Tax 1 IV-E Digests (Partial)

June 26 Session

VAT input taxes subject of this Petition for Review), was filed on 4 October
1999 with Revenue District Office No. 83, Talisay Cebu but this was not acted
upon by the petitioner.
ISSUES: WoN respondent is exempt from tax
RULING: YES. Respondent as an entity is exempt from internal revenue laws
and regulations.

III.C. ADMINISTRATIVE ISSUANCES

Tan vs. Del Rosario
FACTS: The constitutionality of the Simplified Net Income Taxation Scheme or
R.A. 7496 is questioned in this petition, a consolidation of two special civil
actions for prohibition.
Issue 1: WoN R.A. 7496 is unconstitutional for violating the principle that
taxation shall be uniform and equitable
Ruling 1: NO. Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of taxation, similarly
situated, are to be treated alike both in privileges and liabilities. Uniformity
does not forefend classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the categorization is germane to
achieve the legislative purpose, (3) the law applies, all things being equal, to
both present and future conditions, and (4) the classification applies equally
well to all those belonging to the same class.
Issue 2: WoN public respondents exceeded their authority when they
promulgated Section 6, Revenue Regulations No. 2-93 to carry our R.A. 7496
Ruling 2: NO. Section 6 of Revenue Regulation No. 2-93 did not alter, but
merely confirmed, the above standing rule as now so modified by Republic Act
No. 7496 on basically the extent of allowable deductions applicable to all
individual income taxpayers on their non-compensation income. There is no
evident intention of the law, either before or after the amendatory legislation,
to place in an unequal footing or in significant variance the income tax
treatment of professionals who practice their respective professions
individually and of those who do it through a general professional partnership.

CIR vs. Seagate Technology

FACTS: Seagate Technology is a VAT -registered entity as evidenced by VAT
Registration Certification No. 97-083-000600-V issued on 2 April 1997. It was
able to file VAT returns for the period 1 April 1998 to 30 June 1999. Thereafter,
aAn administrative claim for refund of VAT input taxes in the amount of
P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04

This exemption covers both direct and indirect taxes, stemming from the very
nature of the VAT as a tax on consumption, for which the direct liability is
imposed on one person but the indirect burden is passed on to another.
Respondent, as an exempt entity, can neither be directly charged for the VAT
on its sales nor indirectly made to bear, as added cost to such sales, the
equivalent VAT on its purchases.
Respondent, which as an entity is exempt, is different from its transactions
which are not exempt. The end result, however, is that it is not subject to the
VAT. The non-taxability of transactions that are otherwise taxable is merely a
necessary incident to the tax exemption conferred by law upon it as an entity,
not upon the transactions themselves. Nonetheless, its exemption as an entity
and the non-exemption of its transactions lead to the same result for the
following considerations:
The BIR regulations additionally requiring an approved prior application for
effective zero rating cannot prevail over the clear VAT nature of respondent's
transactions. The scope of such regulations is not within the statutory
authority x x x granted by the legislature. A mere administrative issuance, like
a BIR regulation, cannot amend the law; the former cannot purport to do any
more than interpret the latter. The courts will not countenance one that
overrides the statute it seeks to apply and implement.

CIR v. Burroughs Ltd.

FACTS: Petitioner contends that respondent is no longer entitled to a refund
because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked
and/or repealed the BIR ruling of January 21, 1980.
Considering that the 15% branch profit remittance tax is imposed and
collected at source, necessarily the tax base should be the amount actually
applied for by the branch with the Central Bank of the Philippines as profit to
be remitted abroad.
RULING: Petitioner's aforesaid contention is without merit. What is applicable

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in the case at bar is still the Revenue Ruling of January 21, 1980 because
private respondent Burroughs Limited paid the branch profit remittance tax in
question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17,
1982 cannot be given retroactive effect in the light of Section 327 of the
National Internal Revenue Code which providesSec. 327. Non-retroactivity of rulings. Any revocation, 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 shag not be given retroactive application if the revocation,
modification, or reversal will be prejudicial to the taxpayer 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; (b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which the ruling is
based, or (c) where the taxpayer acted in bad faith.
The prejudice that would result to private respondent Burroughs Limited by a
retroactive application of Memorandum Circular No. 8-82 is beyond question
for it would be deprived of the substantial amount of P172,058.90. And,
insofar as the enumerated exceptions are concerned, admittedly, Burroughs
Limited does not fall under any of them.

