BAGATSING vs.

RAMIREZ
FACTS:
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE
REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE
RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR
OTHER PURPOSES."
The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974.
Respondent Federation of Manila Market Vendors, Inc. commenced Civil Case seeking the declaration
of nullity of the subject ordinance.
Respondent Judge issued an order denying the prayer for the issuance of a writ of preliminary
injunction for failure of the respondent Federation to exhaust the administrative remedies outlined in
the Local Tax Code.
Respondent Judge rendered its decision declaring the nullity of the ordinance on the primary ground of
non-compliance with the requirement of publication under the Revised City Charter.
Hence, the present petition for review on certiorari.
The chief question to be decided in this case is what law shall govern the publication of a tax ordinance
enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended), which
requires publication of the ordinance before its enactment and after its approval, or the Local Tax Code
(P.D. No. 231), which only demands publication after approval. Petitioners' compliance with the Local
Tax Code rather than with the Revised Charter of the City spawned this litigation.
It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the
imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenueraising function, so that the procedure for publication under the Local Tax Code finds no application.
ISSUE:
1. Whether the Revised City Charter or the Local Tax Code shall govern the publication of a tax
ordinance enacted by Municipal Board of Manila?
2. WON respondents violated the principle of exhaustion of administrative remedies
3. WON the ordinance is a tax ordinance
RULING:
1. LOCAL TAX CODE
There is no question that the Revised Charter of the City of Manila is a special act since it relates only
to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all
local governments.
Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the
nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing

taxes, fees or other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of
the City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches the
realm of "ordinances levying or imposing taxes, fees or other charges" in particular.
There, the Local Tax Code controls. Here, as always, a general provision must give way to a particular provision.
Special provision governs. This is especially true where the law containing the particular provision was enacted
later than the one containing the general provision. The City Charter of Manila was promulgated on June 18,
1949 as against the Local Tax Code which was decreed on June 1, 1973.

2. NO VIOLATION
Section 47 of the Local Tax Code provides that any question or issue raised against the legality of any
tax ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax
ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose
decision shall be final and executory unless contested before a competent court within thirty (30) days.
But, the petition below plainly shows that the controversy between the parties is deeply rooted in a pure
question of law: whether it is the Revised Charter of the City of Manila or the Local Tax Code that
should govern the publication of the tax ordinance. In other words, the dispute is sharply focused on the
applicability of the Revised City Charter or the Local Tax Code on the point at issue, and not on the
legality of the imposition of the tax. Exhaustion of administrative remedies before resort to judicial
bodies is not an absolute rule. It admits of exceptions. Where the question litigated upon is purely a
legal one, the rule does not apply. The principle may also be disregarded when it does not provide a plain,
speedy and adequate remedy. It may and should be relaxed when its application may cause great and
irreparable damage.

3. YES, A TAX ORDIINANCE

The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of
taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall have
the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be
provided by law." And one of those sources of revenue is what the Local Tax Code points to in particular:
"Local governments may collect fees or rentals for the occupancy or use of public markets and premises * * *."
They can provide for and regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy
thereof. They can license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing
privileges.

JOSE DE BORJA vs. VICENTE G. GELLA, ET AL.

