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Commissioner of Internal Revenue vs. Courts of Tax Appeal, et al G.R. No.

April 18, 1997
Ateneo de Manila is an educational institution with auxiliary units and branches
all over the Philippines. One such auxiliary unit is the Institute of Philippine
Culture (IPC), which has no legal personality separate and distinct from that of
private respondent. The IPC is a Philippine unit engaged in social science studies
of Philippine society and culture. Occasionally, it accepts sponsorships for its
research activities from international organizations, private foundations and
government agencies. On July 8, 1983, private respondent received from
petitioner Commissioner of Internal Revenue a demand letter dated June 3, 1983,
assessing private respondent the sum of P174,043.97 for alleged deficiency
contractor's tax the value of which was later on, upon private respondents
request for reinvestigation, reduced to P46,516.41, Unsatisfied, Private
respondent filed in the Court of Tax Appeals a petition for review of the said
letter-decision of the petitioner which rendered a decision in its favor and
ordered the tax assessment cancelled.
ISSUE: Is Ateneo de Manila University, through its auxiliary unit or branch the
Institute of Philippine Culture performing the work of an independent
contractor and, thus, subject to the three percent contractor's tax levied by then
Section 205 of the National Internal Revenue Code?
RULING: No, The Supreme Court held that Ateneo de Manila University is not
subject to the contractors tax. It explained that to fall under its coverage,
Section 205 of the National Internal Revenue Code requires that the independent
contractor be engaged in the business of selling its services. The Court, however,
found no evidence that Ateneo's 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. Moreover, the Court of
Tax Appeals accurately and correctly declared that the funds received by the
Ateneo de Manila University are technically not a fee. They may however fall as
gifts or donations which are tax-exempt" as shown by private respondent's
compliance with the requirement of Section 123 of the National Internal Revenue
Code providing for the exemption of such gifts to an educational institution.
Philippine Bank of Commerce (PBcom) v. Commissioner of Internal Revenue (CIR)
G.R. No. 112024. January 28, 1999
Petitioner PBcom paid its quarterly income tax for the first and second quarters
of 1985 totalling to Php5, 016,954.00. Subsequently, PBcom suffered losses so
that when it filed its Annual Income Tax for the year- ended December 31, 1986,
it reported a net loss and declared no tax payable for the year. Petitioner also
earned rental income for both 1985 and 1986 and the corresponding tax thereof
was with held and remitted by the lessees to the BIR. On August 7, 1987 or

after more than two years from payment of taxes, PBcom filed for a tax refund.
Pending investigation of the BIR, petitioner filed a petition for review with the
Court of Tax Appeals. The CTA denied the tax refund on the ground that
application for refund must be made within two years from the payment of tax as
provided by the National Internal Revenue Code. Petitioner contended that the
two year period has been changed to ten years upon a memorandum issued by
the Commissioner of Internal Revenue. The Court of Appeal affirmed in toto the
ruling of the CTA.
ISSUE: Did the CTA erred in denying the plea for tax refund on the ground of
RULING: No. The relaxation of revenue regulation by a memorandum issued by
the BIR is not warranted as it disregards the two year period set by law. Section
230 of the National Internal Revenue Code of 1977 provides for the two year
period for filing a claim for refund or credit. When the Acting Commissioner of
Internal Revenue issued a memorandum changing the prescriptive period of two
years to ten years, such circular created a clear inconsistency with the provision
of Section 230 of NIRC. In so doing, the BIR did not simply interpret the law,
rather it legislated guidelines contrary to the statute passed by the congress.
515 SCRA 720
GR No. 167919, February 14, 2007
"A taxpayer need not be a party to the contract to challenge its validity."
FACTS: The petitioners, Plaridel M. Abaya who claims that he filed the instant petition
as a taxpayer, former lawmaker, and a Filipino citizen, and Plaridel C. Garcia likewise
claiming that he filed the suit as a taxpayer, former military officer, and a Filipino
citizen, mainly seek to nullify a DPWH resolution which recommended the award to
private respondent China Road & Bridge Corporation of the contract for the
implementation of the civil works known as Contract Package No. I (CP I). They also
seek to annul the contract of agreement subsequently entered into by and between
the DPWH and private respondent China Road & Bridge Corporation pursuant to the
said resolution.
ISSUE: Has petitioners the legal standing to file the instant case against the
HELD: Petitioners, as taxpayers, possess locus standi to file the present suit. Briefly
stated, locus standi is a right of appearance in a court of justice on a given question.
More particularly, it is a partys personal and substantial interest in a case such that
he has sustained or will sustain direct injury as a result of the governmental act
being challenged. Locus standi, however, is merely a matter of procedure and it has
been recognized that in some cases, suits are not brought by parties who have been
personally injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public interest.
Consequently, the Court, in a catena of cases, has invariably adopted a liberal stance
on locus standi, including those cases involving taxpayers.