CIR v. Mega General Merchandising

FACTS: On April 22, 1975, the respondent corporation wrote the
Commissioner of Internal Revenue for clarification as to whether imported
crude paraffin wax is subject to specific tax under the Tax Code.
Former Commissioner Misael P. Vera in his reply to said that it essentially
certain kinds of wax (not including paraffin) was subject.
Respondent corporation in a letter, dated November 27, 1975, requested for a
refund or tax credit of the amount of P321,436.79 representing the difference
between the amount paid as specific tax and the 7% advance sales tax.
Since the law (Section 142(i) of the Tax Code, amended by P.D. No. 392)
does not make any distinction as to the kind of wax subject to specific tax,
then Acting Commissioner of Internal Revenue Efren I. Plana, on January 28,
1977 denied respondent Corporation's claim for refund or tax credit of the
amount of P321,436,79. On this ruling, respondent corporation filed a request
for reconsideration. This was denied by petitioner.

On 11 January 1978, however, Plana granted the corporations claim for

refund or credit pertaining to the importation made 18 April 1975. The
Corporation protested the tax assessment of 8 May 1978, which was denied
by the Commissioner.
RULING: We believe that the letter of Commissioner Plana dated January 11,
1978 did not in any way revoke his ruling dated January 28,1977 which ruling
applied the specific tax to wax (without distinction). The reason he removed in
1978 private respondent's liability for the specific tax was NOT (as
erroneously pointed out by the Court of Tax Appeals) because he wanted to
revoke, expressly or implicitly, his ruling of January 28, 1977 but because the
P321,436.79 tax referred to importation BEFORE January 28, 1977 and
hence still covered by the ruling of Commissioner Vera, and not by the
January 28,1977 ruling of Commissioner Plana.
(In simple terms, RULING > Letter)

PBCom v. CIR
RULING: When the Acting Commissioner of Internal Revenue issued RMC 785, changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the
BIR did not simply interpret the law; rather it legislated guidelines contrary to
the statute passed by Congress.
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.
It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be
erroneous. Thus, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with, the law they
seek to apply and implement.
In the case of People vs. Lim, 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.
Article 8 of the Civil Code recognizes judicial decisions, applying or
interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition.
A

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memorandum-circular of a bureau head could not operate to vest a taxpayer

with a shield against judicial action. 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. Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this case because the
nullity of RMC No. 7-85 was declared by respondent courts and not by the
Commissioner of Internal Revenue.

Hagonoy to fix and collect public market stall rentals. Being its lifeblood,
collection of revenues by the government is of paramount importance. The
funds for the operation of its agencies and provision of basic services to its
inhabitants are largely derived from its revenues and collections. Thus, it is
essential that the validity of revenue measures is not left uncertain for a
considerable length of time. Hence, the law provided a time limit for an
aggrieved party to assail the legality of revenue measures and tax ordinances.

Jardine Davies v. Aliposa

III.D. TAX/REVENUE ORDINANCES

Hagonoy Market Vendors vs. Municipality of Hagonoy
FACTS: Oct. 6, 1996 Sangguniang Bayan of Hagonoy, Bulacan enacted
Ordinance 28, increasing the stall rentals (as taxes) of market vendors in
Hagonoy. The Ordinance was also posted for 3 weeks in November 1996.
December 8, 1997, a year after, Hagonoy Market Vendor Association thru
their President filed an appeal with the Secretary of Justice assailing the
constitutionality of the tax ordinance.
Municipality of Hagonoy opposed: The Ordinance took effect October 6, 1996,
after posting it as required by law. Secretary of Justice dismissed appeal for
lapse of time. It cited Tanada v. Tuvera where it held that the date of effectivity
of the subject ordinance retroacted to the date of its approval (on October 6,
1996), after the required publiction or posting has been complied with.
CA dismissed Petition for Review of petitioner. Hence this appeal.
ISSUES: WoN Petition should be dismissed as the appeal of Petitioner with
Secretary of Justice is already time-barred.
RULING: Yes. The time-frame fixed by law is mandatory. Section 187, of the
1991 Local Government Code expressly states that any question on the
constitutionality or legality of tax ordinances or revenue measures may be
raised on appeal within thirty (30) days from the effectivity thereof to the
Secretary of Justice.
The Mun. Ordinance took effect Oct. 1996
Appeal was made Dec. 1997
More than a year after its effectivity had elapsed, therefore Secretary of
Justice is correct to dismiss the appeal.
Ordinance No. 28 is a revenue measure adopted by the municipality of