FACTS:
Borja has been delinquent in the payment of his real estate taxes since 1958 for properties located in the
City of Manila and Pasay City and has offered to pay them with two negotiable certificates of
indebtedness. Borja was, however, a mere assignee of the aforesaid negotiable certificates, the
applicants for backpay rights covered by them being respectively Rafael Vizcaya and Pablo Batario
Luna.
The offers to pay the estate taxes in question were rejected by the city treasurers of both Manila and
Pasay cities on the ground of their limited negotiability under Section 2, Republic Act No. 304, as
amended by Republic Act 800, and in the case of the city treasurer of Manila on the further ground that
he was ordered not to accept them by the city mayor, for which reason Borja was prompted to bring the
question to the Treasurer of the Philippines who opined, among others, that the negotiable certificates
cannot be accepted as payment of real estate taxes inasmuch as the law provides for their acceptance
from their backpay holder only or the original applicant himself, but not his assignee.
Borja filed an action against the treasurers of both the City of Manila and Pasay City, as well as the
Treasurer of the Philippines, to impel them to execute an act which the law allegedly requires them to
perform, to wit: to accept the above-mentioned certificates of indebtedness considering that they were
already due and redeemable so as not to deprive him illegally of his privilege to pay his obligation to
the government thru such means.
The court a quo rendered judgment enjoining respondents from including petitioner's properties in the
payment of real estate, taxes, and from selling them at public auction; and ordering respondent
Treasurer of the Philippines, and the treasurers of the City of Manila and Pasay City to accept
petitioner's Negotiable Certificates of Indebtedness in payment of real estate taxes of his properties
without costs.
ISSUE:
1. WON the certificates of indebtedness can be applied to the payment of real estate taxes
2. WON legal compensation can be invoked
RULING:
1. NO.
Appellants are not duty bound to accept the negotiable certificates of indebtedness held by appellee in
payment of his real estate taxes for the simple reason that they were not obligations subsisting at the
time of the approval of Republic Act No. 304 which took effect on June 18, 1948.
It should be noted that the real estate taxes in question have reference to those due in 1958 and
subsequent years.
Also, appellee cannot compel the government to accept the alleged certificates of indebtedness in
payment of his real estate taxes under proviso No. 2 abovequoted also for the reason that in order that

such payment may be allowed the tax must be owed by the applicant himself . Verily, the right to use
the backpay certificate in settlement of taxes is given only to the applicant and not to any holder of any
negotiable certificate to whom the law only gives the right to have it discounted by a Filipino citizen or
corporation under certain limitations. Here appellee is not himself the applicant of the certificate, in
question. He is merely an assignee thereof, or a subsequent holder whose right is at most to have it
discounted upon maturity or to negotiate it in the meantime.
2. With regard to the second issue, i.e., whether compensation can be invoked insofar as the two
obligations are concerned, Articles 1278 and 1279 of the new Civil Code provide:
ART. 1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.
ART. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they two liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
It is clear from the above legal provisions that compensation cannot be effected with regard to the two
obligations in question. In the first place, the debtor insofar as the certificates of indebtedness are
concerned is the Republic of the Philippines, whereas the real estate taxes owed by appellee are due to
the City of Manila and Pasay City, each one of which having a distinct and separate personality from
our Republic.
With regard to the certificates, the creditor is the appellee while the debtor is the Republic of the
Philippines. And with regard to the taxes, the creditors are the City of Manila and Pasay City while the
debtor is the appellee. It appears, therefore, that each one of the obligors concerning the two obligations
is not at the same time the principal creditor of the other. It cannot also be said for certain that the
certificates are already due. Although on their faces the certificates issued to appellee state that they are
redeemable on June 18, 1958, yet the law does not say that they are redeemable from its approval on
June 18, 1948 but "within ten years from the date of issuance" of the certificates. There is no certainty,
therefore, when the certificates are really redeemable within the meaning of the law.

BPI-FAMILY SAVINGS BANK, Inc. vs. CA

FACTS:

The Facts
This case involves a claim for tax refund in the amount of P112,491.00 representing
petitioners tax withheld for the year 1989.
In its Corporate Annual Income Tax Return for the year 1989, it appears that petitioner had a
total refundable amount of P297,492 inclusive of the P112,491.00 being claimed as tax refund
in the present case.
However, petitioner declared in the same 1989 Income Tax Return that the said total
refundable amount of P297,492.00 will be applied as tax credit to the succeeding taxable
year.
On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00
with the respondent Commissioner of Internal Revenue alleging that it did not apply the 1989
refundable amount of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax
Return or other tax liabilities due to the alleged business losses it incurred for the same year.
Without waiting for respondent Commissioner of Internal Revenue to act on the claim for
refund, petitioner filed a petition for review with respondent Court of Tax Appeals, seeking the
refund of the amount of P112,491.00.
The respondent Court of Tax Appeals dismissed petitioners petition on the ground that
petitioner failed to present as evidence its Corporate Annual Income Tax Return for 1990 to
establish the fact that petitioner had not yet credited the amount of P297,492.00 (inclusive of
the amount P112,491.00 which is the subject of the present controversy) to its 1990 income
tax liability.
The CA affirmed the CTA. Hence, this Petition.
Issue
WON petitioner is entitled to the refund of P112,491.00.
RULING:
YES, petitioner is entitled to the refund.
Pursuant to Section 69 of the 1986 Tax Code which states that a corporation entitled to a
refund may opt either (1) to obtain such refund or (2) to credit said amount for the succeeding
taxable year, petitioner indicated in its 1989 Income Tax Return that it would apply the said
amount as a tax credit for the succeeding taxable year, 1990.
Petitioner presented evidence to prove its claim that it did not apply the amount as a tax
credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of petitioners

