Compañia General de Tabacos de Filipinas vs.

City of Manila
G.RNo. L-16619. June 29, 1963.
COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiffappellee, vs. CITY OF MANILA, ET AL.,
defendants-appellants.

Facts:

Appellee Compañia General de Tabacos de Filipinas filed this action in the Court of First Instance of
Manila to recover from appellants, City of Manila the sum of P15,280.00 allegedly overpaid by it as taxes
on its wholesale and retail sales of liqou.

Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license
fees for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of general merchandise,
it also paid the sales taxes.

Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should
pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by
Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees aforesaid, the sales
taxes paid by it—amounting to the sum of P15,208.00 15,208.00—under the three ordinances
mentioned heretofore is an overpayment made by mistake, and therefore refundable.

Issue: Whether or not double taxation exist

Held:

The term "tax" applies—generally speaking—to all kinds of exactions which become public funds. The
term is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus,
license fees are commonly called taxes. Legally speaking, however, license fee is a legal concept quite
distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while
the latter is imposed under the taxing power for the purpose of raising revenues.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what
is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a
calling in which—it is obvious—not anyone or anybody may freely engage, considering that the sale of
liquor indiscriminately may endanger public health and morals. On the other hand, what the three
ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the
same article or merchandise. It is already settled in this connection that both a license fee and a tax may
be imposed on the same business or occupation, or for selling the same article, this not being in
violation of the rule against double taxation. This is precisely the case with the ordinances involved in
the case at bar.

WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it is
hereby dismissed, with costs.

Villanueva vs. City of Iloilo
G. R. No. L-26521. December 28, 1968.
EUSEBIO VILLANUEVA, ET AL., plaintiffs-appellees, vs. CITY OF ILOILO, defendant-appellant

Facts:

Municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement
house (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M.
Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in
business in any other streets, P12.00 per apartment.

The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva
and Remedios Sian Villanueva, owners of four tenement houses containing 34 apartments.

The plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of
Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for
being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for
being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal
protection clause of the Constitution," and that the City be ordered to refund the amounts collected
from them under the said ordinance.

Lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act
2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and
unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it
constitutes "not only double taxation, but treble at that," and (d) it violates the rule of uniformity of
taxation.

Issue:

Whether or nots Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double
taxation?

Held:

It is our view, that the tax in question is not a real estate tax. Obviously, the appellees confuse the tax
with the real estate tax within

A property tax is ordinarily measured by the amount of property owned by the taxpayer on a given day,
and not on the total amount owned by him during the year. It is ordinarily assessed at stated periods
determined in advance, and collected at appointed times, and its payment is usually enforced by sale of
the property taxed, and, occassionally, by imprisonment of the person assessed."

"A 'real estate tax' is a tax in rem against realty without personal liability therefor on part of owner
thereof, and a judgment recovered in proceedings for enforcement of real estate tax is one in rem
against the realty without personal liability against the owner."

4 'The term 'license tax' or 'license fee' implies an imposition or exaction on the right to use or dispose
of a property, to pursue a business, occupation, or calling, or to exercise a privilege."

"The term 'excise tax' is synonymous with 'privilege tax', and the two are often used interchangeably,
and whether a tax is characterized in the statute imposing it as a privilege tax or an excise tax is merely a
choice of synonymous words, for an excise tax is a privilege tax." (51 Am. Jur. 62, citing Bank of
Commerce & T. Co. vs. Senter, 149 Tenn. 569, 260 SW 144) "Thus, it is said that an excise tax is a charge
imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an
occupation." (51 Am. Jur. 61)

A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon,
not specially exempted,8 and is payable regardless of whether the property is used or not, although the
value may vary in accordance with such factor.9 The tax is usually single or indivisible, although the land
and building or improvements erected thereon are assessed separately, except when the land and
building or improvements belong to separate owners.10 It is a fixed proportion11 of the assessed value
of the property taxed, and requires, therefore, the intervention of assessors.12 It is collected or payable
at appointed times,13 and it constitutes a superior lien on and is enforceable against the property
subject to such taxation, and not by imprisonment of the owner.

The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax
on the land on which the tenement houses are erected, although both land and tenement houses may
belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement
houses, and does not require the intervention of assessors or appraisers. It is not payable at a
designated time or date, and is not enf orceable against the tenement houses either by sale or distraint.
Clearly, therefore, the tax in question is not a real estate tax.

"The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court
looks less to its words and more to the context, subject-matter, consequence and effect. Accordingly,
what is within the spirit is within the ordinance although it is not within the letter thereof, while that
which is in the letter, although not within the spirit, is not within the ordinance."15 It is within neither
the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise
the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the
context of the ordinance that the intention is to impose a license tax on the operation of tenement
houses, which is a form of business or calling. The ordinance, in both its title and body, particularly
sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means
an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation,
or calling, or to exercise a privilege."16

_______________

14 Sec. 38 of Com. Act 158 provides: "Such lien shall' be superior to all other liens, mortgages or
incumbrances of any kind whatsoever, and shall be enforceable against the property whether in the
possession of the delinquent or any subsequent owner, and can only be removed by the payment of the
tax and penalty."

15 62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60.

16 51 Am. Jur. 59-60; 33 Am. Jur. 325-326.

under sec. yards. Remedios Sian Villanueva. 1959. boarding houses. et al." Tenement houses. 1968 591 . Dec. but such words must be taken in the connection in which they are used. This is precisely one of the reasons why this Court. but having a common right in the halls. j. These are different business enterprises." tenement houses." The Supreme Court. declared Ordinance 86 ultra vires. therefore constitute a distinct form of business or calling. "to tax. 2nd Ed.19 are not mentioned in the af ore- _______________ 17 51 Am. Remedios Sian Villanueva. Jacob.. of its Charter. or hired out to be occupied. p. or boarding house.) 422. DECEMBER 28. similar to the hotel or motel business. par.. so living and cooking.. March 23. leased. or some of them. or portion thereof. or is occupied. and regulate hotels. citing Eyre v. cinematographs. 19 City of Iloilo vs. 21. a tenement house is different from hotel. March 23. in the said case of City of Iloilo vs. or privies. restaurants. supra. pawnshops. 73 Am. City of lloilo "The character of a tax is not to be fixed by any isolated words that may be employed in the statute creating it. cafes. 26. livery garages. being necessarily offered for rent or lease by their very nature and essence. lodging house. lodging houses. or by more than two families upon any floor. L12695. fix the license fee for.. public warehouses. Jur. 1959: "As may be seen from the definition of each establishment hereunder quoted. et al. stairways. although the municipal board of Iloilo City is empowered. which constitute a different business enterprise. and the true character is to be deduced from the nature and essence of the subject. 56." 591 VOL. water-closets. refreshment parlors. 367. They have been established for different purposes. theaters. 14 Gratt (Va. which is rented. adopted the definition of a tenement house18 as "any house or building. in City of Iloilo vs Remedios Sian Villanueva. L- 12695. 2601. as the home or residence of three families or more living independently of each other and doing their cooking in the premises. or the operation of lodging houses or boarding houses. et al. 18 Webster's New International Dictionary."17 The subject-matter of the ordinance is tenement houses whose nature and essence are expressly set f orth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into separate apartments or accessorias. because.590 590 SUPREME COURT REPORTS ANNOTATED Villanueva vs.

Villanueva vs. City of Iloilo

stated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:

"And it not appearing that the power to tax owners of tenement houses is one among those clearly and
expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and
hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those
belonging to defendants."

The lower court has interchangeably denominated the tax in question as a tenement tax or an
apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local
Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged
in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act
which provides that chartered cities have the authority to imposed municipal license taxes or fees upon
persons engaged in any occupation or business, or exercising privileges within their respective
territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees."

2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that,"
because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of
the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously,
what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided
for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in
"leasing or renting property, whether on their account as principals or as owners of rental property or
properties," are considered "real estate dealers" and are taxed according to the amount of their annual
income.20

_______________

20 National Internal Revenue Code:

"SEC. 182. Fixed taxes.—(A) On business x x x; (3) Other fixed taxes.—The following fixed taxes shall be
collected as follows, the amount stated being for the whole year, when not otherwise specified:

x x x

"(s) Stockbrokers, dealers in securities, real estate brokers.

592

592

SUPREME COURT REPORTS ANNOTATED

Villanueva vs. City of Iloilo

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the

argument against double taxation may not be invoked. The same tax may be imposed by the national
government as well as by the local government. There is nothing inherently obnoxious in the exaction of
license f ees or taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21

_______________

real estate dealers, commercial brokers, customs brokers, and immigration brokers, one hundred and
fifty pesos: Provided, however, That in the case of real estate dealers, the annual fixed tax to be
collected shall be as follows:

"One hundred and fifty pesos, if the annual income from buying, selling, exchanging, leasing, or renting
property (whether on their own account as principals or as owners of rental property or properties) is
four thousand pesos or more but not exceeding ten thousand pesos;

"Three hundred pesos, if such annual income exceeds ten thousand pesos but does not exceed thirty
thousand pesos; and

"Five hundred pesos, if such annual income exceeds thirty thousand pesos."

21 Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil. 46, per
Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of the City of Manila,
approved on July 25, 1950, imposing a municipal occupation tax on persons exercising various
professions (lawyers, medical practitioners, public accountants, dental surgeons, pharmacists, etc.), in
the city and penalizes non-payment of the tax by a fine of not more than P200.00 or by imprisonment of
not more than 6 months, or by both such fine and imprisonment in the discretion of the court, although
section 201 [now sec. 182(B)] of the National Internal Revenue Code requires the payment of taxes on
occupation or professional taxes. Said Justice Reyes: "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 (1 Cooley on
Taxation, 4th ed., p. 492), it being widely recognized that there is nothing 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 subdivision thereof. (51 Am. Jur., 341.)"

A month after the promulgation of the above decision, Congress passed Rep. Act 1166, approved on
June 18, 1954, providing as follows: "Any provisions of existing laws, city

593

VOL. 26, DECEMBER 28, 1968

593

Villanueva vs. City of Iloilo

The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-
settled rule that a license tax may be levied upon a business or occupation although the land or property

used in connection therewith is subject to property tax. The State may collect an ad valorem tax on
property used in a calling, and at the same time impose a license tax on that calling, the imposition of
the latter kind of tax being in no sense a double tax.22

_______________

charters and ordinances, executive orders and regulations, or parts thereof, to the contrary
notwithstanding, every professional legally authorized to practice his profession, who has paid the
corresponding annual privilege tax on professions required by Sec. 182 of the NIRC, Com. Act No. 466,
shall be entitled to practice the profession for which he has been duly qualified under the law, in all
parts of the Philippines without being subject to any other tax, charge, license or fee for the practice of
such profession; Provided, however, That they have paid to the office concerned the registration fees
required In their respective professions."

22 People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per Bautista Angelo, J.
Appeal from the decision of the CFI of Zambales. Defendants-appellees were convicted by the JP Court
of Palauig, Zambales, and sentenced to pay a fine of P5.00, for failure to pay the occupation tax imposed
by a municipal ordinance on owners of fishponds on lands of private ownership. The Supreme Court, in
sustaining the validity of the ordinance, held.

"The ground on which the trial court declared the municipal ordinance invalid would seem to be that,
since the land on which the fishpond is situated is already subject to land tax, it would be unfair and
discriminatory to levy another tax on the owner of the fishpond because that would amount to double
taxation. This view is erroneous because it is a well-settled rule that a license tax may be levied upon a
business or occupation although the land or property used therein is subject to property tax. It was also
held that 'the state may collect an ad valorem tax on property used in a calling, and at the same time
impose a license tax on the pursuit of that calling.' The imposition of this kind of tax is in no sense called
a double tax." Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97 Phil.
687, per Reyes, J.B.L., J.

"Considering that appellant constructed her four-door 'accessoria' purposely for rent or profit; that she
has been continuously leasing the same to third persons since its construction

594

594

SUPREME COURT REPORTS ANNOTATED

Villanueva vs. City of Iloilo

"In order to constitute double taxation in the objectionable or prohibited sense the same property must
be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or
subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the
same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or

on which we need not and do not express any opinion—double taxation. Commissioner of Internal Revenue vs. Pepsi-Cola Bottling Co. promulgated May 27. that she manages her property herself. June 29. 1968. 182(A) (3) (s)] of the Internal Revenue Code. 1956. such as the requirement that taxes must be uniform. 131-132. when considered in relation to the sales tax prescribed by Acts of Congress. 1951. Interisland Gas Service. et al.. provided some other consti- _______________ in 1947. amounts to double taxation. Indeed—independently of whether or not the tax in question. Mendaros. Act No. 1955. if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance. 42. L-2910. At all events. wherein we held that it is a well-settled rule that license tax may be levied upon a business or occupation although the land or property used therein is subject to property tax. 28. 1968 595 Villanueva vs. Aug. May 30. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it "carries a penal clause of a fine of P200. of the Philippines vs. although imposed by the same taxing authority. Pepsi-Cola Bottling Co.J. vs. and is a real estate dealer as defined in section 194(s) [now. City of Butuan."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance. Hawaiian-Philippine Co. there is no constitutional prohibition against double taxation in the Philippines. and that said leased holding appears to be her main source of livelihood. L-6975. but is permissible.S. in gen 595 VOL. supra: "The second and last objections are manifestly devoid of merit. 1964. et al. and that 'the state may collect an ad valorem tax on property used in a calling. City of Iloilo tutional requirement is not thereby violated. L-8799. and at the same time impose a license tax on the pursuit of that calling' the imposition of the latter kind of tax being in no sense a double tax. "Appellant argues that she is already paying real estate taxes on her property. 26. Sec. as amended by Rep. are not of the same kind or character.24 It is something not favored.25 3. as well as income tax on the income derived therefrom.character of tax. Meer. L-22814. DECEMBER 28.'" 23 84 C. she is engaged in the leasing of real estate. L-16315. This argument has already been rejected by this Court in the case of People vs.00 or imprisonment of 6 months or both. City of Butuan.. City of Manila vs." but also unconstitutional as it subjects the owners of tenement . so that to further subject its rentals to the 'real estate dealers' tax' amounts to double taxation. vs. 31. Aug. 24 Manufacturers' Life Insurance Co.

to prevent the imposition of more than one tax on property within the jurisdiction. VI. 'except as it is limited or restrained by constitutional provisions. Art. However. or upon all persons of a certain class. without regard to their property or the ."27 Nor is the tax in question a poll tax."26 It is elementary. as the power to tax twice is as ample as the power to tax once. express or implied.S. In such case whether or not there should be double taxation is a matter within the discretion of the legislature." The lower court apparently had in mind. and theref ore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment f or debt." 596 596 SUPREME COURT REPORTS ANNOTATED Villanueva vs. 133-134. We have not adopted. or necessarily unlawful. as part thereof. it is held that double taxation is permissible. 22(1) provides: "The rule of taxation shall be uniform. and since. or not invalid or unconstitutional. again. when it made the above ruling. resident within a specified territory." 25 84 C J. since the taxing power is exclusively a legislative function. "Double taxation. and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not in conflict with that prohibition. the general principle against delegation of legislative powers." The Constitution of the Philippines. is permissible in the absence of express or implied constitutional prohibition. it is absolute and unlimited. provided some other constitutional requirement is not thereby violated. namely. although not favored. that "a tax is not a debt in the sense of an obligation incurred by contract. is not forbidden by our fundamental law.houses to criminal prosecution for "non-payment of an obligation which is purely sum of money. "In some states where double taxation is not expressly prohibited. the provision of the Constitution that "no person shall be imprisoned for a debt or non-pay- _______________ eral. Then. legislative powers may be delegated to local governments—to which said theory does not apply—in respect of matters of local concern. in the absence of any express or implied constitutional prohibition against double taxation. as a requirement that taxes must be equal and uniform. sec. City of Iloilo ment of a poll tax. however. in consequence of the theory of separation of powers is subject to one well-established exception. it is generally held that there is nothing. for the latter is a tax of a fixed amount upon all persons. "Double taxation should not be permitted unless the legislature has authority to impose it. the injunction against double taxation found in the Constitution of the United States and some States of the Union.

40 ALR 73 (holding the provisions of an ordinance making the nonpayment of an 'excise tax levied in pursuance of such ordinance a misdemeanor punishable by fine not in violation of the constitutional prohibition against the imprisonment of any person for "debt in a civil action. do not rest upon contract." 28 51 Am. Taxes. or both such fine and imprisonment for each offense. the charter of Iloilo City29 _______________ 26 Art. 25-26: "It is generally considered that a tax is not a debt. It originates in. and that the municipality to which the tax is payable is not a creditor of the person assessed. or mesne or final process"). 112 Ohio St. 1. 73 Am. Rep.L. vs. 147 NE 754.C. et al. 39 Tex. and in no way dependent upon the will or contract. 64 Neb. supra. The trial court brands the ordinance as violative of the rule of uniformity of taxation . Crim. State. Cincinnati. On the other hand. and subject to the conditions and limita 597 VOL. Act No. 12. 113. 491. section 21: "Except as otherwise provided by law. without regard to their property or the occupations in which they may be engaged. Constitution. 27 51 Am. poll taxes" 29 Com. 374. which shall not exceed a fine of two hundred pesos or six months' imprisonment. Rep.28 Therefore. citing Cousins v. III. sec. this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various professions in the City of Manila because it imposed a penalty of fine and imprisonment for its violation. Taxes of a specified amount upon each person performing a certain act or engaging in a certain business or profession are not. 290. or upon all the persons of a certain class. 89 NW 1053. 46 SW 828. Jur." In Punsalan. Rep. 342. express or implied. 'Capitation or poll taxes are taxes of a fixed amount upon all persons. Rosenbloom v.occupations in which they may be engaged. 66-67. contract express or implied. Board of Manila. of the persons taxed. express or implied. 961. 1968 597 Villanueva vs. 57 LRA 922. and is founded upon. 860-861. Mun. They are forced contributions. State. City of lloilo empowers its municipal board to "fix penalties for violations of ordinances. DECEMBER 28. par. Voelkel v. Ex parte Mann. 20 Am. on the other hand. the tax in question is not oppressive in the manner the lower court puts it. St. 26 R. resident within a specified territory. 50 Ala. They are obligations imposed upon citizens to pay the expenses of government. Jur. 158 (An Act Establishing a Form of Government for the City of Iloilo). A debt is a sum of money due by certain and - express agreement.30 4. however. 26.

the pronouncement below that the ordinance in question is illegal and void because it imposes a penalty not authorized by law is clearly without legal basis. which shall not exceed a fine of two hundred pesos or six months' imprisonment. for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. the Municipal Board shall have the following legislative powers: "(aa) x x x and to fix penalties for the violation of ordinances. Neither is the rule of equality and uniformity violated by the fact that tenement taxes are not imposed in other cities." It is our view that both assertions are undeserving of extended attention." 598 598 SUPREME COURT REPORTS ANNOTATED Villanueva vs. are permitted to escape such imposition. we find that the lower court was in error in saying that the imposition of the penalty provided for in the ordinance was without the authority of law.32 So _______________ . while citizens of other cities." because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses. The last paragraph (kk) of the very section that authorizes the enactment of the ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal Board to 'fix penalties f or the violation of ordinances which not exceed to [sic] two hundred pesos fine or six months' imprisonment. for each offense. the appellees argue that there is "lack of uniformity" and "relative inequality. or both such fine and imprisonment. where their councils _______________ tions thereof. If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation. or both such fine and imprisonment. City of Iloilo do not enact a similar tax ordinance. therefore. This Court has already ruled that tenement houses constitute a distinct class of property. It should be noted that in the assessment of real estate tax all parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. for a single offense/ Hence."31 The fact." 30 "To begin with the defendants' appeal. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority." Complementing the above ruling of the lower court. that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition."x x x because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax.

26. vs. Supp.31 51 Am.B. Inc. and boxing exhibitions and other kinds of amusements or places of amusement are taxed. et al. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduc- _______________ and equal throughout the state.. 11. 11. citing Re Page. Jan.34 5. This means. Jur. Uniformity of Operation Throughout Tax Unit. p. and a tax for a city. or." Manila Race Horse Trainers Assn. village. L-18080. 1949]. per Reyes. theatrical shows. 1951. 46 O. it was held in that case. as owners of tenement houses in the City of Iloilo. as one court has graphically put it. It does not mean. 1963..: "The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation.. 88 Phil. vaudeville companies. Thus. however. 60 Kan.L. is that taxation must be uniform throughout the political unit by or with respect to which the tax is levied. J. 58 P 478. that a man in one county shall pay the same rate of taxation for all purposes . a tax for a county purpose must be uniform and 'equal throughout the county. is no argument at all against equality and uniformity of the tax imposition. De la Fuente. that a tax for a state purpose must be uniform 599 VOL. village. for example.33 The plaintiffs-appellees. Alfonso.G. vs. 1968 599 Villanueva vs. or township purpose must be uniform and equal throughout the city. 203. April 22.. City of Iloilo long as the burden of the tax f alls equally and impartially on all owners or operators of tenement houses similarly classified or situated. that the taxes levied by or with respect to the various political subdivisions or taxing districts of the state must be at the same rate. 203: "153. that 'the fact that some places of amusement are not taxed while others. May 31. 60: "In the case of Eastern Theatrical Co. 47 LRA 68: "Taxes are uniform and equal when imposed upon all property of the same character within the taxing authority. such as cinematographs. 303. [L-1104. DECEMBER 28. or township. it was said that there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. Jur.that is . there would be discrimination if some boarding stables of the same class used for the same number of horses were not taxed or were made to pay less or more than others. L-2947. and only demands uniformity within the particular class." 32 Am. which has been introduced into some state constitutions in express language. to No." Tan Kim Kee vs.' Applying this criterion to the present case. Inc. Court of Tax Appeals. to overthrow the presumption that tax statutes are intended to operate uniformly and equally. 842. J.—One requirement with respect to taxation imposed by provisions relating to equality and uniformity. equality and uniformity of taxation is accomplished. theaters. have not shown that the tax burden is not equally or uniformly distributed among them.

79: "The rule of uniformity in taxation applies to property of like kind and character and similarly situated. it suffices to say that there is no identity of subject-matter in that case and this case because the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses. Nor does the rule require that taxes for the same purposes shall be imposed in different territorial subdivisions at the same time. Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law. local governments may now tax any taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local governments. so that no higher rate or greater levy in proportion to value is imposed on one person or species of property than on others similarly situated or of like character. supra. species or items of property are selected to bear the whole burden of the tax. 355]. must operate alike on all persons. and therefore was not available for consideration in the decision in L-12695 which was promulgated on March 23.S. 859.35 . 77: "Equality in taxation is accomplished when the burden of the tax falls equally and impartially on all the persons and property subject to it [State ex rel. 16 F. while one of the issues in the present case is whether the City is empowered to impose the tax levied by Ordinance 11. Canneries v. City of Iloilo tion of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695. 2d. So the requirement is complied with when the tax is levied equally and uniformly on all subjects of the same class and kind and is violated if particular kinds. C. and their power to tax was construed in strictissimi juris. 1959. and a liberal construction will be indulged in order to accomplish fair and equal taxation of all property within the state. while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. and the said ordinance was enacted pursuant to the provisions of the City charter." 84 C.C.J. Nichols. It has also been said in this connection that the omission to tax any particular individual who may be liable does not render the whole tax illegal or void.S. and a tax. Territory of Alaska. 66 N. series of 1960." 33 84 C. There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 86.A.S. or property. Alaska. things. under the provisions of section 2 of the Local Autonomy Act. in order to be uniform. 81: "There is a presumption that tax statutes are intended to operate uniformly and equally [Alaska Consol.J. 256]. To dispose of this contention. under the Local Autonomy Act which took effect on June 19. similarly situated. Moreover. 1959. are left untaxed. 265 N.W." 34 84 C.J.paid by a man in an adjoining county. which should be equally subjected to it. Haggart v." 600 600 SUPREME COURT REPORTS ANNOTATED Villanueva vs.D. while others. as ultra vires. the decision in that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment.