FACTS: Jardine Davies and the Philippine Racing Club questioned the validity
of Municipal Ordinance No. 92-072, or the Makati Revenue Code. Under the
ordinance, the companies were assessed with real property tax, franchise tax,
and others in violation of the non-impairment clause, the Local Government
Code, and the Philippine Racing Club's legislative franchise.
ISSUES: WoN the Makati Revenue Code is valid.
RULING: Yes. Sec. 187 of the Local Government Code requires that the
dissatisfied taxpayer who questions the validity or legality of a tax ordinance
must file his appeal to the Secretary of Justice, within 30 days from effectivity
thereof. In case the Secretary decides the appeal, a period also of 30 days is
allowed for an aggrieved party to go to court. But if the Secretary does not act
thereon, after the lapse of 60 days, a party could already proceed to seek
relief in court. These three separate periods are clearly given for compliance
as a prerequisite before seeking redress in a competent court. Such statutory
periods are set to prevent delays as well as enhance the orderly and speedy
discharge of judicial functions. For this reason the courts construe these
provisions of statutes as mandatory.
A municipal tax ordinance empowers a local government unit to impose taxes.
The power to tax is the most effective instrument to raise needed revenues to
finance and support the myriad activities of local government units for the
delivery of basic services essential to the promotion of the general welfare
and enhancement of peace, progress, and prosperity of the people.
Consequently, any delay in implementing tax measures would be to the
detriment of the public. It is for this reason that protests over tax ordinances
are required to be done within certain time frames. In the instant case, it is our
view that the failure of petitioners to appeal to the Secretary of Justice within
30 days as required by the Local Government Code is fatal to their cause.

IV1.A. PUBLIC PURPOSES

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Pascual vs. Secretary of Public Works and Communications

FACTS: RA 920 (Act appropriating funds for public works) was enacted in
1953 containing an item (Section 1 c[a]) for the construction, reconstruction,
repair, extension and improvement of Pasig feeder road terminals (the
projected and planned subdivision roads, which were not yet constructed,
within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta
donated said parcels of land to the Government 5 months after the
enactment of RA 920, on the condition that if the Government violates such
condition the lands would revert to Zulueta. The provincial governor of Rizal,
Wenceslao Pascual, questioned the validity of the donation and the
Constitutionality of the item in RA 920, it being not for a public purpose.
ISSUES: Whether the item in the appropriation is valid.
RULING: No. The right of the legislature to appropriate funds is correlative
with its right to tax, under constitutional provisions against taxation except for
public purposes and prohibiting the collection of a tax for one purpose and the
devotion thereof to another purpose, no appropriation of state funds can be
made for other than a public purpose. The validity of a statute depends upon
the powers of Congress at the time of its passage or approval, not upon
events occupying, or acts performed, subsequently thereto, unless the latter
consist of an amendment of the organic law, removing, with retrospective
operation, the constitutional limitation infringed by said statute. Herein,
inasmuch as the land on which the projected feeder roads were to be
constructed belonged to Senator Zulueta at the time RA 920 was passed by
Congress, or approved by the President, and the disbursement of said sum
became effective on 20 June 1953 pursuant to Section 13 of the Act, the
result is that the appropriating sough a private purpose and hence, null and
void.

IV1.B. DELEGATION OF TAXATION POWER

Meralco vs. Province of Laguna
FACTS: The Province of Laguna assessed Meralco for franchise tax. Meralco
paid the taxes under protest. A formal claim for refund was thereafter sent by
MERALCO to the Provincial Treasurer of Laguna claiming that the franchise
tax it had paid and continued to pay to the National Government pursuant to
P.D. 551 already included the franchise tax imposed by the Provincial Tax
Ordinance. MERALCO contended that the imposition of a franchise tax under
Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it
concerned MERALCO, contravened the provisions of Section 1 of P.D. 551

ISSUES: WoN the Province of Laguna has the power to impose franchise tax
on MERALCO
RULING: YES. Local governments do not have the inherent power to tax
except to the extent that such power might be delegated to them either by the
basic law or by statute. Presently, under Article X of the 1987 Constitution, a
general delegation of that power has been given in favor of local government
units.
Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although
Congress may provide statutory limitations and guidelines. The basic
rationale for the current rule is to safeguard the viability and self-sufficiency of
local government units by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation to
be absolute and unconditional; the constitutional objective obviously is to
ensure that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions; (b) each local government unit will have its fair share of available
resources; (c) the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just.
The 1991 Local Government Code explicitly authorizes provincial
governments, notwithstanding any exemption granted by any law or other
special law, to impose a tax on businesses enjoying a franchise.

Pepsi-Cola Co. v. City of Butuan

RULING: The Ordinance is discriminatory 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,
would be exempt from the tax. Even however, 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,

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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 all those who
belong
to
the
same
class.
These conditions are not fully met by the ordinance in question. Indeed, if its
purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers other
than agents or consignees of producers or merchants established outside the
City of Butuan should be exempt from the tax.

Smith Bell & Co. v. CIR

to the officers charged with implementation and execution thereof nothing

more than the administrative function of determining whether a particular kind
of wine or imitation wine falls in one class or another.

City Government of Quezon City v. BayanTel

RULING: The tax imposed under Ordinance No. 5 is an excise tax. It is a tax
on the privilege of distributing, manufacturing or bottling softdrinks. Being an
excise tax, it can be levied by the taxing authority only when the acts,
privileges or businesses are done or performed within the jurisdiction of said
authority [Commissioner of Internal Revenue v. British Overseas Airways
Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA
395, 410.] Specifically, the situs of the act of distributing, bottling or
manufacturing softdrinks must be within city limits, before an entity engaged in
any of the activities may be taxed in Iloilo City.
As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus,
We have no option but to declare the company liable under the tax ordinance.