accounting department, testified to this fact. It likewise presented its claim for refund and a
certification issued by Mr. Gil Lopez, petitioners vice-president, stating that the amount of
P112,491 "has not been and/or will not be automatically credited/offset against any
succeeding quarters income tax liabilities for the rest of the calendar year ending December
31, 1990." Also presented were the quarterly returns for the first two quarters of 1990.
The Bureau of Internal Revenue, for its part, failed to controvert petitioners claim. In fact, it
presented no evidence at all. Because it ought to know the tax records of all taxpayers, the
CIR could have easily disproved petitioners claim but did not do so.
More important, a copy of the Final Adjustment Return for 1990 was attached to petitioners
Motion for Reconsideration filed before the CTA. A final adjustment return shows whether a
corporation incurred a loss or gained a profit during the taxable year. In this case, that Return
clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not
have applied the amount in dispute as a tax credit.
Again, the BIR did not controvert the veracity of the said return. It did not even file an
opposition to petitioners Motion and the 1990 Final Adjustment Return attached thereto. In
denying the Motion for Reconsideration, however, the CTA ignored the said Return. In the
same vein, the CA did not pass upon that significant document.
True, strict procedural rules generally frown upon the submission of the Return after the trial.
The law creating the Court of Tax Appeals, however, specifically provides that proceedings
before it "shall not be governed strictly by the technical rules of evidence." The paramount
consideration remains the ascertainment of truth. Verily, the quest for orderly presentation of
issues is not an absolute. It should not bar courts from considering undisputed facts to arrive
at a just determination of a controversy.
To repeat, the undisputed fact is that petitioner suffered a net loss in 1990; accordingly, it
incurred no tax liability to which the tax credit could be applied. Consequently, there is no
reason for the BIR and this Court to withhold the tax refund which rightfully belongs to the
petitioner.
Respondents also argue that tax refunds are in the nature of tax exemptions and are to be
construed strictissimi juris against the claimant.
Under the facts of this case, we hold that petitioner has established its claim. Petitioner may
have failed to strictly comply with the rules of procedure; it may have even been negligent.
These circumstances, however, should not compel the Court to disregard this cold,
undisputed fact: that petitioner suffered a net loss in 1990, and that it could not have applied
the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of petitioner. If the State expects its
taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same
standard against itself in refunding excess payments. When it is undisputed that a taxpayer is
entitled to a refund, the State should not invoke technicalities to keep money not belonging to

it. No one, not even the State, should enrich oneself at the expense of another.

CIR vs. ALGUE

FACTS:
Private respondent, a domestic corporation, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.
The Collector of Internal Revenue disallowed the P75,000.00 deduction claimed by private respondent
Algue as legitimate business expenses in its income tax returns.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense.
The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had
been legitimately paid by the private respondent for actual services rendered. The payment was in the
form of promotional fees. These were collected by the Payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties
of the Philippine Sugar Estate Development Company.
Petitioner had Originally claimed these promotional fees to be personal holding company income but
later conformed to the decision of the respondent court rejecting this assertion.
The amount was earned through the joint efforts of the persons among whom it was distributed. It has been
established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it.
Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation
purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126,000.00, and it
was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.

ISSUE:
WON the Collector of Internal Revenue correctly disallowed the deduction claimed by private
respondent Algue
RULING:
NO, deduction claimed by the private respondent was permitted under the Internal Revenue Code.
The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the
transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate properties.

