax-crediting that year.016.129.[7] II.The losses petitioner incurred as per the summary of petitioners claims for refund and tax credit for 1985 and 1986.[8] . However on September 22.077.228.077.69 income tax overpaid in 1986 on the mere speculation.

changing the prescriptive period of two years to ten years? Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. despite petitioners reliance on RMC No. that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code. the Court held that the . this Office has promulgated Revenue Memorandum Order No. The pertinent portions of the circular reads: REVENUE MEMORANDUM CIRCULAR NO. Under these procedures. 7-85 issued on April 1. the refund or tax credit is granted. It should be noted. 10-77 which provide: xxxxxxxxx It has been observed. corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment. 32-76 dated June 11. containing the procedure in processing said returns. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes. In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code).Simply stated. As already stated.[9] (Emphasis supplied. however. the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. Moreover. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit. the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription. 7-85 SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN TO: All Internal Revenue Officers and Others Concerned Sections 85 and 86 of the National Internal Revenue Code provide: xxxxxxxxx The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. in accordance with Sections 292 and 295 of the National Internal Revenue Code. that because of the excess tax payments. Court of Tax Appeals[10] petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers.) Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit within the two-year period. therefore. 7-85. this procedure was adopted to facilitate immediate action on cases like this. 1985. In this regard. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. Citing ABS-CBN Broadcasting Corporation vs. After which. and. actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns. In ABS-CBN case. 1976. however.

respondent Commissioner cited cases which adhered to this principle. and such failure is fatal to petitioners cause of action. c) where the taxpayer acted in bad faith. or of any penalty claimed to have been collected without authority. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Further. Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 1988 to seek relief from the court. or reversal will be prejudicial to the taxpayers except in the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue.Any revocation. argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return.government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer. Non-retroactivity of rulings-. TMX Sales. Court of Appeals. Inc.[11] and Commissioner of Internal Revenue vs. contrary to the petitioners contention. to wit: ACCRA Investments Corp. et al. NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected. modification. [13] Due process of law under the Constitution does not require judicial proceedings in tax cases. 229. 1986. modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation.[14] From the same perspective. the latter had only until April 15.[12] Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15. the same was filed beyond the time fixed by law. b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. 1988.: Sec. Recovery of tax erroneously or illegally collected... Respondent Commissioner of Internal Revenue. After a careful study of the records and applicable jurisprudence on the matter. claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes. Petitioner contends that Sec. which is generally done on April 15 following the close of the calendar year. respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18.No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected. vs. 246. et al. the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. viz. As precedents. 230. 246 of the National Internal Revenue Code explicitly provides for this rule as follows: Sec. its functions should not be unduly delayed or hampered by incidental matters. -. through the Solicitor General. we find that. until a claim for refund or credit has been duly . Basic is the principle that taxes are the lifeblood of the nation. or of any sum alleged to have been excessive or in any manner wrongfully collected..

penalty.[16] 69. and two years from this date would be April 16. that is to say. is entitled to great respect by the courts. 230 of 1977 NIRC. [20] Thus. 4003 as amended.[15] this Court explained the application of Sec. or sum has been paid under protest or duress.[19] When the Acting Commissioner of Internal Revenue issued RMC 7-85. Philippine American Life Insurance Co. such circular created a clear inconsistency with the provision of Sec. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act. the basic Act prevails. x x x In this connection. in case of discrepancy. as follows: Clearly. This discrepancy between Act No. Appellant contends that Section 2 of FAO No. before any suit in CTA is commenced. where on the face of the return upon which payment was made. courts will not countenance administrative issuances that override. such interpretation is not conclusive and will be ignored if judicially found to be erroneous. x x x As we have earlier said in the TMX Sales case. It is widely accepted that the interpretation placed upon a statute by the executive officers. The two-year prescriptive period provided. In the present case. In Commissioner of Internal Revenue vs. 1984.[24] As pointed out by the respondent courts. No. That the Commissioner may. Of course. FAO No. this to avoid any possible misunderstanding or confusion as in the present case. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. this date is April 16. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement. within two (2) years after payment of tax. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. even without a written claim therefor. the law they seek to apply and implement. 1986. which can only be determined after a final adjustment return is accomplished. but such suit or proceeding may be maintained.[22] it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter. the prescriptive period of two years should commence to run only from the time that the refund is ascertained. changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments. 37-1 fixed no period. fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. the BIR did not simply interpret the law. such payment appears clearly to have been erroneously paid.filed with the Commissioner. 4003 and FAO No. In any case. Lim.. rather it legislated guidelines contrary to the statute passed by Congress. (Italics supplied) The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue. it establishes an absolute ban for all time. . should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. 230 of 1977 NIRC. whether or not such tax. no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment. In so doing. Provided however. Nevertheless. the nullification of RMC No. refund or credit any tax.[21] In the case of People vs. instead of remaining consistent and in harmony with.[23] Further. Sections 68. because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration. for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. whose duty is to enforce it.[17] and 70[18] on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it.