Garcia v. Executive Secretary

FACTS: The petitioner imported 119 cases of "Chatteau Gay" wine which it
declared as "still wine" under Section 134(b)of the Tax Code. The CIR later
concluded that it should be classified as "sparkling wine", and assessed the
petitioner a deficiency specific tax thereon. Petitioner contends that the
assessment is unconstitutional because Section 134(a) of the Tax Code under
which it was issued lays down an insufficient and hazy standard by which the
policy and purpose of the law may be ascertained, and gives the
Commissioner blanket authority to decide what is or is not the meaning of
"sparkling wines." Petitioner contends that there was an abdication of
legislative power violative of the established doctrine, delegata potestas non
potest delegate.
ISSUES: WoN there was an abdication of legislative power in violation of the
established doctrine, delegata potestas non potest delegate.
RULING: NO. The purpose of the said provision is to impose a specific tax on
wines and imitation wines. The first clause of Section 134 states so in plain
language. The sole object of the sub-enumeration that follows is in turn
unmistakably to prescribe the amount of the tax specifically to be paid for
each type of wine and/or imitation wine so classified and described. The
section therefore clearly and undoubtedly discloses the legislative will, leaving

FACTS: The President issued an EO which imposed, across the board,

including crude oil and other oil products, additional duty ad valorem. The
Tariff Commission held public hearings on said EO and submitted a report to
the President for consideration and appropriate action. The President, on the
other hand issued an EO which levied a special duty of P0.95 per liter of
imported crude oil and P1.00 per liter of imported oil products.
ISSUES: WoN the President may issue an EO which is tantamount to
enacting a bill in the nature of revenue-generating measures
RULING: Yes. The Court said that although the enactment of appropriation,
revenue and tariff bills is within the province of the Legislative, it does not
follow that EO in question, assuming they may be characterized as revenue
measure are prohibited to the President, that they must be enacted instead by
Congress. Section 28 of Article VI of the 1987 Constitution provides: The
Congress may, by law authorize the President to fix tariff rates and other
duties or imposts
The relevant Congressional statute is the Tariff and Customs Code of the
Philippines and Sections 104 and 401, the pertinent provisions thereof.

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Osmena v. Orbos

Revenue Memorandum Circular (RMC) 37-93, which stated that the 55% tax
shall also cover foreign brands as listed in the WTD. On this basis, the CIR
assessed Fortune Tobacco with 9 million pesos in deficiency taxes.

FACTS: Senators Osmena, Pimentel and Biazon questioned the legality of

the Oil Price Stabilization Fund (OPSF).

ISSUES: WoN RMC 37-93 is valid.

ISSUES: WoN there was an undue delegation of legislative power.

RULING: No. For a valid delegation of power, it is essential that the law
delegating the power must be (1) complete in itself, that it must set forth the
policy to be executed by the delegate and (2) it must fix a standard -- limits of
which are sufficiently determinate or determinable -- to which the delegate
must conform. The standard may even be implied.
PD 1956, Sec. 8(c) expressly authorizes the ERB to impose additional
amounts to augment the resources of the Fund. Although the provision
authorizing the ERB to impose additional amounts could be construed to refer
to the power of taxation, it cannot be overlooked that the overriding
consideration is to enable the delegate to act with expediency in carrying out
the objectives of the law which are embraced by the police power of the State.
The interplay and constant fluctuation of the various factors involved in the
determination of the price of oil and petroleum products, and the frequently
shifting need to either augment or exhaust the Fund, do not conveniently
permit the setting of fixed or rigid parameters in the law as proposed by the
petitioner. To do so would render the ERB unable to respond effectively so as
to mitigate or avoid the undesirable consequences of such fluidity. As such,
the standard as it is expressed, suffices to guide the delegate in the exercise
of the delegated power, taking into account of the circumstances under which
it is to be executed.

CIR v. CA & Fortune Tobacco Corp.

FACTS: Fortune Tobacco Corp. manufactured three foreign brands of
cigarettes as listed in the World Tobacco Directory (WTD): Hope, More, and
Champion. To avoid taxes, Fortune Tobacco changed the names of the
brands into "Hope Luxury" and "Premium More." The BIR then classified them
as local brands and thus assessed them a 45% ad valorem tax.
RA 7654 was passed, imposing a 55% tax on cigarette brands currently
assessed at the same rate. The CIR, without notice and publication, issued

RULING: No. It should be understandable that when an administrative rule is

merely interpretative in nature, its applicability needs nothing further than its
bare issuance for it gives no real consequence more than what the law itself
has already prescribed.
When, upon the other hand, the administrative rule goes beyond merely
providing for the means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the burden of
those governed, it behooves the agency to accord at least to those directly
affected a chance to be heard, and thereafter to be duly informed, before that
new issuance is given the force and effect of law.
RMC 37-93 in fact reclassified the brands, when before its effectivity, at the
time of RA 7654's passage, the brands were not covered by the 55% tax.
Clearly, RMC 37-93 is not merely interpretative in nature, but one issued by
the CIR in its quasi-legislative power. The due observance of the requirements
of notice, of hearing, and of publication should not have been then ignored.