The Tax Code provides:

SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as
deductions
(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance for
salaries or other compensation for personal services actually rendered; ...
and Revenue Regulations No. 2, Section 70 (1), reads as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services actually
rendered. The test of deductibility in the case of compensation payments is whether they
are reasonable and are, in fact, payments purely for service...
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were
they its controlling stockholders.
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of
the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance
On the other hand, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is
the promotion of the common good, may be achieved.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance
to surrender part of one's hard earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its part, is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all
the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.

CIR vs. TOKYO SHIPPING CO.

FACTS:
Private respondent Tokyo Shipping Co. Ltd. is a foreign corporation represented in the Philippines by
Soriamont Steamship Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia.
NASUTRA chartered M/V Gardenia to load raw sugar in the Philippines.
The operations supervisor of Soriamont Agency paid the required income and common carrier's taxes based on
the expected gross receipts of the vessel.
Upon arriving, however, at Guimaras Port of Iloilo, the vessel found no sugar for loading. NASUTRA and private
respondent's agent mutually agreed to have the vessel sail for Japan without any cargo.

Claiming the pre-payment of income and common carrier's taxes as erroneous since no receipt was
realized from the charter agreement, private respondent instituted a claim for tax credit or refund
before petitioner Commissioner of Internal Revenue.
Petitioner failed to act promptly on the claim, hence, private respondent filed a petition for review
before public respondent Court of Tax Appeals.

Petitioner contested the petition. As special and affirmative defenses, it alleged the following: that taxes
are presumed to have been collected in accordance with law; that in an action for refund, the burden of
proof is upon the taxpayer to show that taxes are erroneously or illegally collected, and the taxpayer's
failure to sustain said burden is fatal to the action for refund; and that claims for refund are construed
strictly against tax claimants.
After trial, respondent tax court decided in favor of the private respondent. Respondent court denied
petitioner's motion for reconsideration, hence, this petition for review on certiorari.
ISSUE:
WON private respondent is entitled to a refund or tax credit for amounts representing pre-payment of
income and common carrier's taxes under the NIRC Sec. 24 (b) (2), as amended.
RULING:
NO.
Pursuant to Sec. 24 (b) (2), a resident foreign corporation engaged in the transport of cargo is liable for
taxes depending on the amount of income it derives from sources within the Philippines. Thus, before
such a tax liability can be enforced the taxpayer must be shown to have earned income sourced from
the Philippines.
A claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris
against the taxpayer. Private respondent has the burden of proof to establish the factual basis of its claim for tax
refund.

The pivotal issue involves a question of fact whether or not the private respondent was able to prove
that it derived no receipts from its charter agreement, and hence is entitled to a refund of the taxes it
pre-paid to the government.

The respondent court held that sufficient evidence has been adduced by the private respondent proving
that it derived no receipt from its charter agreement with NASUTRA. The correctness of the contents
of the evidenciary documents regularly issued by officials of the Bureau of Customs cannot be doubted
as indeed, they have not been contested by the petitioner. The records also reveal that in the course of
the proceedings in the court a quo, petitioner hedged and hawed when its turn came to present
evidence. At one point, its counsel manifested that BIR have both recommended the approval of private
respondent's claim for refund. The case dragged on but petitioner never withdrew its opposition to the
petition even if it did not present evidence at all. The insincerity of petitioner's stance drew the sharp
rebuke of respondent court in its Decision and for good reason. Taxpayers owe honesty to government
just as government owes fairness to taxpayers.
We cannot but bewail the unyielding stance taken by the government in refusing to refund erroneously
prepaid by private respondent. The tax was paid way back in 1980 and despite the clear showing that it
was erroneously paid, the government succeeded in delaying its refund for fifteen (15) years.
After fifteen (15) long years and the expenses of litigation, the money that will be finally refunded to
the private respondent is just worth a damaged nickel. This is not, however, the kind of success the
government, especially the BIR, needs to increase its collection of taxes. Fair deal is expected by our
taxpayers from the BIR and the duty demands that BIR should refund without any unreasonable delay
what it has erroneously collected.