Fernando and Capistrano. Concepcion.L. and... . Sanchez. Reyes. the judgment a quo is reversed. Zaldivar. No pronouncement as to costs. Makalintal. the complaint is hereby dismissed. Dizon. the ordinance in question being valid.J. concur. J. C.B. JJ.ACCORDINGLY..

there is a presumption that receipts of a person engaging in business are _______________ * SECOND DIVISION.” A common definition is “without deduction. declared that Section 121 of the Tax Code expressly subjects interest income of banks to the gross receipts tax. 2005. and we see nothing that would require us not to include the proceeds here in question in the gross receipts allocation unless statutorily such inclusion is prohibited. 149636. There is no law which allows the deduction of 20% final tax from the respondent bank’s interest income for the computation of the 5% gross receipts tax.” “Gross” is also defined as “taking in the whole. Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts. in China Banking Corporation v. Under the ordinary basic methods of handling accounts. the Court defined the term in this wise: As commonly understood. June 8. this in no way should affect or control the normal usage of words in the construction of our statutes. total as opposed to a sum consisting of separate or specified parts. Court of Appeals. having no deduction or abatement.—The Court. failing which. Inc. Gross Receipts Tax. “Such express inclusion of interest income in taxable gross receipts creates a presumption that the entire amount of the interest income. Indeed. entire. As explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v. Such presumption may only be overcome by pointing to a specific provision of law allowing such deduction of the final withholding tax from the taxable gross receipts. 459. whole. Taxation. vs. where such an exception is .” Gross is the antithesis of net. to net receipts. is subject to the gross receipts tax. and the meaning. x x x. total.—Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily because of the impact of federal income tax legislation. Deducting any amount from the gross receipts changes the result. unless the law itself makes an exception. the claim of deduction has no leg to stand on. Koppers Company. without any deduction. JUNE 8. BANK OF COMMERCE. petitioner. Bank of Commerce G. Same. Indeed. the term “gross receipts” means the entire receipts without any deduction. Words and Phrases. the term gross receipts.* COMMISSIONER OF INTERNAL REVENUE. The word “gross” must be used in its plain and ordinary meaning.R. respondent. Bank of Commerce subject to the gross receipts tax. Same. must be taken to include the whole total gross receipts without any deductions. 639 VOL.—The word “gross” must be used in its plain and ordinary meaning. likewise. in the absence of any statutory definition of the term. It is defined as “whole.Commissioner of Internal Revenue vs. No. However. Moreover. without deduction. 2005 639 Commissioner of Internal Revenue vs.

No. that is. This tax. Such final withholding tax covers for the respondent bank’s income and is the amount to be used to pay its tax liability to the government. but their natures are different. there is no law which allows the deduction of 20% final tax from the respondent bank’s interest income for the computation of the 5% gross receipts tax. On the other hand. Thus. Same. The bank can only pay the money it owns. taxing the same person twice by the same jurisdiction for the same thing. Bank of Commerce same taxing authority.” It is obnoxious when the taxpayer is taxed twice.—The bare fact that the final withholding tax is a special trust fund belonging to the government and that the respondent bank did not benefit from it while in custody of the borrower does not justify its exclusion from the computation of interest income. thus: We have repeatedly said that the two taxes. within the same jurisdiction. The amount of the final tax plainly covers for the interest earned and is consequently part of the taxable gross receipt of the lender. The exemption must be clearly and unambiguously expressed in the statute. during the same taxing period. The gross interest. constitutes payment which would extinguish the respondent bank’s obligation to the government.” the two taxes must be imposed on the same subject matter.claimed. Double Taxation. Otherwise described as “direct duplicate taxation. Is there double taxation? The Court finds none. and the income the lender earns. Same. and they must be of the same kind or character. along with the creditable withholding tax. Same. Such earned interest refers to the gross interest without deduction since the regulations do not provide for any such deduction. Double taxation means taxing the same property twice when it should be taxed only once. is the amount the borrower pays. “x x x taxing the same person twice by the same jurisdiction for the same thing. for the use by the borrower of the lender’s money. thus leading us to a final point. the statute is construed strictly in favor of the taxing authority. by the 640 640 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.” the two taxes must be imposed .” In this case. Words and Phrases. 17-84 provides that interest earned on Philippine bank deposits and yield from deposit substitutes are included as part of the tax base upon which the gross receipts tax is imposed. Same. are different from each other. that is. The bare fact that the final withholding tax is a special trust fund belonging to the government and that the respondent bank did not benefit from it while in custody of the borrower does not justify its exclusion from the computation of interest income. and must be clearly established by the taxpayer claiming the right thereto. when it should be but once. taxation is the rule and the claimant must show that his demand is within the letter as well as the spirit of the law. without deduction. Double taxation means taxing the same property twice when it should be taxed only once. we ruled. subject of this litigation. or the money it is authorized to pay. Otherwise described as “direct duplicate taxation. Section 8(a)(c). Solidbank Corporation. Reg. Rev. for the same purpose.—We reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax would result in double taxation. In CIR v. The basis of their imposition may be the same.

Ignacio for respondent. J. Reyes and Juan Q. concurring and Amancio Q. 459. pp.. Acosta with Judges Ramon O.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G. Velasco. Meanwhile. 2005 641 Commissioner of Internal Revenue vs. 52706. on January 30. Included therein were the respondent bank’s passive income from the said investments amounting to P85. SP No. and they must be of the same kind or character. which had already been subjected to a final tax of 20%. as reflected in its quarterly percentage tax returns. the CTA rendered judgment in Asia Bank Corporation v. 23-31. Alvin Agustin T. 12-80. (now Court Administrator) with Associate Justices Ruben T. . 5415. Reg. Jr. the respondent Bank of Commerce derived passive income in the form of interests or discounts from its investments in government securities and private commercial papers. Jr. The facts of the case are undisputed. within the same jurisdiction. by the same taxing authority. PETITION for review on certiorari of a decision of the Court of Appeals. On several occasions during the said period. during the same taxing period. Bank of Commerce receipts tax on its income. Commissioner of Internal Revenue. 1996. Enriquez.) No. CTA Case No.on the same subject matter. concurring. Saga. CALLEJO.51. 2 Penned by Presiding Judge Ernesto D. The CTA relied on Section 4(e) of Revenue Regulations (Rev. JUNE 8.254. for the same purpose.R. In 1994 and 1995. 4720. it paid 5% gross _______________ 1 Penned by Associate Justice Presbitero J.. Rollo. affirming the ruling of the Court of Tax Appeals (CTA)2 in CTA Case No. 641 VOL.384. dissenting. SR. holding that the 20% final withholding tax on interest income from banks does not form part of taxable gross receipts for Gross Receipts Tax (GRT) purposes. The facts are stated in the opinion of the Court. De Veyra.

computed as follows: Gross receipts subjected to Final Tax Derived from Passive Investment P85. 1996.51 x 20% 20% Final Tax Withheld 17.384. It claimed that it had overpaid its gross receipts tax for 1994 to 1995 by P853.90 at Source x 5% .54.842. the respondent bank filed an administrative claim for refund with the Commissioner of Internal Revenue on July 19.254.Relying on the said decision.850.076.

In his answer to the petition. lest it be barred by the mandatory two-year prescriptive period under Section 230 of the Tax Code (now Section 229 of the Tax Reform Act of 1997). 8. Furthermore.P 853. the final withholding tax does not form part of gross receipts.842. as amended. the Commissioner interposed the following special and affirmative defenses: . Petitioner must prove that the exclusions claimed by it from its gross receipts must be an allowable exclusion under the Tax Code and its pertinent implementing Rules and Regulations. Petitioner’s allegation that it erroneously and excessively paid its gross receipt tax during the year under review does not ipso facto warrant the refund/credit. the respondent bank filed a petition for review with the CTA. Petitioner must prove that the income from which the refundable/creditable taxes were paid from. were declared and included in its gross income during the taxable year under review.3 The CTA summarized the issues to be resolved as follows: whether or not the final income tax withheld should form part of the gross receipts4 of the taxpayer for GRT purposes.54. Bank of Commerce 6. petitioner must prove that it has complied with the provision of Section 230 (now Section 229) of the Tax Code. 5. Claims for tax refund/credit are construed in strictissimi juris against the taxpayer as it partakes the nature of an exemption from tax and it is incumbent upon the petitioner to prove that it is entitled thereto under the law. 642 642 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.5 The respondent bank averred that for purposes of computing the 5% gross receipts tax. the same are not refundable. it must be supported by evidence.. The alleged refundable/creditable gross receipts taxes were collected and paid pursuant to law and pertinent BIR implementing rules and regulations.6 On the other hand.842. Moreover. 7. 9.54 Before the Commissioner could resolve the claim.. and whether or not the respondent bank was entitled to a refund of P853. Petitioner must likewise prove that the alleged refundable/creditable gross receipt taxes were neither automatically applied as tax credit against its tax liability for the succeeding quarter/s of the succeeding year nor included as creditable taxes declared and applied to the succeeding taxable year/s. while the Commissioner . hence. Failure on the part of the petitioner to prove the same is fatal to its claim for tax refund/credit.

not a banking institution which is an entirely different entity altogether. 821 (1960). The CTA applied Section 204(3) of the National Internal Revenue Code (NIRC). 4720. in view of all the foregoing. The fallo of the decision reads: “WHEREFORE. 1996.99 represented the claim of the respondent bank. 643 VOL. CIR10 and Equitable Banking Corporation v. 37. according to the Commissioner.. Manila Jockey Club.12 The Commissioner then filed a petition for review under Rule 43 of the Rules of Court before the CA. p. Commissioner of Internal Revenue.258. 4 Section 119 of the Tax Code. CTA Case No. Bank of Commerce the taxpayer” in CIR v.258. 1999. the CTA by a majority decision8 partially granted the petition and ordered that the amount of P355. respondent is hereby ORDERED to REFUND in favor of petitioner Bank of Commerce the amount of P355. the CTA relied on the ruling of the Court in Manila Jockey Club. alleging that: . and in Court of Industrial Relations v. 35. 459.7 he claimed that such definition was applicable only to a proprietor of an amusement place. which was filed within the two-year mandatory prescriptive period and was substantiated by material and relevant evidence.99 representing validly proven erroneously withheld taxes from interest income derived from its investments in government securities for the years 1994 and 1995. and held that the term “gross receipts” excluded those which had been especially earmarked by law or regulation for the government or persons other than the taxpayer. As such. JUNE 8.11 The CTA ratiocinated that the aforesaid amount of P355.258. 108 Phil. January 30. CIR. Inc. the ruling of the Court in Manila Jockey Club was inapplicable.99 be refunded to the respondent bank. p. In its Decision dated April 27. Manila Jockey Club. 6 Citing the rulings in Asian Bank Corporation v.”9 In ruling for respondent bank. 2005 643 Commissioner of Internal Revenue vs.conceded that the Court defined “gross receipts” as “all receipts of taxpayers excluding those which have been especially earmarked by law or regulation for the government or some person other than _______________ 3 Rollo. The CTA also cited its rulings in China Banking Corporation v. 5 Rollo.

on the other hand. 10 CTA Case No. the Court ruled that the race track’s commission did not form part of the gross receipts. 12 Rollo. Acosta. 12-8015 and the ruling of this Court in Manila Jockey Club. 44. Manila Jockey Club (108 Phil. p. and as such were not subjected to the 20% amusement tax. He averred that the factual milieu in the said case is different. October 7. pp. to distinguish it from net receipts. with Judges Ramon O. 644 644 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. 8 Penned by Presiding Judge Ernesto D. Section 4(e) of Rev. concurring and Amancio Q.14 is not decisive._______________ 7 108 Phil. On the other hand. the issue in Visayan Cebu Terminal was whether or not the gross receipts corresponding to 28% of the total gross income of the service contractor delivered to the Bureau of Customs formed part of the gross receipts was subject to 3% of contractor’s tax under Section 191 of the Tax Code. 9 Rollo. 1996. Bank of Commerce (1) There is no provision of law which excludes the 20% final income tax withheld under Section 50(a) of the Tax Code in the computation of the 5% gross receipts tax. January 30. Inc. it includes all items of income of the respondent bank regardless of whether or not the same were allocated or earmarked for a specific purpose. 821 (1960). Commissioner of Internal Revenue. Saga. De Veyra.90 representing the final withholding tax derived from passive investments subjected to final tax should not be construed as forming part of the gross receipts of the respondent bank upon which the 5% gross receipts tax . was a banking institution and not a contractor. Reg. The petitioner insisted that the term “gross receipts” is self- evident. dissenting. (2) The Tax Court erred in applying the ruling in Collector of Internal Revenue vs. which was affirmed in Visayan Cebu Terminal Co. 5433. the CA held that the P17. 2001. the CA rendered judgment dismissing the petition. 4720.. 11 CTA Case No. It was further pointed out that the respondent bank. Citing Sections 51 and 58(A) of the NIRC. 821) in the resolution of the legal issues involved in the instant case.850.” The Commissioner further pointed out that in Manila Jockey Club. On August 14. v.076. No.13 The Commissioner reiterated his stand that the ruling of this Court in Manila Jockey Club. 42-43. involving as it did the “wager fund. 1995.

19) the petitioner posits that in computing the 5% gross re- _______________ 16 G. Reg.17 The petitioner avers that the reliance by the CTA and the CA on Section 4(e) of Rev._______________ 13 CA Rollo. JUNE 8. the CA declared. 15 Issued on 7 November 1980. Citing the ruling of the CA in Commissioner of Internal Revenue v. Court of Appeals. subjecting the said amount to the 5% gross receipts tax would result in double taxation. 183 SCRA 402. Reg. p. contending that: THE COURT OF APPEALS ERRED IN HOLDING THAT THE 20% FINAL WITHHOLDING TAX ON BANK’S INTEREST INCOME DOES NOT FORM PART OF THE TAXABLE GROSS RECEIPTS IN COMPUTING THE 5% GROSS RECEIPTS TAX (GRT. 17-84 took effect. Bank of Commerce should be imposed. 9. hence. 12-80 is misplaced.16and declared that the ruling of the Court in Manila Jockey Club was decisive of the issue.R. As such. 645 VOL. The CA declared that the final withholding tax in the amount of P17. 2005 645 Commissioner of Internal Revenue vs. 459. The Commissioner now assails the said decision before this Court. The petitioner asserts that the said provision ceased to exist as of October 15. 21 March 1990.R. for brevity). L-19530 and L-19444. the said provision merely authorizes the determination of the amount of gross receipts based on the taxpayer’s method of accounting under then Section 37 (now Section 43) of the Tax Code. Inc. 13 SCRA 357. . the respondent did not reap any benefit from the said amount. Reg. 14 G.00 was a trust fund for the government. The appellate court further cited CIR v. p.509.. The legal ownership of the amount had already been vested in the government. Tours Specialists. 66416. 17 Rollo. No. No.768. 1984. Nos. The petitioner further points out that under paragraphs 7(a) and (c) of Rev. No. does not form part of the respondent’s gross receipts. 27 February 1965. Asianbank Corporation18 (which likewise cited Bank of America NT & SA v. interest income of financial institutions (including banks) subject to withholding tax are included as part of the “gross receipts” upon which the gross receipts tax is to be imposed. No. Moreover. when Rev. 17-84. 11.

18 CA-G. Withholding of Tax at Source. For income to form part of the taxable gross receipts. 51248. likewise. No. The issues in this case had been raised and resolved by this Court in China Banking Corporation v. adamant in his claim that the final withholding tax from the respondent bank’s income forms part of the taxable gross receipts for purposes of computing the 5% of gross receipts tax.—Subject to rules and regulations. the tax imposed or prescribed by Sections _______________ 20 G. On the other hand.21 Section 27(D)(1) of the Tax Code reads: (D) Rates of Tax on Certain Passive Incomes. the Secretary of Finance may promulgate. Court of Appeals. 646 646 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. 234 SCRA 302.R.— (1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust Funds and Similar Arrangements. 146749. upon the recommendation of the Commissioner. Solidbank Corporation. 21 July 1994. requiring the filing of income tax return by certain income payees. 10 June 2003. 57. however. and Royalties.R. 19 G. derived from sources within the Philippines: Provided.20 and CIR v. That interest income derived by a domestic corporation from a depository bank under the expanded foreign currency deposit system shall be subject to a final income tax at the rate of seven and one-half percent (7½%) of such interest income. the income need not be actually received.R.— (A) Withholding of Final Tax on Certain Incomes. 403 SCRA 634. The petitioner posits that the ruling of this Court in Manila Jockey Club is not decisive of the issue in this case. No. constructive receipt is enough.—A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements received by domestic corporations. The petitioner is. . 103092. Bank of Commerce ceipts tax. and royalties. Section 57(A)(B) of the Tax Code authorizes the withholding of final tax on certain income creditable at source: SEC. 22 November 1999. SP No. The petition is meritorious.

24(B)(2). 24(C). 28(A)(7)(b). 28(B)(4).21 G. by payor-corporation/persons as provided for by law. 28(A)(4). which shall be credited against the income tax liability of the taxpayer for the taxable year. 2005 647 Commissioner of Internal Revenue vs. residing in the Philippines.—The Secretary of Finance may. at the rate of not less than one percent (1%) but not more than thirty-two percent (32%) thereof. 25(A)(3). 27(D)(1). 25 November 2003. 28(A)(7)(a). 25(A)(2). commissions and discounts from lending activitiesas well as income from financial leasing. 27(D)(5). 148191. 25(B). (B) Withholding of Creditable Tax at Source. Bank of Commerce 24(B)(1). 28(B)(2). No. require the withholding of a tax on the items of income payable to natural or juridical persons.22 Section 121 (formerly Section 119) of the Tax Code provides that a tax on gross receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries shall be computed in accordance with the schedules therein: (a) On interest. 28(A)(7)(c). JUNE 8. 25(D). 28(B)(1). 25(E).R. 24(D)(1). 416 SCRA 436. 28(A)(5). 28(B)(5)(a). 25(C). 647 VOL. 27(D)(3). 33. 28(B)(3). 459. on the basis of remaining maturities of instruments from which such receipts are derived: Short-term maturity (not in excess of two (2) years) 5% Medium-term maturity (over two (2) years but not exceeding four (4) years) 3% Long-term maturity— . The tax deducted and withheld by withholding agents under the said provision shall be held as a special fund in trust for the government until paid to the collecting officer. and 282 of this Code on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 58 of this Code. 27(D)(2). upon the recommendation of the Commissioner. 28(B)(5)(c). 28(B)(5)(b).

23 In National City Bank v. it would be considered as “net receipts. the Bureau of Internal Revenue has applied the term in its plain and ordinary meaning. profits from exchange and all other items treated as gross income under Section 32 of this Code 5% Provided.24 the CTA held that gross receipts should be interpreted as the whole amount received as interest. if deductions were to be made from gross receipts. without deductions. 648 648 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. otherwise. That in case the maturity period referred to in paragraph (a) is shortened thru pre- termination.” Absent any statutory definition. rentals of property. then the maturity period shall be reckoned to end as of the date of pre-termination for purposes of classifying the transaction as short. The Tax Code does not define “gross receipts. Bank of Commerce (c) On royalties. CIR.” The CTA changed course. real or personal. when it . however. (1) Over four (4) years but not exceeding seven (7) years 1% (2) Over seven (7) years 0% (b) On dividends 0% _______________ 22 Section 58(A). medium or long-term and the correct rate of tax shall be applied accordingly. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities. however.

Court of Appeals25 that: _______________ 23 China Banking Corporation v. However. 24 CTA Case No.— Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily because of the impact of federal income tax legislation.”26 “Gross” is also defined as “taking in the whole. The tax court held that Section 4(e) of Revenue Regulations No. Reg. it applied Section 4(e) of Rev. v. 12-80. Koppers Company. the Court ruled in China Banking Corporation v. 52 (1952). the term “gross receipts” means the entire receipts without any deduction. Any deduction from gross receipts is inconsistent with a law that mandates a tax on gross receipts. Commissioner. It is defined as “whole. both promulgated on 16 November 2001. 649 VOL. No. The Court agrees with the contention of the petitioner that the appellate court’s reliance on Rev. supra. holding that the 20% final withholding tax on the petitioner bank’s interest income should not form part of its taxable gross receipts. Indeed. 459. the rulings of the CTA in Asia Bank.29 the Court defined the term in this wise: As commonly understood. in China Banking Corporation v.” A common definition is “without deduction. JUNE 8. . without deduction. In Far East Bank & Trust Co. the tax court ruled that the final withholding tax forms part of the bank’s gross receipts in computing the gross receipts tax. . Court of Appeals. having no deduction or abatement. Commissioner and Standard Chartered Bank v. entire.28 Indeed. and of this Court in Manila Jockey Club has no legal and factual bases.” The word “gross” must be used in its plain and ordinary meaning. Reg. Solidbank Corporation. Deducting any amount from the gross receipts changes the result. total as opposed to a sum consisting of separate or specified parts.promulgated its decision in Asia Bank. total. supra. No. Inc. this in no way should affect or control the normal usage of words in the construction of our statutes.. 25 Supra. 12-80 and the ruling of this Court in Manila Jockey Club. whole. 2005 649 Commissioner of Internal Revenue vs. Bank of Commerce . to net receipts. CIR v. As explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v. 12-80 did not prescribe the computation of the amount of gross receipts but merely authorized “the determination of the amount of gross receipts on the basis of the method of accounting being used by the taxpayer. unless the law itself makes an exception.”27 Gross is the antithesis of net. since the final tax was not actually received by the petitioner bank but went to the coffers of the government. Court of Appeals. and the meaning. and we see nothing that would .

[Citations omitted] (Emphasis supplied)” Likewise. etc. Courts will presume that the words in a statute were used to express their meaning in common usage. Commonwealth Co. likewise. “Such express inclusion of interest income in taxable gross receipts . of St. Gross receipts become net receipts after certain proper deductions are made from the gross.W. including fixed charges and depreciation. 253 S.. The Supreme Court of Hawaii held in Bishop Trust Company v. the Supreme Court of Missouri held: The word “gross” appearing in the term “gross receipts. must have been and was there used as the direct antithesis of the word “net. City of St. in the absence of any statutory definition of the term. 650 650 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. 28 Laclede Gas Co. in order to ascertain the intent of the legislature. the term “gross receipts” is understood in its plain and ordinary meaning. x x x. Paul v.” In its usual and ordinary meaning “gross receipts” of a business is the whole and entire amount of the receipts without deduction. x x x.require us not to include the proceeds here in question in the gross receipts allocation unless statutorily such inclusion is prohibited. the language used therein is to be taken in the generally accepted and usual sense. And in the use of the words “gross receipts. 2d 832 (1953). 98 F. v.2d27 (1938). precluded plaintiff from first deducting its costs and expenses of doing business. must be taken to in- _______________ 26 First Trust Co. Words in a statute are taken in their usual and familiar signification. 27 Scott v. On the contrary. v. (Emphasis supplied) Absent a statutory definition. [Citations omitted] (Emphasis supplied) The Court. 25 NE 826 (1890).” as used in the ordinance. Burns that— x x x It is fundamental that in construing or interpreting a statute. Bank of Commerce clude the whole total gross receipts without any deductions. This principle is equally applicable to a tax statute. Hartley. in Laclede Gas Co. in arriving at the higher base figure upon which it must pay the 5% tax under this ordinance. Louis. Louis. declared that Section 121 of the Tax Code expressly subjects interest income of banks to the gross receipts tax. the term gross receipts. with due regard to their general and popular use. City of St.” the instant ordinance. of course. “net receipts” usually are the receipts which remain after deductions are made from the gross amount thereof of the expenses and cost of doing business.. 29 Supra. Under the ordinary basic methods of handling accounts.