IV1.C. EXEMPTION OF GOVERNMENT AGENCIES

Maceda vs. Macaraig
FACTS: Commonwealth Act 120 created NAPOCOR as a public corporation
to undertake the development of hydraulic power and the production of power
from other sources. RA 358 (1949) granted NAPOCOR tax and duty
exemption privileges. RA 6395 (1971) revised the charter of the NAPOCOR,
tasking it to carry out the policy of the national electrification, and provided in
detail NAPOCORs tax exceptions. PD 380 (1974) specified that NAPOCORs
exemption includes all taxes, etc. imposed directly or indirectly. PD 938
integrated the exemptions in favor of GOCCs including their subsidiaries;
however, empowering the President or the Minister of Finance, upon
recommendation of the Fiscal Incentives Review Board (FIRB) to restore,
partially or completely, the exemptions withdrawn or revised. The FIRB issued
Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions
privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 186 (1January 1986) restored such exemption indefinitely effective 1 July 1985.

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EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87

(24 June 1987) restoring NAPOCORs exemption, which was approved by the
President on 5 October 1987.
Since 1976, oil firms never paid excise or specific and ad valorem taxes for
petroleum products sold and delivered to NAPOCOR. Oil companies started
to pay specific and ad valorem taxes on their sales of oil products to
NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million).
Only portion thereof, corresponding to Caltex, was approved and released by
way of a tax credit memo. The claim for refund of taxes paid by PetroPhil,
Shell and Caltex amounting to P410.58 million was denied. NAPOCOR
moved for reconsideration, starting that all deliveries of petroleum products to
NAPOCOR are tax exempt, regardless of the period of delivery.
ISSUES: Whether NAPOCOR cease to enjoy exemption from indirect tax
when PD 938 stated the exemption in general terms.
RULING: NAPOCOR is a non-profit public corporation created for the general
good and welfare, and wholly owned by the government of the Republic of the
Philippines. From the very beginning of the corporations existence,
NAPOCOR enjoyed preferential tax treatment to enable the corporation to
pay the indebtness and obligation and effective implementation of the policy
enunciated in Section 1 of RA 6395. From the preamble of PD 938, it is
evident that the provisions of PD 938 were not intended to be strictly
construed against NAPOCOR. On the contrary, the law mandates that it
should be interpreted liberally so as to enhance the tax exempt status of
NAPOCOR. It is recognized principle that the rule on strict interpretation does
not apply in the case of exemptions in favor of government political
subdivision or instrumentality. In the case of property owned by the state or a
city or other public corporations, the express exception should not be
construed with the same degree of strictness that applies to exemptions
contrary to the policy of the state, since as to such property exception is the
rule and taxation the exception.

IV1.D. TERRITORIALITY OR SITUS OF TAXATION

Manila Gas vs. Collector
FACTS: This is an action brought by the Manila Gas Corporation against the
Collector of Internal Revenue for the recovery of P56,757.37, which the
plaintiff was required by the defendant to deduct and withhold from the various
sums paid it to foreign corporations as dividends and interest on bonds and
other indebtedness and which the plaintiff paid under protest.

ISSUES: Won the Collector of Internal Revenue was justified in withholding

income taxes on interest on bonds and other indebtedness paid to nonresident corporations
RULING: YES. The approved doctrine is that no state may tax anything not
within its jurisdiction without violating the due process clause of the
constitution. The taxing power of a state does not extend beyond its territorial
limits, but within such it may tax persons, property, income, or business. If an
interest in property is taxed, the situs of either the property or interest must be
found within the state. If an income is taxed, the recipient thereof must have a
domicile within the state or the property or business out of which the income
issues must be situated within the state so that the income may be said to
have a situs therein. Personal property may be separated from its owner, and
he may be taxed on its account at the place where the property is although it
is not the place of his own domicile and even though he is not a citizen or
resident of the state which imposes the tax. But debts owing by corporations
are obligations of the debtors, and only possess value in the hands of the
creditors.
The Manila Gas Corporation operates its business entirely within the
Philippines. Its earnings, therefore come from local sources. The place of
material delivery of the interest to the foreign corporations paid out of the
revenue of the domestic corporation is of no particular moment. The place of
payment even if conceded to be outside of the country cannot alter the fact
that the income was derived from the Philippines. The word "source" conveys
only one idea, that of origin, and the origin of the income was the Philippines.
The Collector of Internal Revenue was justified in withholding income taxes on
interest on bonds and other indebtedness paid to non-resident corporations
because this income was received from sources within the Philippine Islands
as authorized by the Income Tax Law.