VERA vs. FERNANDEZ

FACTS:
A Motion for allowance of claim and for payment of taxes was filed in the special proceedings entitled:
"Intestate Estate of Luis D. Tongoy.
The claim represents the indebtedness to the Government of the late Luis D. Tongoy for deficiency of
income taxes.
The Administrator opposed the motion solely on the ground that the claim was barred under Section 5,
Rule 86 of the Rules of Court. Finding the opposition well-founded, the respondent Judge, Jose F.
Fernandez, dismissed the motion for allowance of claim filed by herein petitioner, Regional Director of
the Bureau of Internal Revenue.
A motion for reconsideration was filed but was denied. Hence, this appeal on certiorari.
ISSUE:
WON the statute of non-claims Section 5, Rule 86 of the New Rule of Court, bars claim of the
government for unpaid taxes, still within the period of limitation prescribed in Section 331 and 332 of
the National Internal Revenue Code.
RULING:
NO.
Section 5, Rule 86, as invoked by the respondent Administrator in hid Oppositions to the Motion for
Allowance of Claim, etc. of the petitioners reads as follows:
All claims for money against the decedent, arising from contracts, express or implied,
whether the same be due, not due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment for money against the
decedent, must be filed within the time limited in they notice; otherwise they are barred
forever, except that they may be set forth as counter claims in any action that the
executor or administrator may bring against the claimants...
The provision makes no mention of claims for monetary obligation of the decedent created by law,
such as taxes which is entirely of different character from the claims expressly enumerated therein.
Under the familiar rule of statutory construction of expressio unius est exclusio alterius, the mention of
one thing implies the exclusion of another thing not mentioned. Thus, if a statute enumerates the things
upon which it is to operate, everything else must necessarily, and by implication be excluded from its
operation and effect.
Collection and recovery of taxes, as well as the matter of prescription thereof are governed by the
provisions of the National Internal revenue Code, particularly Sections 331 and 332 thereof, and not by
other provisions of law.
Even without being specifically mentioned, the provisions of Section 2 of Rule 86 of the Rules of Court

may reasonably be presumed to have been also in the mind of the Court as not affecting the aforecited
Section of the National Internal Revenue Code. The claim for taxes as the other claims mentioned in
the Rule should be filed before the Court. Claims for taxes may be collected even after the distribution
of the decedent's estate among his heirs who shall be liable therefor in proportion of their share in the
inheritance.
The reason for the more liberal treatment of claims for taxes against a decedent's estate in the form of
exception from the application of the statute of non-claims, is not hard to find. Taxes are the lifeblood
of the Government and their prompt and certain availability are imperious need. Upon taxation depends
the Government ability to serve the people for whose benefit taxes are collected. To safeguard such
interest, neglect or omission of government officials entrusted with the collection of taxes should not be
allowed to bring harm or detriment to the people, in the same manner as private persons may be made
to suffer individually on account of his own negligence, the presumption being that they take good care
of their personal affairs. This should not hold true to government officials with respect to matters not of
their own personal concern. This is the philosophy behind the government's exception, as a general
rule, from the operation of the principle of estoppel.
Furthermore, Section 315 of the Tax Code payment of income tax shall be a lien in favor of the
Government of the Philippines from the time the assessment was made by the Commissioner of
Internal Revenue until paid with interests, penalties, etc.
By virtue of such lien, this court held that the property of the estate already in the hands of an heir or
transferee may be subject to the payment of the tax due the estate. A fortiori before the inheritance has
passed to the heirs, the unpaid taxes due the decedent may be collected, even without its having been
presented under Section 2 of Rule 86 of the Rules of Court.
It may truly be said that until the property of the estate of the decedent has vested in the heirs, the
decedent, represented by his estate, continues as if he were still alive, subject to the payment of such
taxes as would be collectible from the estate even after his death.