Such presumption may only be overcome by pointing to a specific provision of law 651 VOL. 845 P. Reese. v. The gross interest.”30 In this case. failing which. along with the creditable withholding tax. is the amount the borrower pays. 652 . This tax. Reg.32 _______________ 30 Kewanee Industries. the claim of deduction has no leg to stand on. Inc. 2005 651 Commissioner of Internal Revenue vs. without deduction.2d 1238 (1993). there is no law which allows the deduction of 20% final tax from the respondent bank’s interest income for the computation of the 5% gross receipts tax. there is a presumption that receipts of a person engaging in business are subject to the gross receipts tax. Indeed. where such an exception is claimed. Such final withholding tax covers for the respondent bank’s income and is the amount to be used to pay its tax liability to the government. is subject to the gross receipts tax. 31 China Banking Corporation v. and must be clearly established by the taxpayer claiming the right thereto. and the income the lender earns. supra. Section 8(a)(c).31 The bare fact that the final withholding tax is a special trust fund belonging to the government and that the respondent bank did not benefit from it while in custody of the borrower does not justify its exclusion from the computation of interest income. without any deduction.creates a presumption that the entire amount of the interest income. Bank of Commerce allowing such deduction of the final withholding tax from the taxable gross receipts. for the use by the borrower of the lender’s money. The amount of the final tax plainly covers for the interest earned and is consequently part of the taxable gross receipt of the lender. taxation is the rule and the claimant must show that his demand is within the letter as well as the spirit of the law. the statute is construed strictly in favor of the taxing authority. 32 Supra. Thus. On the other hand. Rev. Court of Appeals. JUNE 8. 459. constitutes payment which would extinguish the respondent bank’s obligation to the government. Such earned interest refers to the gross interest without deduction since the regulations do not provide for any such deduction. No. 17-84 provides that interest earned on Philippine bank deposits and yield from deposit substitutes are included as part of the tax base upon which the gross receipts tax is imposed. or the money it is authorized to pay. The bank can only pay the money it owns. The exemption must be clearly and unambiguously expressed in the statute. Moreover.

12-80 and the ruling of the CTA in Asia Bank is misplaced. should no longer form part of its gross receipts for the purpose of computing the GRT. Interest is accrued. then the amount actually received shall be included in the tax base of such financial institutions. but once payment is received on such accrual or in case of prepayment. Reg. making interest income taxable for gross receipts tax purposes only upon actual receipt. Section 4(e) provides that: Sec. not having been received by petitioner but instead went to the coffers of the government. the respondent bank’s reliance on Section 4(e) of Rev. financing companies. when the interest is due and demandable but the borrower has not actually paid and remitted the interest. 12-80 authorizes the exclusion of the final tax from the bank’s taxable gross receipts.” _______________ 33 Ibid. The Court’s discussion in China Banking Corporation33 is instructive on this score: CBC also relies on the Tax Court’s ruling in Asia Bank that Section 4(e) of Revenue Regulations No.652 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. Section 4(e) does not exclude accrued interest income from gross receipts but merely postpones its inclusion until actual payment of the interest to the lending bank. 653 .” The tax court in Asia Bank concluded that “it is but logical to infer that the final tax. and other non- bank financial intermediaries not performing quasi-banking functions. Mere accrual shall not be considered. but once payment is received on such accrual or in cases of prepayment. Bank of Commerce In the same vein. non-bank financial intermediaries. 12-80. and not actually received. Section 4(e) merely provides for an exception to the rule. then the amount actually received shall be included in the tax base of such financial institutions x x x.—The rates of taxes to be imposed on the gross receipts of such financial institutions shall be based on all items of income actually received. depending on the accounting method of the taxpayer. Income may be taxable either at the time of its actual receipt or its accrual. x x x (e) Gross receipts tax on banks. This is clear when Section 4(e) states that “[m]ere accrual shall not be considered. No. as provided hereunder: x x x. whether physically or constructively. 4.” The Tax Court erred glaringly in interpreting Section 4(e) of Revenue Regulations No. (Emphasis supplied by Tax Court) Section 4(e) states that the gross receipts “shall be based on all items of income actually received.

amended the sharing by ordering the distribution of the bets as follows: Sec. In this case. Bank of Commerce . in fact even buttressed the contention of the Commissioner. Republic Act No. Since the amount of the tax withheld constitutes income earned by the taxpayer. The Court went on to explain in that case that far from supporting the petitioner’s contention. 459. then that amount manifestly forms part of the taxpayer’s gross receipts. Because the amount withheld belongs to the taxpayer. When the depository bank withholds the final tax to pay the tax liability of the lending bank. 320 apportioned the total amount of the bets in horse races as follows: 87 ½% as dividends to holders of winning tickets. and thus forms part of his gross receipts. From the amount constructively received by the lending bank. Distribution of receipts. Bank of Commerce Actual receipt of interest income is not limited to physical receipt. both physically and constructively. 1933”). A subsequent law. Actual receipt may either be physical receipt or constructive receipt. The amount withheld indubitably comes from income of the taxpayer. 19. Thus: CBC cites Collector of Internal Revenue v. the interest income actually received by the lending bank. there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. is the net interest plus the amount withheld as final tax. 309 and Executive Order No. he can transfer its ownership to the government in payment of his tax liability. its ruling in Manila Jockey Club.—The total wager funds or gross receipts from the sale of pari-mutuel tickets shall be apportioned as follows: eighty-seven and one-half per centum shall be dis- 654 654 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. the depository bank deducts the final withholding tax and remits it to the government for the account of the lending bank. of which ½% was assigned to the Board of Races and 5% was distributed as prizes for owners of winning horses and authorized bonuses for jockeys. 2005 653 Commissioner of Internal Revenue vs. The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Thus. the Court stated that Republic Act No. 12 ½% as “commission” of the Manila Jockey Club. CBC’s reliance on the Manila Jockey Club is misplaced. JUNE 8. 1933 (“RA No. Manila Jockey Club as authority that the final withholding tax on interest income does not form part of a bank’s gross receipts because the final tax is “earmarked by regulation” for the government.VOL.

six and one-half per centum shall be set aside as the commission of the person. 2005 655 Commissioner of Internal Revenue vs. The Court in Manila Jockey Club quoted with approval the following Opinion of the Secretary of Justice made prior to RA No. only 7% of the total bets. the Court ruled that the 5 ½% balance of the commission. 1933: There is no question that the Manila Jockey Club. There is no dispute that the 5 ½% share of the horse-owners and jockeys. x x x. Manila Jockey Club merely held in trust the balance of 5 ½% for the benefit of the Board of Races and the winning horse-owners and jockeys. . place and show horses. owns only 7-1/2% [sic] of the bets registered by the Totalizer. (Emphasis supplied) Under the “distribution of receipts” expressly mandated in Section 19 of RA No. do not form part of Manila Jockey Club’s gross receipts. the gross receipts “apportioned” to Manila Jockey Club referred only to its own 6 ½% commission. racing club. It can not be considered as an item of expense because the sum used for the payment of prizes is not taken from the funds of the club but from a certain portion of the total bets especially earmarked for that purpose. JUNE 8. 1933 took effect on 22 June 1957. This portion represents its share or commission in the total amount of money it handles and goes to the funds thereof as its own property which it may legally disburse for its own purposes. It is destined for no other object than the payment of prizes and the club cannot otherwise appropriate this portion without incurring liability to the owners of winning horses. Inc. 320. in the regular races. as the case may be. 459. The 5% [sic] does not belong to the club. It is merely held in trust for distribution as prizes to the owners of winning horses. five and one-half per centum shall be set aside for the payment of stakes or prizes for win. 309 and Executive Order No. Manila Jockey Club correctly 655 VOL.tributed in the form of dividends among the holders of win. did not form part of its gross receipts for purposes of the amusement tax. and one-half per centum shall be paid to a special fund to be used by the Games and Amusements Board to cover its expenses and such other purposes authorized under this Act. RA No. Even under the earlier law. and the ½% share of the Games and Amusements Board. place and show horses and authorized bonuses for jockeys. or any other entity conducting the races. Manila Jockey Club did not own the entire 12 ½% commission. the real owners of the 5 1/2 % share. Bank of Commerce paid the amusement tax based only on its own 7% commission under RA No. not being owned by Manila Jockey Club. Manila Jockey Club owned. (Emphasis supplied) Consequently. 1933. three years before the Court decided Manila Jockey Club on 30 June 1960. racetrack. and could keep and use.

First.35 we ruled. Posadas. In fact. are different from each other. unlike the FWT. Double taxation means taxing the same property twice when it should be taxed only once. subject of this litigation. The basis of their imposition may be the same. we have already held that one can be taxed for engaging in business and further taxed differently for the income derived therefrom. It is not an income tax. for the same purpose. The subject matter of the FWT is the passive income generated in the form of interest on deposits and yield on deposit substitutes.34 We reverse the ruling of the CA that subjecting the Final Withholding Tax (FWT) to the 5% of gross receipts tax would result in double taxation. when it should be but once.Manila Jockey Club does not support CBC’s contention but rather the Commissioner’s position. it is an excise rather than a property tax. Solidbank Corporation. that is. 656 656 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. Court of Appeals. Is there double taxation? The Court finds none. 35 Supra. _______________ 34 China Banking Corporation v. the taxes herein are imposed on two different subject matters. In CIR v. Bank of Commerce Second. while the subject matter of the GRT is the privilege of engaging in the business of banking. Otherwise described as “direct duplicate taxation. A tax based on receipts is a tax on business rather than on the property. thus: We have repeatedly said that the two taxes. by the same taxing authority. and they must be of the same kind or character. supra. “x x x taxing the same person twice by the same jurisdiction for the same thing. these two taxes are entirely distinct and are assessed under different provisions.” the two taxes must be imposed on the same subject matter. The Court ruled in Manila Jockey Club that receipts not owned by the Manila Jockey Club but merely held by it in trust did not form part of Manila Jockey Club’s gross receipts. receipts owned by the Manila Jockey Club would form part of its gross receipts. hence. Akin to our ruling in Velilla v. within the same jurisdiction. Conversely. although both taxes are national in scope because they are imposed by the same taxing authority—the national government under the Tax Code—and operate within the same Philippine . but their natures are different. during the same taxing period.” It is obnoxious when the taxpayer is taxed twice. thus leading us to a final point.

Inc. The CTA is hereby ORDERED to DISMISS the petition of respondent Bank of Commerce. assailed decision set aside and reversed. 309. Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT is clearly not double taxation. On Official Leave. undiminished by the amount paid to the subcontractor under a subcontract arrangement. (Protector’s Services. vs. the taxing periods they affect are different. J. 5415 are SET ASIDE and REVERSED. hence. 64 SCRA 555. because there is no taxing twice.. 330 SCRA 404 [2000]) ——o0o—— 657 © Copyright 2017 Central Book Supply. SO ORDERED. the petition is GRANTED. JUNE 25. and Medicare contributions. Note. within the same jurisdiction. Chairman). CTA. IN LIGHT OF THE FOREGOING. concur. Puno (Chairman. but is paid only after every taxable quarter in which it is earned.R. The FWT is an income tax subject to withholding. In short. Inc. there is no double taxation. Petition granted. could not be diminished by employer’s SSS. the GRT is neither deducted nor withheld. SP No. Court of Appeals. The FWT is deducted and withheld as soon as the income is earned. VOL. . some of the property in the territory. and is paid after every calendar quarter in which it is earned. 1999 87 __________________ 28 Wonder Mechanical Engineering Corporation vs. © Copyright 2017 Central Book Supply.jurisdiction for the same purpose of raising revenues. All rights reserved. No costs. in different taxing periods. Third. On the other hand. SIF. for the same purpose. these two taxes are of different kinds or characters. JJ. Tinga and Chico-Nazario.). Austria-Martinez (Actg. while the GRT is a percentage tax not subject to withholding. All rights reserved. The decision of the Court of Appeals in CA-G. 52706 and that of the Court of Tax Appeals in CTA Case No.—The term “gross receipts” means all amounts received by the prime or principal contractor as the total price. by the same taxing authority. Inc.

.e. Tax evasion.. September 14. G. and concealment involving a breach of legal or equitable duty.” in “bad faith.—In a nutshell. i. . (2) an accompanying state of mind which is described as being “evil. vs. Same. JR. Same. on the other hand.” or “deliberate and not accidental”. Estate of Benigno P. represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista. SEPTEMBER 14.” “willfull. No. including all acts.—Tax evasion connotes the integration of three factors: (1) the end to be achieved. Meaning of. Jr. TODA. omissions. THE ESTATE OF BENIGNO P. resulting in the damage to another.. the payment of less than that known by the taxpayer to be legally due. Jr. This method should be used by the taxpayer in good faith and at arms length.” Same.R. petitioner. 438. Same. Fraud.—Fraud in its general sense.e. the intermediary transaction. All rights reserved. Taxation. _______________ * FIRST DIVISION. it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax avoidance is the tax saving device within the means sanctioned by law. Same. which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion. is a scheme used outside of those lawful means and when availed of. the sale of Altonaga. Toda. 147188. 290 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. 2004 291 Commissioner of Internal Revenue vs.— Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax Avoidance Distinguished from Tax Evasion. Same. Inc.* COMMISSIONER OF INTERNAL REVENUE. The intermediary transaction in this case constitutes one of tax evasion. Same. i. respondents. or the non-payment of tax when it is shown that a tax is due. trust or confidence justly reposed. Estate of Benigno P. and (3) a course of action or failure of action which is unlawful. 2004. or by which an undue and unconscionable advantage is taken of another. Toda.110 © Copyright 2017 Central Book Supply. Factors to Determine Tax Evasion. “is deemed to comprise anything calculated to deceive. 291 VOL.

Toda. the period within which to assess tax is ten years from discovery of the fraud. The facts are stated in the opinion of the Court. JR.R. Toda.099.—Put differently.Same.T. 5328. DAVIDE. Estate of Benigno P. falsification or omission. C. is not liable for the deficiency income tax of Cibeles Insurance Corporation (CIC) in the amount of P79. and (3) failure to file a return.: This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes tax evasion that would justify an assessment of deficiency income tax. the issuance of the correct assessment for deficiency income tax was well within the prescriptive period. The period within which to assess tax in cases of fraudulent returns. falsification or omission. as the case may be. (2) false returns with intent to evade tax.999. The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. Prescriptions. Jr.22 for the year 1989. Jr.3 which held that the respondent Estate of Benigno P. Clearly. Makati City. Toda. Jr.A. Case No.J.—As stated above. The petitioner seeks the reversal of the Decision1 of the Court of Appeals of 31 January 2001 in CA-G. The false return was filed on 15 April 1990. 57799 affirming the 3 January 2000 Decision2 of the Court of Tax Appeals (CTA) in C. 292 292 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. . The issuance of the correct assessment for deficiency income tax was well within the prescriptive period. Same. in cases of (1) fraudulent returns. the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity. PETITION for review on certiorari of a decision of the Court of Appeals. and ordered the cancellation and setting aside of the assessment issued by Commissioner of Internal Revenue Liwayway Vinzons-Chato on 9 January 1995.. Bunag & Associates for The Estate of Benigno P. situated on two parcels of land on Ayala Avenue. and the falsity thereof was claimed to have been discovered only on 8 March 1991. false returns and failure to file a return is ten years from discovery of the fraud. The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal Revenue for deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known as Cibeles Building. SP No. Same.

among other things. SEPTEMBER 14. 524-533.987. asserting that the assessment should be directed against the old CIC. On 30 August 1989.9 Three and a half years later. 293 VOL. Toda.991% of its issued and outstanding capital stock.00. pp.341.. 32-41. as evidenced by a Deed of Sale of Shares of Stocks. Altonaga.. Per Associate Justice Rodrigo V. with Associate Judges Ramon O.5 million.. 73.497. CIC filed its corporate annual income tax return7 for the year 1989. and not against the new CIC. the Bureau of Internal Revenue (BIR) sent an assessment notice10 and demand letter to the CIC for deficiency income tax for the year 1989 in the amount of P79. Cosico. in turn. 22-31. Toda died. (RMI) for P200 million. On 29 March 1994. CIC authorized Benigno P. 3 Entitled “The Estate of Benigno P. Toda. Acosta. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public.021. Jr. or on 16 January 1994. sold the same property on the same day to Royal Match. p. Toda. with Associate Justices Ramon A.6 On 16 April 1990. Toda had undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 1987-1989. After crediting withholding taxes of P254. it paid P26. pp.4 _______________ 1 Rollo.2078 for its net taxable income of P75. Toda purportedly sold the property for P100 million to Rafael A. Choa for P12. 2 Id. Estate of Benigno P.11 . who. The new CIC asked for a reconsideration. Toda sold his entire shares of stocks in CIC to Le Hun T. Barcelona and Alicia J.099. moreover. Per Presiding Judge Ernesto D.725.On 2 March 1989. Jr. President and owner of 99.22.5 For the sale of the property to RMI. Inc. to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90 million.999. Altonaga paid capital gains tax in the amount of P10 million. declaring. Santos concurring. 2004 293 Commissioner of Internal Revenue vs. Saga concurring.728. Jr. De Veyra and Amancio Q. 438. which is owned by an entirely different set of stockholders. On 12 July 1990.” 4 CA Rollo. its gain from the sale of real property in the amount of P75. CTA Records. represented by Special Co-Administrators Lorna Patajo- Kapunan and Mario Luza Bautista versus Commissioner of Internal Revenue.

11 Id. computed as follows: Income Tax—1989 Net Income per return P75. represented by special co-administrators Lorna Kapunan and Mario Luza Bautista. 306. pp. CTA Records.. 8 Exhs. received a Notice of Assessment12 dated 9 January 1995 from the Commissioner of Internal Revenue for deficiency income tax for the year 1989 in the amount of P79. 74-78. the Estate of Benigno P. p. “E”. 9 Exh. 448-449._______________ 5 CA Rollo. Toda. pp.099.00 Add: Additional gain on sale of real property taxable under ordinary corporate income but were substituted with individual capital gains . CTA Records.999. 6 Exh. “L”. 340. CTA Records. “N” and “N-1”. 294 294 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.22. “P”. pp. 7 Exh. Estate of Benigno P. p. 88-92. 316-317. 446-447. “M”. Toda. 357-365. “M-1”. Jr. Jr. CTA Records. On 27 January 1995.987. 10 BIR Records.. at pp.725. pp.

725.00 Total Net Taxable Income P175.000.000.987.00 Balance of tax due P 24.595. Thru Capital Gains Tax made by R.704.703.704.999.000.595.(P200M – 100M) 100.000.595.00 36.999.75 Less: Payment already made 1.A.00 2. Altonaga 10. Per return P26.75 Add: 50% Surcharge .00 per investigation Tax Due thereof at 35% P 61.

12,499,999.88

25% Surcharge

6,249,999.94

Total

P 43,749,999.57

Add: Interest 20% from 4/16/90-4/30/94 (.808)

35,349,999.65

TOTAL AMT. DUE & COLLECTIBLE

P79,099,999.22

_______________

12 Id., at pp. 474-475.

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VOL. 438, SEPTEMBER 14, 2004

295

Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr.

The Estate thereafter filed a letter of protest.13

In the letter dated 19 October 1995,14 the Commissioner dismissed the protest, stating that a
fraudulent scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda by
covering up the additional gain of P100 million, which resulted in the change in the income structure of
the proceeds of the sale of the two parcels of land and the building thereon to an individual capital
gains, thus evading the higher corporate income tax rate of 35%.

On 15 February 1996, the Estate filed a petition for review15 with the CTA alleging that the
Commissioner erred in holding the Estate liable for income tax deficiency; that the inference of fraud of

the sale of the properties is unreasonable and unsupported; and that the right of the Commissioner to
assess CIC had already prescribed.

In his Answer16 and Amended Answer,17 the Commissioner argued that the two transactions actually
constituted a single sale of the property by CIC to RMI, and that Altonaga was neither the buyer of the
property from CIC nor the seller of the same property to RMI. The additional gain of P100 million (the
difference between the second simulated sale for P200 million and the first simulated sale for P100
million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of Altonaga,
instead of at the rate of 35% as corporate income tax of CIC. The income tax return filed by CIC for 1989
with intent to evade payment of the tax was thus false or fraudulent. Since such falsity or fraud was
discovered by the BIR only on 8 March 1991, the assessment issued on 9 January 1995 was well within
the prescriptive period prescribed by Section 223 (a) of the National Internal

_______________

13 Exh. “H”, CTA Records, pp. 314-315.

14 Exh. “G”, CTA Records, pp. 311-312.

15 CTA Records, pp. 1-15.

16 CTA Records, pp. 104-111.

17 Id., at pp. 121-128.

296

296

SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr.

Revenue Code of 1986, which provides that tax may be assessed within ten years from the discovery of
the falsity or fraud. With the sale being tainted with fraud, the separate corporate personality of CIC
should be disregarded. Toda, being the registered owner of the 99.991% shares of stock of CIC and the
beneficial owner of the remaining 0.009% shares registered in the name of the individual directors of
CIC, should be held liable for the deficiency income tax, especially because the gains realized from the
sale were withdrawn by him as cash advances or paid to him as cash dividends. Since he is already dead,
his estate shall answer for his liability.

In its decision18 of 3 January 2000, the CTA held that the Commissioner failed to prove that CIC
committed fraud to deprive the government of the taxes due it. It ruled that even assuming that a pre-
conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion.
There being no proof of fraudulent transaction, the applicable period for the BIR to assess CIC is that
prescribed in Section 203 of the NIRC of 1986, which is three years after the last day prescribed by law
for the filing of the return. Thus, the government’s right to assess CIC prescribed on 15 April 1993. The

assessment issued on 9 January 1995 was, therefore, no longer valid. The CTA also ruled that the mere
ownership by Toda of 99.991% of the capital stock of CIC was not in itself sufficient ground for piercing
the separate corporate personality of CIC. Hence, the CTA declared that the Estate is not liable for
deficiency income tax of P79,099,999.22 and, accordingly, cancelled and set aside the assessment issued
by the Commissioner on 9 January 1995.

In its motion for reconsideration,19 the Commissioner insisted that the sale of the property owned by
CIC was the result of the connivance between Toda and Altonaga. She further alleged that the latter was
a representative, dummy,

_______________

18 CTA Records 535-540.

19 Id., pp. 534, 539.

297

VOL. 438, SEPTEMBER 14, 2004

297

Commissioner of Internal Revenue vs. Estate of Benigno P. Toda, Jr.

and a close business associate of the former, having held his office in a property owned by CIC and
derived his salary from a foreign corporation (Aerobin, Inc.) duly owned by Toda for representation
services rendered. The CTA denied20 the motion for reconsideration, prompting the Commissioner to
file a petition for review21 with the Court of Appeals.

In its challenged Decision of 31 January 2001, the Court of Appeals affirmed the decision of the CTA,
reasoning that the CTA, being more advantageously situated and having the necessary expertise in
matters of taxation, is “better situated to determine the correctness, propriety, and legality of the
income tax assessments assailed by the Toda Estate.”22

Unsatisfied with the decision of the Court of Appeals, the Commissioner filed the present petition
invoking the following grounds:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT COMMITTED NO FRAUD WITH
INTENT TO EVADE THE TAX ON THE SALE OF THE PROPERTIES OF CIBELES INSURANCE CORPORATION.

II. THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE SEPARATE CORPORATE PERSONALITY OF
CIBELES INSURANCE CORPORATION.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF PETITIONER TO ASSESS
RESPONDENT FOR DEFICIENCY INCOME TAX FOR THE YEAR 1989 HAD PRESCRIBED.