Lastly. these remedies are in the alternative. 69 of the 1977 NIRC[29] (now Sec. without proof. stating that the taxpayer should still file a claim for a refund or tax credit and the corresponding petition for review within the two-year prescription period. Sec. the petitioner alleges that the Court of Appeals seriously erred in affirming CTAs decision denying its claim for refund of P 234. after examining the adjusted final corporate annual income tax return for taxable year 1986. is estopped by the principle of non-retroactivity of BIR rulings. whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. amend the statute.[27] Moreover. it must be noted that.[30] . Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioners claim of refund or tax credit. as repeatedly held by this Court. ruled that the RMC No. But administrative decisions do not enjoy that level of recognition. This was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year. As aptly stated by respondent Court of Appeals: It is likewise argued that the Commissioner of Internal Revenue. 7-85. as to [sic] the two remedies of refund and tax credit are alternative.[25] Article 8 of the Civil Code [26] recognizes judicial decisions. 230. applying or interpreting statutes as part of the legal system of the country. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec. hence. for being contrary to the express provision of a statute. the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No.69 (tax overpaid in 1986). The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention. it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect.To ease the administration of tax collection. in effect. shall either (a) be refunded to the corporation. Hence.230 of 1977 NIRC. the decision. Rather. . cannot be given weight for to do so would in effect amend the statute. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. On the other hand.was the ruling and judicial interpretation of the Court of Tax Appeals.the Court of Tax Appeals. that PBCom availed of the automatic tax credit in 1987. NIRC. as to the claimed refund of income tax over-paid in 1986 . As stated by respondent Court of Appeals: Finally. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. and the choice of one precludes the other. was issued by the Acting Commissioner of Internal Revenue. based on mere speculation. his interpretation could not be given weight for to do so would. and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. NIRC). or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The Memorandum Circular. found out that petitioner opted to apply for automatic tax credit. 230. hence it can no longer ask for refund. after promulgating RMC No. stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law. Again We do not agree. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return. a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.[28] On the second issue.077.

SO ORDERED. as specified in its 1986 Final Adjusted Income Tax Return. the petition is hereby DENIED. 69 of the 1977 NIRC. The decision of the Court of Appeals appealed from is AFFIRMED. there being no showing of gross error or abuse on their part to disturb our reliance thereon. with COSTS against the petitioner. . the 1987 annual corporate tax return of the petitioner was not offered as evidence to controvert said fact. we are bound by the findings of fact by respondent courts. Moreover.[31] WHEREFORE. is a finding of fact which we must respect.That the petitioner opted for an automatic tax credit in accordance with Sec. Thus.

946.00. private respondent Procter and Gamble Philippine Manufacturing Corporation ("P&G-Phil.A.989. No.R. 369. filed with petitioner Commissioner of Internal Revenue a claim for refund or tax credit in the amount of P4. L-66838 December 2. vs. T. petitioner. On 5 January 1977.respondents..30. (USA) ("P&G-USA"). filed a petition for review with public respondent Court of Tax Appeals ("CTA") docketed as CTA Case No.731. private respondent P&G-Phil. Procter and Gamble Co. 1991 COMMISSIONER OF INTERNAL REVENUE. was the proper party to claim the refund or tax credit here involved. Lim for private respondent. among other things. 1 as amended by Presidential Decree No. and . and the taxable year 1975 ending 30 June 1975.. P&G-Phil.989.G. 2883.N. the CTA rendered a decision ordering petitioner Commissioner to refund or grant the tax credit in the amount of P4. On appeal by the Commissioner.:p For the taxable year 1974 ending on 30 June 1974. On 31 January 1984. There being no responsive action on the part of the Commissioner.457. PROCTER & GAMBLE PHILIPPINE MANUFACTURING CORPORATION and THE COURT OF TAX APPEALS. the Court through its Second Division reversed the decision of the CTA and held that: (a) P&G-USA.832.26 claiming. RESOLUTION FELICIANO. amounting to P24. Tejada & C.832.21 representing the thirty-five percent (35%) withholding tax at source was deducted. from which dividends the amount of P8. Inc. J. on 13 July 1977. that pursuant to Section 24 (b) (1) of the National Internal Revenue Code ("NITC").164..") declared dividends payable to its parent company and sole stockholder. the applicable rate of withholding tax on the dividends remitted was only fifteen percent (15%) (and not thirty-five percent [35%]) of the dividends. (b) there is nothing in Section 902 or other provisions of the US Tax Code that allows a credit against the US tax due from P&G-USA of taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%) which represents the difference between the regular tax of thirty-five percent (35%) on corporations and the tax of fifteen percent (15%) on dividends. and not private respondent P&G-Phil.