REPUBLIC vs. PATANAO

FACTS:
Defendant Patanao was the holder of an ordinary timber license and as such was engaged in the
business of producing logs and lumber for sale. Defendant failed to file income tax returns and
although he filed income tax returns for other years, the same were false and fraudulent because he did
not report substantial income earned by him from his business.
Plaintiff, through the Deputy Commissioner of Internal Revenue, sent a letter of demand with enclosed
income tax assessment to the defendant requiring him to pay the said amount.
Notwithstanding repeated demands the defendant refused, failed and neglected to pay said taxes.
The assessment for the payment of the taxes in question became final, executory and demandable,
because it was not contested before the Court of Tax Appeals.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action is barred by
prior judgment, defendant having been acquitted in criminal cases of the same court, which were
prosecutions for failure to file income tax returns and for non-payment of income taxes; and (2) that the
action has prescribed.
The lower court held that the plaintiff's action is barred by prior judgment and the only cause of action
left to the plaintiff in its complaint is the collection of the income tax due for the taxable year 1955 and
the residence tax for 1953, 1954 and 1955. A motion to reconsider said order was denied, whereupon
plaintiff interposed the instant appeal, which was brought directly to this Court, the questions involved
being purely legal.
ISSUE:
WON plaintiff's complaint was barred by prior judgment in the criminal cases.
RULING:
NO.
A criminal case and a civil case are circumscribed by factual premises which are diametrically opposed
to each other, and are founded on entirely different philosophies.
Under the Penal Code the civil liability is incurred by reason of the offender's criminal act. Stated
differently, the criminal liability gives birth to the civil obligation such that generally, if one is not
criminally liable under the Penal Code, he cannot become civilly liable thereunder.
The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the
fact, for instance, that one has engaged himself in business, and not because of any criminal act
committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation.
The incongruity of the factual premises and foundation principles of the two cases is one of the reasons
for not imposing civil indemnity on the criminal infractor of the income tax law.
Another reason, of course, is found in the fact that while section 73 of the National Internal Revenue

Code has provided the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect
to pay income tax or to make a return thereof, it failed to provide the collection of said tax in criminal
proceedings.
The only civil remedies provided, for the collection of income tax, in Chapters I and II, Title IX of the
Code and section 316 thereof, are distraint of goods, chattels, etc. or by judicial action, which remedies
are generally exclusive in the absence of a contrary intent from the legislator.
Considering that the Government cannot seek satisfaction of the taxpayer's civil liability in a criminal
proceeding under the tax law or, otherwise stated, since the said civil liability is not deemed included in
the criminal action, acquittal of the taxpayer in the criminal proceeding does not necessarily entail
exoneration from his liability to pay the taxes.
The acquittal in the criminal cases cannot operate to discharge defendant appellee from the duty of
paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment. Said obligation is not a consequence
of the felonious acts charged in the criminal proceeding, nor is it a mere civil liability arising from
crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged.

PHILIPPINE GUARANTY CO., INC. vs. CIR

FACTS:
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts,
on various dates, with foreign insurance companies not doing business in the Philippines and thereby
agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has originally
underwritten in the Philippines, in consideration for the assumption by the latter of liability on an
equivalent portion of the risks insured.
Said reinsurrance contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines, except the contract with Swiss Reinsurance Company, which was
signed by both parties in Switzerland. The reinsurance contracts made the commencement of the
reinsurers' liability simultaneous with that of Philippine Guaranty Co., Inc. under the original
insurance.
Philippine Guaranty Co., Inc. was required to keep a register in Manila where the risks ceded to the
foreign reinsurers where entered, and entry therein was binding upon the reinsurers.
A proportionate amount of taxes on insurance premiums not recovered from the original assured were
to be paid for by the foreign reinsurers. The foreign reinsurers further agreed, in consideration for
managing or administering their affairs in the Philippines, to compensate the Philippine Guaranty Co.,
Inc., in an amount equal to 5% of the reinsurance premiums. Conflicts and/or differences between the
parties under the reinsurance contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc.
and Swiss Reinsurance Company stipulated that their contract shall be construed by the laws of the
Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to the foreign
reinsurers premiums which were excluded by Philippine Guaranty Co., Inc. from its gross income
when it file its income tax returns. Furthermore, it did not withhold or pay tax on them.
Consequently, the Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc.
withholding tax on the ceded reinsurance premiums.
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance premiums ceded
to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. Its protest
was denied and it appealed to the Court of Tax Appeals.
The Court of Tax Appeals rendered judgment in favor of CIR.
Hence this appeal by petitioner, questioning the legality of the Commissioner of Internal Revenue's
assessment for withholding tax on the reinsurance premiums ceded to the foreign reinsurers. Petitioner
maintain that the reinsurance premiums in question did not constitute income from sources within the
Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they
have office here.
Petitioner further contends that the reinsurance premiums are not income from sources within the
Philippines because they are not specifically mentioned in Section 37 of the Tax Code. Section 37 is