She further points out that the documents themselves prove the fact of _______________ 20 Id. Is this a case of tax evasion or tax avoidance? Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Jr. respondent Estate asserts that the Commissioner failed to present the income tax return of Altonaga to prove that the latter is financially incapable of purchasing the Cibeles property. as Doc. Arreza Pabelana as Doc. 32. the following questions are pertinent: 1. The substantial portion of P40 million was withdrawn by Toda through the declaration of cash dividends to all its stockholders. who was financially incapable of purchasing it. The said amount was debited by RMI in its trial balance as of 30 June 1989 as investment in Cibeles Building. Book I. Has the period for assessment of deficiency income tax for the year 1989 prescribed? and 3. To resolve the grounds raised by the Commissioner. Toda. pp. 30 August 1989. For its part.The Commissioner reiterates her arguments in her previous pleadings and insists that the sale by CIC of the Cibeles property was in connivance with its dummy Rafael Altonaga. CA Rollo. This method should . 21 CA Rollo. p. (2) the Deed of Absolute Sale between Altonaga and RMI was notarized ahead of the alleged sale between CIC and Altonaga. (3) as early as 4 May 1989. Tax avoidance is the tax saving device within the means sanctioned by law. Can respondent Estate be held liable for the deficiency income tax of CIC for the year 1989. Book I.. 298 298 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. Series of 1989. 92. 22 Rollo. and the latter. Page 20. 7-20. 30. Estate of Benigno P. 550. Is this a case of tax evasion or tax avoidance? 2. Page 20. p. 91. of the same Notary Public. fraud in that (1) the two sales were done simultaneously on the same date. CIC received P40 million from RMI. No. and not from Altonaga. Series of 1989. with the former registered in the Notarial Register of Jocelyn H. if any? We shall discuss these questions in seriatim.

of.24 All these factors are present in the instant case. . since the letter-request for investigation of Altonaga was unserved. CTA Records. it usually subjects the taxpayer to further or additional civil or criminal liabilities. p. 470. Boy Prieto.. 25 Exh. citing Batter. Tax Law and Jurisprudence 44 (2nd ed. “6”. 27 But Mr.25 and not from Altonaga. CTA Records.). CTA Records. the payment of less than that known by the taxpayer to be legally due. CIC received P40 million from RMI. p.” in “bad faith.). p. 476. Vitug and Ernesto D. FUNDAMENTALS OF TAXATION 53 (1988 ed. the assistant accountant of CIC and an old timer in the company. 438. and not the intermediary Altonaga. This information was revealed by Mr. as of 31 July 1989. another P40 million was debited and reflected in RMI’s trial balance as “other inv. “1”. or the non-payment of tax when it is shown that a tax is due. Prieto did not testify on this matter. is a scheme used outside of those lawful means and when availed 299 VOL.” or “deliberate and not accidental”. prior to the purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989.” This would show that the real buyer of the properties was RMI. SEPTEMBER 14. that information remains to be hearsay and is thus inadmissible in evidence. 28 CTA Records. hence.be used by the taxpayer in good faith and at arms length.23 Tax evasion connotes the integration of three factors: (1) the end to be achieved. Fraud under Federal Tax Law 15 (1953 ed. It is significant to note that as early as 4 May 1989. It was not verified either. 466. Jr. That P40 million was debited by RMI and reflected in its trial balance26 as “other inv. 2004 299 Commissioner of Internal Revenue vs. Tax evasion. 24 DE LEON. on the other hand. 27 Exh.” Also. “3”. 461.” “willfull. p. (2) an accompanying state of mind which is described as being “evil. Acosta.—Cibeles Bldg. The investigation conducted by the BIR disclosed that Altonaga was a close business associate and one of the many trusted corporate executives of Toda. i.28 Altonaga having left for the United _______________ 23 Jose C.e. and (3) a course of action or failure of action which is unlawful. 2000) (hereafter Vitug). Estate of Benigno P. Toda. 26 Exh..—Cibeles Bldg.

. including all acts. resulting in the damage to another. Admitted one hundred percent. and then from Altonaga to RMI cannot be considered a legitimate tax planning. Surely petitioner [sic] cannot be faulted for wanting to reduce the tax from 35% to 5%. trust or confidence justly reposed. changing the structure of the property and the tax to be paid. States of America in January 1990. Nevertheless. pp.”30 Here. 1. SEPTEMBER 14. In its Memorandum. That admission is borne by the records. allowing tax free transfers of property for stock. Jr. But isn’t this precisely the definition of tax planning? Change the structure of the funds and pay a lower tax.e. i. 225 (1996). 438. It is absolutely allowed. if not eliminate altogether. 301 VOL. respondent Estate declared: Petitioner. and not the 35% corporate income tax. “is deemed to comprise anything calculated to deceive. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties. Tax planning is by definition to reduce. however. from CIC to Altonaga. As long as it is done legally. or by which an undue and unconscionable advantage is taken of another. Estate of Benigno P. Toda. 2004 301 . changing the structure of a transaction to achieve a lower tax is not against the law.300 300 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. 257 SCRA 200. a tax. it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax. 30 Commissioner of Internal Revenue v. omissions. that Altonaga was a mere conduit finds support in the admission of respondent Estate that the sale to him was part of the tax planning scheme of CIC. Sec. 33. 4-5. Fraud in its general sense. Court of Appeals. claims there was a “change of structure” of the proceeds of sale. Precisely. 78-79. 327 Phil. Such scheme is tainted with fraud. Rollo. 40 (2) of the Tax Code exists. and concealment involving a breach of legal or equitable duty.29 [Italics supplied]. Altonaga’s sole purpose of acquiring and _______________ 29 Respondent’s Memorandum. pp.

Toda. the intermediary transaction. Estate of Benigno P. No. 27 February 1987. the transaction must be viewed as a whole. 148 SCRA 42. In a nutshell. To permit the true nature of the transaction to be disguised by mere formalisms. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. 11 SCRA 714 (1964). Hence. a sham. which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion.e. Jr. 334 (1945). The tax consequences arising from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. 120 Phil. Rather.S. Jr.. Norton & Harrison Co. A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title. should be disregarded for income tax purposes. 33 Commissioner v.32 The incidence of taxation depends upon the substance of a transaction.Commissioner of Internal Revenue vs. 302 302 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.34 The two sale transactions should be treated as a single direct sale by CIC to RMI. transferring title of the subject properties on the same day was to create a tax shelter. the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.. and each step from the commencement of negotiations to the consummation of the sale is relevant. Commissioner of Internal Revenue v. 32 VITUG. Estate of Benigno P. Rufino. 691. The sale to him was merely a tax ploy. and without business purpose and economic substance. the sale of Altonaga. Doubtless. L-33665-68. would seriously impair the effective administration of the tax policies of Congress. a sale or exchange of assets will have an income tax incidence only when it is consummated. Court Holding Co.33 To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. the sale to Altonaga _______________ 31 See Commissioner of Internal Revenue v. Toda.31 Generally. 138. 324 U.. i. .R. 684. which exist solely to alter tax liabilities. G.

U. 293 U.S. 35 Sec. 24. Herman v. See also Neff v. CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. Comm.T. (h) The provisions of paragraph (b) of this section to the contrary notwithstanding. Comm. Court of Appeals. 126. Court of Internal Relations. and Thirty-five percent upon the amount by which the taxable net income exceeds one hundred thousand pesos.S. the assessment for the deficiency income tax issued by the BIR must be upheld. 283 F2d 227.A. sales. 192 F Supp 216. and partnerships.Accordingly.—(a) Tax on domestic corporations. whichever is higher. SEPTEMBER 14. Helvering. v. 303 VOL. in accordance with the following: Twenty-five percent upon the amount by which the taxable net income does not exceed one hundred thousand pesos. Rates of tax on corporations. U. Toda. v. 465 (1935). 103. v.. exchanges or other dispositions of real property classified as capital assets. by individuals. 301 F2d 330. Capital gains and loses. inapplicable. Has the period of . 34. The 5% individual capital gains tax provided for in Section 34 (h) of the NIRC of 198635 (now 6% under Section 24 (D) (1) of the Tax Reform Act of 1997) is _______________ 34 See Gregory v. 361 Phil.. Jr.. U..S. including estates and trusts. Frank Lyon Co. as amended (now 27 (A) of the Tax Reform Act of 1997). 438. which stated as follows: Sec. (F) 878. including pacto-de-retro sales and other forms of conditional sale.S. Commissioner of Internal Revenue v. United States. 239 F2d 881. Pope. 248 F2d 943. Kessner v. shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale. 435 U. the tax liability of CIC is governed by then Section 24 of the NIRC of 1986. 36 B. 301 SCRA 152 (1999) citing Asmussen v.—A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in. Estate of Benigno P. 2004 303 Commissioner of Internal Revenue vs. or existing under the laws of the Philippines. . 255 F2d 396. Fewel. Comm... Cohen v. 561 (1978). Hence.S. no matter how created or organized but not including general professional partnerships.

Jr. Toda. 269. falsification or omission. the BIR was amply informed of the transactions even prior to the execution of the necessary documents to effect the transfer. the two sales were openly made with the execution of public documents and the declaration of taxes for 1989. Altonaga. . Clearly. The false return was filed on 15 April 1990. the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof . as the case may be. However. we find that the income tax return filed by CIC for the year 1989 was false. these circumstances do not negate the existence of fraud. And even assuming arguendo that there was no fraud. through his counsel.36 Thus. or a proceeding in court after the collection of such tax may be begun without assessment. Exceptions as to period of limitation of assessment and collection of taxes. at any time within ten years after the discovery of the falsity. the period within which to assess tax is ten years from discovery of the fraud. the tax may be assessed. It did not reflect the true or ac- _______________ 36 Exh.—(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return. 296. Put differently. such was done with intent to evade or reduce tax liability. asked the Opinion of the BIR on the tax consequence of the two sale transactions. It is true that in a query dated 24 August 1989. “A”. Estate of Benigno P. the prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the falsity. fraud or omission: Provided. . As stated above. (2) false returns with intent to evade tax.37 The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995. 304 304 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. and the falsity thereof was claimed to have been discovered only on 8 March 1991. Obviously. the issuance of the correct assessment for deficiency income tax was well within the prescriptive period. Section 269 of the NIRC of 1986 (now Section 222 of the Tax Reform Act of 1997) read: Sec. Subsequently. CTA Records. and (3) failure to file a return. tual amount gained from the sale of the Cibeles property. p. .assessment prescribed? No. As earlier discussed those two transactions were tainted with fraud. That in a fraud assessment which has become final and executory. in cases of (1) fraudulent returns. .

with the corporation may validly attach when: 1. by specific provision of law. “2. however. or officer along. 438. rules and regulations. to personally answer for his corporate action. p. 2. 464. Toda. the owners or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa. having knowledge thereof. attached hereto as “Annex B” and made a part hereof. He agrees to hold himself personally and solidarily liable with the corporation. It has been held in a number of cases that personal liability of a corporate director. and 1989. or other persons. 3. Estate of Benigno P. does not forthwith file with the corporate secretary his written objection thereto. its stockholders. or _______________ 37 Exh. albeit not necessarily. Paragraph g of the Deed of Sale of Shares of Stocks specifically provides: g. sums of money or insurance claims other than those reported in its audited financial statement as of December 31. for taxes. 4.” CTA Records. SELLER undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax liabilities of Cibeles for the fiscal years 1987. There are. 1988.Is respondent Estate liable for the 1989 deficiency income tax of Cibeles Insurance Corporation? A corporation has a juridical personality distinct and separate from the persons owning or composing it. He is made. 305 VOL.38 It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Except for transactions occurring in the ordinary course of business. He consents to the issuance of watered down stocks or. he knowingly and voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987.39 [Italics Supplied]. trustee. Jr. 1989. 2004 305 Commissioner of Internal Revenue vs. or (c) conflict of interest. . SEPTEMBER 14. 1988 and 1989. certain instances in which personal liability may arise. contingent or otherwise. He assents to the (a) patently unlawful act of the corporation. Choa. Cibeles has no liabilities or obligations. Thus. resulting in damages to the corporation. The business of Cibeles has at all times been conducted in full compliance with all applicable laws. (b) bad faith or gross negligence in directing its affairs.

Ynares-Santiago. 39 CTA Records. WHEREFORE. 324 SCRA 270.When the late Toda undertook and agreed “to hold the BUYER and Cibeles free from any all income tax liabilities of Cibeles for the fiscal years 1987. 123358. Costs against respondent. therefore. and another one is hereby rendered ordering _______________ 38 Atrium Management Corporation v. as contained in the Deed of Sale of Shares of Stock.099. vs. Toda. plus legal interest from 1 May 1994 until the amount is fully paid. 28 February 2001. G. SO ORDERED.R. JJ. G. All rights reserved. Court of Appeals. and 1989.R. vs. 57799 is REVERSED and SET ASIDE. citing FCY Construction Group Inc. Carpio and Azcuna. Nos. deny liability for CIC’s deficiency income tax for the year 1989 by invoking the separate corporate personality of CIC. Inc. 1988. Palma respondent Estate of Benigno P. 109491 and 121794. Jr. 31. The decision of the Court of Appeals of 31 January 2001 in CA-G. 353 SCRA 23. concur. (Protector’s Services.999. v.22 as deficiency income tax of Cibeles Insurance Corporation for the year 1989. assailed decision reversed and set aside. Inc. to pay P79. 306 306 SUPREME COURT REPORTS ANNOTATED Cojuangco. 1 February 2000. SP No. pp. No. since its obligation arose from Toda’s contractual undertaking.—A taxpayer only has thirty (30) days within which to protest an assessment.. Court of Appeals. Note. Respondent estate cannot. 576 SUPREME COURT REPORTS ANNOTATED . 330 SCRA 404 [2000]) ——o0o—— © Copyright 2017 Central Book Supply.R. Jr. Court of Appeals. Petition granted.” he thereby voluntarily held himself personally liable therefor. Quisumbing. 200-201. the petition is hereby GRANTED. in view of all the foregoing.

CTA Case No. Thus.—The same ruling also applies to the deficiency branch profit remittance tax assessment. December 18. In the tax code. The filing of income tax cases in court must have been made before and as of the date of effectivity of E. No. vs. Thus.—By virtue of Section 8 as afore- _______________ * FIRST DIVISION. 372. DECEMBER 18.O.” The point of reference is the date of effectivity of E. 2001. Statutory Construction. Tax Amnesties. 41 excepts from income tax amnesty those taxpayers “with income tax cases already filed in court as of the effectivity thereof” on 22 August 1986. No. respondent was not disqualified from availing of the amnesty for income tax under E.O. While an amendment is generally construed as becoming a part of the original act as if it had always been contained therein. provided of course he files it on or before the deadline for filing. 4109 questioning the 1985 deficiency income. No.— Petitioner’s claim cannot be sustained. CTA Case No. It is a tax on income.O.O. hence. No. No. MARUBENI CORPORATION.O. Section 4 (b) of E.R. Same. Chapter III of the National Internal Revenue Code. 41 became effective on August 22. Title II. E. No. 137377. Marubeni Corporation G.* COMMISSIONER OF INTERNAL REVENUE.O. This is regardless of when the taxpayer filed for income tax amnesty. A branch profit remittance tax is a tax on income. respondent.O. Same. it may not be given a retroactive effect unless it is so provided expressly or by necessary implication and no vested right or obligations or contract are thereby impaired. petitioner. Marubeni Corporation quoted. 4109 had not yet been filed in court. No. branch profit remittance and contractor’s tax assessments was filed by respondent with the Court of Tax Appeals on September 26. Respondent therefore did not fall under the exception in Section 4 (b) when it filed for amnesty of its deficiency branch profit remittance tax assessment. 41 took effect. 64. Branch Profit Remittance Taxes. No. Respondent corporation did not fall under the said exception in Section 4 (b). No.O.O. When E. No. A branch profit remittance tax is defined and imposed in Section 24 (b) (2) (ii). It excepts from income tax amnesty those taxpayers “with income tax cases already filed in court as of the effectivity hereof. 41. the provisions of E. 41 not contrary to or inconsistent with the amendatory act were reenacted in E. 2001 577 Commissioner of Internal Revenue vs. 1986. No. No. 41. Taxation.Commissioner of Internal Revenue vs. Section 4 of E. Section 4 (b) of E. 41 on the exceptions to amnesty coverage also . for a taxpayer not to be disqualified under Section 4 (b) there must have been no income tax cases filed in court against him when E. 1986.O. this tax falls under Title II on Income Tax.O. Same. 577 VOL. 1986. 41 took effect on August 22. Same. 41. 41 is very clear and unambiguous.

It has been held that where a statute amending a tax law is silent as to whether it operates retroactively.—There is nothing in E.O. 41 and its date of effectivity.O. Same. respondent argues that because of the words “income” and “hereof. No. Executive Order No. like that of a tax exemption. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. much like a tax exemption. 64. Words and Phrases. the amendment will not be given a retroactive effect so as to subject to tax past transactions not subject to tax under the original act. 64 is a substantive amendment of E.O.O. Nos. Same. The State cannot strip itself of the most essential power of taxation by doubtful words.O.” they refer to Executive Order No. that doubt must be resolved in favor of the state. it may not be given a retroactive effect unless it is so provided expressly or by necessary implication and no vested right or obligations of contract are thereby impaired. Section 4 (b) cannot be construed to refer to E. Same.O. Marubeni Corporation slate. Same. With respect to Section 4 (b) in particular. For the right of taxation is inherent in government. 64 that provides that it should retroact to the date of effectivity of E. A tax amnesty. It does not merely change provisions in E. this provision excepts from tax amnesty coverage a taxpayer who has “income tax cases already filed in court as of the effectivity hereof. No.O. every case of doubt must be resolved against its retroactive effect. He who claims an exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic or state law. No. 64 that it or any of its provisions should apply retroactively.O. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law—it partakes of an absolute forgiveness or waive by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. No. Neither is it necessarily implied from E. 41. It cannot be allowed to exist upon a vague implication. must be construed strictly against the taxpayer and liberally in favor of the taxing authority.— E. While an amendment is generally construed as becoming a part of the original act as if it had always been contained therein. No. No.O. 41. is never favored nor presumed in law. 41 and 64 are tax amnesty issuances. 64. If a doubt arises as to the intent of the legislature. In an amendatory act. . the terms of the amnesty. If granted. The general rule is that an amenda-tory act operates prospectively.applied to E. the original issuance.” As to what Executive Order the exception refers to. No. Where a statute amending a tax law is silent as to whether it operates retroactively. No. It supplements the original act by adding other taxes not covered in the first. Same. 41. It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean 578 578 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. In view of the amendment introduced by E. the amendment will not be given a retroactive effect so as to subject to tax past transactions not subject to tax under the original act—every case of doubt must be resolved against its retroactive effect. 41.

64 are concerned. it can be levied by the taxing authority only when the acts. 2001 579 Commissioner of Internal Revenue vs. Same. The term “income tax cases” in Section 4 (b) of E. Same. 64 should therefore be construed strictly against the taxpayer. Marubeni Corporation products. the date of effectivity referred to in Section 4 (b) of E. A contractor’s tax is a tax imposed upon the privilege of engaging in business—it is generally in the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on products. thus rendered outside the taxing jurisdiction of the Philippines. and is directly collectible from the person exercising the privilege. 64 took effect on November 17. direction and control of testing and commissioning.O.O. construction. Same. No. No.—Clearly. Like property taxes.O. DECEMBER 18. fabrication. insofar as the taxes in E.O. While the construction and installation work were completed within the Philippines.O. 41.—In the instant case. consequently. Being an excise tax. An independent contractor is a person whose activity consists essentially of the sale of all kinds of services for a fee. No. as amended by E. coordination . No. should be read to refer to estate and donor’s taxes and taxes on business while the word “hereof. it cannot be imposed on an occupation or privilege outside the taxing district. Same. supply and delivery. and is directly collectible from the person exercising the privilege. Since Executive Order No.” of the two projects involved two taxing jurisdictions. Services for the design. the vagueness in Section 4 (b) brought about by E.—A contractor’s tax is a tax imposed upon the privilege of engaging in business. Same. Same. 1986. supervision. regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. Same. These acts occurred in two countries—Japan and the Philippines. No.” to E.O. The term “income tax cases” should be read as to refer to estate and donor’s taxes and taxes on business while the word “hereof. 41 should be November 17. 372. . 64. Same. 1986. 64. the service of “design and engineering. Same.” to E. the evidence is clear that some pieces of equipment and supplies were completely designed and engineered in Japan. Same. The word “contractor” refers to a person who. using his own means and methods without submitting himself to control as to the petty details. privileges or business are done or performed within the jurisdiction of said authority. engineering and manufacture of the materials and equipment made and completed in Japan. . the boats .Same. regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. an independent contractor is a person whose activity consists essentially of the sale of all kinds of services for a fee. erection and installation. It is generally in the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on 579 VOL.—Under the afore-quoted provision. 64. No.O. are not subject to contractor’s tax. The two sets of ship unloader and loader. in the pursuit of independent business. No. undertakes to do a specific job or piece of work for other persons.

as amended. the Commissioner of Internal Revenue assails the decision dated January 15. They were already finished products when shipped to the Philippines. In the course of the examination. Litigation & Prosecution Division for petitioner. These services were rendered outside the taxing jurisdiction of the Philippines and are therefore not subject to contractor’s tax. 4109. The facts are stated in the opinion of the Court. petitioner Commissioner of Internal Revenue issued a letter of authority to examine the books of accounts of the Manila branch office of respondent corporation for the fiscal year ending March 1985. 42518 which affirmed the decision dated July 29. PUNO. SP No. branch profit remittance and contractor’s taxes from Marubeni Corporation after finding the latter to have properly availed of the tax amnesty under Executive Orders Nos. Marubeni Corporation Appeals in CA-G. Sycip. these were not finished products when shipped to the Philippines. Hernandez & Gatmaitan for respondent Marubeni Corp. 1999 of the Court of 580 580 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.: In this petition for review. however. They. electrical and instrumental apparatus. The tax court ordered the Commissioner of Internal Revenue to desist from collecting the 1985 deficiency income. It is duly registered to engage in such business in the Philippines and maintains a branch office in Manila. both of which were completed in 1984. Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan.R. All services for the design. 1996 of the Court of Tax Appeals in CTA Case No.and mobile equipment for the NDC project and the ammonia storage tanks and refrigeration units were made and completed in Japan. were likewise fabricated and manufactured by the sub-contractors in Japan. PETITION for review on certiorari of a decision of the Court of Appeals. Sometime in November 1985. petitioner found respondent to have undeclared income from two (2) contracts in the Philippines. J. 41 and 64. It is engaged in general import and export trading. fabrication. pipes and structures. The other construction supplies listed under the Offshore Portion such as the steel sheets. Salazar. engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. One of the contracts was with the National Development Company (NDC) in connection with the . financing and the construction business.

..634........... petitioner’s revenue examiners recommended an assessment for deficiency income.. 483...... 1986 from petitioner assessing respondent several deficiency taxes....... branch profit remittance..........90 ..50 20% int.......636........ 1986..... 169........905......00 Add: 50% surcharge . contractor’s and commercial broker’s taxes..... province of Leyte... 36....construction and installation of a wharf/port complex at the Leyte Industrial Development Estate in the municipality of Isabel......... 1985 Undeclared gross income (Philphos and and NDC construction projects) . 84.........57 Net undeclared income ... 2001 581 Commissioner of Internal Revenue vs...... fr..... On August 27...269...... inclusive of surcharge and interest.108.......... On March 1... DEFICIENCY INCOME TAX FY ended March 31. Respondent questioned this assessment in a letter dated June 5..675..... 1986.................905..646. The other contract was with the Philippine Phosphate Fertilizer Corporation (Philphos) for the construction of an ammonia storage complex also at the Leyte Industrial Development Estate..272........................... DECEMBER 18......634.. The assessed deficiency internal revenue taxes... 1986. p......... P967....57 Income tax due thereon . 372....217. 7-15-85 to to 8-15-86 ...a. 483..14 Less: Cost and expenses (50%) ............811.... were as follows: 581 VOL......... respondent corporation received a letter dated August 15........ Marubeni Corporation I..............