Vegetable Oil Corp. v. Trinidad

RULING: If the tax were one on sales, we would readily agree that the sales,
in order to be taxable in the Philippine Islands, must be consummated there;
the Philippine Government cannot, of course, collect privilege taxes on sales
taking place in foreign countries no matter whether the vendor is a Philippine
merchant or whether he is a foreign one. Neither can the Government impose
such taxes on consignments from one foreign port to another. But, with the
approval of Congress, it may legally levy taxes on consignments from
Philippine ports. That is what has been done in the present instance. It has
imposed the tax on local transactions; it does not seek to tax transactions

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carried out abroad. But when a foreign merchant, as the word "merchant" is
defined in our statutes, comes to our shores and enters into transactions upon
which a tax is laid, the Government can, and does, place him on an equality
with domestic merchants and requires him to pay the same privilege taxes.
It is not disputed that the Legislature has the power to define the class of
persons who must pay certain local taxes; in fact, the appellee's argument
rests precisely on such a statutory definition. Neither can it be questioned that
the Government may impose taxes on local business transacted by
foreigners. In the absence of words of limitation or exemption in the statute,
why must we then assume that, in defining the word "merchants," the class of
persons required to pay consignment taxes, the definition applies only to
domestic and not to foreign merchants?
Perhaps it will be argued that a statutory definition is only of local application
and is of no legal effect beyond the boundaries of the country in which the
statute is enacted. That is true, but has nothing to do with the present case.
We are not here applying the definition in relation to the collection of a foreign
tax; we are considering it in connection with the tax on a local transaction.
To hold that only persons who engage in sales, barter or exchange in the
Philippine Islands are to pay the tax on consignments would place the local
merchants at a serious disadvantage in competition with the foreign
merchants, and would defeat the very evident purpose of the tax. The
language of the statute is perfectly clear and places the burden of the tax on
all merchants alike. Are we then justified in exempting some of the merchants
by reading non-existent provisions into the statute which would defeat its
unmistakable intent and seriously handicap the local merchants, in some
cases, perhaps, driving them out of business? We submit that to do so would
violate every canon of statutory construction and would clearly amount to
unwarranted judicial legislation.

Wells Fargo Bank vs. The Collector of Internal Revenue

FACTS: Birdie Lillian Eye died in California. she left her one-half conjugal
share in 70,000 shares of stock in the Benguet Consolidated Mining
Company, an anonymous partnership, organized and existing under the laws
of the Philippines. She left a will which was duly admitted to probate in
California where her estate was administered and settled. Wells Fargo Bank &
Union Trust Company was duly appointed trustee of the created by the said
will. The Federal and State of California's inheritance taxes due on said
shares have been duly paid. Respondent Collector of Internal Revenue
sought to subject anew the aforesaid shares of stock to the Philippine
inheritance tax, to which petitioner-appellant objected.

ISSUES: WoN the Philippine Government can tax the shares

RULING: Yes. In the instant case, the actual situs of the shares of stock is in
the Philippines, the corporation being domiciled therein. And besides, the
certificates of stock have remained in this country up to the time when the
deceased died in California, and they were in possession of one Syrena
McKee, secretary of the Benguet Consolidated Mining Company, to whom
they have been delivered and indorsed in blank. This indorsement gave
Syrena McKee the right to vote the certificates at the general meetings of the
stockholders, to collect dividends, and dispose of the shares in the manner
she may deem fit, without prejudice to her liability to the owner for violation of
instructions. For all practical purposes, then, Syrena McKee had the legal title
to the certificates of stock held in trust for the true owner thereof. In other
words, the owner residing in California has extended here her activities with
respect to her intangibles so as to avail herself of the protection and benefit of
the Philippine laws. Accordingly, the jurisdiction of the Philippine Government
to tax must be upheld.

CIR v. BOAC (British Overseas Airways Corporation)

FACTS: BOAC is a 100% British Government-owned corporation organized
and existing under the laws of the United Kingdom It is engaged in the
international airline business and is a member-signatory of the Interline Air
Transport Association (IATA). As such it operates air transportation service
and sells transportation tickets over the routes of the other airline members.
During the periods covered by the disputed assessments, it is admitted that
BOAC had no landing rights for traffic purposes in the Philippines, and was
not granted a Certificate of public convenience and necessity to operate in the
Philippines by the Civil Aeronautics Board (CAB), except for a nine-month
period, partly in 1961 and partly in 1962, when it was granted a temporary
landing permit by the CAB. Consequently, it did not carry passengers and/or
cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines Warner
Barnes and Company, Ltd., and later Qantas Airways which was responsible
for selling BOAC tickets covering passengers and cargoes.
Petitioner Commissioner of Internal Revenue assessed BOAC the for
deficiency income taxes covering the years 1959 to 1963. This was protested
by BOAC. Subsequent investigation resulted in the issuance of a new
assessment, for the years 1959 to 1967. BOAC paid this new assessment
under protest. BOAC filed a claim for refund which was denied by the CIR.