not an all-inclusive enumeration, for it merely directs that the kinds of income mentioned therein
should be treated as income from sources within the Philippines but it does not require that other kinds
of income should not be considered likewise.
ISSUE:
WON petitioner is liable to pay withholding tax on the reinsurance premiums ceded to the foreign
reinsurers
RULING:
1. Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources
within the Philippines. The word "sources" has been interpreted as the activity, property or
service giving rise to the income. The reinsurance premiums were income created from the
undertaking of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc.,
against liability for loss under original insurances. Such undertaking, took place in the
Philippines. These insurance premiums, therefore, came from sources within the Philippines and,
hence, are subject to corporate income tax.
Philippine Guaranty Co., Inc. kept in Manila a register of the risks ceded to the foreign reinsurers.
Entries made in such register bound the foreign resinsurers, localizing in the Philippines the actual
cession of the risks and premiums and assumption of the reinsurance undertaking by the foreign
reinsurers.
Taxes on premiums imposed by Section 259 of the Tax Code for the privilege of doing insurance
business in the Philippines were payable by the foreign reinsurers when the same were not recoverable
from the original assured. The foreign reinsurers paid Philippine Guaranty Co., Inc. an amount
equivalent to 5% of the ceded premiums, in consideration for administration and management by the
latter of the affairs of the former in the Philippines in regard to their reinsurance activities here.
Disputes and differences between the parties were subject to arbitration in the City of Manila. All the
reinsurance contracts, except that with Swiss Reinsurance Company, were signed by Philippine
Guaranty Co., Inc. in the Philippines and later signed by the foreign reinsurers abroad. Although the
contract between Philippine Guaranty Co., Inc. and Swiss Reinsurance Company was signed by both
parties in Switzerland, the same specifically provided that its provision shall be construed according to
the laws of the Philippines, thereby manifesting a clear intention of the parties to subject themselves to
Philippine law.
The foreign insurers' place of business should not be confused with their place of activity. Business
should not be continuity and progression of transactions while activity may consist of only a single
transaction. An activity may occur outside the place of business. Section 24 of the Tax Code does not
require a foreign corporation to engage in business in the Philippines in subjecting its income to tax. It
suffices that the activity creating the income is performed or done in the Philippines. What is
controlling, therefore, is not the place of business but the place of activity that created an income.
2. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to

resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvement designed for the enjoyment of the citizenry and those which come within the
State's territory, and facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and privileges guaranteed by
our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the
state.

CIR vs. YMCA

FACTS:
earned, among others, an income from leasing out a portion of its premises to
small shop owners, like restaurants and canteen operators, and from parking fees collected from nonmembers.
Private Respondent YMCA

The CIR issued to private respondent, an assessment including surcharge and interest, for deficiency
income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages.
Private respondent formally protested the assessment.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals
(CTA). In due course, the CTA issued this ruling in favor of the YMCA.
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its
Decision, the CA initially decided in favor of the CIR but Finding merit in the Motion for Reconsideration
filed by the YMCA, the CA reversed itself
ISSUE:
WON the income of private respondent from rentals of small shops and parking fees [is] exempt from
taxation
RULING.
While the income received by the organizations enumerated in Section 27 (now Section 26) of the
NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such,"
the exemption does not apply to income derived ". . . from any of their properties, real or personal, or
from any of their activities conducted for profit, regardless of the disposition made of such
income . . . ."
The "rental income derived by a tax-exempt organization from the lease of its properties, real or
personal, [is] not, therefore, exempt from income taxation, even if such income [is] exclusively used
for the accomplishment of its objectives."
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict
interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation
should be manifest. and unmistakable from the language of the law on which it is based. Thus, the claimed
exemption "must expressly be granted in a statute stated in a language too clear to be mistaken."