..........690........272........ P967.... 314....634....972................... 169...403......................... 12............................... 23..00 Add: 50% surcharge for non-declaration .57 Less: Income tax thereon .... fr......16 III.... P483....792............................305........362..00 Amount subject to Tax .50 20% int....036.......905..............14 Contractor’s tax due thereon (4%) ..........66 TOTAL AMOUNT DUE ..965... 1985 Undeclared net income from Philphos and NDC construction projects..00 Add: 50% surcharge...... p...201................ P290...........40 II.... ....360.. DEFICIENCY CONTRACTOR’S TAX FY ended March 31.................... 38..................... DEFICIENCY BRANCH PROFIT REMITTANCE TAX FY ended March 31..................a.......217...............269...........688.....583............ 1985 Undeclared gross receipts/gross income from Philphos and NDC construction projects .............................577.............................TOTAL AMOUNT DUE ..... P 83....57 Tax due thereon ............... 4-26-85 to 8-15-86 ... 47.....154......811.............

...625..........345.......................569................ fr..00 Sub-total ......396.......00 25% surcharge for late payment ...... 1985 Undeclared share from commission income (denominated as “subsidy from Home Office”).........683... DEFICIENCY COMMERCIAL BROKER’S TAX FY ended March 31.995...00 Add: 20% int........50 25% surcharge for late payment ......................................... 9..886........00 Add: 50% surcharge for non-declaration ....628.......... 17................ 4-21-85 to 8-15-86 ..... 2......... 4-21-85 to 8-15-86.....854....................................... 407. p.....50 Tax due thereon ........849.46 TOTAL AMOUNT DUE ........46 582 582 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs............................a... 1. p... .75 Add: 20% int........a......739..... 814....114............. fr...................................25 Sub-total ......................... P 24.142....... Marubeni Corporation IV.........................708.........284........698.................19...672..... P 85.563.. 67................

pp... 4109. CTA Case No. 1986... The first petition. 1986. Each contract was for a piece of work and since the projects called for the construction and installation of facilities in the Philippines. 1980 on record with the Bureau of Internal Revenue (BIR). 11.. . on or before October 31. 4110. file a statement of said net worth subject to verification by the BIR. the entire income therefrom constituted income from Philippine sources. 1980 to December 31. 2001 583 Commissioner of Internal Revenue vs..... Rollo. respondent may file an appeal with the Court of Tax Appeals within thirty (30) days from receipt of the assessment.269.. questioned the deficiency commercial broker’s assessment in the same letter.. Under this E.14.. questioned the deficiency income...68 The 50% surcharge was imposed for your client’s failure to report for tax purposes the aforesaid taxable revenues while the 25% surcharge was imposed because of your client’s failure to pay on time the above deficiency percentage taxes. The assessment letter further stated that the same was petitioner’s final decision and that if respondent disagreed with it. or if no such record exists.... 412 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. and (c) file a return and pay a tax equivalent to ten per cent (10%) of the increase in net worth from December 31.. also marked as Exhibit “C” Pet.. 73-74. Executive Order (E.O. 583 VOL. respondent filed two (2) petitions for review with the Court of Tax Appeals.. (b) file a certified true copy of his statement declaring his net worth as of December 31.O.811. 1985. on August 2.. Folder No.. On September 26. 2072-2076.600.. _______________ 1 Assessment Letter of the Commissioner of Internal Revenue.”1 Petitioner found that the NDC and Philphos contracts were made on a “turn-key” basis and that the gross income from the two projects amounted to P967. hence. P 3..... branch profit remittance and contractor’s tax assessments in petitioner’s assessment letter.. 1985.. pp.... 1986: (a) file a sworn statement declaring his net worth as of December 31.. and Exhibit “2” Resp.. The second..) No.. DECEMBER 18..98 TOTAL AMOUNT DUE .. xxx xxx x x x.. a taxpayer who wished to avail of the income tax amnesty should..539.535.751. subject to internal revenue taxes.. Marubeni Corporation Earlier.. BIR Records... CTA Case No. 372...

No. No. 1986. 4109. No.891.O.O. 41.O. 64. also covering the years 1981 to 1985. No. Title V of the National Internal Revenue Code. And The Tax on Business Under Chapter II.O. could avail themselves of the benefits. On July 29.00 to the BIR equivalent to five percent (5%) of the increase of its net worth between 1981 and 1986.273. No. On December 15. No.445. 643 included estate and donor’s taxes under Title III and the tax on business under Chapter II.00 equivalent to ten percent (10%) of its net worth increase between 1981 and 1986. 1986. 1986 and respondent paid the amount of P2. respondent filed its tax amnesty return dated October 30.) No. 41 was expanded by Executive Order (E.O. the Court of Tax Appeals rendered a decision in CTA Case No. Title V. 1986. No. 1986 and attached thereto its sworn statement of assets and liabilities and net worth as of Fiscal Year (FY) 1981 and FY 1986. 64 and paid a further amount of P1. the scope and coverage of E. 41.O. E.637. of the National Internal Revenue Code. E. Estate and Donor’s Taxes Under Title III. estate and donor’s tax liabilities. immunities and privileges-under the new E. 64 was extended to January 31.O. As Amended. as amended. The period of amnesty under E. and the period within which the taxpayer could avail of the amnesty was _______________ 2 Entitled “Declaring a One-Time Tax Amnesty Covering Unpaid Income Taxes for the Years 1981 to 1985. The period of the amnesty in E. 41 for the years 1981 to 1985. 64 further provided that the immunities and privileges under E. The tax court found that respondent had properly availed of the tax .O. The return was received by the BIR on November 3. No. Those taxpayers who already filed their amnesty return under E. 1986. 41 was later extended from October 31.O. In addition to the income tax amnesty granted by E.O. 1996. 1986.O. almost ten (10) years after filing of the case. On November 17. 41 were extended to the foregoing tax liabilities. No. 54 dated November 4. 95 dated December 17. 1986 to December 5.In accordance with the terms of E. by filing an amended return and paying an additional 5% on the increase in net worth to cover business. respondent filed a supplemental tax amnesty return under the benefit of E. Marubeni Corporation extended to December 15.O. For the Years 1981-1985. No. No. No. 1986 by E. 1987 by E.O.O.” 3 Entitled “Declaring a One-Time Tax Amnesty Covering Income Taxes.” 584 584 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.

as amended. Petitioner claims.amnesty under E. 2001 585 Commissioner of Internal Revenue vs. On January 15. 41. DECEMBER 18.O. 41 and 64. The Court of Tax Appeals disposed of as follows: “WHEREFORE. SP No. that respondent is disqualified from availing of the said amnesties because the latter falls under the exception in Section 4 (b) of E.O. b)Those with income tax cases already filed in Court as of the effectivity hereof. There are three (3) types of taxes involved herein—income tax. Marubeni Corporation (2) Whether or not respondent is liable to pay the income. Section 4 of E. 1999. p.O. _______________ 4 CTA Decision. Exceptions. No.O. and contractor’s taxes assessed by petitioner. 41 and 64 and declared the deficiency taxes subject of said case as deemed cancelled and withdrawn. . These taxes are covered by the amnesties granted by E. however. Nos. Before us. 41 and 64. 585 VOL.O. 2 and 14. No. Hence. 4. the respondent Commissioner of Internal Revenue is hereby ORDERED to DESIST from collecting the 1985 deficiency taxes it had assessed against petitioner and the same are deemed considered [sic] CANCELLED and WITHDRAWN by reason of the proper availment by petitioner of the amnesty under Executive Order No. the Court of Appeals dismissed the petition and affirmed the decision of the Court of Tax Appeals. Nos. this recourse. branch profit remittance. 41 and 64.—The following taxpayers may not avail themselves of the amnesty herein granted: a) Those falling under the provisions of Executive Order Nos. 42518 with the Court of Appeals. viz. Nos.R.: “Sec. branch profit remittance tax and contractor’s tax. Rollo. Annex “B” to Petition. 45. petitioner raises the following issues: “(1) Whether or not the Court of Appeals erred in affirming the Decision of the Court of Tax Appeals which ruled that herein respondent’s deficiency tax liabilities were extinguished upon respondent’s availment of tax amnesty under Executive Orders Nos. 41 enumerates which taxpayers cannot avail of the amnesty granted thereunder.”5 The main controversy in this case lies in the interpretation of the exception to the amnesty coverage of E. 1. 41. 372.”4 Petitioner challenged the decision of the tax court by filing CA-G.

insofar as the said liabilities are concerned.O. p. When E. for a taxpayer not to be disqualified under Section 4 (b) there must have been no income tax cases filed in court against him when E. 4109 had already been _______________ 5 Petition. 41 is very clear and unambiguous. Rollo. p.c) Those with criminal cases involving violations of the income tax law already filed in court as of the effectivity hereof. 4109 had not yet been filed in court. Petitioner’s claim cannot be sustained. Respondent therefore fell under the exception in Section 4 (b) of E. No. 4109 questioning the 1985 deficiency income. 41. No.O. Marubeni Corporation filed and was pending before the Court of Tax Appeals. Thus. 1986. as amended. E. No. 41 took effect on August 22. 6. No. The filing of income tax cases in court must have been made before and as of the date of effectivity of E. branch profit remittance and contractor’s tax assessments was filed by respondent with the Court of Tax Appeals on September 26. CTA Case No. Respondent corporation did not fall under the said exception in . 15. 41. 1986. 41 became effective on August 22. Chapter Three (Frauds.O. No. f) Those with pending cases involving unexplained or unlawfully acquired wealth before the Sandiganbayan. This is regardless of when the taxpayer filed for income tax amnesty. as amended. Section 4 (b) of E. CTA Case No. 586 586 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. g) Those liable under Title Seven.O. 41. 1986. 41 took effect.O. as amended. No. e) Those with tax cases pending investigation by the Bureau of Internal Revenue as of the effectivity hereof as a result of information furnished under Section 316 of the National Internal Revenue Code.” The point of reference is the date of effectivity of E. 1986. It excepts from income tax amnesty those taxpayers “with income tax cases already filed in court as of the effectivity hereof. Illegal Exactions and Transactions) and Chapter Four (Malversation of Public Funds and Property) of the Revised Penal Code.” Petitioner argues that at the time respondent filed for income tax amnesty on October 30. CTA Case No.O. provided of course he files it on or before the deadline for filing. d) Those that have withholding tax liabilities under the National Internal Revenue Code.O. No.

41. 587 VOL. No. 1986. 64. Instead. No. The same ruling also applies to the deficiency branch profit remittance tax assessment. No. No.O. Section 4 of E. No. 64 took effect on November 17. The provisions of Executive Orders Nos.O.” By virtue of Section 8 as afore-quoted. The contractor’s tax is provided in Section 205. 372.8 In view of the amendment introduced by E. No. 64.Section 4 (b).O. Title V of the Tax Code. The general rule is that an amendatory act operates prospectively. E.O. No. Respondent therefore did not fall under the exception in Section 4 (b) when it filed for amnesty of its deficiency branch profit remittance tax assessment. With respect to Section 4 (b) in particular. No. Title V of the same.” they refer to Executive Order No. 41 and its date of effectivity.O. 64.6 In the tax code. No. No. this provision excepts from tax amnesty coverage a taxpayer who has “income tax cases already filed in court as of the effectivity hereof. Marubeni Corporation taxes fall under Chapter II. it is defined and imposed under the title on business taxes.O. Estate and donor’s taxes fall under Title III of the Tax Code while business _______________ 6 1984 and 1986 NIRC. No.O. hence. 41 and 54 which are not contrary to or inconsistent with this amendatory Executive Order shall remain in full force and effect. Chapter III of the National Internal Revenue Code. It is a tax on income.7 When E. and is therefore a tax on business.10 it may not be given a retroactive effect unless it is so .” As to what Executive Order the exception refers to. respondent was not disqualified from availing of the amnesty for income tax under E. 64 provided that: “Section 8. it did not provide for exceptions to the coverage of the amnesty for business. Section 4 (b) cannot be construed to refer to E. respondent argues that because of the words “income” and “hereof.9 While an amendment is generally construed as becoming a part of the original act as if it had always been contained therein. 41. Section 8 of E. 41 not contrary to or inconsistent with the amendatory act were reenacted in E. A branch profit remittance tax is defined and imposed in Section 24 (b) (2) (ii).O.O. 2001 587 Commissioner of Internal Revenue vs. estate and donor’s taxes. Chapter II. Thus.O. the provisions of E. 64. Title II.O. 41 on the exceptions to amnesty coverage also applied to E. 64 expanded the coverage of E. DECEMBER 18. 41 by including estate and donor’s taxes and tax on business. this tax falls under Title II on Income Tax.O. The difficulty herein is with respect to the contractor’s tax assessment and respondent’s availment of the amnesty under E. No.

O.36. . 588 588 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.16 A tax amnesty.) Sec._______________ 7 Title V. pp.15 It partakes of an absolute forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. 22. E. 588. Sutherland. 651. 14-15. 22. supra. 592. 1984 and 1986 NIRC. 64 that provides that it should retroact to the date of effectivity of E. No. 64 that it or any of its provisions should apply retroactively. or completes or extends that which is already in existence without changing or modifying the original—Sutherland.O.O. Nos. Garcia.O. Agpalo. pp. No. Philippine National Bank. 99-100. 273. 655 (1951). 41. p. No.14 Moreover.24 and 22. Kapisanan ng mga Manggagawa sa MRR Co. It supplements the original act by adding other taxes not covered in the first. 85 Phil.O. Sutherland. Marubeni Corporation provided expressly or by necessary implication and no vested right or obligations of contract are thereby impaired. 1A (5th ed. the original issuance. every case of doubt must be resolved against its retroactive effect.11 There is nothing in E. the amendment will not be given a retroactive effect so as to subject to tax past transactions not subject to tax under the original act. 8 Comment.12 It has been held that where a statute amending a tax law is silent as to whether it operates retroactively.01. 395 (1998). Secs. 10 People v. Pacia v.13 In an amendatory act. adds to. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. Business taxes were replaced in 1988 by the Value-Added Tax under Executive Order No. 304 (1992-1994). pp. 41. 22. supra.. 64 is a substantive amendment of E. Sec. 99 Phil.35. 48 (1956). 370. Statutory Construction. It does not merely change provisions in E. much like a _______________ 11 Buyco v. 2 SCRA 682 (1961). p. 112 Phil. No. supra. 41 and 64 are tax amnesty issuances. Rollo. 12 A supplementary act is an amendatory act that supplies a deficiency. vol. 395 (1998).O. 45. Executive Order No. Neither is it necessarily implied from E. 41. No. 9 Agpalo. Statutory Construction.

165 SCRA 327. supra. 41 and 64 and was disqualified from availing of the business tax amnesty granted therein.. 1986. When E. it is still not liable for the deficiency contractor’s tax because the income from the projects came from the “Offshore Portion” of the contracts. Inc.17 If granted. Botelho Corporation & Shipping Co. Nos. 301 SCRA 152.. No. DECEMBER 18. 20 SCRA 487 (1967). La Tondeña. like that of a tax exemption. No. By the time respondent filed its supplementary tax amnesty return on December 15. The term “income tax cases” should be read as to refer to estate and donor’s taxes and taxes on business while the word “hereof. 14 Montilla v. . at 370. 115 Phil. is never favored nor presumed in law.O.O. Inc. the terms of the amnesty. 41 should be November 17. 64 took effect on November 17. No. 395. 340 (1991) citing Commissioner of Internal Revenue v. 341 (1988).O. respondent already fell under the exception in Section 4 (b) of E. Agustinian Corp. 16 Ibid. 222 (1913). 2001 589 Commissioner of Internal Revenue vs.19 In the instant case. 846-847. consequently. Intermediate Appellate Court. It cannot be allowed to exist upon a vague implication. 841. 64 are concerned. 24 Phil.. Marubeni Corporation tax exemption.” to E. insofar as the taxes in E. 64 should therefore be construed strictly against the taxpayer. Court of Appeals. the Onshore _______________ 17 Commissioner of Internal Revenue v. 64. i. 1986. Respondent filed CTA Case No. 196 SCRA 335. 15 Republic v. The two contracts were divided into two parts. CTA Case No. the date of effectivity referred to in Section 4 (b) of E. No.O. 64 took effect on November 17. Since Executive Order No.O. 372. Agpalo. that doubt must be resolved in favor of the state.O. Castaneda. 4109 was already filed and pending in court. must be construed strictly against the taxpayer and liberally in favor of the taxing authority. People v. If a doubt arises as to the intent of the legislature.13 Collector of Internal Revenue v. 171-172 (1999). 4109 on September 26.18 For the right of taxation is inherent in government. The State cannot strip itself of the most essential power of taxation by doubtful words. It is respondent’s other argument that assuming it did not validly avail of the amnesty under the two Executive Orders. No. 220.. 589 VOL. 1986. He who claims an exemption (or an amnesty) from the common burden must justify his claim by the clearest grant of organic or state law.. 1986.e. 5 SCRA 665 (1962). 1986. the vagueness in Section 4 (b) brought about by E.

18 People v. Inc. Commissioner of Internal Revenue v. 5. 5. The NDC and Philphos are two government corporations. it is necessary to discuss the background of the two contracts. and among the largest in the world. the NDC. bagged or bulk fertilizer products.21 and other industrial plants within the Estate. as the corporate investment arm of the Philippine Government. at 341. Folder No. the Philippine Associated Smelting and Refining Corporation (Pasar). the NDC opened for public bidding a project to construct and install a modern.D. 19 Asiatic Petroleum v. Collector of Internal Revenue. Philippine Phosphatic Fertilizer Corporation. 466. 1982. reliable. 4109. Marubeni Corporation Portion and the Offshore Portion.20 The Philphos plant complex which was envisioned to be the largest phosphatic fertilizer operation in Asia. v. . In 1982. Rodriguez. established the Philphos to engage in the large-scale manufacture of phosphatic fertilizer for the local and foreign markets. not in the Philippines. 183-185 (1967). Marubeni. All materials and equipment in the contract under the “Offshore Portion” were manufactured and completed in Japan. The bidding was participated in by Marubeni Head Office in Japan. Llanes. A. Before going into respondent’s arguments. 49 Phil. Folder No. E. 21 Pasar is a copper smelter plant whose sulfuric acid by-product is used in manufacturing fertilizers— Exhibit “AA-1” Pet. examine their pertinent provisions and implementation. Japan pre-qualified and on March 22. In 1980. Llanes. It was to be specifically adapted to the site for the handling of phosphate rock.” Project Background. supra. 4109. 471 (126). Castañeda. the NDC and respondent entered into an agreement entitled “Turn-Key Contract for Leyte Industrial Estate Port Development Project Between National Development Company and Marubeni Corpora- _______________ 20 Exh. CTA Case No. supra. 28 SCRA 1119. Guerrero. CTA Case No. province of Leyte. 590 590 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. liquid materials and other products of Philphos. “AA. and are therefore not subject to Philippine taxes. 1127-1128 (1969). 21 SCRA 180. at 471-472. efficient and integrated wharf/port complex at the Leyte Industrial Development Estate. Asiatic Petroleum v. covered an area of 180 hectares within the 435-hectare Leyte Industrial Development Estate in the municipality of Isabel. The wharf/port complex was intended to be one of the major facilities for the industrial plants at the Leyte Industrial Development Estate.

NDC Contract.591 VOL. utilities systems. while the price in Philippine currency was referred to as the Philippine Pesos Portion. area lighting. incidental to or appropriate under present international industrial port practice. and (b) by supplier’s credit in favor of Marubeni from the Export-Import Bank of Japan. 24 Exhibit “J” Pet. In the contract. spare parts and other related facilities. supra. supervision. DECEMBER 18. offsite facilities. with the design and construction of other facilities around the site.1. as well as the coordination of tie-ins at boundaries and schedule of the use of a part or the whole of the Wharf/Port Complex through the Owner.327. 372.940.389. Article 2. 23 Exhibit “J” Pet. CTA Case No. (2) the Japanese Yen Portion II.00 and P44.”25 The contract price for the wharf/port complex was ¥12.23 The scope of the works under the contract covered turn-key supply. construction. causeways. for the timely and successful implementation of the object of this Contract. 25 “Scope of Work.00. NDC Contract. mechanical and liquids unloading and loading systems. supra. fire-fighting system. The OECF is a Fund under the Ministry of Finance of Japan extended by the _______________ 22 Exhibit “J” Pet. “Wharf/Port Complex. 4110. 592 . storage and service buildings. 2001 591 Commissioner of Internal Revenue vs. supply and delivery.790. the price in Japanese currency was broken down into two portions: (1) the Japanese Yen Portion I. Marubeni Corporation tion. berths. which included grants of licenses and the transfer of technology and know- how. whether or not expressly referred to in the abovementioned Annex I. 4109 and CTA Case No. mobile equipment.000. work and supply necessary for. direction and control of testing and commissioning of the Wharf-Port Complex as set forth in Annex I of this Contract. Article 2. The scope of works shall also include any activity. NDC Contract. supra. harbor service vessels. navigational aid system. erection and installation. 2. The Japanese Yen Portions I and II were financed in two (2) ways: (a) by yen credit loan provided by the Overseas Economic Cooperation Fund (OECF). Article 1.” Exhibit “J” Pet. fuel oil depot.24 and: “x x x the design and engineering.2. Folder No.” Turn-Key Contract for Leyte Industrial Estate Port Project Between the National Development Company [sic] and Marubeni Corporation (hereinafter to be referred to as the “NDC Contract”).”22 The Port Development Project would consist of a wharf.

26 The OECF extended to the Philippine Government a loan of ¥7. Like the NDC contract. 27 Exhibit “JJJ-1” Pet. 30 Exhibit “I” Pet. 1990.560.592 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. it was Marubeni Head Office in Japan that participated in and won the bidding.. CTA Case No.”30 The object of the contract was to establish and place in operating condition a modern. TSN of March 23. 8. “Loan Agreement for the Leyte Industrial Estate Port Development Project.29 A few months after execution of the NDC contract. DECEMBER 18. 28 Takeshi Hojo. 17-20. 4110.000. 4109 and CTA Case No. Folder No. 4109 and CTA Case No. Folder No. Philphos and respondent corporation entered into an agreement entitled “Turn-Key Contract for Ammonia Storage Complex Between Philippine Phosphate Fertilizer Corporation and Marubeni Corporation. Exchange of Notes dated June 9. Marubeni Corporation Japanese government as assistance to foreign governments to promote economic development. efficient and integrated ammonia storage complex adapted to the site for the receipt and storage of liquid anhydrous _______________ 26 Exhibit “JJJ” Pet. Breakdown of Japanese Yen Portions I & II and Philippine Pesos Portion of Contract Price. 4109 and CTA Case No. 2001 593 Commissioner of Internal Revenue vs. equipment and services rendered on the project. 4110. 8.00 for the Leyte Industrial Estate Port Development Project and authorized the NDC to implement the same. The price breakdown and the corresponding materials. on May 2. Philphos opened for public bidding a project to construct and install two ammonia storage tanks in Isabel. reliable. Thus. Marubeni. Marubeni Corporation . 593 VOL. the Japanese Yen Portions I and II and the Philippine Pesos Portion were further broken down and subdivided according to the materials. 29 Exhibit “J-2” Pet. 2.28 Under the financing schemes. i. CTA Case No. 4. equipment and services were contained in a list attached as Annex III to the contract. obtained a loan from the Export-Import Bank of Japan to advance payment to its subcontractors. 1981 by and between the Japanese and Philippine Governments. Annex III to NDC Contract. 372. Folder No. 4110.000. 4109 and CTA Case No 4110. 1982.27 The other type of financing is an indirect type where the supplier.e. CTA Case No.” Folder No. CTA Case No. pp.