but such suit or proceeding may be maintained.e.. Petitioner does not pretend that P&G-Phil. which need to be examined. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected. 1-88 of this Court in exactly the same way that private litigants are held to such compliance. demanded that P&G-Phil. with the refund instead of transmitting such refund or tax credit to its parent and sole stockholder.(c) private respondent P&G-Phil. to bring the present claim for refund or tax credit. there arises here a question of fairness should the BIR. or of any penalty claimed to have been collected without authority. i. whether or .. then P&G-Phil. 2. should it succeed in the claim for refund. failed to meet certain conditions necessary in order that "the dividends received by its non-resident parent company in the US (P&G-USA) may be subject to the preferential tax rate of 15% instead of 35%. More importantly. and neither was it raised by him before the CTA. Under Section 306 of the NIRC." These holdings were questioned in P&G-Phil. This is clearly a matter of procedure. clear that the government is held to compliance with the provisions of Circular No. would have been able forthwith to secure and produce such authorization before filing the action in the instant case. until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue. the government must follow the same rules of procedure which bind private parties. or of any sum alleged to have been excessive or in any manner wrongfully collected. It is. save only in respect of the matter of filing fees from which the Republic of the Philippines is exempt by the Rules of Court.. I 1. We believe that the Bureau of Internal Revenue ("BIR") should not be allowed to defeat an otherwise valid claim for refund by raising this question of alleged incapacity for the first time on appeal before this Court. Recovery of tax erroneously or illegally collected. This question was raised for the first time on appeal. unlike any other litigant. also ultimately relate to fairness. be allowed to raise for the first time on appeal questions which had not been litigated either in the lower court or on the administrative level. as will be seen below. to bring the claim for refund has substantive dimensions as well which. It is commonplace that in the absence of explicit statutory provisions to the contrary. is likely to run away.e. 306. The question of the capacity of P&G-Phil. in the proceedings before this Court on the Petition for Review filed by the Commissioner of Internal Revenue. for instance. a claim for refund or tax credit filed with the Commissioner of Internal Revenue is essential for maintenance of a suit for recovery of taxes allegedly erroneously or illegally assessed or collected: Sec. The action here was commenced just before expiration of the two (2)-year prescriptive period. i. as it were. at the administrative level. if petitioner had at the earliest possible opportunity.'s Motion for Re-consideration and we will deal with them seriatim in this Resolution resolving that Motion. produce an express authorization from its parent corporation to bring the claim for refund. There are certain preliminary aspects of the question of the capacity of P&G-Phil. For. The question was not raised by the Commissioner on the administrative level.

" 4 The terms liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. he is the Government's agent. to bring a suit for refund of taxes he believes were illegally collected from him. no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: . 5 this Court pointed out that a withholding agent is in fact the agent both of the government and of the taxpayer.. (As amended by P. Commissioner of Internal Revenue. provides: Sec. v. . It is very difficult. . to consider a person who is statutorily made "liable for tax" as not "subject to tax. Inc. 309. and that the withholding agent is not an ordinary government agent: The law sets no condition for the personal liability of the withholding agent to attach. moreover. The withholding agent is.. In effect. in turn. In regard to the filing of the necessary . P&G-Phil. such a person should be regarded as a party in interest. A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer. . With respect to the collection and/or withholding of the tax. No. surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law. (Emphasis supplied) Section 309 (3) of the NIRC. subject to and liable for deficiency assessments. In Philippine Guaranty Company. or sum has been paid under protest or duress. or as a person having sufficient legal interest. the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. the withholding agent is constituted the agent of both the Government and the taxpayer. a "taxpayer" under Section 309 (3) of the NIRC? The term "taxpayer" is defined in our NIRC as referring to "any person subject to taximposed by the Title [on Tax on Income].not such tax." 2 It thus becomes important to note that under Section 53 (c) of the NIRC." By any reasonable standard. —The Commissioner may: xxx xxx xxx (3) credit or refund taxes erroneously or illegally received. is directly and independently liable 3 for the correct amount of the tax that should be withheld from the dividend remittances. indeed conceptually impossible. the withholding agent who is "required to deduct and withhold any tax" is made " personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty. Authority of Commissioner to Take Compromises and to Refund Taxes. The reason is to compel the withholding agent to withhold the tax under all circumstances. 69) (Emphasis supplied) Since the claim for refund was filed by P&G-Phil. penalty.D. Thus. In any case. the question which arises is: is P&G-Phil. . The withholding agent. .