In the instant case, 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, real or personal, be subject to the tax
imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the
rent income of the YMCA from its real property, the Court is duty-bound to abide strictly by its literal
meaning and to refrain from resorting to any convoluted attempt at construction.

The rental income is taxable regardless of whence such income is derived and how it is used or
disposed of. Where the law does not distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI,
Section 28 of par. 3 of the 1987 Constitution, exempts "charitable institutions" from the payment not only of
property taxes but also of income tax from any source.

However, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member of
this Court, stressed during the Concom debates that ". . . what is exempted is not the institution
itself . . .; those exempted from real estate taxes are lands, buildings and improvements actually,
directly
and
exclusively
used
for
religious,
charitable
or
educational
purposes."
Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of the Concom, adhered
to the same view that the exemption created by said provision pertained only to property taxes.

In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption covers
property taxes only." Indeed, the income tax exemption claimed by private respondent finds no basis in Article
VI, Section 26, par. 3 of the Constitution.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, claiming that the YMCA "is
a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and
exclusively for educational purposes so it is exempt from taxes on its properties and income."
We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the
rentals from its property.

For the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with
substantial evidence that (1) it falls under the classification non-stock, non-profit educational
institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and
exclusively for educational purposes.
YMCA is not an educational institution within the purview of Article XIV, Section 4, par. 3 of the
Constitution. Under the Education Act of 1982, the term educational institution refers to schools. The Court
has examined the "Amended Articles of Incorporation" and "By-Laws" of the YMCA, but found nothing in them

Furthermore, under the Education Act of 1982,

even non-formal education is understood to be school-based and "private auspices such as foundations
and civic-spirited organizations" are ruled out.
that even hints that it is a school or an educational institution.

It is settled that the term "educational institution," when used in laws granting tax exemptions, refers to a ". . .
school seminary, college or educational establishment . . . ."

LUZON STEVEDORING CORPORATION vs CTA

FACTS:
Herein petitioner-appellant for the repair and maintenance of its tugboats, imported various engine
parts and other equipment for which it paid, under protest, the assessed compensating tax.
Unable to secure a tax refund from the Commissioner of Internal Revenue, it filed a Petition for
Review with the Court of Tax Appeals. The Court of Tax Appeals, however, denied the various claims
for tax refund.
Petitioner-appellant filed a Motion for Reconsideration but the same was denied. Hence, the instant
petition.
Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax
exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He
argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing
the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it
concludes that the engines, spare parts and equipment imported by it and used in the repair and
maintenance of its tugboats are exempt from compensating tax.
ISSUE:
WON petitioner's tugboats" can be interpreted to be included in the term "cargo vessels" for purposes
of the tax exemption provided for in Section 190 of the National Internal Revenue Code, as amended
by Republic Act No. 3176
RULING:
NO.
This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the
relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or
its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in
order that it may be applied."
More specifically stated, the general rule is that any claim for exemption from the tax statute should be
strictly construed against the taxpayer.
As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be
declared exempt from the compensating tax, it is indispensable that the requirements of the amendatory
law be complied with, namely: (1) the engines and spare parts must be used by the importer himself as
a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in
coastwise or oceangoing navigation.
As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit
tax exemption from the compensating tax to imported items to be used by the importer himself as
operator of passenger and/or cargo vessel.
As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:

A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now,
also used for attendance on vessel. A tugboat is a diesel or steam power vessel designed
primarily for moving large ships to and from piers for towing barges and lighters in
harbors, rivers and canals. A tug is a steam vessel built for towing, synonymous with
tugboat.
Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of
passenger and/or cargo vessels.
And, even if construction and interpretation of the law is insisted upon, following another fundamental
rule that statutes are to be construed in the light of purposes to be achieved and the evils sought to be
remedied, it will be noted that the legislature in amending Section 190 of the Tax Code by Republic Act
3176, as appearing in the records, intended to provide incentives and inducements to bolster the
shipping industry and not the business of stevedoring.
Petitioner-appellant's sole and principal business is stevedoring and lighterage, taxed under Section 191 of the
National Internal Revenue Code as a contractor, and not an entity which transports passengers or freight for hire
which is taxed under Section 192 of the same Code as a common carrier by water.