Marubeni Corporation . Article 2.” Philphos Contract. 32 Exhibit “I” Pet. The price in Japanese currency was broken down into the Japanese Yen Portion I and Japanese Yen Portion II while the price in Philippine currency was classified as the Philippine Pesos Portion. erection and installation.ammonia31 and for the delivery of ammonia to an integrated fertilizer plant adjacent to the storage complex and to vessels at the dock.34 and: “x x x the design and engineering. as well as the coordination of tie-ins at boundaries and schedule of the use of a part or the whole of the Ammonia Storage Complex through the Owner with the design and construction of other facilities at and around the Site. transfer pumps. ship unloading system. supra.255. whether or not expressly referred to in the abovementioned Annex I. 34 Exhibit “I” Pet. Philphos Contract.000.1. supra. work and supply necessary for.2. including grants of licenses and transfer of technology and know-how. spare parts. 1990. Article I. “Article 2. and other related facilities. direction and control of testing and commissioning of the Ammonia Storage Complex as set forth in Annex I of this Contract. fire-fighting system.”35 The contract price for the project was ¥3.406. The _______________ 31 Ammonia is one of the raw materials for fertilizer production—Hojo.” 35 Scope of Work. The scope of works shall also include any activity. TSN of March 21. incidental to or appropriate under present international industrial practice.00 and P17.” (hereinafter referred to as Philphos Contract). Turn-key Contract for Ammonia Storage Complex Between Philippine Phosphate Fertilizer Corporation and Marubeni Corporation.000. area lighting. Both Japanese Yen Portions I and II were financed by supplier’s credit from the Export-Import Bank of Japan. Like the NDC contract. refrigeration system. Article 2. construction. supra. 33 Exhibit “I” Pet.00. ammonia heating system.33 The scope of the works required for the completion of the ammonia storage complex covered the supply. for the timely and successful implementation of the object of this Contract. supervision.” Exhibit “I” Pet. Philphos Contract. 20- 21.751. pp. supply and delivery. supra. “Ammonia Storage Complex. the price was divided into three portions.1. 594 594 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs.32 The storage complex was to consist of ammonia storage tanks.

38 Id.36 The division of the price into Japanese Yen Portions I and II and the Philippine Pesos Portion under the two contracts corresponds to the two parts into which the contracts were classified—the Foreign Offshore Portion and the Philippine Onshore Portion. 595 VOL. Marubeni Corporation ippines. Engineering Equipment & Supply Co.41 Accordingly. Like the NDC contract. they are contracts for a piece of work and are indivisible. 4109 and CTA Case No.40 they call for the supply of both materials and services to the client. 39 Footnote No. 19. The total gross receipts covering both labor and materials should be subjected to contractor’s tax in accordance with the ruling in Commissioner of Internal Revenue v. the Japanese Yen Portion I corresponds to the Foreign Offshore Portion. In fact respondent claims. Folder No. 16. 6-7. 2.price stated in the three portions were further broken down into the corresponding materials. 40 A “turn-key job” is defined as a job or contract in which the contractor agrees to complete the work of building and installation to the point of readiness for operation or occupancy—Webster’s Third New International Dictionary of the English Language.37 Japanese Yen Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.39 It is with regard to the gross receipts from the Foreign Offshore Portion of the two contracts that the liabilities involved in the assessments subject of this case arose. 1990. 2001 595 Commissioner of Internal Revenue vs. CTA Case No. respondent does not deny its liability for the contractor’s tax on the income from the two projects. which petitioner has not denied.” Breakdown of Japanese Yen Portions I & II and Philippine Pesos Portion of Contract Price. The situs of the two projects is in the Philippines.38 Under the Philippine Onshore Portion. Rollo. constitute income from Philippine sources. p. 42 . Annex III to Philphos Contract. Comment. including its receipts from the Offshore Portion. 4. the breakdown in the Philphos contract is contained in a list attached to the latter as Annex III. 37 Hojo. DECEMBER 18. pp. equipment and services required for the project and their individual prices. 4110. Unabridged (1993). that the income it derived from the Onshore Portion of the two projects had been declared for tax purposes and the taxes thereon already paid to the Philippine government. Petitioner argues that since the two agreements are turn-key. p. In both contracts. and the materials provided and services rendered were all done and completed within the territorial jurisdiction of the Phil- _______________ 36 Exhibit “1-2 Pet. 372. respondent’s entire receipts from the contracts. TSN of March 22.

subsidiaries or branches in the Asia-Pacific Region. Memorandum of Head Revenue Examiner to the Commissioner of Internal Revenue. 596 596 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. 73-77.A contractor’s tax is imposed in the National Internal Revenue Code (NIRC) as follows: “Sec. BIR Records. xxx xxx xxx (q) Other independent contractors. Letter Assessment of Commissioner Tan. 170. 43 1984 NIRC. including their alien executives. Contractors. Folder No. Rollo. 4109 and CTA Case No. in the pursuit of independent business. Marubeni Corporation Under the afore-quoted provision. 11. 42 64 SCRA 590 (1975). general building and specialty contractors. 273.—A contractor’s tax of four percent of the gross receipts is hereby imposed on proprietors or operators of the following business establishments and/or persons engaged in the business of selling or rendering the following services for a fee or compensation: (a) General engineering.”43 _______________ 41 Exhibit “4” Resp. and others. an independent contractor is a person whose activity consists essentially of the sale of all kinds of services for a fee. . It does not include regional or area headquarters established in the Philippines by multinational corporations. 4566. pp. Exhibit “2” Resp. as defined in Republic Act No. and which headquarters do not earn or derive income from the Philippines and which act as supervisory. CTA Case No. 205. The term “independent contractors” includes persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. 4110. Sec. 1986 NIRC. The word “contractor” refers to a person who. communications and coordinating centers for their affiliates. The contractor’s tax was replaced in 1988 by the Value-Added Tax pursuant to Executive Order No. xxx xxx x x x. proprietors or operators of dockyards.

843 (1956). 188 SW 798. 372. 15 LRA (N. 136 Tenn 23. National Internal Revenue Code. _______________ 44 Commissioner of Internal Revenue v. Court of Tax Appeals and Avecilla Building Corp. 45 Section 205 in relation to Section 188. Gonzales and C. Celestino & Co. 841. Engineering Equipment & Supply Co. 1683. v.. Robinson v. City of Iloilo. however. DECEMBER 18. Cooley. British Overseas Airways Corp. 14. 60 SE 762. 615 (1988). 48 Iloilo Bottlers. Collector. . E. 1. 2001 597 Commissioner of Internal Revenue vs.) 294 (1908)—a license tax for revenue cannot be imposed by a city upon a circus exhibiting beyond its territorial limits..49 In the case at bar. privileges or business are done or performed within the jurisdiction of said authority.46 and is directly collectible from the person exercising the privilege. 49 Gulf Refining Co.S. 597-598 (1975).undertakes to do a specific job or piece of work for other persons. 799 (1916). 54 (1985).47 Being an excise tax. 46. see also Cooley. 99 Phil. Marubeni Corporation Respondent. 164 SCRA 607. The Law of Taxation. argues that the work therein were not all performed in the Philippines because some of them were completed in Japan in accordance with the provisions of the contracts. v.48 Like property taxes. City of Norfolk. National Internal Revenue Code. p. 47 Gonzales and Gonzales. vol. it cannot be imposed on an occupation or privilege outside the taxing district. 1984 NIRC. 149 SCRA 395. 46 Commissioner of Internal Revenue v. 94-95 (1924). it is undisputed that respondent was an independent contractor under the terms of the two subject contracts. p. 456 (1986). 134 SCRA 49. 108 Va. 527 (1984). Secs. 4.44 A contractor’s tax is a tax imposed upon the privilege of engaging in business. 1675. 410 (1987). City of Knoxville. Commissioner of Internal Revenue v. 64 SCRA 590. National Internal Revenue Code. p. using his own means and methods without submitting himself to control as to the petty details. vol. Inc. Aranas. 134 (1983). 2. vol.. Secs. 763-764. 597 VOL. Gonzales. it can be levied by the taxing authority only when the acts.45 It is generally in the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on products. v.

This subdivision of price is to be used by owner to verify invoice for Progress Payments under Article 19. Chapter II. TSN of March 22. Japan for the supply of radio equipment. 1990. pp. 11. entitled “Breakdown of Japanese Yen Portion I” provides: “Japanese Yen Portion I of the Contract Price has been subdivided according to discrete portions of materials and equipment which will be shipped to Leyte as units and lots. 1-127 to 1-131. the supplies for the project are listed under Portion I while labor and other supplies are listed under Portion II and the Philippine Pesos Portion. 52 Exhibits “J-8-a” to “J-8-d” Pet.51 The machines and equipment were designed.14. Marubeni Corporation supplies to Kawasaki Steel Corporation which did the design. 51 Hojo. Technical Appendices to the Contract. Takeshi Hojo.53 Yashima & Co. Bridgestone which provided the rubber fenders of the mobile equipment. 4109.”50 The subdivision of Japanese Yen Portion I covers materials and equipment while Japanese Yen Portion II and the Philippine Pesos Portion enumerate other materials and equipment and the construction and installation work on the project.55 The engineering and design works made by Kawasaki Steel Corporation included the lay-out of the plant facility and calculation of the design in accordance with the specifications given by respondent. fabrication.52 Marubeni sub-contracted a majority of the equipment and _______________ 50 Exhibit “J-2” Pet.2. Vendor’s List for Main Items. testified that all the machines and equipment listed under Japanese Yen Portion I in Annex III were manufactured in Japan.56 All . Chapter 1. Mr. Exhibits “I-13-a” to “1-13-i” Pet. engineered and fabricated by Japanese firms sub-contracted by Marubeni from the list of sub-contractors in the technical appendices to each contract. Folder No. Vendor’s List.1 of the Contract. pp. 15. engineering and manufacture thereof. Exhibit “1-2” Pet. supra. The agreed subdivision of Japanese Yen Portion I is as follows: xxx xxx x x x. In other words. Technical 598 598 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. which manufactured the mobile equipment. then General Manager of the Industrial Plant Section II of the Industrial Plant Department of Marubeni Corporation in Japan who supervised the implementation of the two projects.An examination of Annex III to the two contracts reveals that the materials and equipment to be made and the works and services to be performed by respondent are indeed classified into two. The first part. 2. Leyte Industrial Estate Port Development Project. CTA Case No.S. supra. Ltd.54 and B. Annex III to NDC Contract. Annex III to Philphos Contract.

1990. Folder No. TSN of Deposition Upon Oral Examination. DECEMBER 18. Folder No.61 Like the ship unloader and loader.7-9. Both contracts allow Marubeni to procure materials and equipment from an approved list of sub-contractors without need of further approval from the owner—Article 8. After manufacture.57 The materials and equipment under Portion I of the NDC Port Project is primarily composed of two (2) sets of ship unloader and loader.4. The mobile equipment. Article 8. p.4. 34. pp. 2001 599 Commissioner of Internal Revenue vs. supra. Exhibit “BBB-1” Pet. the three tugboats and a line boat were completely manufactured in Japan. 6. Ammonia Storage Complex. NDC contract. 1. 57 Hojo. Leyte. January 31. 1990. 4109. 7. Two sets of these equipment were completely manufactured in Japan according to the specifications of the project. 4109. CTA Case No. TSN of March 22. CTA Case No.59 Upon reaching Isabel. 4109. 58 Exhibit “J-2” Pet. Plant Supply Contract between Marubeni and Kawasaki Steel Corporation for NDC Project. The unloader and loader are big steel structures on top of each is a large crane and a compartment for operation of the crane.60 Their installation simply consisted of bolting them onto the pier. II-5. 1990. Philphos contract. p. CTA Case No. 54 Hojo. consisting of three to four sets of tractors. Folder No.58 The ship unloader unloads bags or bulk products from the ship to the port while the ship loader loads products from the port to the ship. they were _______________ Appendices for Leyte Fertilizer Project. the unloader and loader were rolled off the barge and pulled to the pier to the spot where they were installed. Exhibit “OO” Pet. 33-34. supra.subcontractors and manufacturers are Japanese corporations and are based in Japan and all engineering and design works were performed in that country. 56 Hojo. trailers and forklifts. 356-363. were also manufactured and completed in . Annex III to NDC Contract. TSN of March 21. Folder No. 7.7-1 to II-5. 1990. 6. 372. 34. Kenjiro Yamakawa. pp. cranes and dozers. p. Marubeni Corporation rolled on to a barge and transported to Isabel. TSN of March 21. 599 VOL. pp. 1992. p. TSN of March 22. 53 Hojo. several boats and mobile equipment. 32. The boats sailed to Isabel on their own power. 4109. 55 Exhibit “AAA-1” to “AAA-1-b” Pet. CTA Case No. Plant Supply Contract between Marubeni and Kawasaki Steel Corporation for Philphos Project.

These pieces of equipment were all on wheels and self-propelled. the major pieces of equipment supplied by respondent were the ammonia storage tanks and refrigeration units. piping facilities. 64 Hojo. TSN of March 22. CTA Case No. 357-363. These other items consist of supplies and materials for five (5) berths.62 In addition to the foregoing. CTA Case No. supra. a causeway.Japan. 2. Photograph of ship unloader and loader on a barge. Photograph of roll off works for ship unloader. 1990. Folder No. All the materials and equipment transported to the Philippines were inspected and tested in Japan prior to shipment in accordance with the terms of the contracts. TSN of March 23. steel pipes. 61 Hojo. 4109. pp. 1990. Marubeni Corporation the refrigeration units.66 The inspection was made by . 4109.63 In connection with the Philphos contract. 4110. pp. Exhibits “II” and “JJ” Pet. they were completed and assembled in Japan and thereafter shipped to Isabel. 11-12. Once unloaded at the port. pp. Once there. electrical and instrumental apparatus. CTA Case No.65 Annex III to the Philphos contract lists down under the Japanese Yen Portion I the materials for the ammonia storage tank. a transit shed.64 The steel plates for the tank were manufactured and cut in Japan according to drawings and specifications and then shipped to Isabel. 11-12. an administration building and a security building. Photographs of mobile equipment. they were ready to be driven and perform what they were designed to do. As to _______________ 59 Exhibit “FF” Pet. 60 Hojo. 1990. navigational and communication as well as electrical equipment. Folder No. 1990. 42-43. The units were simply installed there. incidental equipment. Exhibit “J-2” Pet. Folder No. channels and beams and other steel structures. TSN of March 23. 1990. a warehouse. 38-39. Most of the materials consist of steel sheets. TSN of March 22. TSN of March 23. 600 600 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. there are other items listed in Japanese Yen Portion I in Annex III to the NDC contract. respondent’s employees put the steel plates together to form the storage tank. pp. pp. 39-40. pp. two (2) roads. 4109 and CTA Case No. Folder No. 63 Annex III to NDC Contract. They were loaded on to a shipping vessel and unloaded at the Isabel Port. Exhibit “FF-1” Pet. foundation material and spare parts. 5. 5. 62 Hojo. 5.

CTA Case No. payments for all materials and equipment under Japanese Yen Portion I were made to Marubeni by NDC and Philphos also in Japan.representatives of respondent corporation. 1991. upon respondent’s submission of pertinent documents. 66 Exhibit “J” Pet. Exhibits “VV” Pet. through the Philippine National Bank. The letters of credit were financed by letters of commitment issued by the OECF with the Bank of Tokyo. 4109. in fact. 45-47. pp. Folder No. Kawasaki Steel Corporation. CTA Case No. pp. released the amount in the letters of credit in favor of respondent and credited the amount therein to respondent’s account within the same bank. established letters of credit in favor of respondent through the Bank of Tokyo. supra. testified that the equipment and supplies for the two projects provided by Kawasaki under Japanese Yen Portion I were paid by Marubeni in Japan. 69 Exhibits “VV.68 The sub-contractors of the materials and equipment under Japanese Yen Portion I were all paid by respondent in Japan. of NDC and Philphos. 4109. Japan were likewise paid by Marubeni in Japan. Receipts for such payments were duly issued by Kawasaki in Japanese and English. 7. 15-33. Folder No. 1990. Engineering & Construction Division. 43-44. Int’l. CTA Case No. 3. The NDC. CTA Case No. Folder No. Article 11. 70 Hisatsugu Yoshida. 601 VOL. 4109. In his deposition upon oral examination. 6. 42-43. DECEMBER 18.5. Ltd. Marubeni Corporation Between Marubeni and the two Philippine corporations. contracted the services of a private consultancy firm to verify the correctness of the tests on the machines and equipment67 while Philphos sent a representative to Japan to inspect the storage equipment. 5. Exhibit “I” Pet. 6.70 _______________ 65 Hojo. and B. 67 Exhibit “KK” Pet.” “VV-1” to “VV-50-a” Pet. CTA Case No. Folder No. Exhibits “CCC-1” to “CCC-27- a” Pet. NDC..” “AAA” Pet.71 . 2001 601 Commissioner of Internal Revenue vs. 4109. “ZZ. Folder No. Article 11. Philphos Contract.” “ZZ-2-d. 68 Exhibit “LL” Pet. TSN of September 20. 372. pp.S. NDC Board Resolution appointing Pacific Consultants. supra. NDC Contract.69 Yashima & Co. Kenjiro Yamakawa. pp. TSN of March 23. 4109. The Bank of Tokyo. letter of Philphos VP appointing a representative to inspect storage equipment. formerly the Assistant General Manager and Manager of the Steel Plant Marketing Department.

Folder No. pp. Article 2. .R. fabrication. 10. 42518 is affirmed. CTA Case No. Article 2. They were already finished products when shipped to the Philippines.. concur. 4109. There was no foreign element involved in the supply of materials and services. Exhibits “JJJ-3” to “JJJ-17-c” Pet. While the construction and installation work were completed within the Philippines. supervision. The decision in CA-G. Pardo and Ynares-Santiago. In that case. engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. pipes and structures.1. the Court found that Engineering Equipment. The other construction supplies listed under the Offshore Portion such as the steel sheets. the evidence is clear that some pieces of equipment and supplies were completely designed and engineered in Japan. the case of Commissioner of Internal Revenue v. IN VIEW WHEREOF.J. was not engaged in the manufacture of air conditioning units in the Philippines. They. . These services were rendered outside the taxing jurisdiction of the Philippines and are therefore not subject to contractor’s tax. It imported some items for the system it designed and installed. although an independent contractor. Chairman). SO ORDERED.1 Philpos Contract. Davide. With the foregoing discussion.74 The issues in that case dealt with services performed within the local taxing jurisdiction. Kapunan. 1993. 602 602 SUPREME COURT REPORTS ANNOTATED Commissioner of Internal Revenue vs. the boats and mobile equipment for the NDC project and the ammonia storage tanks and refrigeration units were made and completed in Japan. SP No. (C. erection and installation. the service of “design and engineering. Engineering.” Exhibit “J” Pet. 72 “Scope of Work. The two sets of ship unloader and loader.. TSN of Deposition Upon Oral Interrogatories. All services for the design. These acts occurred in two countries—Japan and the Philippines. it is unnecessary to discuss the other issues raised by the parties. however. supplied and installed centralized airconditioning systems for clients who contracted its services. were likewise fabricated and manufactured by the sub-contractors in Japan. electrical and instrumental apparatus. Jr. construction. Engineering Equipment & Supply Co 73 is not in point. _______________ 71 Yoshida. Engineering Equipment designed. did not manufacture all the materials for the airconditioning system. 11-12.Clearly. Exhibit “I” Pet.”72 of the two projects involved two taxing jurisdictions. January 27. however. JJ. supply and delivery. NDC Contract. direction and control of testing and commissioning. coordination . . Marubeni Corporation Contrary to petitioner’s claim. the petition is denied. these were not finished products when shipped to the Philippines.

WORDS AND PHRASES. Inc. plaintiff and appellee.—ln a general sense every person who enters into a contract may be called a contractor. rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. being public documents. heat exchangers or coils—Id. undertakes to do a specific piece of job or work for other persons. vs. Trinidad used with special reference to a person who. DEFINITION OF. National Labor Relations Commission. Court of Appeals. CONTRACTOR. 1922] LUZON STEVEDORING COMPANY. (Commissioner of Internal Revenue vs. yet the word. 603 © Copyright 2017 Central Book Supply. Collector of Internal Revenue. 18316. (Ropali Trading Corporation vs. 1. defendant and appellant.INTERNAL REVENUE. September 23. for want of a better one.Judgment affirmed. WENCESLAO TRINIDAD. until controverted by competent evidence. and not as to the means by which it is accomplished. The true test of a "contractor" would seem to be that he renders service in the course of an independent occupation representing the will of his employer only as to the result of his work. using his own means and methods without submitting himself to control as to the petty details. DEFINED. are prima facie correct with respect to the entries therein. 296 SCRA 309 [1998]) ——o0o—— _______________ 73 64 SCRA 590 (1975).—Rulings and circulars.—The definition adopted by lexicographers cannot always be adopted as a correct meaning for statutory words and phrases. The intention of the legislature and the . 2. at 598. 74 Such as refrigeration compressors in complete set. 267 SCRA 557 [1997]) Income tax returns. [No. All rights reserved. vs.. in the pursuit of an independent business. has come to be 804 804 PHILIPPINE REPORTS ANNOTATED Luzon Stevedoring Co. Notes.

which sum had been paid by the plaintiff to the defendant under protest. this protest having been duly overruled by the defendant. rendered a judgment in favor of the plaintiff and against the defendant for the said sum of P2.81. its gross receipts from said business during said quarter amounting to P242. From that judgment the defendant appealed. In construing a word. J. the court will adopt that interpretation most in accord with the manifest purpose of the statute as gathered from the text. and later answered. M. The answer contained a general and special defense. under the provisions of section 1462 of Act No. In his special defense the defendant alleged that during the first quarter of the year 1921 the plaintiff was engaged in business as a con- 805 VOL.422. J.281. without any finding as to costs or interest. which was overruled.81.33. 1922 805 Luzon Stevedoring Co.81. vs.422. Where a particular word is obscure or of doubtful meaning.object which it intended to attain must be taken into consideration for the purpose of determining the meaning of words and phrases in a statute. which the plaintiff paid on April 18.: This action was commenced in the Court of First Instance of the City of Manila on the 18th day of May. Concepcion. the Honorable Pedro Concepcion. rather than the definition of lexicographers. INTERPRETATION OF. Attorney-General Villa-Real for appellant. judge. From an examination of the evidence adduced during the trial of the cause and from the agreement of the parties. in a revenue statute susceptible of two or more meanings. The appellant contends that the lower court committed an error in holding that the plaintiff is not a contractor and in rendering a judgment in favor of the plaintiff. it appears that the plaintiff is and was a corporation duly organized under the laws of the . Opisso for appellee. under protest. Its -purpose was to recover of the defendant as Internal Revenue Collector. its obscurity or doubt may be removed by reference to associate words.—Revenue laws imposing taxes on business must be strictly construed in favor of the citizen. 1921. SEPTEMBER 23. The facts are stated in the opinion of the court. Trinidad tractor. 3. taken by itself. APPEAL from a judgment of the Court of First Instance of Manila. 43. 2711. The defendant presented a demurrer to the complaint. for the reasons given in his decision. Upon the issue thus presented. JOHNSON. the sum of ¥2. levied and assessed on the above- mentioned amount the percentage tax amounting to P2. Fisher & DeWitt and A.422.INTERNAL REVENUE LAWS. 1921. and that the defendant.

but evidently the Legislature did not mean to apply the word "contractor. 2657. persons who transport passengers or freight for hire. 2339." as used in said section 1462. then it would have included warehousemen. where keepers of livery stables and garages. yet it always does the work under the direct supervision of the officers of the vessel. that no 806 806 PHILIPPINE REPORTS ANNOTATED Luzon Stevedoring Co. etc. proprietors of dockyards and persons selling light. 2711 had been in force for a period of eight years (section 43. and proprietors of steam laundries and of shops for the construction and repair of bicycles or vehicles of any kind. that it was engaged in the stevedoring business in said city. that the captain answers for all the cargo placed on board and for the manner in which said cargo is loaded. and common carriers. heat. that no liability attaches to the plaintiff for the improper loading or unloading of vessels. that all the work done by it is conducted under the direct supervision of the officers of the ships and under the instruction given to plaintiff's men by the captain and officers of said ships. that said supervision is so effective that. every person who enters into a contract may be denominated a contractor. if the general and broad meaning is to be given to the word "contractor" as used in said section 1462. the captain being responsible for said work. such as warehousemen.. Act No. to cover all persons who entered into a contract then it would have been unnecessary to have mentioned the other persons referred to in sections 1462 and 1463. and that said supervision is so direct. It was mutually agreed at the time of the trial that the provisions of section 1462 of Act No. The only question presented by the appellant upon the foregoing facts is: Is the plaintiff a contractor ? Generally speaking. or. as well as persons engaged in conducting telephone or telegraph line or exchanges. partnership or corporation who entered into a contract. If the Legislature had intended the word "contractor. that. or power. and keepers of hotels and restaurants. transportation contractors. to every person. plaintiff's laborers are under the direct control of the officers of the ship. Trinidad discretion is left to the plaintiff nor its men. Act No. section 1617. vs. otherwise. 2711) before the defendant made any effort to collect the taxes in question. it would not have been necessary to have mentioned in the same section other classes of business. while it is true that the plaintiff undertakes to work in the loading or unloading of cargo from any vessel in port. for the reason that every transaction by the other persons mentioned in said section is by virtue of an express or implied contract." as used in section 1462. Act No. section 1462. are also subject to an internal revenue tax. etc. at certain rates of charge per unit of cargo. and the other classes of business mentioned in said section. Moreover. The same thing might be said with reference to section 1463. it .Philippine Islands and doing business in the City of Manila. while the loading is made. If the word "contractor" in said section 1462 meant every person who entered into a contract. said business consisting of loading and unloading cargo f rom vessels in port.