The prevailing doctrine in taxpayers suits is to allow taxpayers to question contracts

entered into by the national government or government- owned or controlled
corporations allegedly in contravention of law. A taxpayer is allowed to sue where
there is a claim that public funds are illegally disbursed, or that public money is
being deflected to any improper purpose, or that there is a wastage of public funds
through the enforcement of an invalid or unconstitutional law. Significantly, a
taxpayer need not be a party to the contract to challenge its validity.
GR No. L-22814, August 28, 1968







"The classification made in the exercise of power to tax, to be valid, must be

reasonable ."
FACTS: Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under
protest, to the City of Butuan, and collected by the latter, pursuant to its Municipal
Ordinance No. 110 which plaintiff assails as null and void because it partakes of the
nature of an import tax, amounts to double taxation, highly unjust and
discriminatory, excessive, oppressive and confiscatory, and constitutes an invlaid
delegation of the power to tax. The ordinance imposes taxes for every case of
softdrinks, liquors and other carbonated beverages, regardless of the volume of
sales, shipped to the agents and/or consignees by outside dealers or any person or
company having its actual business outside the City.
ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?
HELD: Yes. The tax levied is discriminatory. Even if the burden in question were
regarded as a tax on the sale of said beverages, it would still be invalid, as
discriminatory, and hence, violative of the uniformity required by the Constitution
and the law therefor, since only sales by "agents or consignees" of outside dealers
would be subject to the tax. Sales by local dealers, not acting for or on behalf of
other merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or merchants
established outside the City of Butuan, would be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority
to classify the objects of taxation. The classification made in the exercise of this
authority, to be valid, must, however, be reasonable and this requirement is not
deemed satisfied unless: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or ordinance; (3)
the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification
applies equally to all those who belong to the same class.