as pointed out in Philippine Guaranty. is domiciled shall allow a credit against the tax due from the nonresident foreign corporation. . the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government. is properly regarded as a "taxpayer" within the meaning of Section 309. such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. at all times. even now. is in the instant case. there is nothing to preclude the BIR from requiring P&G-Phil. A sovereign government should act honorably and fairly at all times. This implied authority is especially warranted where. before actual payment of the refund or issuance of a tax credit certificate. In the circumstances of this case. he is the agent of the taxpayer. dividends . as . We turn to the principal substantive question before us: the applicability to the dividend remittances by P&GPhil. .Provided. under the effective control of such parent-stockholder. although P&G-Phil. still further. whereas the Commissioner and his deputies are not made liable by law. the tax shall be 15% of the dividends. P&G-Phil. it seems particularly unreal to deny the implied authority of P&G-Phil. . under the circumstances of this case. is directly and personally liable to the Government for the taxes and any deficiency assessments to be collected. to P&G-USA of the fifteen percent (15%) tax rate provided for in the following portion of Section 24 (b) (1) of the NIRC: (b) Tax on foreign corporations. which shall be collected and paid as provided in Section 53 (d) of this Code. . . the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore. even vis-a-vis taxpayers. II 1.'s implied authority from the very beginning. or to apply the tax credit to some Philippine tax obligation of. The withholding agent. We believe and so hold that. to claim a refund and to commence an action for such refund. the Government is not legally liable for a refund simply because it did not demand a written confirmation of P&G-Phil. and as impliedly authorized to file the claim for refund and the suit to recover such claim. . P&G-USA. taxes deemed to have been paid in the Philippines .. subject to the condition that the country in which the non-resident foreign corporation. to show some written or telexed confirmation by P&G-USA of the subsidiary's authority to claim the refund or tax credit and to remit the proceeds of the refund. . that on dividends received from a domestic corporation liable to tax under this Chapter. is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold. — A foreign corporation not engaged in trade and business in the Philippines. We believe that. shall pay a tax equal to 35% of the gross income receipt during its taxable year from all sources within the Philippines. What appears to be vitiated by basic unfairness is petitioner's position that..— (1) Non-resident corporation. 6 (Emphasis supplied) If. therefore.income tax return and the payment of the tax to the Government. NIRC.

against the additional tax imposed for the taxable year under section 1333 (relating to war loss recoveries) or under section 1351 (relating to recoveries of foreign expropriation losses). 901 — Taxes of foreign countries and possessions of United States. as a minimum.war profits. goes down to fifteen percent (15%) if the country of domicile of the foreign stockholder corporation "shall allow" such foreign corporation a tax credit for "taxes deemed paid in the Philippines. in the case of a corporation. . the taxes deemed to have been paid under sections 902 and 960. It is important to note that Section 24 (b) (1). — In the case of a citizen of the United States and of a domestic corporation. — Subject to the applicable limitation of section 904. The ordinary thirty-five percent (35%) tax rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation. the following amounts shall be allowed as the credit under subsection (a): (a) Citizens and domestic corporations. The credit shall not be allowed against the tax imposed by section 531 (relating to the tax on accumulated earnings). and excess profits taxes paid or accrued . The NIRC specifies that such tax credit for "taxes deemed paid in the Philippines" must. The question arises: Did the US law comply with the above requirement? The relevant provisions of the US Intemal Revenue Code ("Tax Code") are the following: Sec. our NIRC does not require that the US tax law deem the parent-corporation to have paid the twenty (20) percentage points of dividend tax waived by the Philippines. . does not require that the US must give a "deemed paid" tax credit for the dividend tax (20 percentage points) waived by the Philippines in making applicable the preferred divided tax rate of fifteen percent (15%). Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. in the instant case. NIRC. be credited with the amounts provided in the applicable paragraph of subsection (b) plus." applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. reach an amount equivalent to twenty (20) percentage points which represents the difference between the regular thirty-five percent (35%) dividend tax rate and the preferred fifteen percent (15%) dividend tax rate. In other words. 2. The NIRC only requires that the US "shall allow" P&G-USA a "deemed paid" tax credit in an amount equivalent to the twenty (20) percentage points waived by the Philippines. (b) Amount allowed.the tax imposed by this chapter shall. In other words. — If the taxpayer chooses to have the benefits of this subpart. or against the personal holding company tax imposed by section 541. subject to the applicable limitation of section 904. the amount of any income. (a) Allowance of credit. the reduced fifteen percent (15%) dividend tax rate is applicable if the USA "shall allow" to P&G-USA a tax credit for "taxes deemed paid in the Philippines" applicable against the US taxes of P&G-USA.equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends as provided in this Section .

(A) for purposes of subsections (a) (1) and (b) (1). treating dividends paid in the first 20 days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction . the amount of its gains. . (A) Treatment of Taxes Paid by Foreign Corporation. or income in excess of the income. — Credit for corporate stockholders in foreign corporation. war profits. and excess profitstaxes imposed on or with respect to such profits or income.. The Secretary or his delegate shall have full power to determine from the accumulated profits of what year or years such dividends were paid. or income computed without reduction by the amount of the income. xxx xxx xxx (c) Applicable Rules (1) Accumulated profits defined. the amount of its gains. or excess profits taxes paid or deemed to be paid by such foreign corporation to any foreign country or to any possession of the United States on or with respect to such accumulated profits. and (B) for purposes of subsections (a) (2) and (b) (2). which the amount of such dividends bears to the amount of such accumulated profits. profits. profits. 902. — For purposes of this section. and excess profits taxes imposed on or with respect to such profits or income by any foreign country. — For purposes of this subject. and xxx xxx xxx Sec. war profits. the term "accumulated profits" means with respect to any foreign corporation. .during the taxable year to any foreign country or to any possession of the United States. a domestic corporation which owns at least 10 percent of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall — xxx xxx xxx (2) to the extent such dividends are paid by such foreign corporation out of accumulated profits [as defined in subsection (c) (1) (b)] of a year for which such foreign corporation is a less developed country corporation. war profits. . be deemed to have paid the same proportion of any income.