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BOAC was assessed deficiency income taxes, interests, and penalty for the
fiscal years 1968-1969 to 1970-1971 and the additional amounts of P1,000.00
and P1,800.00 as compromise penalties for violation of Section 46 (requiring
the filing of corporation returns). BOAC requested that the assessment be
countermanded and set aside. CIR not only denied the BOAC request for
refund in the First Case but also re-issued in the Second Case the deficiency
income tax assessment in the second case.
Case was then jointly tried. the Tax Court rendered the assailed joint Decision
reversing the CIR. The Tax Court held that the proceeds of sales of BOAC
passage tickets in the Philippines by Warner Barnes and Company, Ltd., and
later by Qantas Airways, during the period in question, do not constitute
BOAC income from Philippine sources "since no service of carriage of
passengers or freight was performed by BOAC within the Philippines" and,
therefore, said income is not subject to Philippine income tax. The CTA
position was that income from transportation is income from services so that
the place where services are rendered determines the source. Thus, in the
dispositive portion of its Decision, the Tax Court ordered petitioner to credit
BOAC with the sum of P858,307.79, and to cancel the deficiency income tax
assessments against BOAC in the amount of P534,132.08 for the fiscal years
1968-69 to 1970-71.
Hence, this Petition for Review on certiorari of the Decision of the Tax Court.
ISSUES: Whether or not the revenue derived by private respondent British
Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines
for air transportation, while having no landing rights here, constitute income of
BOAC from Philippine sources, and, accordingly, taxable.
RULING: Yes. It is our considered opinion that BOAC is a resident foreign
corporation. There is no specific criterion as to what constitutes "doing" or
"engaging in" or "transacting" business. Each case must be judged in the light
of its peculiar environmental circumstances. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of commercial gain or for
the purpose and object of the business organization. "In order that a foreign
corporation may be regarded as doing business within a State, there must be
continuity of conduct and intention to establish a continuous business, such as
the appointment of a local agent, and not one of a temporary character.
BOAC, during the periods covered by the subject - assessments, maintained

a general sales agent in the Philippines, That general sales agent, from 1959
to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the
whole trip into series of trips each trip in the series corresponding to a different
airline company; (3) receiving the fare from the whole trip; and (4)
consequently allocating to the various airline companies on the basis of their
participation in the services rendered through the mode of interline settlement
as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement."
Those activities were in exercise of the functions which are normally incident
to, and are in progressive pursuit of, the purpose and object of its organization
as an international air carrier. In fact, the regular sale of tickets, its main
activity, is the very lifeblood of the airline business, the generation of sales
being the paramount objective. There should be no doubt then that BOAC
was "engaged in" business in the Philippines through a local agent during the
period covered by the assessments. Accordingly, it is a resident foreign
corporation subject to tax upon its total net income received in the preceding
taxable year from all sources within the Philippines.
The Tax Code defines "gross income" thus: "Gross income" includes gains,
profits, and income derived from salaries, wages or compensation for
personal service of whatever kind and in whatever form paid, or from
profession, vocations, trades, business, commerce, sales, or dealings in
property, whether real or personal, growing out of the ownership or use of or
interest in such property; also from interests, rents, dividends, securities, or
the transactions of any business carried on for gain or profile, or gains, profits,
and income derived from any source whatever (Sec. 29[3]).
Income means "cash received or its equivalent"; it is the amount of money
coming to a person within a specific time; it means something distinct from
principal or capital. For, while capital is a fund, income is a flow. As used in our
income tax law, "income" refers to the flow of wealth.
The source of an income is the property, activity or service that produced the
income. For the source of income to be considered as coming from the
Philippines, it is sufficient that the income is derived from activity within the
Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity
that produces the income. The tickets exchanged hands here and payments
for fares were also made here in Philippine currency. The site of the source of
payments is the Philippines. The flow of wealth proceeded from, and occurred
within, Philippine territory, enjoying the protection accorded by the Philippine
government. In consideration of such protection, the flow of wealth should
share the burden of supporting the government.
A transportation ticket is not a mere piece of paper. When issued by a