Madrigal vs Rafferty

Vicente Madrigal and Susana Paterno, married under conjugal partnership filed a
sworn declaration with the Collector of Internal Revenue showing that his net
income for the year being Php 296,302.73. Subsequently, Madrigal submitted a
claim that the indicated income was in fact the income of the conjugal
partnership existing between him and his wife. He further argued that the
income should be divided into two parts; one to his wife and one on his wife,
Susana. The General Questions was then submitted to the Attorney General of
the Philippine Islands which decided in favor of Madrigal, in which case, the
Collector of Internal Revenue forwarded the case to the United States Treasury
Department where it was made to find that; Php 362,407.67- profits made by
Vicente Madrigal in his coal and shipping business; Php 4,086.50 were profits
made by Susana Paterno in her embroidery business; 75 Php16,687.80 were
profits made by Vicente Madrigal in a pawnshop business; This in sum is Php
383,181.97- representing the Gross Income of Vicente and Susana Paterno.
General deductions - Php 86,879.24, resulting to an income of Php 296,30273 As
a result, other specific deductions were included; (1) Php 16,687.80 the tax to be
made at source and (2) Php 8,000 exemption granted to Vicente Madrigal and
SusanaPaterno, husband and wife with then a remainder of Php 271,614.93.The
dispute was then found to be in favor of the defendants.
Whether or not the argument of the plaintiff as to whether the income tax of
husband and wife should be divided into two equal parts, because of the
conjugal partnership existing between them (sociedad de gananciales) thus
having separate income tax returns
As provided in a regulation of the US Treasury Department states that; "If a wife
has a separate estate managed by herself as her own property, and receives an
income of more than $3,000, she may make return of her own income, and if the
husband has other net income, making the aggregate of both incomes more than
$4,000, the wife's return should be attached to the return of her husband, or his
income should be included in her return, in order that a deduction of $4,000 may
be ,made from the aggregate of both incomes. In the present case, Vicente and
Susana is governed by the conjugal partnership of marriage, therefore the
regulation stated above is not applicable. Susana Paterno has no absolute right
to one half of the income of conjugal partnership. Not being seized of a separate
estate, she cannot make a separate return in order to receive benefit of the
exemption which would give rise to a benefit of exemption. By law, husband and
wives are only entitled to Php 8,000 76 exemption, therefore, there can be no
additional claim for Vicente Madrigal and Susana Paterno
Smart Communications, Inc. v City of Davao
The Tax Code of the City of Davao imposes a tax on businesses enjoying a
franchise in the amount of of 1% of the gross annual receipts for the preceding
calendar year. This is based on the income / receipts realized within its territorial
jurisdiction, notwithstanding any exemption granted by any law or other special
law. SMART filed for declaratory relief, contending that: o Its telecenter in the
aforementioned city was exempted from payment of such franchise taxes

pursuant to its franchise under RA 7294 o RA 7160 (The Local Government Code)
only applies to exemptions already existing at the time of its effectivity and NOT
to future exemptions o The power of the City of Davao to impose a franchise tax
is subject to statutory limitations such as the in lieu of all taxes clause found in
Section 9 of R.A. No. 7294 o Such franchise tax imposed by the City of Davao
violates the constitutional provision against impairment of contracts. The City
of Davao opposed, invoking the power granted by the Constitution to local
government units to create their own sources of revenue. TC ruled against
Smart, on the ground that tax laws are strictly construed against the taxpayer,
and that LGUs are empowered to tax by a valid delegation of legislative power
and the direct authority granted to it by the fundamental law, hence not violative
of the non-impairment clause.
I: W/n SMART is liable for franchise tax
R: YES, SMART is liable. Section 137, in relation to Section 151 of the Local
Government Code (RA 7160) allows local governments to impose franchise taxes,
while Section 193 thereof withdrew all tax exemption privileges granted to
franchises prior to its issuance, except local water districts, cooperatives duly
registered under RA No. 6938, non-stock and non-profit hospitals and educational
institutions. Since Smarts franchise (RA 7294) was granted two months AFTER
the issuance of the Local Government Code, its tax exemption privileges are NOT
deemed withdrawn by the Local Government Code. However, the phrase in
lieu of all taxes in RA 7294 must be construed in the context of the whole Act
granting the franchise to Smart. Tax statutes, and exemptions granted therein,
are construed strictly against the taxpayer and liberally in favor of the
Government. In this case, the 3% tax on all gross receipts in lieu of all taxes
provision in RA 7294 was NOT clear whether it applies to both national and local
taxes. Thus, this provision must be construed strictly against Smart which
claims the exemption. Smart has the burden of proving that, aside from the
imposed 3% franchise tax, Congress intended it to be exempt from all kinds of
franchise taxes - whether local or national. However, Smart failed in this regard.
The was also no violation of the non-impairment clause of the Constitution. In
fact, aside from the ambiguous in lieu of all taxes phrase in the franchise, it
also has an express condition that it is subject to amendment, alteration, or