the amount of the dividend tax waived by the Philippine government is arithmetically determined in the following manner: . NIRC. withheld) from the dividend remittances to P&G-USA. (Emphasis supplied) Close examination of the above quoted provisions of the US Tax Code 7 shows the following: a. since the Philippine corporate income tax was in fact paid and deducted from revenues earned in the Philippines.USA are not "phantom taxes" but instead Philippine corporate income taxes actually paid here by P&G-Phil. deemed paid by P&G. US law (Section 902. to determine the amount of the 20 percentage points dividend tax waived by the Philippine government under Section 24 (b) (1).. profits. NIRC. US law (Section 901. What is. US tax law treats the Philippine corporate income tax as if it came out of the pocket. not by P&G-USA. as it were. and which hence goes to P&G-USA.. . It is also useful to note that both (i) the tax credit for the Philippine dividend tax actually withheld. This "deemed paid" concept merely reflects economic reality. These tax credits are allowed because of the US congressional desire to avoid or reduce double taxation of the same income stream.e. and (ii) the tax credit for the Philippine corporate income tax actually paid by P&G Phil. . Tax Code) grants P&G-USA a tax credit for the amount of the dividend tax actually paid (i. are tax credits available or applicable against the US corporate income tax of P&G-USA. b. under US law. which are very real indeed. of P&G-USA as a part of the economic cost of carrying on business operations in the Philippines through the medium of P&G-Phil. . or earning. The parent-corporation P&G-USA is "deemed to have paid" a portion of the Philippine corporate income taxalthough that tax was actually paid by its Philippine subsidiary. i.. and here earning profits. P&G-Phil. thus reducing the amount remittable as dividends to P&GUSA.e. Amount (a). US Tax Code) grants to P&G-USA a "deemed paid' tax credit 8for a proportionate part of the corporate income tax actually paid to the Philippines by P&G-Phil. to determine the amount of the "deemed paid" tax credit which US tax law must allow to P&G-USA.shows otherwise). to ascertain that the amount of the "deemed paid" tax credit allowed by US law is at least equal to the amount of the dividend tax waived by the Philippine Government. and c.. but "deemed paid" by P&G-USA. 9 In order to determine whether US tax law complies with the requirements for applicability of the reduced or preferential fifteen percent (15%) dividend tax rate under Section 24 (b) (1). it is necessary: a. In other words. and in other respects treating dividends as having been paid from the most recently accumulated gains. b.

e. NIRC -9. Tax Code.. the amount of the "deemed paid" tax credit which US tax law allows under Section 902.75 10 . P100.00 = P29.00 — Available for remittance as dividends to P&G-USA P65. to P&G-USA P55.75 — Reduced dividend tax under Section 24 (b) (1). i. NIRC. may be computed arithmetically as follows: P65.00 for every P100. to the BIR Dividends actually remitted by P&G-Phil.75 — Reduced dividend tax P22.75 — Dividend tax withheld at the reduced (15%) rate ——— P55. NIRC ——— P9.00 — Dividends remittable to P&G-USA x 15% — Reduced dividend tax rate under Section 24 (b) (1).00 — Dividends remittable to P&G-USA .75 — Regular dividend tax P65. NIRC P22. NIRC ——— P13. Amount (a) is also the minimum amount of the "deemed paid" tax credit that US tax law shall allow if P&G-USA is to qualify for the reduced or preferential dividend tax rate under Section 24 (b) (1).25 — Dividends actually remitted to P&G-USA P35.00 ——— P65.00 — Philippine corporate income tax paid by P&G-Phil. Thus.00 — Paid to the BIR by P&G-Phil.00 — Amount of dividend tax waived by Philippine ===== government under Section 24 (b) (1).00 of pre-tax net income earned by P&G-Phil.00 -35.00 — Pretax net corporate income earned by P&G-Phil.P100. amount (a) above is P13. as Philippine corporate income tax.25 ——————— = ——— x P35. Amount (b) above.9.00 — Dividends remittable to P&G-USA x 35% — Regular Philippine dividend tax rate under Section 24 ——— (b) (1).75 — Regular dividend tax under Section 24 (b) (1). x 35% — Regular Philippine corporate income tax rate ——— P35. NIRC.