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common carrier, it constitutes the contract between the ticket-holder and the
carrier. It gives rise to the obligation of the purchaser of the ticket to pay the
fare and the corresponding obligation of the carrier to transport the passenger
upon the terms and conditions set forth thereon. The ordinary ticket issued to
members of the traveling public in general embraces within its terms all the
elements to constitute it a valid contract, binding upon the parties entering into
the relationship.
True, Section 37(a) of the Tax Code, which enumerates items of gross income
from sources within the Philippines, namely: (1) interest, (21) dividends, (3)
service, (4) rentals and royalties, (5) sale of real property, and (6) sale of
personal property, does not mention income from the sale of tickets for
international transportation. However, that does not render it less an income
from sources within the Philippines. Section 37, by its language, does not
intend the enumeration to be exclusive. It merely directs that the types of
income listed therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it does not state
that it is an all-inclusive enumeration, and that no other kind of income may be
so considered.
The absence of flight operations to and from the Philippines is not
determinative of the source of income or the site of income taxation.
Admittedly, BOAC was an off-line international airline at the time pertinent to
this case. The test of taxability is the "source"; and the source of an income is
that activity ... which produced the income. Unquestionably, the passage
documentations in these cases were sold in the Philippines and the revenue
therefrom was derived from a activity regularly pursued within the Philippines.
And even if the BOAC tickets sold covered the "transport of passengers and
cargo to and from foreign cities", it cannot alter the fact that income from the
sale of tickets was derived from the Philippines. The word "source" conveys
one essential idea, that of origin, and the origin of the income herein is the
Philippines.

Hopewell Power Phils. v. CIR

FACTS: Hopewell Power Phils. and Hopewell Energy International Ltd.,
executed a Mortgage Trust Indenture (MTI) in Hongkong. Hopwell Power paid
under protest the corresponding Documentary Stamp Tax (DST) to the BIR in
Lucena City, to facilitate the registration of the MTI in connection with
properties located there. Hopewell Power then filed a refund of the DST with
the BIR, arguing that a DST, being in the nature of an excise tax, does not
attach to the execution of the documents in Hongkong, and that they were
executed prior to the effectivity of RA 7660 which addressed this perceived

loophole in the law.

ISSUES: WoN the DST may be levied on documents executed abroad.
RULING: No. The power to levy an excise upon the performance of an act or
the engaging in an occupation does not depend upon the domicile of the
person subject to the excise, nor upon the physical location of the property
and in connection with the act or occupation taxed, but depends upon the
place in which the act is performed or occupation engaged in. Thus, the
gauge for taxability does not depend on the location of the office, but attaches
upon the place where the respective transaction(s) is perfected and
consummated.
Thus, inasmuch as the MTI was executed and signed in Hong Kong prior to
the effectivity of RA 7660 on January 14, 1994, no DST is imposable on the
same in the Philippines. This conclusion is also in keeping with one of the
inherent limitations of taxation, namely, that it may be exercised only within
the territorial jurisdiction of the taxing authority.
Prescinding from the above, this Court sees Sec. 173 of the Tax Code, as
amended by RA 7660, as imposing DST, not directly anymore upon the act or
privilege of transacting documents, instruments, papers and loan agreements
per se, but rather on the act or privilege of simply transacting on any
obligation or right arising from Philippine sources, or on any property situated
in the Philippines. Unlike before the amendment where the execution of the
document, instrument, paper or loan agreement itself automatically gives rise
to the imposition of DST, such execution is now deemed to be merely
incidental.

IV1.E. DOUBLE TAXATION

Procter & Gamble Co. v. Mun. of Jagna
RULING: For double taxation to exist, the same property must be taxed twice,
when it should be taxed but once. Double taxation has also been defined as
taxing the same person twice by the same jurisdiction for the same thing. 9
Surely, a tax on plaintiff's products is different from a tax on the privilege of
storing copra in a bodega situated within the territorial boundary of defendant
municipality.

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Punzalan v. Municipal Board of Manila

FACTS: The ordinance in question, which was approved by the municipal
board of the City of Manila on July 25, 1950, imposes a municipal occupation
tax on persons exercising various professions in the city and penalizes nonpayment of the tax. Having already paid their occupation tax under section
201 of the National Internal Revenue Code, plaintiffs, upon being required to
pay the additional tax prescribed in the ordinance, paid the same under
protest and then brought the present suit .
RULING: Plaintiffs brand the ordinance unjust and oppressive because they
say that it creates discrimination within a class in that while professionals with
offices in Manila have to pay the tax, outsiders who have no offices in the city
but practice their profession therein are not subject to the tax. Plaintiffs make
a distinction that is not found in the ordinance. The ordinance imposes the tax
upon every person "exercising" or "pursuing" in the City of Manila naturally
any one of the occupations named, but does not say that such person must
have his office in Manila. What constitutes exercise or pursuit of a profession
in the city is a matter of judicial determination.
The argument against double taxation may not be invoked where one tax is
imposed by the state and the other is imposed by the city, it being widely
recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling
or activity by both the state and the political subdivisions thereof.

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