Equity. Hale vs. SEPTEMBER 23. It would also include school-teachers in the public and private schools as well as common laborers who work by the day under a contract. 352.. etc. Co. Emerson..) . Todd vs. vs. farmers in the sale of their product. vs. State vs." (In re Unger. McNally.. relied upon the definition given in vol. 45 La. 255. Co. Railroad Co. as in building houses or provisioning troops... 1. in the pursuit of an independent business. It cannot have the broad meaning which would include every person who entered into a contract. where we find a "contractor" defined. has come to be used with special reference to a person who. broadly speaking. A. as a paving contractor. 755. or a labor contractor. The lower court in holding that the plaintiff was not a contractor in the sense that that word is used in said section. or supply articles on a large scale. vs. 241... Ney vs. and not 808 808 PHILIPPINE REPORTS ANNOTATED Luzon Stevedoring Co. 347. 22 Okla. 29 N. using his own means and methods without submitting himself to control as to the petty details. Rep. one who executes plans under a contract. for the reason that their transaction is a contract and the parties thereto. Trinidad would include bankers. 72 Me. The true test of a 'contractor' would seem to be that he renders the service in the course of an independent occupation. one who contracts or covenants. for want of a better one. every person who enters into a contract may be called a contractor. J.3 Corpus Juris. 456. or to erect buildings. lawyers. or to perform any work or service. 80 111. The definition is: "One who agrees to do anything for another. or to construct works. 247 [18 L. 46. Central Railroad Co. one who contracts to perform work. 455. 43. R. in a general sense. 20 lowa. 185.. and every person who enter into a contract of whatever nature or character. yet the word. brokers. are contractors. etc. State vs. 1922 807 Luzon Stevedoring Co. Lehigh. or constructing a railroad. 305]. Dubuque. at a certain price or rate. Although." as used in said section 1462. From all of the foregoing it does appear that the word "contractor. whether with a government or other public body or with private parties. merchants. 252.. representing the will of his employer only as to the result of his work. must have a limited and a very restricted meaning. page 211. Trinidad as to the means by which it is accomplished. undertakes to do a specific piece or job of work for other persons. at a certain price or rate. Ann. to furnish supplies. Jonhson. Kentucky Union Ry. It would also apply to all persons loaning money upon promissory notes. of New Jersey. 44.807 VOL. 52 Fed.

and .) The case of Brown vs.. In the course of that decision the Supreme Court of Alabama said: " 'The true test of a "Contractor" would seem to be that he renders the service in the course of an independent occupation.the contractee is not liable for the negligence or improper execution of the work by the contractor. (Campfield vs. 995. 25 Fed.) If the question presented in the interpretation of a tariff law is one of doubt..) If on the other hand a person is engaged under a contract in an independent operation not subject to the direction and control of his employer. 128. rather than the set definition of lexicographers. 7 Lea [Tenn. 42 Phil. (Hart Ranft vs. (161 Ala. but is said. Lang. The definition of lexicographers." Said definition was adopted from the Century Dictionary. the doubt would be resolved in favor of the importer. 131. United States Gypsum Co. which was adopted with approval in the case of In re Unger (22 Okla. on Negligence. vs. Where a particular word is obscure or of doubtf ul meaning. in modern phrase. as duties are never imposed upon citizens upon vague and doubtful interpretation. The intention of the Legislature and the object which it intended to attain must be 809 VOL. (174 Pa. is found in the very well reasoned case of Caldwell vs. (25 Ruling Case Law. 408. is that when a person lets out work to another.) A very instructive decision on the question of who is a contractor. 367. 994. (Laffery vs. Zamboanga Mutual Bldg.. In construing a word or expression in the statute susceptible of two or more meanings. sec. Rep. Moreover. however. vs. 83 Kan. 129 U. revenue laws imposing taxes on business must be strictly construed in f avor of the citizen. 349.. Ry. etc. fulfilling his will not merely as to the result but also as to the means by which that result is to be attained. (Shearman and R. the relation of contractor and contractee exists and not that of master and servant. 374. 755) "as one who contracts or covenants either with * * * a public body or private parties * * * to * * * construct works or erect buildings * * * at a certain price or rate. 443) gave a definition for a contractor. 616. & Loan Association vs..) If the one rendering service submits himself to the direction of his employer as to the details of the work. taken by itself.. the contractee reserving no control over the work or workmen. Wiegman. its obscurity or doubt may be removed by reference to associate words... representing the will of his employer only as to the result of . 609. 77. cannot always be adopted as a correct meaning for statutory words and phrases. SEPTEMBER 23.The general rule. Knoxville Iron Co. the contractor becomes a servant and is not a contractor in respect to that work. Trinidad taken into consideration for the purpose of determining the meaning of words and phrases used. German-American. Dobson. Co. the relation is not regarded as that of master and servant. 43. 1922 809 Luzon Stevedoring Co. to be that of contractor and contractee. variously stated. S. Rafferty. 354. the court will adopt that interpretation most in accord with the manifest purpose of the statute as gathered from the context. 395). & A. Atlantic B.]. Co. Rep.

. App. and so declare. accepted. In the first case. H. R. Merchants. Johns.. we are of the opinion.. Gaskell & Co. vs. Hampden County. The work of unloading was done by Kennedy under a special contract. Rep. etc. by a large weight of authority. vs. Malcolm.. 470) as well as the case of Rankin vs. So ordered. McKnight & Co. Philadelphia. vs. 2711. and Romualdez. Street. Freidman vs. 2017 Republic of the Philippines . West Side. Co. Today is Saturday. The case of Haas vs.'" (Halstead vs.. R. Currie (65 L. Stahl. etc. etc. from a reading of the decision it will appear that "Kennedy. etc. concur. For all of the foregoing reasons. and for that purpose a steam winch belonging to the ship was placed at 810 810 PHILIPPINE REPORTS ANNOTATED E. John's Admr. Detroit Board of Education. Attorney-General vs. supra) there is nothing in the case which does not show that the stevedore was not acting under the ship's order. He was acting on his own behalf. and did not in any sense stand in the relation of servant to the defendant. 232 Pa. 494. Wm.. Pittsburg Construction Co. the stevedore.. 154 Mich.) The appellant lays great stress upon the decision in the case of Murray vs. 6. and not as to the means by which it is accomplished. From all of the foregoing it seems clear to us that the plaintiff is not a contractor in the sense that that word is used in said section 1462 of Act No. etc... 876). Co. 874. 117 Ky. 204 Mass. Tan Sit his disposal. A. Avanceña." In the second case (Rankin vs. C. 47 Ind. JJ. The cases therefore relied upon as authority by the appellant do not support his contention in view of the definition of a "contractor" which is. and therefore the tax paid by the plaintiff under protest was illegally collected and should be repaid. 655. (32 Am. Araullo. that the judgment appealed from should be affirmed. Merchants. July 01. Co. He had entire control over the work which he was doing. 584. Judgment affirmed. All rights reserved. 462) shows that the ship's company had no control over the stevedore or his men or their work.his work. (54 Am. undertook to execute the work of unloading the ship. however.00.. 578.... Co.. Ostrand. Rep. ___________ © Copyright 2017 Central Book Supply. Inc. J. Villamor.

both parties appealed to this court.SUPREME COURT Manila EN BANC G.191. No. 1937 PABLO LORENZO. and for the collection of interst thereon at the rate of 6 per cent per annum. brought this action in the Court of First Instance of Zamboanga against the defendant. 1932. as trustee of the estate of Thomas Hanley.: On October 4. 1932. L-43082 June 18. Zamboanga. vs.. computed from September 15. as follows: 4. proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. plaintiff-appellant. Pablo Lorenzo and Delfin Joven for plaintiff-appellant. JUAN POSADAS. deceased. Juan Posadas. I direct that any money left by me be given to my nephew Matthew Hanley..R. 1922. 1922. deceased. On june 14. The defendant set up a counterclaim for P1. leaving a will (Exhibit 5) and considerable amount of real and personal properties. . among other things. JR.052. paid by the plaintiff as inheritance tax on the estate of the deceased. then the Collector of Internal Revenue. Office of the Solicitor-General Hilado for defendant-appellant. Collector of Internal Revenue. for the refund of the amount of P2. It appears that on May 27. J.27 alleged to be interest due on the tax in question and which was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim. LAUREL. The will was admitted to probate. the plaintiff Pablo Lorenzo. Said will provides. the date when the aforesaid tax was [paid under protest. one Thomas Hanley died in Zamboanga. in his capacity as trustee of the estate of Thomas Hanley.74. defendant-appellant. Jr.

appointed trustee. named Malachi Hanley. The motion was granted. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my death. were to pass to Matthew Hanley ten years after the two executors named in the will. and that the same be handled and managed by the executors. alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27. Ireland.434. on March 8.74. and proceeds thereof to be given to my nephew.74. I state at this time I have one brother living.81.052. 1924. the defendant Collector of Internal Revenue. 1931 to the date of payment and a surcharge of 25 per cent on the tax. notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. amounted to P2. was. when he resigned and the plaintiff herein was appointed in his stead. The defendant overruled the plaintiff's protest and refused to refund the said amount hausted. be ordered to pay to the Government the said sum of P2. Matthew Hanley. On March 15. 1924. together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1. 302) praying that the trustee. and that my nephew. Moore took his oath of office and gave bond on March 10. plaintiff contends that the lower court erred: . plaintiff went to court with the result herein above indicated. The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a trustee to administer the real properties which. Ballaghaderine.465. xxx xxx xxx 8.920 and personalty valued at P1.052. During the incumbency of the plaintiff as trustee. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in the way he thinks most advantageous. the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings No. and that he be directed that the same be used only for the education of my brother's children and their descendants. the plaintiff paid said amount under protest. 1932. at Castlemore. assessed against the estate an inheritance tax in the amount of P1. Malachi Hanley. is a son of my said brother. County of Rosecommon. and allowing a deduction of P480.5. Matthew Hanley. 6. 1932. 1932. plaintiff herein. He acted as trustee until February 29. On September 15. under the will.24 which. In his appeal.

In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator.27. and not. as it should have been held. and that from the time.I. from the moment of the death of the former. according to the testator's will. Matthew Hanley. which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the payment of the inheritance tax? If so. The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides: The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1. upon the value thereof at the expiration of the period of ten years after which. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial. II. III. deceased. IV. is it proper to deduct the compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act No. or on its value ten years later? (c) In determining the net value of the estate subject to tax. In holding. . will be touched upon in the course of this opinion. should the additional interest claimed by the defendant in his appeal be paid by the estate? Other points of incidental importance. to June 30. In holding that the real property of Thomas Hanley. in effect. the latter became the owner thereof. that there was deliquency in the payment of inheritance tax due on the estate of said deceased. the amounts allowed by the court as compensation to the "trustees" and paid to them from the decedent's estate. 1924. 1931. raised by the parties in their briefs. The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death. in the determination of the net amount of the estate subject to said tax. passed to his instituted heir. representing part of the interest at the rate of 1 per cent per month from April 10. V.191. the property could be and was to be delivered to the instituted heir. In not allowing as lawful deductions.

531. The provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down in article 657 of the Civil Code. See also. Acording to article 657 of the Civil Code. 14 Phil. Ignacio. par. grant. 16 Phil. succession takes place in any event at the moment of the decedent's death. Section 1536 as amended. Court of First Instance of Capiz..devise. (61 C. It speaks of the rights of succession and the transmission thereof from the moment of death. or gift to become operative at or after death. receive. The two sections follow: SEC. p. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No." (5 Manresa. or deed... 491. however. 3 Phil.. 654." The tax therefore is upon transmission or the transfer or devolution of property of a decedent. transcurra mucho o poco tiempo. 51 Phil. or take property by or under a will or the intestacy law. says Manresa commenting on article 657 of the Civil Code. 321. said Arellano. "Poco importa".. 305. Baun vs.(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. . J. — The following shall not be taxed: . 434. gift mortis causa. the heirs succeed immediately to all of the property of the deceased ancestor.. y asi lo ordena el articulo 989.. Exemption of certain acquisitions and transmissions. Heirs of Baun." (Bondad vs. or bequest. That article does not speak of forced heirs. 13. Briones.. Lubrico vs. ". it does not even use the word "heir". Dais vs. that Thomas Hanley died on May 27. Osario & Yuchausti Steamship Co. it does not follow that the obligation to pay the tax arose as of the date. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. 38 Phil. pues la adquisicion ha de retrotraerse al momento de la muerte. see also. 396. 232.) Thomas Hanley having died on May 27. imposes the tax upon "every transmission by virtue of inheritance. 1922. 1592. Malahacan vs. J. 27. Aliasas vs. The authentication of a will implies its due execution but once probated and allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code. Civil Code.) It is in reality an excise or privilege tax imposed on the right to succeed to. in relation to section 1543 of the same Code. "que desde el falleimiento del causante. Innocencio vs. 489.." "In other words".. que debe considerarse como complemento del presente. however. the inheritance tax accrued as of the date. or advance in anticipation of inheritance. But the language of article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. Fule... 1922. Alaras Frondosa.) Plaintiff.. Nery. 53 Phil. 17 Phil. 46 Phil. Suilong & Co. 440. Bondad. vs. 391. 12 Phil. Osario vs. it operates only in so far as forced heirs are concerned. art. 41 Phil. made effective by his death. Arbado.. 317. of the Administrative Code. devise. Bowa vs. 1543.. Mijares vs. asserts that while article 657 of the Civil Code is applicable to testate as well as intestate succession. 195. 34 Phil. Whatever may be the time when actual transmission of the inheritance takes place. hasta que el heredero o legatario entre en posesion de los bienes de la herencia o del legado. Gat-Pandan.. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. "the rights to the succession of a person are transmitted from the moment of his death. 3031. 19 Phil. bequest. 1. Fule vs. Ilustre vs. From the fact. Chio-Taysan. . 12 Phil..Alcantara. C.

interest at the rate of twelve per centum per annum shall be added as part of the tax. (c) The transmission from the first heir. When tax to be paid. should read "fideicommissary" or "cestui que trust". there shall be further added a surcharge of twenty-five per centum. but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period. before entrance into possession of the property. the payment shall be made by the executor or administrator before delivering to each beneficiary his share. legatee. the former must pay the difference. if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first. or donee in favor of another beneficiary. A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance. 1544. . — The tax fixed in this article shall be paid: (a) In the second and third cases of the next preceding section. in accordance with the desire of the predecessor. within the six months subsequent to the death of the predecessor. (b) In other cases. appearing in subsection (b) of section 1543. (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. SEC. If the tax is not paid within the time hereinbefore prescribed.(a) The merger of the usufruct in the owner of the naked title. and to the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the collector. There was an obvious mistake in translation from the Spanish to the English version. In the last two cases. It should be observed in passing that the word "trustee".

Minnesota. Moore. 501. as there is here no fiduciary heirs.787. This rule was formerly followed in New York and has been adopted in Illinois. Sc. Supp." (Ross. 72. (In re Vanderbilt. 1574. p. excluding deductions. 44 Law. did not and could not legally pass to the instituted heir. in the case of contingent remainders.. L. 172 N. Estate of Post. 137. Supp. 969. 958.. 1 Peter. of section 1544 above-quoted. App. 179 N. Moore as trustee on March 10. 3 Macq. Ohio. Under the subsection.. the tax should be measured by the vlaue of the estate as it stood at the time of the decedent's death. E. Y. until after the expiration of ten years from the death of the testator on May 27. Estate of Brez.S. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if. Pennsylvania and Wisconsin. Lord Advocate. which the plaintiff admits is P1. would amount only to about P169. Y. Y. we hold that a transmission by inheritance is taxable at the time of the predecessor's death. interest and surcharge. ed. This amount added to the value of the personal property left by the deceased. pp. is by no means entirely satisfactory either to the estate or to those interested in the property (26 R. 83 N. 20 Sup. 5. the defects of its anterior system... M.) Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 519. (b) The plaintiff contends that the estate of Thomas Hanley. p. legatee or donee. but under subsection (b). 1692. App. p. Y. we find upon examination of cases and authorities that New York has varied and now requires the immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out of the corpus of the estate transferred. perhaps. 611. p. 72 N. See also Knowlton vs. Inheritance Taxes. Vide also. Ct.. J. 782. C. J. 26 R. Div. 69. Cas. would generate an inheritance tax which. upon the death of the decedent. 970. 41. notwithstanding the postponement of the actual possession or . 659.. Y. This rule. Y.. 86 N. pp. Saltoun vs.. Rep. that the inheritance tax should be based on the value of the estate in 1932. 23 Eng. In re Huber. 178 U.. H.. The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a reasonable value of only P5. L. But whatever may be the rule in other jurisdictions..). horever. first heirs. (61 C. 609.. C. 747. 1905. 1079.. Matthew Hanley. Rul.. Realizing. Estate of Tracy. 232. E. 82 N. or ten years after the testator's death. Blakemore and Bancroft. and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. 1924. succession takes place and the right of the estate to tax vests instantly. 888. Massachusetts. 1693. 343). the tax should have been paid before the delivery of the properties in question to P. 37.. 69 N. taxation is postponed until the estate vests in possession or the contingency is settled. regardless of any subsequent contingency value of any subsequent increase or decrease in value.. 458. 1575) that. p. Y. Inheritance Taxation. 231.52. Div. Subsequent appreciation or depriciation is immaterial.The instant case does fall under subsection (a).465..) California adheres to this new rule (Stats. 769. 1922 and. 85 App.) "The right of the state to an inheritance tax accrues at the moment of death.. L. sec. 172 N. in so far as the real properties are concerned. 64 N.

. though a testamentary trust has been created. But Act No. No sound reason is given to support the contention that such expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax. OO). . . But from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. . are of voluntary creation. as amended by section 3 of Act No. Saunders. . AA. J. as amended by Act No. was not the law in force when the testator died on May 27. Hennepin County Probate Court (112 N. . 14 Law. in State vs. the testator expressed the desire that his real estate be handled and managed by his executors until the expiration of the period of ten years therein provided.. when an inheritance is concerned.. . Trusts . the judicial expenses of the testamentary or intestate proceedings. of the character of that here before the court. p. Div. . and intended for the preservation of the estate. 1924. There is no statute in the Philippines which requires trustees' commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C.. which took effect on March 9. HH. 3031. earned. . and are not required or essential to the perfection of the rights of the heirs or legatees. NN. Service rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those entitled to it.) On the contrary. in case of a resident. . LL. Supp. PP. JJ.. 878." (d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code. Revised Administrative Code). EE. . there shall be deducted. In re Collard's Estate. 485)... as follows: "In order to determine the net sum which must bear the tax. 16 How... it was said: ". 1705) but.81. 161 N. Y. (Ibid. 535. . not in the administration of the estate.28 (Exhibits C. 893. . no doubt. . 3606 went into effect on January 1. In the case at bar.. In re Vanneck's Estate. The compensation of a trustee. among which were their fees and the proven debts of the deceased. 363. . (c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed (sec. should also be deducted under section 1539 of the Revised Administrative Code which provides. 3606. 1047). Y. therefore. 455. It. ed. . . and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. Judicial expenses are expenses of administration (61 C." A trustee. The law at the time was section 1544 above-mentioned. W. which aggregate P1. This sum represents the expenses and disbursements of the executors until March 10. . is entitled to receive a fair compensation for his services (Barney vs. does not come properly within the class or reason for exempting administration expenses. in part. but in the management thereof for the benefit of the legatees or devises. 1539. 161 N. 1922.187. p. The plaintiff contends that the compensation and fees of the trustees. are created for the the benefit of those to whom the property ultimately passes. the defendant and the trial court allowed a deduction of only P480. Furthermore. in paragraph 5 of his will. 1930. 1922. Supp. it does not appear that the testator intended that the duties of his executors and trustees should be separated. 101 Minn. 1705). 175 App. J.enjoyment of the estate by the beneficiary..

"the mere failure to pay one's tax does not . applicable to all estates the inheritance taxes due from which have not been paid.. 101 Pa. that said provisions are penal in nature and.. . No such effect can begiven the statute by this court. Rice vs.. 360. 141 U. 1110).) Though the last paragraph of section 5 of Regulations No. and in the absence of clear legislative intent. P. S.) "A statute should be considered as prospective in its operation. (e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. however. vs. C. Stockdale vs. 150. Act No. 257 U. Ct. 247 U. whether it enacts. 143. without expressly prohibiting certain acts. Lunch vs. 4th ed. Worthington. 3606 a retroactive effect. Smietanka vs. S. 3031. Liability for taxes under retroactive legislation has been "one of the incidents of social life. the Executive has the power to pardon. p.. Com. Ct. under Act No.It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. Rep. Ct.. 20 Wall. although there are authorities to the contrary. . 104. Indeed. we cannot give Act No. impose a penalty upon their commission (59 C. In common use. or repeals an inheritance tax. A. therefore. L. S. 3606. and establish penalties for their violation. 55. 3461). a statute is penal when it imposes punishment for an offense committed against the state which.. U.. 195 U. 3606 are more favorable to the taxpayer than those of Act No.. 65 of the Department of Finance makes section 3 of Act No. instead of ten days only as required by the old law. C. 44 P. generally. amends.. Of course. St. 3031.. 430.. 468. 3606 instead of Act No.. J.) Article 22 of the Revised Penal Code is not applicable to the case at bar. Revenue laws. J. S. ed.. as provided for in Act No. Statutory Construction. which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws. 12 Sup. 3606. p... 25 Nev. 232 Sup. This is the reason why he applied Act No. 323. under the Constitution. First Trust & Savings Bank. that certain provisions of Act No.. Wheeler. Insurance Co. 1602. 49 Law. 42 Sup. Twine Co. 44. this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts. and (2) the taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax. however. Rep. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect." (61 C.) But legislative intent that a tax statute should operate retroactively should be perfectly clear.. The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures.. 3031. (See Sutherland. Standard Oil Co. . p.. (Scwab vs. vs. unless the language of the statute clearly demands or expresses that it shall have a retroactive effect. amending section 1544 of the Revised Administrative Code. should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. 4 C. State vs. 221. The defendant Collector of Internal Revenue maintains. Doyle.. 361. instead of on both the tax and the interest. Properly speaking. S. 53 Fed. 602. (1) the surcharge of 25 per cent is based on the tax only. 4 Cooley on Taxation. Kelleher. As stated by this court. a tax statute may be made retroactive in its operation. . 206. 491. 910. and even those which." (Seattle vs. Turrish.

Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at . S. 705.. J. p. (3) a certain or ascertain object. The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. He took such legal estate only as the proper execution of the trust required (65 C. 299 U.706. pp. M. 714).) There is no doubt that the testator intended to create a trust. though apt for the purpose. The highest considerations of public policy also justify the conclusion we have reached.) The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent's property to the trustee. "To create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate. 57 Law. J. 90. Rep. J. Vitug.. 1924. J. the defendant contends that delivery to the trustee was delivery to the cestui que trust. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust." (U.126. It is true that the word "trust" is not mentioned or used in the will but the intention to create one is clear. 239.. 1086). the beneficiary in this case.. the use of these two words is not conclusive on the question that a trust is created (69 C. M. 63). He did not acquire any beneficial interest in the estate. their interest in the ttrust... He ordered in his will that certain of his properties be kept together undisposed during a fixed period. King. Stated otherwise. In fact. Stated otherwise. 26 Phil. the beneficiery in this case. When Moore accepted the trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs.. (2) a definite subject. statutes in some jurisdictions expressly or in effect so providing.render one delinqent until and unless the entire period has eplased within which the taxpayer is authorized by law to make such payment without being subjected to the payment of penalties for fasilure to pay his taxes within the prescribed period. J. A trustee is but an instrument or agent for the cestui que trust (Shelton vs. the purpose or object of the trust. The corresponding inheritance tax should have been paid on or before March 10. The estate then vested absolutely in the beneficiary (65 C. J. to escape the penalties of the laws. his estate ceased upon the fulfillment of the testator's wishes. p. J. cited in 65 C. vs. Code of Civil Procedure). Labadan. P. 590. 689.. No particular or technical words are required to create a testamentary trust (69 C. within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.. p. Code of Civil Procedure). 582. This contention is well taken and is sustained. The appointment of P. p. Moore became trustee on March 10." (69 C.. The probate court certainly exercised sound judgment in appointment a trustee to carry into effect the provisions of the will (see sec. are not necessary. and the property or subject matter thereof. and with sufficient certainty designate the beneficiaries. 692. 1924. The words "trust" and "trustee". Ct. Moore as trustee was made by the trial court in conformity with the wishes of the testator as expressed in his will. for a stated purpose. to constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust. 711). 542). p. n. J. 39 Phil. ed. 582 in relation to sec.. 528) and. On that date trust estate vested in him (sec. 33 Sup. S.

. 1578. 40 Phil. may derange the operations of government. Cas. ed. 580. ed. 169 U. 74 Law. 19 Law. 340. Thus. 461). . .) ".. 36. 280 U. 145. ed. Hotchkiss. 50 Sup. that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. Testators may provide.. Oregon. ed. vs. 199 U.. as Thomas Hanley has provided. the statute. U.) It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and. (Dobbins vs. the trust may last for fifty years. without resulting in injustice to the taxpayer. .. Cas. Muñoz & Co. the period is ten years. Castle Bros. S.. No.. 100 U. For this reason.. 21 Phil. 50 Law. Warren Bridge. Hord. Erie Country.. 1022. and 20. . 16.hand. 194.. ed. vs. a citizen by the government but upon the necessity of money for the support of the state (Dobbins vs. 43 Phil. McCoy.. 19.. 740. Wolf & Sons vs. 803.. Rep. no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. Union Refrigerator Transit Co. Sarasola vs. 300. S. 26 Sup. Rep.. Hongkong & Shanghai Banking Corporation vs." (Syllabus.) When proper. 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distictions.. the government's power of taxation (Bromley vs. Wigglesirth.. 32 Phil. 3. S. 12 Phil. In the case of Lim Co Chui vs. 18 Sup. ". ed. 71. 16 Pet. 16. Chicago. Fed. 7 Wall. Lane County vs. . Churchill and Tait vs. Fed. No. Any delay in the proceedings of the officers. Revised Administrative Code. 461.. becomes fair to the government. Gay. It is of the utmost importance.. supra). a tax statute should be construed to avoid the possibilities of tax evasion.. Rep. 101.) The obligation to pay taxes rests not upon the privileges enjoyed by.. 252).. 43 Law. Collector of Customs. Watts. followed in Froelich & Kuttner vs. they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein. 108. Luzon Stevedoring Co. 1924. 66. Kirkland vs. therefore. S. ed. cause serious detriment to the public. 124.. Charles River Bridge vs. Erie Country. Posadas (47 Phil. 2 Story.." (Dows vs. 18 Phil. 435. by construction.653. It held that "the fact that on account of riots directed against the Chinese on October 18. vs. 20 Law. 264. the result would be plainly disastrous. (Thomas vs. 773. Rafferty.690. 580. Ct. does not authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent. 481. this court had occassion to demonstrate trenchment adherence to this policy of the law. Ct. no court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 420. Trinidad. The collection of the tax would then be left to the will of a private individual.) While courts will not enlarge. No. Trinidad. That taxes must be collected promptly is a policy deeply intrenched in our tax system.. 11 Pet. 226. vs.... 369. S. In other cases. 10 Law. Construed this way. The mere suggestion of this result is a sufficient warning against the accpetance of the essential to the very exeistence of government. McCaughn. or the protection afforded to. 1 Bond. 9 Law. 25 Law. that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Rafferty. 624. 150. In the case at bar. vs." said the Supreme Court of the United States. and thereby. 39 Phil. S. (U. 491. ed. 65.. Ct. or for a longer period which does not offend the rule against petuities. upon whom the duty is developed of collecting the taxes.. 558. 11 Wall. Kentucky. liable for the payment of interest and surcharge provided by law in such cases.

08. The primary tax. of the Revised Administrative Code. As the tax and interest due were not paid on that date.465. 1924. par.904.385. a period covering 8 years. 1932.904. together with the interest and surcharge due from the estate of Thomas Hanley inaccordance with the conclusions we have reached. according to section 1536. To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised Administrative Code. the tenth day fell on December 1. the sum of P1. the date of payment under protest. it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief. or a total of P29.31 which stands for interest at the rate of twelve per centum per annum from March 10. the deceased left real properties valued at P27. The provisions cases is mandatory (see and cf. We shall now compute the tax. and neither the Collector of Internal Revenuen or this court may remit or decrease such interest. subsection (c). correctly computed by the defendant.19 as the net value of the estate subject to inheritance tax. The date fixed for the payment of the tax and interest was November 30.434. we have as primary tax. 2. To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal Revenue. we have P28. First should be added P1. Revised Administrative Code). representing allowable deductions under secftion 1539 of the Revised Administrative Code. a surcharge of twenty-five per centum should be added (sec. to September 15. should be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon the amount by which the share exceed thirty thousand pesos. the date of delinquency. no matter how heavily it may burden the taxpayer.19 is P378. Lim Co Chui vs. 1924.16. 1931.The delinquency in payment occurred on March 10. Demand was made by the Deputy Collector of Internal Revenue upon Moore in a communiction dated October 16. 6 months and 5 days. subsec. 1931. November 30 being an official holiday. 1931 (Exhibit 29). Adding to these two sums an additional two hundred per centum. or P965. 1544. To the tax and . The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later.465.24. In view of the foregoing. Posadas. (b). Two per centum of P18. At the time of his death.920 and personal properties worth P1.81. One per centum of ten thousand pesos is P100. supra). the estate became liable for the payment of the surcharge. the date when Moore became trustee. plus an additional two hundred per centum. Deducting from this amount the sum of P480.

634. Taxation.—The Tax Code does not prohibit further rectification or distillation of spirit by a rectifier. Abad Santos.581.69 is legally due from the estate. 5..191. 1951 to Aug. even if already distilled or rectified is again rectified. INC. Act No.—From January 1. representing a surhcarge of 25 per cent on both the tax and interest.052. the compromise sum fixed by the defendant (Exh. 1608 became a law the tax on alcohol did not attach as soon as it was in existence as such. when Rep. Statutory Construction. respondents. C. until August 23. The Lawphil Project . 1958. L-10431. 1. Specific tax on rectified alcohol. 1951. Inc. La Tondeña. we must hold that the plaintiff is liable only in the sum of P1. 1956.and THECOURT OF TAX APPEALS. 29). the specific tax should be based on the finished product. But. 1962. COLLECTOR OF INTERNAL REVENUE. Specific tax on alcohol to be based on finished product.43.27 the amount stated in the counterclaim. purified or refined. Jan. only the sums of P1. Same.88. Act No. This last sum is P390. petitioner. tax statutes are construed most strongly against the Government and in favor of the . 23.. As the plaintiff has already paid the sum of P2. with costs against the plaintiff in both instances. as we cannot give the defendant more than what he claims.74. Imperial. LA TONDEÑA. but on the finished product.J. concur. purifies or refines distilled spirits. J. July 31. So ordered.42 more than the amount demanded by the defendant in his counterclaim. and not on the evaporated alcohol. In case of doubt tax statutes construed against government. who as defined in Section 194 thereof is a person who rectifies. The judgment of the lower court is accordingly modified. 592. 1962 665 Collector of Internal Revenue vs. Diaz and Concepcion. vs. when Rep.Arellano Law Foundation VOL.. and also P10. When alcohol. No. Taxation. During this period alcohol lost thru evaporation is not subject to specific tax. concurs. giving a grand total of P3. Villa-Real. took effect.—In every case of doubt. Avanceña.interest thus computed should be added the sum of P724. JULY 31. JJ.

Inc. purchased in crude form from the suppliers. A-1. 1954. Coll. "Oak Barrel Rum" "Mallorca Wine". G-1). Luzon Stev.172. vs. 803. because burdens are not to be imposed beyond what the statutes expressly and clearly import (MRR Co. The facts are stated in the opinion of the Court. "Creme de Cacao". in order to suit the purpose of respondent in producing only high quality products. 52 Phil. 1950 to February 7. La Tondeña. attested by the Inspector of the Bureau assigned to respondent's distillery. respondent uses as basic materials low test alcohol. Negros Occidental and Central Azucarera Don Pedro in Nasugbu.973. 1954. Since 1929.663. in the total amount of P154.) APPEAL from a decision of the Court of Tax Appeals.Trinidad. and has been removing this alcohol from the centrals to respondent's distillery under joint bonds. The principal products of the respondent are "Ginebra San Miguel". covering the period from June 7. thru re-rectification or re-redistillation. Tondo. San Jose for respondents. A first extension of 30 days within which to reply was granted the respondent by the petitioner. etc. 950.515. principally from Binalbagan Isabela Sugar Central. In the manufacture of "Manila Rum". 43 Phil. without prepayment of specific taxes. for which the petitioner in the past had given the respondent allowance of not exceeding 7% for said losses. "Anizado". losses thru evaporation had necessarily been incurred. The quantity of alcohol purchased and received by the respondent from the centrals are recorded and entered in the BIR Official Register Books of "La Tondeña. A-Account". respondent has been purchasing the alcohol used in the manufacture of its products. Inc.30 in 1950 to P4. has now made this product the largest selling rum in the Philippines and the specific taxes that it had been paying1 the government. G. A. Batangas. . On May 8. which it re-rectifies or subjects to further distillation.: The respondent "La Tondeña. PAREDES. In the process of further rectification or distillation. petitioner wrote a demand letter to respondent for the payment of specific taxes.40 in 1954. Manuel V. Inc. of Customs.123.10 on alcohol lost by evaporation. vs. Manila. Co. Solicitor General for petitioner. Respondent stated that the process adopted by it in the manufacture of its "Manila Rum". 666 666 SUPREME COURT REPORTS ANNOTATED Collector of Internal Revenue vs. with a distillery at 1068 Velasquez. "Creme de Mente". J. "Manila Rum". with the express permission and approval of the petitioner Collector of Internal Revenue. under the column "CRUDE spirit" (Exhs. had steadily increased from P3." a duly licensed rectifier has been engaged in the business of manufacturing wines. and liquors.citizens.

which corresponds to the period after January 1. 1954. it asked for another 30-day extension to reply (Exh. 1954. and petitioner La Tondeña. protesting against the said assessment (Exhs. On September 1. I). the petitioner made 667 VOL. I-7). from the payment of the specific tax on rectified alcohol lost in process of further rectification. on January 8. On August 6. Inc. 1955. 1954. I-14)." On appeal to this Court. I-3). 1951 to February 27. 1954. from August 2. and gave the respondent 5 days from receipt thereof. I-13). dated May 8. 1954 (Exh. A second motion for reconsideration presented on February 15. petitioner granted 5 days only. Inc. is hereby ordered to pay the respondent Collector of Internal Revenue the sum of P672. 1955 was denied. 1954. is hereby modified. the petitioner is declared exempt from liability for the specific taxes assessed therefor. 1954. to deposit one-half of the amount of assessment in cash and the balance guaranteed by a surety bond (Exh. Respondent requested for reconsideration of this requirement (Exh. rendered the following judgment— "IN VIEW OF THE FOREGOING CONSIDERATION. the petitioner alleges that the Court of Tax Appeals erred (1) In exempting the respondent La Tondeña. 1955 (Exh. 5. On September 3. with respect to the balance of the assessment amounting to P153. Inc. by way of specific tax. respondent answered the demand letter dated May 8. 1955. Without pronouncement as to costs. 1954. within which to comply with the said Order. during the period from January 1. the Conference Staff gave the appeal due course (Exh. 1954. 592. manifest its refusal to reconsider the assessment and urged the respondent to pay within 3 days from receipt. the respondent appealed the decision to the Conference Staff in the same Bureau (Exh. JULY 31. I-11). which was denied on February 10. 1962 667 Collector of Internal Revenue vs. requiring it to comply with Department of Finance Order No. On August 2. La Tondeña. pursuant to Republic Act No. I-5 and 1-b). the respondent received a letter from the petitioner dated December 22.. and (2) In assuming jurisdiction over the case. 1954 (Exh. I-9). which communication was received by the respondent on August 31.15. 213. However. 1955 (Exh. In a letter dated August 26. presented an action with the respondent Court of Tax Appeals on March 18. I-f). The Tax Court on December 7. I-1a) on January 10. 668 668 . I-8). the La Tondeña. I- 15) dated February 17. 1954. 1954 (Exh. 1955. Inc. Not satisfied with the said rulings.On July 26. or until August 7. Before any hearing could be had in the Conference Staff. 1955. 1954. the amount of the assessment. 1955. the decision of respondent Collector of Internal Revenue. 1954. same having been received by respondent on March 16. 1951 and up to February 27. followed by a supplementary letter (Exh.95.990.

but only distilled spirits as finished products. of the same Tax Code which provides— "SEC. JULY 31." And if one would consider that the Tax Code does not 669 VOL. Removal of spirits or cigar under bond. —Spirits requiring rectification may be removed from the place of their manufacture to some other establishment for the purpose of rectification without the prepayment of the specific tax. molasses. or of some syrup of sap. 133. 5. . or be immediately or at any subsequent time transformed into any other substance either in process of original production or by any subsequent process. one peso and seventy centavos. or from the juice syrup. per proof liter. forty-five centavos. Inc. "the tax shall attach to this substance as soon as it is in existence as such" etc. 'Distilled spirits. including all dilutions or mixtures. was to subject to specific tax not all kinds of alcoholic substances.actually removed from the factory or bonded warehouse. hydrated oxide of ethyl. or sugar. and the. on January 1. 'This tax shall be proportionally increased for any strength of the spirits taxed over proof spirits. per proof liter. coconut. therefore.' as here used. Specific tax on distilled spirits. Up to December 31. La Tondeña. said section reads: "SEC.129. tax shall attach to this substance as soon as it is in existence as such. 1950. camote. or buri palm. 592 took effect. specific taxes as follows: '(a) If produced from sap of the nipa. provided the distiller removing such spirits and the rectifier receiving them shall file with the Collector of Internal Revenue their joint bond conditioned upon the future payment by the rectifier of the specific tax that may be due on any finished product. it is in harmony with section 129.SUPREME COURT REPORTS ANNOTATED Collector of Internal Revenue vs. '(b) If produced from any other material. La Tondeña. cassava. However. 1951. Republic Act No. amending section 133 and the clause underlined above had been eliminated. xxx.'" Pursuant to the above provision of law.—On distilled spirits there shall be collected. 1962 669 Collector of Internal Revenue vs. except as hereinafter provided. It appears that the specific taxes in question were assessed by the petitioner "in accordance with section 133 of the Tax Code". whether it be subsequently separated as pure or impure spirits. or spirits of wine. which are commonly produced by the fermentation and subsequent distillation of grain starch. includes all substances known as ethyl alcohol. The evident intention of the law maker in deleting the all embracing underlined clauses. or sugar of the cane. Inc. The said amendment could not mean anything else.

when R. therefore. 15. . 1951. 592). 1608 became a law. is reflected in former Senator Garcia's observation on the floor of the Senate. 1951. in Section 1 of this Bill now under consideration. when Rep. even if already distilled (as in the present case) or rectified. the tax on alcohol did not attack as soon as it was in existence as such.)" And on August 23. I have some serious objections to the provisions where all kinds of alcoholic substance which falls under the definition of proof spirits in the last paragraph of the same Section I of the proposed measure are taxable because this is one of those that I consider of deterrent effect to the industrialization of this country xxx (Senate Diario No. Act No. It should be pointed out also that said section 129 was amended by adding the following— "And provided. purifies or refines distilled spirits. like the respondent herein. The inference. 1956. purified or refined. until August 23. as amended by R. That in cases where alcohol has already been rectified either by original and continuous distillation or by redistillation is further rectified.A. who. further. Luzon Stev. Rep. Jan. is clear that from January 1.the specific tax should be based on the finished product. 1956. of Customs. And this must be so. a rectifier as a person who rectifies. Act No. Original 4th Special Session. 1443 (now Rep.A.prohibit further rectification or distillation and defines in section 194 thereof. from which no one has been benefited. v. 592. La Tondeña. In every case of doubt. 1608). Co. President. v. No. 6. Act No. 1608). of doubtful application. 809). is again rectified. the conclusion is logical that when alcohol. 7. will be made to pay the specific tax on the alcohol lost thru evaporation.A. No. took effect. 1608 was passed. R. tax statutes are construed most strongly against the government and in favor of the citizens. Trinidad. amending section 133 of the Tax Code. Coll. no loss for rectification and handling shall be allowed and the rectifier thereof shall pay the specific tax due on such losses" (Sec. 5. 803. and not on the evaporated alcohol. Rep. otherwise a great injustice would be caused upon a duly licensed rectifier. because burdens are not to be imposed beyond what the statutes expressly and 670 670 SUPREME COURT REPORTS ANNOTATED Collector of Internal Revenue vs. upon the recommendation of the Bureau of Internal Revenue itself. but on the finished product. during the discussion of House Bill No. Inc. Act Nc. No. based on the provision of laws then extant. etc. 43 Phil. Mr. 950. 592. 52 Phil. Italics supplied. when he proposed the elimination of the phrase "and the tax shall attach to this substance as soon as it is in existence as such. restoring the very same clause which was eliminated (Sec. clearly import (MRR Co." He said— X X X X X "That is why. The intention not to subject to specific tax all kinds of alcoholic substances but only distilled spirits as finished products.

were still subject to review by his Conference Staff.. 1958). should be counted from the denial of the motion for reconsideration because of the principle that all administrative remedies must be exhausted before recourse to the courts can be had against orders or . And when the Conference Staff finally refused to reconsider its ruling requiring respondent to deposit 1/2 of the amount of the tax in cash. 1954). We should presume that this injurious result was not intended by the Government. out of the period. 1955 (Exh. had suspended the period because it was a remedy prescribed by the petitioner him- 671 VOL. from said letter-assessment dated May 8. Rev.which obviously reveals that the purpose of the amendment is to tax. and thus allow the period of his appeal to lapse. may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling xxx. 1955. had elapsed. 1951 to February 27. as a mere administrative expediency. 1125 (Law creating the CTA). so as to cover the period in question (January 1. the second denial having been received by respondent only on March 16. the Collector of Customs xxx or any provincial or city Board of Assessment Appeals. 1954. only now. JULY 31. Suyoc Consolidated Mining Co.and payment of the balance guaranteed by a surety bond. 1954. This law certainly should not be given a retroactive effect. that the petitioner may or can be said to have rejected the administrative appeal and csgave finality to his letter of August 26. still We believe that the petition for review to the Tax Court was filed within the time. that the respondent Court of Tax Appeals had no jurisdiction over the case. The intra- office arrangement in the Bureau of Internal Revenue allowed a taxpayer to appeal from the ruling of the Collector to a Conference Staff of the same Bureau. Who may appeal. The appeal made on September 1. made available to the respondent (Collector of Int. only three (3) days in all. When the Conference Staff gave due course to the appeal on September 3. Inc. in further distillation or rectification. to the Conference Staff. La Tondeña." Conceding for the purpose of argument that the ruling appealable was the letter-assessment dated May 1. 1962 671 Collector of Internal Revenue vs. L-11527. self. 1954. Act No. 1954. it was then only. v. when respondent lodged its petition for review with the Tax Court on March 18. 25. 1954 (received by the respondent on May 28. (received by the respondent on August 31. 1956 that the government woke up from its lethargy and hastened to fill the hiatus. association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue. The period within which the review must be sought. We believe that petitioner did not create the Conference Staff and permitted a taxpayer to appeal to it from his ruling. 1954). as it is the case. which was reiterated in petitioner's letter of August 26. It is only after August 23. Nov. The second assignment of error is predicated upon the proposition. 5. which states— "SEC. because the petition for review was not filed within the 30- day period as provided by section 11 of Rep. 1954. effect of appeal—Any person. I-16). after the submission of two requests for reconsideration. the petitioner gave the impression that his letter-assessments of May 8 and August 26. This being the case. to delay the taxpayer from appealing to the Tax Court.11. alcohol lost. 1954). 1954.

Decision affirmed. then. Bautista Angelo. May 27.—As to the specific tax on distilled spirits. was that received by respondent on March 16. March 31. the appeal to the Tax Court was presented on time and the latter has jurisdiction to take cognizance of the case. Collector. see La Tondeña vs. Inc.R. the final appealable ruling of the petitioner. 29. Padilla. Lim Tian Teng. L-14875. Notes.. 672 672 SUPREME COURT REPORTS ANNOTATED People vs. Concepcion.. et al. 1962. etc. 1955. took no part. L-7752. 16 SCRA 584. All rights reserved. concur. v. et al. . only two (2) days had been consumed by the respondent of the statutory period.. No. Barrera. JJ. Sept. Labrador. Villanueva Bengzon. Dizon. G. See also annotation on computation of thirty-day period for appealing to the Tax Court under Republic vs. Hora. _____________ © Copyright 2017 Central Book Supply. If. L-21731. 1966. Regala and Makalintal. 596-599. 1955)... as it should be.decisions of administrative bodies (Sec. WHEREFORE. the decision appealed from is hereby affirmed. of Agriculture. In either case. C. J.J. without pronouncement as to costs.