the U. The first Ruling was issued in 1976. Thus. BIR Ruling No. in addition to the amount of tax actually withheld.S.00 ====== profits earned by P&G-Phil.S. to its US parent P&G-USA. corporation at 15% tax. in excess of income tax Thus.000. The net income.S. Plana. Section 902. 3. Internal Revenue Code. tax by the recipient of dividends includes a portion of the amount of income tax paid by the corporation declaring the dividend in addition to the tax withheld from the dividend remitted.25 of dividends actually remitted (after withholding at the rate of 15%) by P&G-Phil.000 Philippine income tax thereon in accordance with Section 24(a) of the Tax Code. will be withheld therefrom.750 ——— 100. after a restudy of the decision in the American Chicle Company case and the provisions of Section 901 and 902 of the U.250 ——— P30.S.000 = P18.000.S.S. government will allow a credit to the U.000 withheld = 11. the relevant portion of which stated: However. U.00 (the amount of dividend tax waived by the Philippine government).S. a tax credit of P29.S. i. Since P29. we find merit in your contention that our computation of the credit which the U. corporation receiving the dividend can utilize as credit against its U. later Associate Justice of this Court.75 is much higher than P13. or P11. Under the aforementioned sections of the U. corporation has a net income of P100.000 composed of: (1) The tax "deemed paid" or indirectly paid on the dividend arrived at as follows: P75. specifically and clearly complies with the requirements of Section 24 (b) (1). will then be declared as dividend to the U. a portion of the income tax paid by the corporation declaring the dividend. corporation or recipient of the dividend. NIRC.000 x P25.250. tax law allows in such cases is erroneous as the amount of tax "deemed paid" to the Philippine government for purposes of credit against the U. It is important to note also that the foregoing reading of Sections 901 and 902 of the US Tax Code is identical with the reading of the BIR of Sections 901 and 902 of the US Tax Code is identical with the reading of the BIR of Sections 901 and 902 as shown by administrative rulings issued by the BIR. Internal Revenue Code. tax payable on said dividends the amount of P30. 76004. after income tax.000 ** (2) The amount of 15% of P75.S. In other words.. it will pay P25.S.Amount of accumulated P65. rendered by then Acting Commissioner of Intemal Revenue Efren I. if a Philippine corporation wholly owned by a U. which is P75. US Tax Code. for every P55.e.75 is allowed by Section 902 US Tax Code for Philippine corporate income tax "deemed paid" by the parent but actually paid by the wholly-owned subsidiary.000 .

taxes paid or accrued during the taxable year to any foreign country.. is exactly the same "deemed paid" tax credit found in our NIRC and which Philippine tax law allows to Philippine corporations which have operations abroad (say. BIR Ruling No. . Laman.S. 75-005 dated September 10. in the United States) and which. (Emphasis supplied) Under Section 30 (c) (3) (a).000.S. — . are not revoked. 1975 is hereby amended in the sense that the dividends to be remitted by your client to its parent company shall be subject to the withholding tax at the rate of 15% only.. the amount of net income. provides: (d) Sec. Efren I. (Emphasis supplied) The 1976 Ruling was reiterated in. In other words.S. amounts to P15. the BIR must give a tax credit to a Philippine corporation for taxes actually paid by it to the US government—e.00 the dividends to be remitted under the above example.g. (a) Citizen and Domestic Corporation. tax on the dividends received by the U. therefore. — In the case of a citizen of the Philippines and of domestic corporation. the tax imposed by this Title shall be credited with .000. corporation from a Philippine subsidiary is clearly more than 20% requirement ofPresidential Decree No. for taxes collected by the US government on dividend .. above. This ruling shall have force and effect only for as long as the present pertinent provisions of the U. We should not overlook the fact that the concept of "deemed paid" tax credit. 30. BIR Ruling dated 22 July 1981 addressed to Basic Foods Corporation and BIR Ruling dated 20 October 1987 addressed to Castillo. .. — If the taxpayer signifies in his return his desire to have the benefits of this paragraphs. the effect of which will reduce the percentage of tax deemed paid and creditable against the U. 369 as 20% of P75. e. war profits or excess profits.S.750 deemed paid and to be credited against the U. Tan and Associates. . Deductions from Gross Income. tax on dividends remitted by a foreign corporation to a U. pay income taxes to the US government. NIRC. NIRC. Plana was reiterated by the BIR even as the case at bar was pending before the CTA and this Court.00 only.The amount of P18.—In computing net income. amended and modified.g. US Tax Code. 4. . In the light of the foregoing. there shall be allowed as deductions — . corporation. which are the bases of the ruling.S. (c) Taxes. which is embodied in Section 902. Section 30 (c) (3) and (8). Federal Tax Code. xxx xxx xxx (3) Credits against tax for taxes of foreign countries. the 1976 Ruling of Hon.

means the amount of its gains. or excess-profits taxes paid by such foreign corporation to any foreign country. Section 30 (c) (8). That the amount of tax deemed to have been paid under this subsection shall in no case exceed the same proportion of the tax against which credit is taken which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. Clearly. and excess-profits taxes imposed upon or with respect to such profits or income. profits. NIRC. for taxes paid to the US by the US subsidiary of a Philippine-parent corporation. NIRC. which the amount of such dividends bears to the amount of such accumulated profits: Provided. e. the word "year" as used in this subsection shall be construed to mean such accounting period. treating dividends paid in the first sixty days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise). The "deemed paid" tax credit allowed in Section 902. The Philippine parent or corporate stockholder is "deemed" under our NIRCto have paid a proportionate part of the US corporate income tax paid by its US subsidiary. although such US tax was actually paid by the subsidiary and not by the Philippine parent.g. war-profits. war-profits. NIRC. or earnings. profits.or majority-owned subsidiary in (for instance) the US. US Tax Code. This Section of the NIRC is the equivalent of Section 901 of the US Tax Code. P&G-USA. NIRC. The Second Division of the Court.remittances to the Philippine corporation. (Emphasis supplied) Under the above quoted Section 30 (c) (8). In the case of a foreign corporation. or income in excess of the income. and the Commissioner of Internal Revenue shall have full power to determine from the accumulated profits of what year or years such dividends were paid. III 1. that is. upon or with respect to the accumulated profits of such foreign corporation from which such dividends were paid. is the same "deemed paid" tax credit that Philippine law allows to a Philippine corporation with a wholly. is no more a credit for "phantom taxes" than is the "deemed paid" tax credit granted in Section 30 (c) (8). and excess-profits taxes of which are determined on the basis of an accounting period of less than one year..The term "accumulated profits" when used in this subsection reference to a foreign corporation. war-profits. the BIR must give a tax credit to a Philippine parent corporation for taxes "deemed paid" by it. is practically identical with Section 902 of the US Tax Code. the "deemed paid" tax credit which. and provides as follows: (8) Taxes of foreign subsidiary. — For the purposes of this subsection a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income. the income. had in fact been given by the US tax authorities a "deemed paid" tax credit in the amount required by Section 24 (b) (1). and in other respects treating dividends as having been paid from the most recently accumulated gains. held that P&G-Phil. in holding that the applicable dividend tax rate in the instant case was the regular thirty-five percent (35%) rate rather than the reduced rate of fifteen percent (15%). NIRC. under Section 24 (b) (1). must be allowed by US law to P&G-USA. had failed to prove that its parent. .

There are many tax statutes or provisions which are designed. Section 24 (b) (1). 2. relates to the administrative implementation of the applicable reduced tax rate. . to submit such certification within a certain period of time. 14 etc. NIRC. to certify to the BIR the amount of the "deemed paid" tax credit actually subsequently granted by the US tax authorities to P&G-USA or a US parent corporation for the taxable year involved. such implementing regulations could also provide that failure of P&G-Phil.. necessarily the correct reading of the statute. not to trigger off an instant surge of revenues. An interpretation of a tax statute that produces a revenue flow for the government is not. Since the US tax laws can and do change." There is neither statutory provision nor revenue regulation issued by the Secretary of Finance requiring the actual grant of the "deemed paid" tax credit by the US Internal Revenue Service to P&G-USA before the preferential fifteen percent (15%) dividend rate becomes applicable.) comply with the requirements set out in Section 24 (b) (1). as in the case at bar.as a matter of law. does not in fact require that the "deemed paid" tax credit shall have actually been granted before the applicable dividend tax rate goes down from thirty-five percent (35%) to fifteen percent (15%). upon the determination or recognition of the applicability of the reduced tax rate. A requirement relating to administrative implementation is not properly imposed as a condition for the applicability. Section 24 (b) (1). the US "deemed paid" tax credit cannot be given by the US tax authorities unless dividends have actually been remitted to the US. in the first place. which means that the Philippine dividend tax. . As noted several times earlier. . this: which is the applicable dividend tax rate in the instant case: the regular thirty-five percent (35%) rate or the reduced fifteen percent (15%) rate? The question of whether or not P&G-USA is in fact given by the US tax authorities a "deemed paid" tax credit in the required amount. for applicability of the fifteen percent (15%) tax rate. In the second place. But. Upon the other hand. The Second Division in effect held that the reduced dividend tax rate is not applicable until the US tax credit for "deemed paid" taxes is actually given in the required minimum amount by the US Internal Revenue Service to P&G-USA. In the third place. it is a provision which specifies when a particular (reduced) tax rate is legally applicable. the position originally taken by the Second Division results in a severe practical problem of administrative circularity. of a particular tax rate. some revenues have to be foregone in that process. NIRC. merely requires. would result in the imposition of a deficiency assessment for the twenty (20) percentage points differential. the Philippine subsidiary begins to withhold at the reduced dividend tax rate. NIRC.g. that the USA "shall allow a credit against the tax due from [P&G-USA for] taxes deemed to have been paid in the Philippines .. that we must distinguish between the legal question before this Court from questions of administrative implementation arising after the legal question has been answered. NIRC. was actually imposed and collected. We should leave details relating to administrative implementation where they properly belong — with the BIR. The task of our Court is to give effect to the legislative design and objectives as they are written into the statute even if. 13 Denmark. The task of this Court is to settle which tax rate is applicable. Once such a ruling is rendered. Section 24 (b) (1). at the rate here applicable.We believe. for that reason alone. 11 It is this practical or operating circularity that is in fact avoided by our BIR when it issues rulings that the tax laws of particular foreign jurisdictions (e. but rather to achieve longer-term and broader-gauge fiscal and economic objectives. or any Philippine corporation similarly situated. in the case at bar. Republic of Vanuatu 12 Hongkong. does not create a tax exemption nor does it provide a tax credit. The basic legal issue is of course. there is nothing to prevent the BIR from issuing implementing regulations that would require P&G Phil. considering the state of US law at a given time.

xxx xxx xxx (Emphasis supplied) More simply put. in order to encourage more capital investment for large projects an appropriate tax need be imposed on dividends received by non-resident foreign corporations in the same manner as the tax imposed on interest on foreign loans.25 x 46% — Maximum US corporate income tax rate ——— P25.75 — US tax credit for RP dividend tax withheld by P&G-Phil.75 — Reduced R.415—US corporate tax payable by P&G-USA without tax credits P25. would not benefit from the reduction of the Philippine dividend tax rate unless its home country gives it some relief from double taxation (i. Accordingly.D. at 15% (Section 901. WHEREAS.9. in the assumption that a positive incentive effect would thereby be felt by the investor. WHEREAS. 369 which amended Section 24 (b) (1).The economic objectives sought to be achieved by the Philippine Government by reducing the thirty-five percent (35%) dividend rate to fifteen percent (15%) are set out in the preambular clauses of P. into its present form: WHEREAS.P. US Tax Code) . Section 24 (b) (1). dividend tax withheld by P&G-Phil. No.9. NIRC. NIRC. however. requires the home or domiciliary country to give the investor corporation a "deemed paid" tax credit at least equal in amount to the twenty (20) percentage points of dividend tax foregone by the Philippines. ——— P55. tax" income to subject to its own taxing power) by allowing the investor additional tax credits which would be applicable against the tax payable to such home country. it is imperative to adopt measures responsive to the requirements of a developing economy foremost of which is the financing of economic development programs.25 — Dividends actually remitted to P&G-USA P55. nonresident foreign corporations with investments in the Philippines are taxed on their earnings from dividends at the rate of 35%. second-tier taxation) (the home country would simply have more "post-R..00 — Dividends remittable to P&G-USA (please see page 392 above . The foreign investor. The net effect upon the foreign investor may be shown arithmetically in the following manner: P65.P.e. Section 24 (b) (1). NIRC. seeks to promote the in-flow of foreign equity investment in the Philippines by reducing the tax cost of earning profits here and thereby increasing the net dividends remittable to the investor.415 .

0 .75 — "Deemed paid" tax credit under Section 902 US ——— Tax Code (please see page 18 above) . to P&G-USA after Section 902 tax credit.66 — US corporate income tax payable after Section 901 ——— tax credit. in fine.25. by a treaty commitment.25 . at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation.25 — Amount received by P&G-USA net of RP and US ====== taxes after Section 902 tax credit. It remains only to note that under the Philippines-United States Convention "With Respect to Taxes on Income. 20 percent of the gross amount of the dividend ifduring the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any). or (b) When the recipient is a corporation.P. — Dividends xxx xxx xxx (2) The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed — (a) 25 percent of the gross amount of the dividend. In the calculation of the Philippine Government.59 — Amount received by P&G-USA net of R. US Tax Code.15.66 ——— P39. could offset the US corporate income tax payable on the dividends remitted by P&G-Phil. P55.——— P15. could be that P&GUSA would after US tax credits. this should encourage additional investment or re-investment in the Philippines by P&G-USA.S. P25.29. P55. reduced the regular rate of dividend tax to a maximum of twenty percent (20%) of the gross amount of dividends paid to US parent corporations: Art 11. ===== taxes without "deemed paid" tax credit. The result."15 the Philippines. 3.— US corporate income tax payable on dividends ====== remitted by P&G-Phil. and U. still wind up with P55. .415 . the full amount of the dividends remitted to P&GUSA net of Philippine taxes. It will be seen that the "deemed paid" tax credit allowed by Section 902.

makes available in respect of dividends from a Philippine subsidiary. We conclude that private respondent P&G-Phil. at the same time.J. No pronouncement as to costs. 2883 dated 31 January 1984 and to DENY the Petition for Review for lack of merit. is entitled to the tax refund or tax credit which it seeks. and in lieu thereof. precisely the "deemed paid" tax credit provided for in Section 902. Clearly. JJ.. Griño-Aquino. is on leave.. to SET ASIDE the Decision of the and Division of the Court promulgated on 15 April 1988. Narvasa. for all the foregoing. US Tax Code. WHEREFORE. established a treaty obligation on the part of the United States that it "shall allow" to a US parent corporation receiving dividends from its Philippine subsidiary "a [tax] credit for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine [subsidiary] —. the Court Resolved to GRANT private respondent's Motion for Reconsideration dated 11 May 1988. to REINSTATE and AFFIRM the Decision of the Court of Tax Appeals in CTA Case No. concur.16 This is. there is still a differential or additional reduction of five (5) percentage points which compliance of US law (Section 902) with the requirements of Section 24 (b) (1).. there is here on the part of the Philippines a deliberate undertaking to reduce the regular dividend tax rate of twenty percent (20%) is a maximum rate. Gutierrez. Jr. of course. discussed above. Fernan. Medialdea and Romero. NIRC.xxx xxx xxx (Emphasis supplied) The Tax Convention. C. .